COMMITTEE of PUBLIC ACCOUNTS debate -
Tuesday, 4 May 1999

Vol. 1 No. 4

1997 Annual Report of the Comptroller and Auditor General and Appropriation Accounts (Resumed).

Vote 10 - Office of Public Works.

Vote 46 - Flood Relief.

Mr. J. Meade (Secretary and Director of Audit at the Office of the Comptroller and Auditor General) called and examined.

Mr. B. Murphy(Chairman of the Office of Public Works) called and examined.

Chairman

We will deal with the 1997 Annual Report of the Comptroller and Auditor General and Appropriation Accounts (Resumed) Vote 10 - Office of Public Works and Vote 46 - Flood Relief. The examination is resumed for further discussion on a report by Price Waterhouse Coopers, which had not been finalised at the time of the previous examination on 25 November 1998. Relevant documentation has been circulated, including (1) correspondence dated 29 April 1999 from the Office of Public Works listing the consultancies engaged by the office, (2) Price Waterhouse Coopers - Office of Public Works Review of Instruction to Pay Procedures dated 11 January 1999, (3) Office of Public Works notices 1 of 1999, Financial Authorities and Procedures for Works, Supplies and Service Contracts and (4) transcripts of previous examinations of these Votes on 12 November 1998 and 25 November 1998.

Witnesses should be made aware they do not enjoy absolute privilege and should be appraised as follows. Attention is drawn to the fact that as and from 2 August 1998 section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act, 1997, grants certain rights to persons identified in the course of the committee's proceedings. These rights include the right to give evidence, to produce or send documents to the committee, to appear before the committee in person or through a representative, to make a written and oral submission, to request the committee to direct the attendance of witnesses and the production of documents and the right to cross examine witnesses. For the most part, these rights may be exercised with the consent of the committee.

I welcome the chairman of the Office of Public Works, Mr. Barry Murphy.

Mr. Murphy

I am accompanied by Mr. Joe Farrell, accountant at the Office of Public Works, Ms Clare McGrath, deputy accountant and head of the Kilkenny accounts branch and Mr. Tony Smith, who is in charge of the engineering section of the Office of Public Works.

Chairman

I also welcome Mr. Tomás O'Duinn and Mr. Bob Semple from Price Waterhouse Coopers and Mr. Thompson and Mr. Caden from the Department of Finance. Representing the Office of the Comptroller and Auditor General is Mr. John Meade, Secretary and Director of Audit. Will Mr. Meade refresh our memories and bring us up to date on paragraph 19? I propose to take paragraph 19 first, to revert to paragraph 18 and then take the accounts as a whole. We have already dealt with paragraphs 20 and 21.

Mr. Meade

Thank you. The Committee has, on two prior occasions, considered the new general payments system in operation in the Board of Works since mid-1997, which was the subject of critical comment in paragraphs 19 of the 1997 Report of the Comptroller and Auditor General. I will briefly recall the main points raised on previous occasions. The Office of Public Works introduced a new payments system in mid-1997 whereby the authorising and certification of payments was devolved to 247 authorising officers located all over Ireland. The instruction to pay document was used as the exclusive basis for payment as no supporting documents were received by the accounts branch from the authorising officers, as was the case previously.

As outlined in paragraph 19 of the report, an audit by my staff revealed a number of serious weaknesses in the systems of internal control following on the introduction of the new system. Following this audit, the Office of Public Works engaged Price Waterhouse Coopers to assess overall controls. At the last meeting, the committee discussed the draft report of Price Waterhouse Coopers, which indicated that controls needed to be revised and underpinned the concerns my office had with the system. Its final report was completed in January 1999.

I should add that following the comments made in the report of the Comptroller and Auditor General, the various discussions at previous hearings and the Price Waterhouse Coopers report, the Accounting Officer has, from January 1999, issued revised guidelines and instructions and, from my reading of them, has taken on board the recommendations made by my office and by Price Waterhouse Coopers. I intend to review the operation of these revised controls during my 1999 audit, but if the instructions are operated as outlined, many of the concerns should be allayed.

It is only fair to say that with the decentralisation of the accounts branch to Kilkenny and a new staff in the board, certain teething problems were bound to arise. The Accounting Officer was also effecting a major change in overall payment procedures and responsibilities, and change at any time can create its own problems. Despite these circumstances and noting that the overall weaknesses are now being resolved, I would like to make a general comment which would apply to all Departments and offices, namely, that any new system for payments has to be fully and properly thought out before it is implemented, as piecemeal implementation can lead to a risk of overpayment, duplicate payment or, indeed, an irregular payment.

Mr. Murphy

To reiterate what I said the last day, the general payments system is an instruction to pay system. It is part of the general overhaul of Office of Public Works systems and the greater commercialisation of the board. It has been done as part of our strategic management initiative and is part of a carefully thought out strategy for the board. I have a slight difficulty with the notion that what we are doing is as a result of criticism. We are doing this because we started to do so for particularly good strategic reasons. On the last day, I said the reorganisation of the accounts and various other elements in the board was a three to five year job. We are about two years into that job, so there is some way to go. There is an implication that the system and strategy was not fully thought out; it certainly was. The changes in practice and the changes in our procedures are quite complex. Only as we go along will we see whether or not the various elements are the best ones for us. We must keep ourselves flexible to a certain extent in that regard.

It is true that over the past year we have made changes and over the past few months we have made more, partly feeding off the Price Waterhouse Coopers report. The reason we commissioned the Price Waterhouse Coopers report and we will commission further similar reports is we must have a third party verify, check and tighten up the new procedures we are introducing. We do not claim to have the last word on it and we need somebody to keep us on the straight and narrow. For the past year we have been using Price Waterhouse Coopers and our next consultants will be chosen in the normal competitive way.

Since we last met here we issued the new office notice within the Office of Public Works, copies of which have been given to the Committee. This was issued in February. It is now the main basis for accounting practice.

The issues are very detailed. The principle of the separation of duties has been reinforced. The review of expenditure within division by the head of divisions has been brought to notice. We are going along with the private sector practice of having a board member sign for instructions to pay on contracts over £250,000.

We are trying to do what the consultants recommended on the question of multiple invoices on an instruction to pay form. That is not quite so simple in practice. We will be making changes in our practice from the consultants' view of it and, indeed, from our own first attempt at this.

We have changed our list of authorised officers to reduce their number, again in line with private sector practice. We used to have 247 people who could sign cheques. Now the number is down to almost 200 and we will reduce it further. We have a register of signatures in the accounts branch which is maintained day to day.

We have started work on the financial management system which will be the computer-based system which will underlie all of the Office of Public Works's accounts work, but the introduction of that financial management system is, in itself, a three year job. We have introduced a duplicate payments checking system.

For management reasons we have also introduced a system of compliance testing which allows us to make sure that the procedures set out in 1/99 are actually being followed.

Chairman, from the length of my summary the committee will get some idea of the magnitude and complexity of the job of putting in place a modern system.

Chairman

Mr. Murphy, you seem to resent the fact that there has been criticism of the Office of Public Works. In my opinion, the criticism is more than well placed. The Committee's difficulty is that when shortcomings are highlighted to other accounting officers, they, unlike you, accept criticism. I have difficulty coming to terms with the fact that you do not recognise that the criticisms were valid. I can go through all of this yet again to highlight the errors which have been spotted, not internally but by the Comptroller and Auditor General. Having said that, I am happy that at last we are getting movement in the direction which is acceptable to the Committee and to the Comptroller and Auditor General.

Price Waterhouse Coopers recommended changes. Will Mr. O'Duinn summarise those changes for the Committee?

Mr. O’Duinn

Our report made recommendations for changes in a large number of areas. As the Chairman of the Office of Public Works stated, Office of Public Works has implemented many of those changes and is in the process of implementing others. In undertaking the work, we reviewed all aspects, from the organisation of the payments function, through the detailed procedures to the management controls which are effected after payments are made.

We commented on the whole system. As the Chairman of the Office of Public Works stated, some of our recommendations could have been implemented quite easily and they have been, but others will take quite some time to implementfully.

Deputy Durkan

With regard to the changes and the new system to which the accounting officer referred in particular, is that the new system which has been in operation and in which in the first six months there have been still some irregularities?

Mr. Murphy

No. There are two separate things. There is the question of irregularities with which we will deal separately. This is simply the general payments system.

Deputy Durkan

Yes. That is what I am talking about. In the first six months of operation of the new system 11 duplicate payments had been made with a total value of £17,639, one overpayment of £7,000 was made and one payment of £159 was paid to an incorrect supplier.

Mr. Murphy

We are now looking back at 1997. We have made changes throughout 1998. In 1999, to my knowledge there has been one duplicate payment.

Deputy Durkan

Was that under the new system?

Mr. Murphy

Yes.

Deputy Durkan

Has the Office of Public Works investigated how one duplicate payment could get by given the Price Waterhouse Coopers recommendations? How could that have happened given the previous history? One would have assumed that the Office of Public Works would have been extra careful in view of what had happened previously. Why did that happen given the changes?

Mr. Murphy

One must look at the flow of payments through the Office of Public Works. There are 28,000 payments per annum. There will always be human error, as I mentioned when I last attended the Committee.

In the particular case to which the Deputy refers, I would have to find out but I would guess that what causes the problem is that an invoice is not crossed out as having been paid and gets through the system twice. That is the most likely reason.

Deputy Durkan

Should the duplicate payments checking system which is now in operation screen any possible irregularities, overpayments, etc.?

Mr. Murphy

Yes.

Deputy Durkan

Did it do so with one exception?

Mr. Murphy

I should have qualified that. It is our system which picked up that one duplicate payment. It did not issue. In other words, the system is picking up the payments.

Deputy Durkan

Mr. Murphy said that the Office of Public Works was trying to do what the consultants recommended and that is not easy because of the high volume of payments and transactions within the Office of Public Works. Why would that be necessarily so? After all, many corporations make at least as many transactions. What is the difficulty which is unique to the Office of Public Works and does not apply to other Departments, such as the Department of Social, Community and Family Affairs which would process £1.5 million transactions per week?

Mr. Murphy

I am sure that the Department of Social, Community and Family Affairs does its job well but its transactions are all similar whereas the Office of Public Works's transactions are all quite different. The difficulty is that the problem which was shown to us and which we understood was that, by putting a number of payments on to one instruction to pay form, one lost sight of the checking process for duplicate payments.

The solution suggested by Price Waterhouse Coopers, and the one we adopted, was to ensure there was only one instruction to pay for each invoice or claim for payment. However, this gave to rise to so much work that, on a purely cost benefit basis, it was not worthwhile. Instead we are approaching the suppliers - one supplier often sends in a number of invoices for different services - and asking them to submit invoices that are more aggregated. We have other systems in place which our internal audit section is investigating to ensure they are of equal value to the recommendations put forward by Price Waterhouse Coopers.

Deputy Durkan

If someone supplies goods on a weekly or monthly basis, in what way do they receive payment? Is their payment accompanied by an itemised account of the invoices received in respect of each transaction or is there an overall figure in respect of which payment is made and which might be difficult to trace?

Mr. Murphy

No. The actual check includes the identifications required for the invoice that has been submitted.

Deputy Durkan

In every case?

Mr. Murphy

Yes.

Deputy Durkan

Therefore, the multiplicity of transactions is covered by the invoice and, ultimately, the cheque?

Mr. Murphy

Yes.

Deputy Durkan

Does Mr. Murphy believe that what happened previously is unlikely to occur again?

Mr. Murphy

I am as confident as I can be in that regard. I must point out that glitches could also occur in a private sector payment system of that size. However, I am absolutely confident that the system we have put in place will keep the number to a reasonable and sustainable level. I hope it can be reduced to zero.

Deputy Durkan

Mr. Murphy stated that, in the past, 247 people were empowered to sign cheques and authorise payments. However, that number has been reduced to 200. What would be the optimum number of such people in a similar organisation in the private or public sectors?

Mr. Murphy

Those people are actually allowed to issue authorisation for payment rather than sign cheques. Cheques are issued by the accounts branch.

Deputy Durkan

Ultimately, however, it effectively involves the authorisation of cheques?

Mr. Murphy

Yes. Effectively, it starts the payment process. I cannot state what would be the optimum number. The reason the number is so high is that we operate at 40 to 50 locations throughout the country. In other words, we have local district offices, regional offices, arterial drainage units etc. Our resources are spread across a wide area and many units are obliged to spend money or authorise payments on a local basis.

Deputy Durkan

Do officials serve continuously in positions of authority? In other words, are changes in personnel made or spot checks carried out to ensure that there is no recurrence of the difficulties which arose previously? For example, if the same person is authorising payments for two to three years or even two to three months, it would be good policy to alter that system in order to remedy any difficulties which might arise or remove any tendency to encourage such difficulties.

Mr. Murphy

There are two answers to that. First, we try to move our staff around from place to place to encourage career development and for other reasons. The second point involves the mainstay of the action we have taken, namely, that no authorisation can be issued without two signatures. In other words, a check has been put in place on the person authorising payment in each case.

Deputy Durkan

Did the authorisation detected by the accounts branch carry two signatures?

Mr. Murphy

Yes. However, it was picked up by the software which has been put in place in the accounts branch to identify an identical payment which shows up a second time.

Deputy Durkan

The other checks and balances that were put in place did not pick it up.

Mr. Murphy

No.

Deputy Durkan

Why?

Mr. Murphy

Imagine a person with ten invoices on their desk on a Friday evening in respect of which they are obliged to fill out an instruction to pay for each. On each of the first nine they cross off the invoice and write on it "sent to accounts branch". However, on reaching the tenth instruction to pay at 5.15 p.m. they fill out the instruction to pay but do not cross off the invoice. When they return to work on the following Monday they are confronted with an invoice without a sign-off on it. They could fill out another ITP at that point but they should not. However, it can happen.

Deputy Durkan

Mr. Murphy referred earlier to the system of rotating staff to ensure transparency, etc. Is it correct that this system has always been in operation?

Mr. Murphy

Yes.

Deputy Durkan

Why did it fail to work previously?

Mr. Murphy

There is no single action we can take in order to make the accounts system perfect. There are many different elements, of which that is only one. However, it is an important element.

Deputy Durkan

I appreciate the changes that have been implemented and the recommendations made by Price Waterhouse. However, I am somewhat concerned that the system that operated previously was found to be less than foolproof. The system that was subsequently put in place has already tracked an improper authorisation. However, despite the fact that staff were rotated, problems still developed. I cannot understand how the Office of Public Works can insulate itself from a recurrence of that type of problem, given that those features were previously in place and that nothing new can be done other than reducing the number of people who are empowered to authorise the payment of cheques.

Mr. Murphy

The system is entirely new, it is not a variation of the system that was previously in place. The new system has been in operation since 1996 and we are continuing to try to perfect it. The balances and checks we have introduced are subject to continual testing. The Price Waterhouse Coopers report is merely the first step, further action will be taken until we are satisfied with the system. At the same time, we will be moving towards introducing a computerised system. However, it will take a number of years to put this in place.

It must be remembered that this matter involves a human element. Given the volume of transactions, etc. which pass through the office, that will always be an issue. However, we will do everything we can to ensure that our systems reduce its impact.

Deputy Durkan

Mr. Murphy also referred to the number of people who have valid reasons for authorising the payment of cheques because of the wide variety of enterprises throughout the country in respect of which the Office of Public Works has responsibility. Am I correct in assuming that the first person to vet an invoice is the senior officer in control of a project?

Mr. Murphy

It varies. In most cases I would guess it is the person who receives the service or takes possession of the item that has been bought.

Deputy Durkan

Is it correct that the person involved then issues a recommendation or direction to authorise payment?

Mr. Murphy

There are various other checks which must be gone through. I can describe the different stages, which are quite complex and vary from area to area. First, certification is required to show that the item or service paid for has been received by the office.

Deputy Durkan

That is done by the person to whom I referred?

Mr. Murphy

Yes. That person will then require the invoice to be paid for within the terms of the Prompt Payments Act. He or she will fill out an ITP and it must be countersigned by a person in authority who is not connected with them.

Deputy Durkan

Is the invoice numbered for tracking purposes?

Mr. Murphy

There is a number on the invoice and, since the last occasion on which I addressed the committee, each instruction to pay is also numbered, thereby enabling them to be tracked through the office.

Deputy Durkan

Therefore, possible duplication should come to light almost immediately because of the code and number listed on each contract?

Mr. Murphy

Yes, it should show up. It is on the basis of the instruction to pay form having that coded information that we can pick it up later.

Deputy Durkan

At what stage should it show up? Should it show up at the moment of the authorisation to pay or at a later stage within the system? The authorisation to pay is the key position. The person has received a service and agreed the moneys are due on foot of service or goods delivered. Arising from that, the question must arise as to whether or not it is possible at that stage to catch whatever might possibly go wrong so as not to embarrass the organisation further down the line.

Mr. Murphy

There are various stages at which the duplicate payment could be picked up. Initially, when the second signature goes on the instruction to pay, a glance at the actual invoice should show whether or not it has been stamped as sent to the accounts branch. There are later systems which will pick this up. The latest point is when the bank lists have been printed out. There is a software programme within the system that identifies identical payments. They are then checked.

Deputy Durkan

What about the printing of the bank lists? Are they printed by the bank?

Mr. Murphy

No, we print out the bank list. It goes from the Office of Public Works to the bank.

Deputy Durkan

That is before payment?

Mr. Murphy

Yes.

Deputy Durkan

I am still not happy about what happens at the initial authorisation. A duplication arose which was eventually tracked by technology. I cannot understand how it was not obvious before that as the only person or persons likely to know of the irregularity is the person or persons who authorised the payment on foot of specified works or goods supplied. Is that true?

Mr. Murphy

I have simplified the system. The number of payments made simply on the basis of an invoice coming in and an ITP going down to Kilkenny would be relatively small as all the payments are usually part of something larger, such as a building project. They are then checked on file for previous payments. They are checked to see whether they correspond with the project that is involved and to see whether the running total for the project is correct and not being bust. A number of people see the invoice and the instruction to pay before it even leaves the section. The only way I can describe it is that in most cases there is a cascade of people seeing the payment on its way through, before it reaches Kilkenny.

Deputy Durkan

Two hundred people have authorisation entitlements and the original authorisation to pay originates with them. In the event of a difficulty the simplest means of detecting a mistake would be at that level, because they are the people who deal directly with the supplier, customer or whoever. They are accountable. Even though the number of people qualified to authorise payments has been reduced, I wonder whether it will be possible to resolve the outstanding difficulties in the system, notwithstanding the recommendations of Price Waterhouse Coopers.

Mr. Murphy

The principal element at that point is that none of the 200 people act alone. The key to the new system is that in all cases the instruction to pay must be countersigned. That is the checking mechanism we have.

Deputy Durkan

Countersigned by one of the 200?

Mr. Murphy

They could be one of the 200 but it would be someone not associated directly with that payment.

Deputy Durkan

Have authorisations been examined to check particular patterns in countersigning? If there is the possibility of an irregularity or weakness in the system, it is only as good as its weakest point. Would a pattern of particular people countersigning authorisations over a period of time have been detected or is there a system to pick that up in order to alleviate the possibilities?

Mr. Murphy

Yes, we have systems compliance testing in place since last November. On top of the double signatures required for the instruction to pay forms we now have a system whereby there is sampling of all the instruction to pay forms to ensure the eradication of the possibility of double payments. I cannot say whether there are any patterns yet, but the system is only in place four months. There are patterns and the main issue is that the systems compliance testing will remind staff of the need to comply at all stages with all aspects of the ITP.

Deputy C. Lenihan

Mr. Murphy said there are 26,000 ITP payments a year.

Mr. Murphy

There are 28,000.

Deputy C. Lenihan

Is that all the transactions and payments which would issue from the Office of Public Works?

Mr. Murphy

No, they are only the ITP ones. Payroll and rent payments are in addition to that.

Deputy C. Lenihan

What percentage of ITP are overpayments or duplicate ones?

Mr. Murphy

There were none this year so the percentage is zero.

Deputy C. Lenihan

The system is working. What was the percentage before the new system was put in place?

Mr. Murphy

There were 11 duplicate payments from a total of 28,000.

Deputy C. Lenihan

Was that under the old system?

Mr. Murphy

No, under the first phase of the new system.

Deputy. C. Lenihan

What about the figure under the old system?

Mr. Murphy

I would say no-one knew, which is the same for most Government Departments. We did not keep statistics of that kind.

Deputy C. Lenihan

The position seems positive now and compares well with the private sector. What is the view of Price Waterhouse Coopers on the number of errors in payments?

Mr. Semple

The detection of only 11 problems out of 28,000 would be regarded by most senior managers as an eminently satisfactory percentage.

Deputy C. Lenihan

Is there an average for error?

Mr. Semple

If there is, it has not been brought to my attention.

Deputy C. Lenihan

What is the acceptable threshold of error in payment systems in the private sector?

Mr. Semple

Unfortunately, I do not have a book which gives a simple formula. In practice what tends to happen is that the control framework that is put in place is a combination of different elements. There is a preventive element to stop it happening in the first place, which is why there are counter signatures etc. There is a detective element, such as the programming software which has been put in place, which spots an error if it has crept through. There is then an overall control element, for example a quality control process or a comparison against budget. The intention of senior management operating large systems in the private sector is that through a combination of these different elements they would reduce it to an acceptably low percentage. Rarely would one see it eliminated completely.

Deputy C. Lenihan

What is an acceptably low percentage?

Mr. Semple

In materiality terms it would be expressed in percentage points, either by volume or more particularly by value. If, for example, the value of payments subject to duplicate payment went over a few percentage points, management would want to know what was happening. They would seek to recover the duplicate payment so there is no net loss.

Mr. Murphy

No, net loss is very important. From my knowledge of all duplicate payments, there may only be one we have not managed to recoup to ourselves. All others have come back so the net loss is infinitesimal. The total duplicate payments in 1997 was £17,000 and that is out of a turnover of £250 million in the Office of Public Works.

Chairman

That does not include, for instance, your duplicate payment of £552,000 to the Revenue Commissioners which you did not detect.

Mr. Murphy

That is not on the instruction to pay——

Chairman

No, but it is part of your budget of £250 million.

Mr. Murphy

It would be part of that. That is true.

Chairman

In terms of the total, all errors must be taken into account under all headings.

Mr. Murphy

That item was an error but was discovered between ourselves and Revenue. There is no public sector loss and it did not go outside the system. As someone mentioned the last day, we did better than most in that we paid more tax than required.

Deputy C. Lenihan

You were super-compliant taxpayers.

Chairman

The chairman may think it is facetious but I take a serious view of it. It shows an enormous lapse that you can pay £552,143 twice and not notice. It was not detected by the Office of Public Works's internal controls. That is the reality and the payment could have been made to anyone.

Mr. Murphy

The payroll deductions and our dealings with Revenue have been brought up to date and we deal with Revenue on a much more day-to-day basis. There are no outstanding issues between us and them.

Deputy C. Lenihan

I notice you are trying hard to comply with the Prompt Payment of Accounts Act. How is that trickling down within your Department? How is it working? Within what time is a supplier required to be paid? It is an issue for small suppliers which periodically arises in my constituency.

Mr. Murphy

The Prompt Payment of Accounts Act requires payment within 45 days unless there is a contract which states differently. The project contract form, the GDLA form, has a 15 day payment period.

Deputy C. Lenihan

What is that for?

Mr. Murphy

It is for building and construction work.

Deputy C. Lenihan

Is it limited to 15 days?

Mr. Murphy

Within the terms of the actual contract we must pay within 15 days.

Deputy C. Lenihan

What is the average for the remainder of payments? Do you collect averages?

Mr. Murphy

Yes, we do, but I will have to find that information for the Deputy.

Deputy C. Lenihan

I would like a note on it because it is something in which I am interested. Given the complexity of your Department and the fact it is spread far and wide, it would be interesting as a source of information on how the Act is working within the Civil Service.

Mr. Murphy

Before the Act was brought in, a survey was conducted of payment levels within the public service generally and we came in the top few in terms of speed of payment. This is mainly because we are driven by the contracts we sign which compel us to pay.

Deputy C. Lenihan

There are performance clauses in the contracts. Regarding the tax clearance certificate, there seemed to be one case which fell through the system. I note from the report - I think it was Price Waterhouse - that there was one contract worth £5,000 where the tax clearance certificate was not sought. What is the procedure? Do you demand to see the certificate first or was it the case in this situation that the contract was an aggregate of small contracts which amounted to over £5,000, which meant the tax clearance certificate was sought later rather than earlier? I fail to understand how, if a tax clearance certificate is a minimum threshold for a contract with the State, you can have even one slipping through the system.

Mr. Murphy

I am not sure of that specific case. I would have to examine it. The procedure is, if there are a number of small payments to an individual, the £5,000 threshold does not click in until it is crossed. For anything else, we normally would not pay. In fact, we simply do not pay without a tax clearance certificate. I would need to check how it arose in the case the Deputy mentioned.

Deputy C. Lenihan

It is not of major interest. You can come back to me on it. Do you have a procedure whereby contractors who may exceed the threshold in terms of their contract values are warned in advance? Can you establish it as a practice that they are warned in advance that compliance will be necessary if they are to continue to work for you?

Mr. Murphy

Yes, we have such a system and we bring the tax clearance certificate to notice at an early stage in all our contracts.

Deputy C. Lenihan

I do not know, Chairman, if I am in order to delve into wider issues affecting the Office of Public Works at this stage. I need your advice on that.

Chairman

I will allow it.

Deputy C. Lenihan

The wider issue is property assets. I am dumbstruck with admiration for the amount of property you have managed to accumulate. Is that figure of £987 million correct?

Mr. Murphy

It is right, but when I say that, I mean it is wrong. It is compiled on a certain basis. That asset total is made on the basis of a replacement cost assumption.

Deputy C. Lenihan

A current or book value?

Mr. Murphy

Yes. In current circumstances, I am not happy that that is the correct methodology and I intend before the end of the year that the basis for that assessment will be examined and something more realistic made out. For example, a 50,000 sq. ft. building on the basis we use costs about £5 million to replace, but if rented around St. Stephen's Green, that same building would have a £15 million market value. The question is what should we use, the replacement value of £5 million which gives a £1 billion asset register figure, or the £15 million which gives £3 billion. That in simple terms is the type of dilemma we have. How should we value our assets?

Deputy C. Lenihan

You will definitely review that?

Mr. Murphy

We will examine that.

Deputy C. Lenihan

Has that prompted you to a certain extent? Is there a Government policy now of disposing of property? You would be one such Department, not unlike CIE and other organisations, which has property in high street locations on its books. Have you conducted a survey of your property taking into account the shortage of available land for development and the possibility you have for disposal?

Mr. Murphy

Yes, we recently conducted an intensive survey of land. You may have seen the newspaper advertisements recently for the Department of Arts, Heritage, Gaeltacht and the Islands headquarters on the old Garda pound site. That site was released as usable land for office development as a result of our most recent survey of possibilities of using State land. We have about a half dozen other sites.

Deputy C. Lenihan

Releasing land obviously has a cash back aspect for the State at the time of the property boom. However, there is also a societal purpose in that available housing is brought back into commission which previously may have been out of commission. What do you estimate - I am not talking about an exact figure - is the value of the land you could put back into commission for housing?

Mr. Murphy

The type of sites we have are very good for office development but are not large enough for housing developments. The site I mentioned, the Parkgate Street site, would not have been suitable for housing under any circumstances. The type of site we have is one or two acres. It is valuable for an office development but not really usable for a housing development.

Deputy C. Lenihan

Have you any target figure for this year for the money you want to realise for the State in terms of assets and disposals of land?

Mr. Murphy

That is a more complicated question because what we would look to do is build and maybe substitute the buildings we put up for rented accommodation elsewhere. It is not a simple case of either selling the land or using it for new requirements. It is part of an overall portfolio management function we have. It is not a simple case of either selling the land off or using it for new requirements. It is part of an overall portfolio management function we have but we will get the best value at the end of the day through a combination of building, releasing space and so on.

Deputy C. Lenihan

You must have some figure for disposals?

Mr. Murphy

They vary. We would not intend disposing now of the few sites we have, as we have plans for them. They are longish term plans. They would generate savings - whatever we do with them - elsewhere in the portfolio. I am reminded that my first job in the Office of Public Works was to do the large disposal programme in 1990 when we disposed of one million square feet and the value at that stage was £50 million, if my memory serves.

Deputy C. Lenihan

So there are no further disposals of huge——

Mr. Murphy

No. The actual demands on office space are quite remarkable. We would normally wish to carry a small surplus to respond to tribunals or whatever but we have no surplus at the moment. Every square inch is being used and there are daily demands. This is mainly due to "agentisation", if I can use that word, of Civil Service functions. The regulators and other bodies being shaved off Departments all require their own accommodation and that is giving rise to a tremendous demand for space.

Deputy Rabbitte

Does Mr. Murphy think that he is likely to get political approval for the building projects he may be contemplating for sites that are available?

Mr. Murphy

The simple answer to that is that all our building projects require Government approval. They all go before Government so we do not have any freedom to carry out developments of any kind on our own behalf. We will be recommending these to Government.

Deputy Rabbitte

If it involved ceding leased properties and going into properties owned by the State through the Office of Public Works, does Mr. Murphy think that would be likely to meet approval?

Mr. Murphy

Not only that, the very policy that the Government has now is to own more and we have been buying accommodation by buying out leases.

Deputy Rabbitte

What is roughly on the books in terms of leases? Are there many major buildings? Is this building one of them?

Mr. Murphy

We own this building. As far as I know we bought it from the British Rail pension fund in the 1970s for £2.5 million. My memory may not be exact but I think that is what we did. It was an extraordinarily good buy at that stage. We have 110 leases around Dublin city alone. We have four million square feet leased.

Deputy Rabbitte

Against how many million square feet owned?

Mr. Murphy

We own seven million square feet. Even since we made out this brief that has changed because we bought premises at the end of last year.

Deputy Rabbitte

I was going to ask if major office blocks had been bought back in the last couple of years.

Mr. Murphy

Yes. I think our owned stock has gone from approximately 55 per cent to approximately just over 60 per cent.

Deputy Rabbitte

Is that because it was in the terms of the contract or because it was a policy decision to acquire some leased buildings?

Mr. Murphy

No. One thing we do in the management of the property portfolio is keep an eye on where the best value lies, so we will always be looking at property to purchase. If a property is a reasonable one and there is a reasonable expectation that we will be in it for some time, we would certainly be in the market to buy that property. It makes sense.

Deputy Rabbitte

Do we have some manifestly poor quality office stock on hand? Does any building leap to mind which is less than the envy of civil servants in other Departments?

Mr. Murphy

There is a short answer to that because the building is so large and so obvious——

Deputy Rabbitte

Is that the only one?

Mr. Murphy

That is the only one. There may be one in Cork and one in Waterford that we are not particularly proud of but generally speaking we have been spending a sizable annual amount on the upgrading of offices. Members can see it around the hall and offices of this building. That has been happening throughout the stock of buildings we have. We have a reasonably high standard. We are not aiming for an International Financial Services Centre style of finish but something that is reasonable and good value for the taxpayers' money.

Deputy Rabbitte

What about the efficacy of the centralisation theme that runs through the Office of Public Works? Regarding maintenance and upkeep, is it most efficient to concentrate everything in a centralised body rather than in individual Departments? When was that last reviewed? What is Mr. Murphy's view? I have never asked a senior civil servant about anything that involved diminishing their particular fiefdom to which they answered, "Yes, that is a jolly good idea and we support it".

Mr. Murphy

I am not going to change that now.

Deputy Rabbitte

I assume a certain resistance in terms of turf wars but there are surely objective criteria.

Mr. Murphy

There are.

Deputy Rabbitte

I had experience of trying to find a man to put a nail in a wall to hang a picture and that stuck with me.

Mr. Murphy

The Deputy is correct. My view and drive would be to have Departments and agencies looking after far more of their own domestic arrangements - the nail in the wall and window to be replaced. At the moment we are subject to Department of Finance sanctions and works of over £50,000 come to the Office of Public Works. However, we are pressing - this is not to lobby the Department of Finance while we are here - for a limit of approximately £250,000, though that varies depending on the size of the Department involved. While the present rules allow Departments to do their own work under £50,000, most choose to come to us. We have done a survey on that.

On the general matter of centralisation, that has been reviewed in the past year. It is not our study but that of the SMI central policy unit and it confirms the centralised role of the Office of Public Works subject to this expansion of Departments' powers for local domestic items. I would circulate the survey but we need to get the permission of the SMI.

Deputy Rabbitte

Is there any recent cost benefit analysis in the Department on the wisdom of us persisting with these services concentrated or centralised?

Mr. Thompson

The Deputy will have heard that there was a review last year. I do not know if one could call it a cost-benefit analysis in a formal sense, but the whole question of centralisation versus delegation was looked into. The arguments were gone over at length. It was recommended that the maintenance work should be further delegated - more of it should be the responsibility of individual Departments. We in the Department of Finance are happy with the recommendation. We are simply getting on with the practical business of putting that into practice.

Obviously we need to make arrangements with Departments that would have the additional responsibility placed on them. We need to make changes in the administrative budget to reflect that and so on. That process is in train. That was decided only last year. The recommendation was that there should be further delegation and less centralisation on the maintenance side.

Some further work is taking place in Office of Public Works in connection with exactly how maintenance is organised. The Deputy can take it that the whole question has been actively studied in recent times. There are recommendations which we are moving to put into practice.

Deputy Rabbitte

All that means the Department is contemplating raising the ceiling and will advise Mr. Murphy about that.

Mr. Thompson

No, we have very specific recommendations which we intend to put into practice.

Deputy Rabbitte

Would Mr. Murphy send the committee a note about the location and identity of the leasehold properties or properties rented in any fashion, when the leases expire and so on?

Mr. Murphy

There is no problem with that. We will do that immediately

Deputy Rabbitte

I thank Mr. Murphy.

Chairman

It would be great if we could have that within a month.

Deputy C. Lenihan

I am intrigued by the management of assets and prime locations such as Dublin Castle and the Royal Hospital, Kilmainham. Extensive public money was spent on refurbishing these buildings and there was a lot of controversy and media nonsense at the time criticising it. Are these paying propositions? Have they become so commercial in terms of leasing out to private interests that they are producing returns?

Mr. Murphy

Dublin Castle is the prime example. One would not think of it as being highly commercial. It brings in an annual profit of about £200,000 on a turnover of about £2 million. Our annual report for 1998 was published a fortnight ago and I hope members have copies. The accounts for Dublin Castle are in that report. One can see the kind of commerciality involved.

Deputy C. Lenihan

Does the same apply to the Royal Hospital? Obviously, it is not as attractive a venue.

Mr. Murphy

That is managed by the Department of Arts, Heritage, Gaeltacht and the Islands. The Deputy is correct in that it still operates through a company which is required to earn some income from the activities there. The fact that the Royal Hospital is in a company format is a real example for Dublin Castle. I would be seeking a change in the way we manage Dublin Castle. I hope the rock concerts were not too loud over the last three nights. We had 15,000 people at various groups there since last Saturday. The castle is being used to its utmost. It is a public resource and people should be using it. It also makes money and that is the key.

Deputy Rabbitte

Is a commercial rent received for the alternative drama that has been running there for some time?

Mr. Murphy

Absolutely, yes. We get commercial rent for certain aspects of it. During previous tribunals we charged the Department running the tribunal a full rent. On this occasion it is a notional rent. It goes into our books as an alternative venue rent.

Deputy C. Lenihan

I do not know whether to blame Gay Byrne, but there was an outcry at the time Dublin Castle was refurbished. What was the cost at that time? Was it £17 million or £18 million?

Mr. Murphy

It was around the £17 million mark. It has been undergoing refurbishment since 1964 right through to now. We would regard ourselves as having pretty well finished the cycle. The cost of the total cycle would be in the £50 million bracket.

Chairman

In today's money?

Mr. Murphy

No. I am just thinking of the various prices.

Chairman

In current prices.

Deputy C. Lenihan

The total sum cost.

Chairman

In today's prices, one is talking about, perhaps, £150 million.

Mr. Murphy

One could well be. One would have to look at when the projects were done.

Deputy C. Lenihan

The investment is now paying its way. It is not just showing a profit year on year but it is——

Chairman

Operationally, it is.

Mr. Murphy

Operationally, it is paying its way.

Deputy C. Lenihan

Has there been a year in which it paid for itself?

Mr. Murphy

Apart from the commercial end of things which pays its way, we have the Comptroller and Auditor General in fine offices there. We also have the Revenue Commissioners, the Garda drugs squad, the Garda traffic people and so on.

Chairman

Does Mr. Meade want to say something further on the question of the paragraph?

Mr. Meade

I fully recognise what the chairman is implementing in the Office of Public Works and I would be ad idem with him. It is part of a process, but the original part had certain weaknesses which were recognised by my office and by Price Waterhouse Coopers. New procedures being put in place will help it. Any major change to a payments system has to be well thought out and controls put in place. If they are not, irregular, duplicate or various control weaknesses can arise. Those have been corrected with the new office instruction. While one duplicate payment got through, a human error will always arise. The system now in place is much better than the one when we carried out the audit.

Chairman

I am glad there has been improvement but the paragraphs in respect of the accounts highlight that there were serious shortcomings in the systems in the Office of Public Works and in the manner in which they were managed. I welcome the fact that, in his next report to the Dáil, the Comptroller and Auditor General will report on how the new procedures have been implemented.

Is the split between the Office of Public Works and the Department of Arts, Heritage, Gaeltacht and the Islands giving rise to problems?

Mr. Murphy

None whatsoever on our side. None.

Chairman

I did not ask about your side. What are the different roles of the Office of Public Works and the Department?

Mr. Murphy

Like any Department, I regard the Department's role as one of managing a series of various operations, including Dúchas - the heritage service - and so on. Our interaction with the Department is to do work for it. Castletown House is a building on whichwe have just completed a major restoration. We are working for it on Kilkenny Castle, for instance. There must be 20 or 30 other projects on which we are carrying out work for the Department as its agent, as we would for any Department.

Chairman

These are things which would previously have been done directly by yourselves.

Mr. Murphy

There are two aspects to it. The Department would decide, for instance in the case of Castletown House, that refurbishment was the correct policy. It would have us as its agent to do the work. It then takes back the building and manages it. All of that was previously done in one unit in the Office of Public Works. The separation is between management and the creation of the assets. We are in the creating end.

Chairman

What about the National Museum? Is there still spare capacity at Collins Barracks?

Mr. Murphy

I do not think so. In fact, I am sure not. We have a list of additional project requirements at Collins Barracks amounting to approximately an additional £17 million.

Chairman

Is space available to provide those?

Mr. Murphy

Yes.

Chairman

What stage are the plans at?

Mr. Murphy

Approximately four or five different packages of work have been identified. Briefs have been obtained; two of the projects are ongoing and one major one is at an early briefing stage; it is called Phase 2.

Chairman

Does any of this involve the relocation of the existing museum from Kildare or Merrion Streets?

Mr. Murphy

We have not yet been given any instructions on that.

Chairman

Is it being discussed or considered?

Mr. Murphy

Not by us and certainly not by the Department of Arts, Heritage, Gaeltacht and the Islands.

Chairman

But there would be space at Collins Barracks if such a decision were made?

Mr. Murphy

That would be a matter for the Minister for Arts, Heritage, Gaeltacht and the Islands.

Chairman

Is there space for such a move if it should arise?

Mr. Murphy

The actual brief we have been given outlining requirements will fill up the entire Collins Barracks space.

Chairman

And that does not include any relocation?

Mr. Murphy

It does not.

Deputy Durkan

Did the Office of Public Works carry out work in the 1798 commemorative plot?

Mr. Murphy

Yes.

Deputy Durkan

Is that completed?

Mr. Murphy

No.

Deputy Durkan

Why?

Mr. Murphy

The grass did not grow in the middle of winter but it is growing now.

Deputy Durkan

Why was grass sown in the middle of winter? It would not normally be expected to grow in such circumstances. Even though this is not a constituency matter, I had intended to table a parliamentary question on the unfinished state of the plot. It appears that rubble and debris is still lying around.

Mr. Murphy

There is still work to be done to finish the project.

Deputy Durkan

By the Office of Public Works?

Mr. Murphy

Yes. We knew that when the plot was opened last November. Paths and so on could not be put in at that time of the year.

Deputy Durkan

Why did you not wait until the project had been completed before having a grand opening?

Mr. Murphy

A closing ceremony was to be held for the 1798 commemorations on the Sunday which fell closest to Wolfe Tone's death. That was the ceremony we were working towards.

Chairman

On the flaw discovered within your office, has any progress been made in bringing the matter to a conclusion?

Mr. Murphy

Yes. If I can go through the details of what has happened since we last met; the total amount of the irregularities was £369,590.73 of which we recouped £127,045.87. The outstanding amount is marginally above £240,000. We have a High Court injunction freezing the assets of a former employee at £420,000. The case has come up a number of times in the High Court and we have maintained a lean on this man's property. One of his properties, with an approximate value of £150,000, is currently up for sale. We would confidently hope to receive that money. The latest development is that the High Court has requested the person in question to state why property values should not come to us. The person has lodged a standard denial of liability. Last Friday, a man was arrested and charged with fraud and has been remanded in custody for one month.

Chairman

Okay. Has there been any review of suspense accounts since you were last before the Committee? Has there been a reduction in the number of such accounts held or the amount of money in those accounts?

Mr. Murphy

This is one of the major changes in the board. We have started with the Government Supplies Agency which now has approximately 20 accounts whereas it had 280 when we last spoke. We closed 260 accounts. We are now starting to examine the building maintenance service and I would hope that when we next meet, I will be in a position to outline a similar scale of reduction.

Chairman

On 31 December 1997, there was a total of 2,605 suspense accounts. What is the current total?

Mr. Murphy

2,200.

Chairman

That is still very high.

Mr. Murphy

It is, but we have closed 260 accounts in four months. We are going at quite a pace. The largest number of accounts is for works accounts at the maintenance end of things. The reason for the number of accounts is that a separate account seems to be opened for each job. We hope to reduce that to accounts for each Government Department.

Deputy Rabbitte

What is the position in regard to the parliamentary building? What are the time schedules?

Mr. Murphy

The time schedule is that the building will be opened for the autumn session in October 2000.

Chairman

I understand that it is envisaged to refurbish existing offices simultaneously with the opening of the new offices. That is very ambitious. It may well be that some of us will end up in tents on Leinster Lawn for a few weeks.

The Committee notes the progress which has been made in the review of accountancy procedures and controls in the Office of Public Works. We are very anxious that the recommendations be fully implemented and hope that the next annual report from the Comptroller and Auditor General will see the Office of Public Works being given a clean bill of health. We note paragraphs 18,19, 20 and 21 and Votes 10 and 46.

The meeting next Thursday will deal with Vote 17 - Office of the Ombudsman, Vote 31 - Department of Agriculture and Food (Resumed) and the Irish Intervention Agency (Resumed). Deputy Des O'Malley will be in attendance.

The witness withdrew.

The Committee adjourned at 4.10 p.m. until 10 a.m. on Thursday, 6 May 1999.