COMMITTEE of PUBLIC ACCOUNTS debate -
Thursday, 6 Apr 2000

Vol. 2 No. 10

Report on Value for Money Examination - Performance Measurement in Teagasc.

Mr. J. Purcell (An t-Árd Reachtaire Cuntas agus Ciste) called and examined.

Mr. J. Malone (Secretary General, Department of Agriculture, Food and Rural Development) called and examined.

Chairman

We will deal with the 1998 annual report of the Comptroller and Auditor General and the Appropriation Accounts, Vote 31 - Department of Agriculture, Food and Rural Development (resumed). We will also consider the final report of the steering group on systems review of the Department of Agriculture, Food and Rural Development, the annual financial statements for 1995 and 1996 of the Irish Intervention Agency (resumed) and the Report on Value for Money Examination: Performance Measurement in Teagasc.

The following relevant documentation has been circulated in relation to items Nos. 5 and 6: correspondence dated 3 April 2000 from the Department of Agriculture, Food and Rural Development - progress report on action plan for the report of the steering group on systems review; final report of the steering group on systems review of the Department of Agriculture, Food and Rural Development; correspondence dated 22 March from Mr. J. McCarthy re follow up on his correspondence of 11 March 2000; correspondence dated 24 February 2000 from the Department of Agriculture, Food and Rural Development, comments on letter from Mr. J. McCarthy forwarded to the Secretary General for comment; correspondence dated 11 January 2000 from Mr. McCarthy re evidence given at previous examination of Vote 31.

Witnesses should be aware that they do not enjoy absolute privilege and should be apprised 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 who are identified in the course of the committee's proceedings. Notwithstanding this provision in the legislation, I remind members of the long standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside of the House or an official either by name or in such a way as to make him or her identifiable.

I welcome the Secretary General of the Department of Agriculture, Food and Rural Development, Mr. John Malone. Perhaps Mr. Malone will introduce his officials.

Mr. Malone

I am accompanied by Richard Healy, Tom Arnold, Denis Byrne, John Fox, Marian Byrne and Donal Russell. Also present are Niall McSweeney and Tony Gallagher from the Department of Finance.

Chairman

When we adjourned on the last occasion, Deputy O'Malley was in possession. Has the Deputy any further comments to make?

Deputy O’Malley

I was in possession in the sense that we had come to the end of the meeting and it was suggested that I should begin my contribution at the next meeting, which is today. I would like to do so by referring to seven or eight headings. I am aware I have not unlimited time and I cannot go into these issues in great detail.

Chairman

I propose not to spend more than half an hour on this issue, so perhaps the Deputy would make a contribution lasting five or ten minutes. I will then allow the Secretary General to comment, followed by questions from the Deputy.

Deputy O’Malley

Part of the reason for my being present is to comment on the Secretary General's response in writing to what I said on 5 January. I understood my comments would finalise the matter but that may not be the case. I begin by reminding the committee of what you said, Chairman, on 5 January 1999 when you promised a forensic audit of the Department would be undertaken in view of the number of notes to its accounts over the last eight years. You said the committee was determined to stop this appalling record of the Department, that if this were a private company and there were so many notes to its accounts a High Court inspector would already have been sent in. You also said the committee would take no more nonsense, fudging or prevarication, that it would take serious action in this respect. This sets the background to this matter.

Where there are seven, eight or nine different headings where very serious difficulties arise, the difficulty is to try to pick the ones with which to deal. I can only refer briefly to these issues. One of the most important issues relates to a forged veterinary certificate which was provided to me as Minister for Industry and Commerce in 1989, which I was not aware was forged. This was sent to me by a meat company - not the Goodman company - whose export credit policy I had voided in October 1989 on the grounds that a large proportion of the beef it was exporting under the policy was not of Republic of Ireland origin. The company wrote to me a day or two later in a sense of annoyance and outrage at the fact that its policy was voided. It said that the Department of Agriculture knew all about this all along. As purported proof that the Department knew all about what was going on and that non-Irish beef was being used widely, they sent me a veterinary certificate signed by an official in the Department, a Miss McKeever. I forwarded this to the Department of Agriculture. The certificate was forged - I would not have been aware of this because the same typewriter was used - because inserted into it was a document to which Miss McKeever had not signed her name, that was to the effect that the beef in question had been slaughtered within 90 days of its delivery to the customer in Baghdad. That was untrue because, as we now know, not only was the beef mainly non-Irish but it also came out of intervention stocks. It may have been slaughtered two, three four or even five years earlier.

We now know from the CBF debacle that the Department was aware of this. CBF had pointed out that most of the beef going to Iraq came out of intervention. The Department said nothing to me or my Department about this. They said nothing to anyone until the matter came to light during the beef tribunal. It did not come to light, as the Secretary General tried to convey to the committee earlier, by the Department volunteering the information. It came to light because Deputy Spring's counsel, Mr. Durkan, noticed it in one of the files and raised the matter with one of the witnesses. The Secretary General's formal official written response to my query raised on 5 January 1999 - and he had the resources of his Department available to him and was not under any pressure to produce a response - was, "The forgery was not discovered by the Department until 1992." I do not believe that is correct. They received the document in 1989. He went on to say the Department was not involved in the forgery. I never suggested it was but it was aware that an official departmental document had been forged and it did not tell anybody. It did not tell the Minister or the beef tribunal. That is not satisfactory, it should not have happened and should not have been glossed over by the Secretary General or the Department.

My second point relates to the forged CBF briefing note. When I raised the issue of forgery at this committee many years ago there was vehement denial that forgery of departmental documents had ever taken place. People no longer make such vehement denials. The Secretary General's response refers to the forgeries as forgeries. His response to the alteration of the document I mentioned reads:

The document was prepared as briefing material for the Minister engaged in discussions relating to trade and was not in any way intended as background for any decision to be taken with regard to export credit insurance.

He says it was of no significance in respect of export credit insurance. I do not rely for the most part on the report of the beef tribunal because it is very unsatisfactory and does not deal with many of the important issues raised. However, pages 544 and 545 of the tribunal report are worth looking at. It reads: "The importance reference to the fact that the products supplied to Iraq had largely been from intervention stocks is omitted." It goes on to say that "This omission was of major importance . . . ". It does not state, as the Secretary General states, that it "is of no importance".

One of the major issues to be discussed at the meeting of the Irish-Iraqi Joint Commission was the increase in beef exports to Iraq, extending the period of credit for payment in respect thereof and the provision of export credit insurance in respect thereof. It further states that if the Department of Industry and Commerce had been aware of what CBF had conveyed in 1988 much of the insurance cover provided by the then Minister, Deputy Reynolds, might never have issued. The taxpayer was put on risk for a great deal of cover, approximately £500 million. It was a highly material fact that most of the beef exported to Iraq came from intervention. CBF drew attention to this fact and an official from the Department of Agriculture - I am not making this claim, it acknowledges this fact - gave evidence at the tribunal that he excised a paragraph of that reference. It is highly material that that was done.

The Secretary General said the official did not benefit which is an extraordinary thing to say. Somebody benefited to the tune of several hundred million pounds. Who was the beneficiary? It was the usual beneficiary in these matters. To obscure this from the Minister of State at the time and the Department was an appalling thing to do particularly when we see its consequences. To say the official did not benefit personally is to deliberately miss the point.

One of the points I wish to make regarding this and other alterations of documents - and I will list some more later - is that the Department of Agriculture, even though a great deal of forgeries and improprieties with fraudulent intent were brought to its notice never made an official complaint to the Garda. It referred matters to the Garda on a couple of occasions - it sent them files or documents - but the Garda points out it can only act on an official complaint and it never received one. That is the position regarding this matter and that of the certificate having been forged by an exporter. A great deal of money was involved in that instance.

Not alone did it not lodge a complaint with the Garda but it made no attempt to recover the moneys lost. It was as a result of their failure or refusal to make any attempt to recover the moneys lost - hundreds of millions of pounds - that fines, amounting to £119.8 million - taking the Comptroller and Auditor General's figure - were imposed on Ireland. It is worth contrasting what happened to the administration of FEOGA funds in the 15 years from 1973 to 1987 inclusive. We were fined £76,000 over that period but from 1988 onwards, when things began to hum in the beef industry, we were fined £120 million in a two or three year period. That is not just coincidence.

Chairman

I am sorry to interrupt, but we have been over this ground before. I want to afford Deputies time to ask questions about improvements in the Department. Much of what is being said has been through other fora. We need to focus on what progress has been made as a result of the requests from this committee for a forensic audit of the Department, now called a systems review by the Department of Finance.

Deputy O’Malley

The systems review, with the greatest respect, consisted of a number of very able and worthy people looking at the question of the adequacy or otherwise of the software in the Department to deal with FEOGA disbursements and other matters. That does not go to the root of matters. I am sure improvements have been made in the software, and not before time. I would not be in a position to comment on the detail of the systems review. A systems review is something totally removed and different from what the Chairman called a forensic audit. In so far as the Chairman wants me to deal with the present and the question of improvements, £2 million worth of beef was stolen in 1990-1 in Rathkeale. The Department had to reimburse the Commission for the larceny of its beef. On various occasions, I asked the Accounting Officer and his predecessor, Mr. Dowling, if they had taken steps to recover the stolen money. Mr. Dowling informed me originally they had taken steps but it turned out that they had not and he said so. Many years after the event proceedings were issued. The larceny took place nine or ten years ago and, as far as I am aware, a recovery has not been made yet. Certain people were charged with conspiring to defraud the Minister for Agriculture, including a man whose name was forged by departmental officials and who was, of course, found not guilty. Others pleaded guilty. The departmental officials who carried out the forgery were, of course, never charged or disciplined in any way and none of the money has been recovered from the person who benefited - the owner of the factory.

Mr. Justice Moriarty who heard the case in his capacity as a Circuit Court judge inquired whether any charges would be taken against those who had benefited because he was satisfied that the defendants before him had not benefited. Nothing has happened in that regard. On the question of recoverability, in his response the Secretary General sought not to give the full picture to the committee. He referred in his response to my references to Article 8 of Regulation 729/70 as not affording the Department any right to recover the fines imposed on Ireland. Of course the Department has not a right to recover the fines and nobody suggested, least of all myself, that it did. Article 729 requires that the Department should take steps to recover the sums improperly and fraudulently obtained by irregularities. The fines were only imposed because the Department did not and refuses to take steps in that regard.

I do not think it makes any difference what systems or software are being used in the Department if it does not have the will to carry out its duty under European regulations. One thread which runs constantly through all these matters is that those who improperly benefited to the tune of millions of pounds still enjoy the fruits of their fraudulent activity and the Department has not done anything to seek to resolve that.

What happened in Rathkeale is only the tip of the iceberg in many respects. It happens to be one place where it was possible to document precisely what happened because people were prepared to come forward. The beef tribunal came to the conclusion that similar things occurred in other factories throughout the country in that what happened at Rathkeale was replicated in a widespread way.

A current matter about which the committee should be concerned is the fire at Ballaghaderreen in January 1992. The Department paid £1.7 million in insurance premiums to a Mr. Mike Murphy of Mike Murphy Insurances, Dublin 2. Mr. Mike Murphy has since come to light in another tribunal. He had two close associates with whom he appeared to do much business; one was Mr. Goodman and the other was Mr. C.J. Haughey. In 1989 the Department gave Mr. Murphy a three year contract to cover all their insurance needs which was very lucrative. There was a major fire for which they were responsible. There is no suggestion that the fire was anything other than accidental. The loss suffered to date by the Irish taxpayer in respect of that fire is £40 million between the burned meat and the cleaning up which was difficult because the remnants had to be buried somewhere else and interest on the money concerned which the Department of Finance insisted would have to be paid out of a separate account.

In 1992 the Comptroller and Auditor General reported to this committee that proceedings had been instituted but a date had not yet been set for hearing. That suggested the Comptroller and Auditor General was of the belief at that time that perhaps the hearing would take place shortly. It is eight and a quarter years after the fire and the Irish taxpayer has not recovered one penny and proceedings have not been heard. I do not know if such a matter comes under the heading of what are now called systems but, if it does, the systems are inadequate.

In 1994 or 1995, two or three years after the fire, I put it to Mr. Dowling at a meeting of this committee that if his house had been burned down three years earlier and he still had not got a penny would he not have pursued the matter with great vigour? He said he certainly would and I put it to him that usually after a fire insurance companies make a payment within a month or two.

Chairman

I have to intervene as I have given the Deputy a lot of latitude. Perhaps the Secretary General will respond on the subjects and I will then allow a few minutes for questions to be asked because we must move on.

Mr. Malone

Deputy O'Malley is referring to a fairly substantial document submitted to this committee and relates to previous hearings here where points were raised and we were given an opportunity to respond in writing. I reject totally and with the greatest of vigour any suggestions that I set out to mislead this committee. I reject that totally. It is not fair comment to imply that I have provided replies designed to gloss over issues or - and this amounts to the same thing - to present information in a way that would mislead the committee. I reject that and I do not think it is fair comment.

First, with regard to the broader issues I provided the best responses I could. In fairness to everyone and bearing in mind that we are dealing with issues and events that happened ten years ago and more, I insist my responses are based on the information available to me and to the Department.

My second point relates to the systems review. We all recall how the systems review came into existence. It arose from comments made by you, Sir, at the end of a meeting. The terms of reference of the review were agreed by the Government. They were not designed by my Department or by me and I had no input into them. That point was made clear by the Secretary General of the Department of Finance at two discussions on the systems review.

The review is of a good deal more than the software of the Department. The document is available. It looks at the financial systems in the Department, our control arrangements, our systems for inspections on the ground and our IT and it deals with the issue of the running costs of intervention which was discussed on many occasions by this committee - were they or were they not losses or costs and were they reasonable costs, given the amount of money and product involved? The chapter which bears that heading brings much clarity to the issue and removes much of the myth and confusion which relate to it.

At my previous appearance at this committee in January last I made the point that the systems review was an important document. It contains 48 recommendations - a fairly formidable list. I indicated that we were taking those recommendations seriously, that they had the potential to bring considerable added value to the Department and that we had full ministerial and Government backing for the implementation of the findings in the report.

The theme of recoverability runs through this and previous discussions. The issue of recoverability was examined in detail in the aftermath of the imposition of the beef fines, around 1996. A recoveries group was set up and a document was prepared by that group which looked at all the options. The most attractive option would have been to establish a simple and straightforward mechanism for recoverability. Unfortunately that option could not be availed of, particularly in one case because of the law at the time.

I do not see any difference between Deputy O'Malley and ourselves on the question of Article 8. Under Article 8 it is necessary to have sufficient evidence to prove an irregularity. There must be a specific event and specific issue on which money can be recovered. In relation to Shannon and Rathkeale - the two cases Deputy O'Malley referred to - legal proceedings have been initiated. In one case we are ready to serve a certificate of readiness. All the documentation has been prepared and we are ready to go into court as soon as we can get into court. I accept the point that these cases have gone on longer than we would have liked but neither the Department nor I control the legal process. We must work through that process. I would much prefer to be able to report to the committee that these cases had been dealt with but we are at the mercy of the legal system. Statements and counter-statements are prepared and the cases go back and forth but I am more than anxious to get these cases into court.

With regard to the forged veterinary certificate which was referred to, the position as I understand and know it is as I have set out in my statement. There is no suggestion that the certificate was forged in the Department. The information which has come through is that the certificate was altered outside the jurisdiction, that a certificate was prepared and additional information was added to it regarding the age of the beef. Our impression and understanding is that this took place outside the jurisdiction. I made the point in my statement that the Department brought this matter to the attention of the beef tribunal. I do not suggest that other people did not also bring it to the attention of the tribunal, merely that my statement in the document - and I do not have the advantage of having the document with me - is accurate, as far as I am concerned.

We all know what happened in the case of the CBF briefing note. Information was provided by CBF and that information was excised. That is the term I would use. Forgery is an excessive and unfair term in this context. The statement I made about the official concerned not benefiting is simply a statement of fact. There had been implications and suggestions and I wished to deal with them. I was not trying to mislead anyone or to create confusion. With the benefit of hindsight I can see that it would have been much better for everyone if the information had not been excised. However, I stand over the point that the purpose of the briefing note was to provide background for a Minister going on a trade mission.

The question of the fines must be looked at in the context of the amounts of money and product and the amount of business we have transacted. I would not argue that the £68 million fine was not traumatic but I would strongly argue that the fines were imposed because of a systems failure and there is evidence to support that argument. The argument that the fines would not have been imposed if prosecutions had been taken for specific irregularities does not stand up. When one relates the level of fines - I do not defend fines for one minute - in overall terms it compares quite favourably with the performance and position of other EU member states. When one looks at particular years one has to look at the volume of activity. It is well known that in 1990 and 1991 the intervention system was, quite honestly, overloaded. We took in the equivalent of 1.4 million cattle. There is an argument as to whether we should have taken in that amount of product but if we had not done so there could have been different arguments, questions and problems about a collapse in the farming industry. The system was overloaded. There was too much reliance on permanent supervision.

To imply that we have not learned our lesson or taken the points on board is totally unfair. Since then we have totally changed our control systems and the way we handle product being placed in intervention, of which there is very little. We have changed our financial procedures. We now have an accreditation system and a greatly strengthened internal audit unit. To say that we have not taken the lessons on board, made adjustments or moved forward on a whole range of headings is to totally miss the point.

In relation to the fire in Ballaghaderreen, it is well known - the matter has been discussed by the committee before - that the contract was awarded to Mike Murphy on the basis of an open tender. I am speaking slightly from memory but I think there were nine tenders, of which Mike Murphy's was the lowest. I have no evidence and there is no information available to me that the awarding of the contract was not subject to proper process and procedure. It was the lowest tender.

As Deputy O'Malley rightly indicated, there was a fire. We assumed that the product was covered. Since then our attempts to recover the losses have been stalled and we have been met by legal cases all along the way. We now have a situation where we have nine different sets of legal proceedings taking place. We have proceedings against the insurers; there are two lead insurers. That amounts to six cases. We also have proceedings against Mike Murphy personally.

Because we are as impatient as anybody else about this, in the past year we have engaged the services of a private solicitor in consultation with the Office of the Chief State Solicitor, in essence because of the number of cases involved - there are nine different individual court cases - and because of the complexity of insurance law. With the support of the private solicitors we are starting to make real progress in this case. To give an example to show how difficult it has been, there is an argument about jurisdiction which has been ongoing for about two years to determine in which jurisdiction the case will be held. The insurers do not want the case to be held in this country. It has become a slog based on the legal issues. It has been very difficult but the records will show that we have not been tardy in any way about the case, which we have pursued with vigour. With the benefit of the private firm of solicitors we will bring it a conclusion.

Chairman

I want to bring this matter to finality. Deputy O'Malley, we have taken the unusual course of allowing a Member of the Dáil who is not a member of the committee to come in front of it a few times because of the role you have played in relation to this Department but it is time to allow the Department to show that progress is being made. Are there any final comments you want to make?

Deputy O’Malley

Is progress being made? I have listened to Mr. Malone. Eight and a quarter years after a normal sort of event - a fire - the jurisdiction in which the case will be heard has not yet been decided. The Department states that it has gone to private solicitors in the last year and started to make progress. Why did it not do that eight years ago if the public system is not able to cope? With the greatest respect, Chairman, I cannot see any great improvement. These are the matters that are still current and each of the matters still current seems to drag on interminably. The Rathkeale case goes back ten years.

On recoverability, Mr. Malone only refers to Rathkeale where £2 million worth of meat was stolen. This is a drop in the bucket. How much else was irregularly and fraudulently obtained? The answer is hundreds of millions of pounds, and remember that the fines were imposed at the rate of 2%, 5% or 10% of the total amount involved. They came to £100 million. This shows the vast amount involved. When I talk about the Department not making efforts to recover the only case to which it refers is Rathkeale which involves a sum of £2 million. What about the £200 million, perhaps £300 million, elsewhere?

Chairman

There has been a systems review in the Department arising from the initiative of the committee. We have to satisfy ourselves that that review is adequate and is being implemented satisfactorily to obviate the factors that led to many of the problems you are raising. Some are issues for the Government and should be raised elsewhere. We have given adequate time to focus on this issue. I hope that, as a result of the attention we have given to it and the opportunity we have allowed you, progress is being and will be made. There will be further questions as we proceed through the meeting.

Deputy Rabbitte

I do not agree with Deputy O'Malley on a number of matters politically but he is a very senior Member of the Dáil and one of the longest, if not the longest, serving Minister. He has raised certain issues. It seems Mr. Malone is entitled to the benefit of the doubt when he makes the presentation that the past is a foreign country, that we have put the shop right for the future and that we should read the Cromien report. No more than Deputy O'Malley I am not competent to assess the document we received a day and a half ago but the question that arises for this committee is whether we are prepared to draw a veil over the past. These matters could scarcely be more serious. The record of the House will show that in the immediate wake of the fire in Ballaghaderreen I, by way of Standing Order 31, put on the record of the House information supplied to me that the premia had never been passed on to the insurer. Subsequent to that, the Irish Farmers’ Journal and others contacted me to give me graphic detail of how the Department rubbished what I said in the House that morning in briefings to the newspapers. It is only one of many examples of the process, which is like extracting teeth, to get certain information.

These issues could scarcely be more serious. The Chairman made a fair point in saying that some of them have been through another process. Quite frankly, if they had gone through another process at the beginning of the year 2000, as distinct from the beginning of the 1990s, there may be different results and some people may be cooling their heels to reflect on some of the decisions.

That is the way things were then. The question that arises now for the committee is how we bring the matter to finality. The Chairman was very strong in the DIRT report in recommending certain elements of parliamentary reform, including the appointment of a parliamentary inspector, but it appears there is a requirement for somebody like that to go in, separate from a systems review, whether of IT, software, financial or control systems or savings to the Exchequer, to examine some of these issues.

Let us consider Mr. Malone's comment this morning in explaining the CBF excision, which conferred millions of pounds by way of benefit on one beef producer and exposed the State to the risk of losing millions of pounds. He said that, in any event, the purpose of it was to provide background for a Minister going on a trade mission. I am fascinated as to how it is we had to excise that because we could not let a Minister see it, that this beef was not sourced in the jurisdiction, that it was coming out of intervention. Why could a Minster not be allowed see that? To consciously set about, however, excising it - leave out the word "forgery", whether that is right or wrong - is a matter of gravity.

We must consider, as a committee, whether there is a mechanism available to us, rather than going through this process interminably, to seek to have these matters of specific public interest probed in the Department. There are major issues that have not been answered. I am not questioning Mr. Malone's good faith. We are now heading into the future and the Department is better equipped and so on, and unless I see to the contrary in practice, I am prepared to accept his word on it. The question arises for the committee as to how we bring the matters raised by Deputy O'Malley to conclusion.

Chairman

Are there any further comments?

Deputy Durkan

I do not wish to continue this matter indefinitely. It would be much better for the committee and for the efficiency of the committee to deal with it and put it behind us. I do not want anybody to get the notion that some of us have a vendetta against any particular Department but there is a problem in that information has been provided to the committee by various means and, more recently, tendered in evidence by Deputy O'Malley, and conflicting evidence appears to have been presented to the committee so it falls to us to deal with that. It can be very difficult to deal with something like that and to retain credibility if we cannot come to an absolute conclusion. There is still a difficulty in that, even at this late stage.

I have a difficulty in coming to a conclusion. I do not wish to delay the meeting by going over the various events that have happened and the various submissions that have been made by interested parties since January last but one statement contradicts another. Incidentally, at one stage we were made to feel that the members of this committee were infringing on an area upon which we were not entitled to infringe. It was implied that officials were being treated unfairly but I reiterate that was not the case. The job of the committee is to ask questions on the basis of the evidence submitted to us. If we do not do that, we are not seen to be doing our job. Perhaps at some stage in the future, even after all of this, it may emerge that we did not sufficiently investigate the information put before us. In those circumstances, I do not know what is the right thing to do now.

Chairman

I have ruled that we have given this matter a lot of attention. We should move on now to the paragraphs in the Comptroller and Auditor General's report. I am conscious of the fact that there is an agriculture committee and that there are areas of policy on which the Minister is open to questioning by the committee or in the House. I am also conscious of the fact that a tribunal took place and that a systems review of the Department is taking place. Our primary responsibility as the Committee of Public Accounts is to ensure that every reasonable step has been taken to rectify any past deficiencies in the Department. When we come to question the report of the systems review, we will see whether progress has been made. If anybody believes the committee should do anything else, I am open to suggestions. I propose that we leave the matter for today and if any members, or indeed Deputy O'Malley, have any proposals as to the procedures the committee should adopt, I am prepared to consider them and bring them back to the committee for a decision.

Deputy O’Malley

Can I comment briefly in response to the query, as it were, that you put now? There is clearly something within the remit of your committee that it should do. It should supervise the recovery of public moneys that have improperly enriched certain individuals in this country. It should encourage and demand recovery of those moneys. That, regrettably, has not happened. I do not think that anybody can complain that the committee is exceeding its brief or its jurisdiction. This committee's function relates to the use and abuse of public money. There is a very clear instance of it here, much of it going back ten and 12 years, more of it more recently. I recall as a member of this committee instances of minor defalcations in Departments, where some official pocketed £1,000 or £2,000, postmen used to take registered letters and so on. A big deal was made of that and the accounting officer was always asked what he had done to recover the money. Here we are talking about literally hundreds of millions of pounds.

Chairman

I am prepared to consider the suggestion and to take advice on it.

Deputy Ardagh

In relation to what Deputy O'Malley just said, it is something that should be considered but it is a function of the Comptroller and Auditor General, in the light of the discussions that have taken place here today, to take on board the concerns of the members on recoverability and to ensure that when the examination is being done by the Comptroller and Auditor General, that is taken into account and that a paragraph is included in his next report so that it will be discussed at the appropriate time.

Chairman

I asked for suggestions but these are matters that should be considered in private and then a decision made on which way to proceed. I think we will leave it at that. Deputy O'Malley has made a suggestion and people can come to me privately with their submissions.

Deputy Gildea

I agree with the Chairman's suggestion about making submissions in private.

Deputy C. Lenihan

I support Deputy Ardagh's suggestion. The Comptroller and Auditor General is totally independent in his function. This is the appropriate way to reconcile this matter, for him to report on it and to monitor the Department's activities, ongoing as they may be, in relation to recoverability. There is nothing more we can do. We have examined, and perhaps over-examined, this issue. We need to move forward and put in place what Deputy Ardagh proposed.

Chairman

We will leave it at that.

Deputy Durkan

I seek clarification on items 14 and 15, correspondence we dealt with earlier, one is dated 11 January and the other is dated 22 March. That correspondence relates to this the item under discussion. One relates to Emerald and Rangeland and the other is a follow up query from Emerald.

Chairman

The queries and the response by the Department to them will be published as part of the committee's report.

Deputy Dennehy

We should concentrate on the recoverability aspect in terms of whatever report is issued by the Department or the Comptroller and Auditor General. The most telling point Deputy O'Malley made was that a double standard should not apply in this area. We have chased people for a few hundred pounds or a few thousand pounds and where millions of pounds are involved we should apply the same routine procedures, which up to now appear not to have been applied. We have vigorously chased up small cases. The recoverability aspect is the one on which the committee should concentrate.

Chairman

I will leave that matter now. I thank Deputy O'Malley for appearing before the committee again today.

Paragraph 28 of the Report of the Comptroller and Auditor General reads:

The EU makes monthly advances to the Department of Agriculture and Food, refunding payments made to farmers and others who are eligible to receive support under the Common Agricultural Policy. The accounting year for FEOGA operations ends on 15 October. By the following 10 February, the Department submits a detailed claim to the EU itemising all expenditure incurred and amounts received on behalf of the FEOGA Guarantee Fund. The claim is certified by a private firm of accountants (certifying accountants) appointed by the Department in accordance with EU regulations.

During 1998, £1,350m was incurred on FEOGA expenditure comprising:

	£m
Export Refunds	308.9
Intervention Costs	71.7
Production Aid	73.5
Premia Schemes	584.2
Other support measures	311.2

In addition to the certifying accountants and normal management controls, the control procedures in the Department include an internal audit unit. The unit also reports on the results of its audits to an audit committee, appointed by the Minister to advise on the development of internal audit within the Department. During my audit of Departmental FEOGA operations I examine the reports of both the internal auditors and the certifying accountants and rely on their work, where appropriate, to enable me to fulfil my audit mandate. In the following paragraphs 29 to 31 reference is made to matters noted during my audit and to other matters noted by the internal audit or the certifying accountants.

Chairman

Paragraph 28 is noted. I propose we move on to paragraph 29. Paragraph 29 of the Report of the Comptroller and Auditor General reads:

In my 1996 Report, in response to concerns raised by me, it was indicated that a new computerised accounting system was being developed to be in place by late 1998 which would help to improve procedures to prevent duplicate payments and to provide more effective controls. As the system did not materialise during 1998 I reviewed the position in detail and the following outlines the progress of the project and the difficulties that have arisen.

Tender Process

Since 1994, the Department has been planning to introduce a new accounts system. Following tendering, an external consultancy firm was appointed to produce a tender document, specifying the requirements of this system. Work commenced in January 1996 and the tender document was issued in July 1996. The evaluation of tenders was completed in February 1997. Based on the technical assessmentof the tenders, including demonstrat-ions/assurances from the suppliers, the Department and the consultants concluded that one product provided the best fit to the Department's requirements. The proposal was rated significantly ahead of both of the other main proposals and was rated highly for coping with the Department's requirements for cash and accrual accounting. The tender evaluation report listed one of the product's risks as a lack of experience with cash and commitment accounting. The conclusion was that there was no risk-free approach to implementing a new computerised accounting system but, in this instance, the product appeared to carry the least risk in both the short and medium term. The contract for the implementation of the system was awarded in June 1997 at a cost of £1.128m.

Project Implementation

The project implementation was overseen by a Project Board, chaired by the Secretary General and comprising representatives from the Department, the Department of Finance, the consultants and the contractor. Phase 1 to cover the core accounting system (general ledger, payments systems), a central client database and aspects of a debtors ledger/cash receipts system was initially due for implementation by March 1998. Phase 2 providing for the implementation of a fixed asset system, a purchasing system and the full debtors ledger/cash receipts system was due by October 1998. During the Autumn of 1997, there were certain delays in project implementation. The Project Board noted the main reasons why the project had slipped were insufficient resources, lack of clear methodology and a lack of effectiveness and cohesion between the Department/contractor management teams, and under-scoping of change management. Following a project review, a revised project plan was approved by the Project Board in December 1997.

Phase 1 was re-scheduled for implementation by August 1998, later changed to September 1998. The revised plan included a change in the implementation methodology. The Department's detailed requirements were to be specified through 'process scripts', for which the software would then be configured. The revised project plan also envisaged a substantial input of external consultancy resources, which were put in place in early 1998. The additional costs of the new revised project plan would be of the order of £1-£1.1m or more.

In the June/July 1998 period, it became clear that it would not be possible for the contractor to deliver the full range of the envisaged configured software. The software which was delivered did not meet the Department's requirements, especially in relation to government cash accounting. This requirement had been specified in the tender document and the contractor had provided assurances that the system could meet the requirement. In light of the conclusion reached following testing, concerning the delivered software, the Project Board concluded, in early August 1998, that it would not be safe to proceed with project implementation in September and this decision was communicated to the EU Commission and the contractor.

In October 1998, the contractor indicated that it believed that an upgrade of the product could address all of the Department's requirements, including the ability to cater for cash accounting. It was agreed that this would be formally assessed through a feasibility study. On 1 February 1999, the contractor delivered a presentation to the Department on the proposed solution to the problems encountered. The proposed solution was examined by a Departmental Evaluation Group who, in February 1999, stated that the contractor's report, presentation and demonstration only reflected an outline of the proposed solution and that the solution was not yet built. Thus, the recommendation was based on an outline solution that could not be demonstrated fully. The group recommended that the technical solution should be pursued as it appeared to provide a solution to the Department's requirements, including cash accounting. However, the project should only be restarted when the expressed reservations had been satisfactorily addressed.

The Department sent its detailed conclusion to the contractor in March 1999. This noted that the major risks to the restart of the project appeared to be (a) lack of agreement on contract/cost issues, and (b) lack of agreement on the implementation plan and project structure. The new implementation date would be in the year 2000.

Project Costs

By July 1999 the following costs of £3.2m* were incurred:

	£
Payments under the contract	790,000
Fee to contractor for additional services under separate contracts	177,000
Further costs by contractor (under dispute)	485,000
4 separate projects by the external consultant firm including £110,000 for necessary consultancy services to support the project while on hold from September 1998/February 1999	814,000
Estimated Departmental staff costs for project work	930,000

*VAT exclusive

Once the decision to postpone the implementation date was taken, the Department commenced an urgent programme to ensure that the existing accounts system was appropriately amended for compliance with Year 2000. The estimate of total staff costs in connection with this work from August 1998 to January 2000 is £318,000.

General

The principal findings in the certifying accountants report of 31 January 1999 on the 1998 FEOGA Accounts recognised the new accounts system as a major strategic issue.

The EU Commission had indicated that it would be obliged to reconsider the accreditation status of the Department, in the event of the project not proceeding satisfactorily.

As the project was not on target, I sought the views of the Accounting Officer who informed me that:

* The current situation regarding the main contract is that outline agreement has been reached with the supplier for the completion of the project. This outline agreement has focused on the time frame within which the project should be completed, the project plan, the resources required and the cost. Discussions on the contractual arrangements to give effect to the outline agreement reached are taking place and it is hoped that they will be concluded soon. Assuming these discussions are brought to a successful conclusion, the intention is to re-start the project as soon as possible thereafter.

* The proposed implementation for the re-start project has been the subject of detailed planning arrangements. The upgrade proposed has functionality which deals with government cash accounting and assurances have been received that should meet the Department's requirements. The detailed work plan agreed with the contractor for delivery of the system software includes milestones for key deliverables, which will be reviewed during project implementation. Plans for the necessary testing, training and change management within the Department are also in hand. Subject to a rapid resolution of current contract discussions and project re-start shortly afterwards, it is envisaged that the system will be functioning in the second half of 2000.

* In regard to resources, particular attention has been paid to ensuring that the resources allocated to the project, from both the contractor and the Department, are adequate in terms of skills and numbers. Resources allocation will be kept under close review during implementation, taking account of the deliverables/milestones necessary to meet the target delivery dates. Where specialised skill deficits exist within the Department team, it is intended to use additional consultancy resources. Use of these resources will be kept to the necessary minimum.

* The Department has increased the number of its management staff allocated to the project. The project will continue to be monitored by a Project Board, chaired by the Secretary General, which meets on a monthly basis. The Board consists of senior users within the Department, representatives of the Department of Finance and the contractor. Below the Project Board level, review meetings between the Department and contractor Project teams are scheduled on a weekly basis.

* The additional consultancy costs were, to a large degree, due to the fact that the Department did not have the specialised resources required.

* The estimated final cost to the completion of the project will be determined by the outcome of the current discussions.

* In the absence of a figure for an estimated final cost of completion, it is not currently possible to provide an estimate of the cost which resulted from the failure to implement on time the contract as originally contracted for.

* The Department is satisfied that it maintained adequate control over the project. The tender process, and the resulting evaluation of offers, was rigorous and exhaustive. Following appointment of the contractors, the Department was not satisfied with the implementation methodology and requested a review which led to some changes in approach. In addition to the Project Board, three sub-project boards, chaired by an Assistant Secretary, also met on a monthly basis. From the Department's perspective, the major reason for the failure to implement on time was that the version of the software delivered by the contractor did not meet the Department's requirements, especially in the area of government cash accounting. This only became evident late in the project implementation, given that the software was delivered on a phased basis and that the earlier delivery of software appeared to meet theDepartment's transaction processing requirements.

Mr. Purcell

Paragraph 28 is merely an introduction to the following three paragraphs. Paragraph 29 refers to difficulties encountered by the Department in getting its new computerised accounts system up and running. The importance of this system in the overall control framework of the Department was recognised in the Cromien report. Six of the 48 recommendations in that report relate directly to the new system. Although preliminary planning for the new system dates back to 1994, the project got under way in earnest in January 1996 with the appointment of a consultancy firm to produce a tender document specifying the requirements of a new accounting system. This process culminated in the award of a contract in June 1997 in the amount of £1.13 million for the supply of the hardware and software which would underpin the new system.

The project was split into two phases, the first of which was to be implemented by March 1998 with the second to follow by October 1998. However, after a few months it became clear that project implementation within the original timeframe was not achieveable and a revised plan, including a change in the implementation methodology, was approved. The new plan meant additional costs in the order of £1 million, mostly in the form of moreconsultancy input. By June 1998 furtherproblems came to light. The software,which was delivered, did not meet theDepartment's requirements and in August 1998 the project board decided that it would not be safe to proceed with project implementation.

Effectively, the project was put on ice until early in 1999 when the contractor came up with the basis of a workable solution. This was developed to a point where the Department was satisfied that it would meet its requirements and contract negotiations between the Department and the contractor were concluded in September 1999 leading to a restart of the project in the following month, October. Current indications are that the implementation of the restarted project will not be delivered by the planned dates. Phase one is due to be implemented by October 2000 and phase two by April 2001. It seems likely it will be mid 2001 before phase I of the system is up and running.

As well as the time delay, there is also a serious cost overrun attached to this project. The contract cost of delivering the system has doubled to £2.4 million, the consultancy firm that has been involved from the outset will get nearly £1 million more than originally envisaged. Additional internal staff costs are expected to reach £1.6 million and there was an extra cost of making the existing accounts system year 2000 compliant because the new system was not ready in time. That amounted to just over £300,000. Even those figures could be understated because subject to the outcome of ongoing discussions with the contractor, possible additional costs of £600,000 for the contractor and £200,000 for consultancy firm may also arise.

In these circumstances the extra costs incurred in not implementing the original project on time could be as much as £5 million on the basis that the total final cost could reach £8.7 million or so. These figures do not include VAT.

The Department is taking the financial hit on this project, notwithstanding that, according to the accounting officer, the major reason for the failure to implement it on time is that the version of the software delivered by the contractor was deficient vis-à-vis the requirements. One might reasonably ask to what extent are the contractor and the consultancy firm bearing their share of the pain. It is not clear to me from the departmental files that they have done so to any appreciable degree - not to put a tooth in it, this has turned out to be anightmare for the Department in its efforts to finally get an accounts system that meets its needs.

A lesson learned from this is applicable more widely than to only the Department of Agriculture Food and Rural Development. It serves to emphasise the need for a high degree of professionalism on the part of the public service in general in the definition, negotiation and management of IT and related consultancy contracts. This is not the first example of this type of thing happening, though in my experience it is perhaps the worst example of it.

Chairman

Before I call Deputy Rabbitte, I will call the Secretary General to comment on this disappointing and shocking report.

Deputy Rabbitte

We have sent Deputy O'Malley away on the basis that the systems review and the new system will ensure that such problems will not arise again, but a reading of paragraph 29 would not reassure one on that basis. Is that a fair comment, Mr. Malone?

Mr. Malone

The first point I would make, which was also made by the Comptroller and Auditor General with which I agree, is that this project is of vital strategic importance to us. It underpins much of what we want to achieve in the area of modern financial control and modern financial systems. While the Department has an accounting system, a Department of our size and our complexity needs the most modern system. To put it mildly, this has been a difficult project to implement. The term "painful" was used. It has been painful to implement it.

I wish to clarify a number of important issues. We put a good deal of effort into planning this project. We did not undertake it blindly. We went to the market to choose a system that would provide the best functionality, be the most modern and allow us to transact business in the way we want to do so. We got professional advice from the consultants on how we should proceed. We took on board a system called SAP, Systems Application Products. It is a well known modern system. It provides a good deal of functionality and it is widely used in the private sector. We got what we felt was a reputable and well known contractor, IBM. On those two fronts, we felt we had a good system and a good contractor. An important point to bear in mind is that we are not implementing this system ourselves - in fact, it is being implemented for us.

We put in place the management structures and we had project boards and various sub-project boards. We set milestones and various objectives and targets which would be met along the way. Some initial difficulties came to light in 1997 and we restructured the project. In August 1998, we were confronted with a situation where we could have had an accounts system but it would not have given us the functionality and improvements we needed and, in particular, it did not handle cash accounting. We are all well aware that in any Department, one has to have a system which will handle both accruals and cash. We were not satisfied at the time that the system adequately handled cash accounting. We could have gone ahead and put the system in place but it would have been a wrong decision. It was not an easy decision to walk away from that option, but it was the right one.

Since then, we got into detailed negotiations with the contractor, which went on for months, about devising a solution that would get over this problem of cash accounting. The project was launched again in October of last year. We have reached a position where we will get what is called a solution baseline from 24 May, and we have got strong assurances from the contractor. In layman's terms, that means we will have the design of a system which will give us all the functionality, requirements and protection we need.

In recent weeks, we got the design of a system which will get over this cash accounting issue. We are pressing the contractor very strongly to give us a final delivery date. The date that has been mentioned is a date in February 2001 but that is not yet a fixed date in that our discussions with the contractor have not been finalised.

It has not been a happy experience. The project is over time and over cost - I do not dispute that. However, the critical thing is that we get a system which leaves us better positioned than we currently are and which is sound, secure and gives us all the functionality we need. There seems to be a problem - I am anticipating a question - in that SAP 3, is a well known system in the private sector. Why can it not be easily implemented in the public sector? There seems to be a difficulty fitting the system to a Department which has cash and accruals and has two accounting years, for example. We are unusual in that we have the FEOGA accounting year and the normal one. We have particular reporting requirements for the EU. We want to get into electronic funds transfer. We have the requirements of the euro and we have, as is fairly obvious to this committee, a fairly complex range of schemes and measures to operate.

The core difficulty is adjusting this system in a way which will accommodate transactions in a large Department. The critical thing at this stage is that it is successfully completed. We have had much argument with the contractor and the consultants about the cost. We have two main arguments - one relates to implementing the system properly and the other argument relates to the cost. The point which has been made by the Comptroller and Auditor General about it not being a win, win situation for the contractor is a point with which we agree.

On the point made by Deputy Rabbitte, we have implemented a number of successful IT projects. We have a very sophisticated system in relation to premia and headage, which works quite well. We have brought in a land parcel identification system and we have a map of every piece of land in this country. We brought in a cattle movement system enabling us to track the births, registration and movements of animals. These are major projects which we have successfully implemented. In this case, I do not denydifficulties.

Deputy Rabbitte

What is the answer to the key question, that is, why must we, the taxpayer, end up taking the hit for it? If the consultants wrongly advised misguided and wrongly delivered the Department, why are they getting an additional million for having made a cock up?

Mr. Malone

The first problem we had relates to the contractor. One could terminate the project but we are left with the same problem.

Deputy Rabbitte

The Department has already paid £3.2 million.

Mr. Malone

Some of these are cumulative figures. To be fair to everyone, I will give the Deputy a breakdown.

Deputy Rabbitte

The Department paid £3.2 million by last July.

Mr. Malone

Some £1.3 million was the original contract price. We paid, as far as I know, £2.4 million. We have not paid a great deal of this money yet. I do not disagree with the Comptroller and Auditor General's figures. That is the fairest way to look at it.

Chairman

Let us get a clear picture of the figures - the original estimates, including external and internal costs, and the projection.

Mr. Malone

The original contract was for £1.28 million. The revised contract is for £2.4 million.

Chairman

That is the consultants' costs.

Mr. Malone

No, that is with IBM. IBM is the contractor. An additional £300,000 arose because of the Y2K update. Clearly, if the project had been in place one or two years ago, that cost would not have arisen. We paid Pricewaterhouse £948,000 but we must bear in mind that the project is not yet finished so they are running costs. We looked for certain additional requirements along the way which have, in turn, generated extra cost. There is no denying that it is a project which is over budget.

Deputy Rabbitte

Pricewaterhouse were the consultants.

Mr. Malone

Yes.

Deputy Rabbitte

The consultants were there to advise the Department so that this type of thing would not happen. If they failed to discharge that responsibility, why does the Comptroller and Auditor General think we will have to pay them an additional £1 million because they wrongly advised the Department?

Mr. Malone

In fairness, the problem arose with the functionality of the system. I do not think it is fair to attribute all the blame to Pricewaterhouse, the consultants. The situation which developed in mid 1998 was that we had a system which did not have within it the cash accounting functionality. The question is, who bears that responsibility. Is it the consultant or those who implement it?

Deputy Rabbitte

Who is it in your opinion?

Mr. Malone

I think the implementer bears some responsibility.

Deputy Rabbitte

The implementer being IBM.

Mr. Malone

Yes.

Deputy Rabbitte

Why is the project revised upwards if it is responsible?

Mr. Malone

Our choice was to abandon the project and get into litigation with IBM. However, in many ways this would have left us with the same problem in that what is critical for us is a modern accounts system. Our choice was - we gave it much consideration - to abort the project and get into litigation with the contractor at the expense of a modern accounts system.

Deputy Rabbitte

You have probably persuaded the committee that you made the right decision and that you need to get the right system. The difficulty for lay people is that they would have thought that the reason you retained consultants was to make sure you got the right system in the first instance.

Mr. Malone

That is fair comment. We should not shirk our responsibility and nor should the Department. We obtained legal advice. Lawyers were involved and there were many prolonged and difficult discussions over a period of months. I was personally involved.

Deputy Rabbitte

Does it have any implications for doing the accounts currently until the new system is up and running?

Mr. Malone

No, we can do the accounts currently, but it gives us a range of functionality. If we did not have it long-term our accreditation could get threatened.

Deputy Rabbitte

Is there no inter-departmental contact on this kind of matter? The Comptroller and Auditor General is a moderate man when it comes to the use of language, but he has described this as a nightmare. Surely there must have been precedent elsewhere in the public service. Presumably the Department of Social, Community and Family Affairs has a very complex system. Do we have to go on making mistakes like this and learn by trial and error, or would this happen in the private sector?

Mr. Malone

We worked very closely with the Department of Finance on this whole project. It is well known it has a unit that looks after projects. We also liaised with other Departments. We consulted the Department of Social, Community and Family Affairs, Revenue and the other big Departments with big systems. We also visited a number of sites, including those that had a similar system in this country and beyond. The system has been put in place in a number of semi-State bodies and we have talked to them. We have liaised widely, consulted with other organisations and have looked at other options, for example if there is a quick and easy system that could be taken off the shelf from another Department and put into our Department. Unfortunately, that is not a solution.

Deputy Rabbitte

In conclusion, are you telling the committee that these moneys are still in dispute?

Mr. Malone

By my calculations we have incurred costs of approximately £2.5 million if you leave out the Department staff. You could have an argument about that because we would have these people anyway. We are arguing along the way about money with the contractor. There is almost a continual argument about money. We do not want to pay any more than we should pay. We strongly agree with the point that we should not be left carrying the can.

Deputy Rabbitte

Do you not enter into a contract at the outset of this kind of operation whereby if the contract is discharged payment is made, but if it is not——

Mr. Malone

There was a very detailed contract; in many ways it was probably over detailed. Our choice in 1998 was to terminate this and get into litigation, but then we would have had to start again. The overall strategic importance of a modern accounts project carried the day.

Deputy Rabbitte

It is fantastic if highly reputable companies can enter into this kind of contract with a major client and can trade on the fact that the client so badly needs the system in place that it is the overriding imperative. It is also fantastic that such companies can then go back to the drawing board and produce a new system on the second occasion, submit their extra costs and get paid by the State.

Mr. Malone

The contractors tell us - we can only take their word for it - that they have probably lost money on this project because they have found it so difficult and they have had to put a lot of people in. They have changed personnel on a number of occasions and have brought in different project managers. The feeling we get is that this has not been a happy experience for them either.

Deputy Rabbitte

We have before us the accounts for the intervention agency for 1995 and 1996. How far up to date are we?

Mr. Malone

I assume you are referring to the composite account.

Deputy Rabbitte

Yes.

Mr. Malone

I understand that the composite account has been cleared by the C&AG for 1996 and 1997. We have submitted the account for 1998 and it is under examination by him. As you probably will have seen from the Cromien report, there was a suggestion that the format of the 1999 account should be revisited. A sub-committee is looking at that at present. It involves the Department of Finance, the C&AG and ourselves. We will provide the material for 1999 on the basis of whatever format is agreed. I believe we are up to date on the composite account.

Deputy Rabbitte

We began this discussion on the decision of the then Government in 1996 to establish an operationally autonomous executive unit for all FEOGA payments. On 6 July you told me that the memo had been circulated to all relevant Departments and that the Minister would be bringing proposals to Government. What is the up to date position on that?

Mr. Malone

You have set out the position correctly. I indicated that a memo had been prepared. A difficulty arose at that stage about staffing. I think I have explained before that if a separated agency is to be established it will require additional staffing and it was not forthcoming at that time.

Deputy Rabbitte

In terms of what you told me on 6 July, were the proposals brought to the Government?

Mr. Malone

The proposals did not get to the Government because the memo was circulated to various Departments but it never got to the Government.

Deputy Rabbitte

Is it now on the back-burner?

Mr. Malone

As you will probably have seen, it has been caught up by the Cromien report, which recommends that the Department should be divided into three pillars, being policy, animal/public health and agricultural payments - these would be the FEOGA payments——

Deputy Rabbitte

Did that obviate the necessity to go to Government?

Mr. Malone

Not necessarily. Once we have the three pillars set up that leaves open a decision to leave the three pillars in place or remove one of them. A decision cannot be taken until the three pillars have been put in place and we would hope to have them in place by the end of this year.

Deputy Rabbitte

The Department 1, the Government 0.

With regard to the reference that part of the treasury business was now being handled by the NTMA, the assurance last year was that you were confident that the full operations would be handled by the NTMA by the end of the year. Is that now the position?

Mr. Malone

Yes. That is being done. It was done in two stages; there is intervention and what is called "subsidies". Both aspects are now being handled by the NTMA.

Deputy Rabbitte

Is there any progress on the Emerald case?

Mr. Malone

The position on the Emerald case is that in January 1998 a short statement was submitted by Emerald. The company indicated that that claim would lapse in three weeks if there was not a response to it. Since then, the Attorney General's office has written to Emerald asking it to itemise the claim. My understanding is that in recent times solicitors for Emerald have written back asking for more time to submit a detailed claim and give the itemisation. We are waiting to hear from the solicitors for Emerald.

Deputy Rabbitte

Is the ball in the court of Emerald?

Mr. Malone

Yes.

Deputy Rabbitte

On the letter to which Deputy Durkan referred, at the last meeting, Mr. Malone assured me that the Goodman group had no shareholding in Rangeland Meats Limited. That does not seem to be the case.

Mr. Malone

Yes. This goes back to a discussion we had some time last year. I was giving the position——

Deputy Rabbitte

The net point, to put it in context, is that I suggested to Mr. Malone that the Goodman group was the main beneficiary of the licences which had been awarded in terms of the GATT importations, etc., and that the Department had not made any attempt to recover the benefits conferred on the Goodman group. Mr. Malone told me that Goodman was not the major beneficiary and when I instanced Rangeland Meats limited, Mr. Malone said that the Goodman group did not have a shareholding in it. I am merely trying to put on the record that that is not the case and Mr. Malone was misinformed. Is that not correct?

Mr. Malone

Yes. I think I have clarified it in the correspondence. To be clear, this goes back ten years. I gave the position as I knew it at the time. If I had known differently, I would have said so.

Deputy Rabbitte

I am sure Mr. Malone would, and I did not accuse him of that.

Mr. Malone

I know. I am not saying the Deputy did.

Deputy Rabbitte

Both the Goodman group and Rangeland Meats limited are still in existence and doing regular business with the Department. Mr. Malone stated in his letter that neither he nor the officials who accompanied him were aware that the Goodman Group had a minority shareholding in Rangeland Meats limited. When I left this committee Mr. Malone's competent predecessor was in the chair and when I came back Mr. Malone is here and it seems to me that Mr. Malone is on top of his brief. It stretches my credulity a little that, for all the years of dealing with Goodman and Mr. Roger McCarrick, none of the officials who accompanied him knew this and I knew it. How did I know it, because it was Mr. Malone who put the question to me to support my contention that the Goodman group was the dominant beneficiary? Surely somebody accompanying Mr. Malone must have known.

Mr. Malone

I did not know. The people with me did not know because I remember discussing the issue about the breakdown of the percentages with them prior to the meeting. If they had known, they would have told me. The Deputy must bear in mind that none of the people who were involved in the Emerald case back in the early 1990s are in beef division now.

Deputy Rabbitte

I do not want to retrace it today. The second paragraph in Mr. Malone's letter refers to the indemnities. He will recall that the Minister told the House and Mr. Malone told us on a number of occasions about these 11 indemnities. I am not sure I understand his paragraph. What does his paragraph mean? Does he or does he not have these indemnities?

On the issue of the indemnities, Mr. Malone stated in his letter that the position is that after the initiation of the court proceedings the Department wrote to the defendant processors and all other processors who had received GATT licences notifying them of the proceedings taken by Emerald Meats and of the Department's intention to seek an indemnity or contribution from them in defending the proceedings; and that replies were received from 11 processors, stating that in principle they had no objection to giving financial assistance in the defence of the proceedings. The question is a fairly simple one. Mr. Malone was the author of the letter. The Minister told the Dáil that Mr. Malone had 11 indemnities. That has a particular meaning and I do not know from that letter whether he has the indemnities.

Mr. Malone

What we have are the 11 replies to which I referred in the letter. What we are seeking to do now is call in those.

Deputy Rabbitte

We were not talking about replies. We were talking about what the Minister told the House, that the Department was indemnified. The Minister instanced 11 indemnities and subsequently we traced it here with Mr. Malone. Does Mr. Malone have 11 replies or does he have 11 indemnities?

Mr. Malone

What we have are 11 replies that will, as far as the Department is concerned, amount to indemnities from the processors. It depends on what the Deputy means by an indemnity. We have commenced legal proceedings on this issue against the processors involved.

Deputy Rabbitte

If the Department had indemnities, why would it need to commence legal proceedings?

Mr. Malone

They are not bonds or securities. I am a little unclear as to the actual terminology but the normal thing we would get, for example, for an export refund or for a particular scheme, would be a security or a bond. We do not have that. What we have are letters from the processors involved that responded to a particular request from the Department at that stage as to whether they would indemnify the Department against the outcome of the proceedings. What we are now trying to do is follow up on that. We will have to go the legal route and we have initiated the proceedings.

Deputy Rabbitte

What Mr. Malone stated in his opening sentence in reply to Deputy O'Malley was that he rejected totally that he set out to mislead or gloss over issues. I can understand why that is so important to somebody in Mr. Malone's position as Accounting Officer, but is it not remarkable that on issue after issue - we are not talking about IT systems here - on simple straightforward matters of language the committee seems to be having such difficulty in getting simple intelligible answers on a range of issues. The Minister told the House that the Department had 11 indemnities and Mr. Malone told this committee the Department had 11 indemnities. I put it to Mr. Malone that the Department does not have 11 indemnities. It has 11 replies which were solicited by the Department because it suited the case which was being woven at the time, but it does not have indemnities. If it did, it would not have to initiate legal action to have them discharged. Is that not a matter of concern for the committee?

Mr. Malone

The paragraph in my letter clearly sets out what happened, that the Department wrote to the people involved and replies were received from 11 processors stating in principle that they did not have any objection to giving financial assistance in the defence of the proceedings. What one calls that, whether one calls it an indemnity, an assurance or whatever——

Deputy Rabbitte

The Members of the Dáil may not all be lawyers. For a variety of reasons which are our responsibility, Question Time works imperfectly. However, when a Minister informs the House that he is indemnified and that there are 11 indemnities in his office, that means something to Members. Now, after painstakingly teasing out this matter for many hours, we discover that Mr. Malone has 11 replies which agree, in principle, to what they were asked to agree to.

Mr. Malone is aware that I represent Dublin South-West and I wish to ask him about a product which recently appeared on the shelves of a supermarket in my home village of Clondalkin. The product in question was purportedly a beef product which had been approved by the Department but it was subsequently established that the product was not made from beef. How did that product come to carry the sanction of the Department?

Mr. Malone

This is a product that was produced for the Russian market by a well known company. It was a tinned or canned product and it was exported to Russia, as far as I know, in 1993, 1994, 1995 and 1996. This product turned up in a shop in Clondalkin in the pet food section and it came to our notice. Investigations began as to what exactly happened and the position appears to be that this was surplus product not required for the Russian contract. It was sold to an individual as pet food and he put it on the market as pet food. Where the situation went wrong - the company accepts this fact - is that a marking should have been placed on the can that the product was not for human consumption.

Deputy Rabbitte

My constituent is a human being and when she bought it she was not under the apprehension that it was pet food. Mr. Malone states that it is pet food but the label it merely states that it is "Emerald Beef in juice". What is to suggest that that is——

Chairman

Is it stated on the can that the product is approved by the Department of Agriculture, Food and Rural Development?

Deputy Rabbitte

Yes.

Mr. Malone

Yes, but this product was legitimate.

Deputy Rabbitte

It says, "Department of Agriculture in Ireland, inspected and passed - best before: see can - beef ingredients: beef".

Chairman

Is Deputy Rabbitte stating that the product contains no beef?

Deputy Rabbitte

It contains no beef at all and, unfortunately, the Department's initial reply was that it could not test the product for various reasons. When I presented the product to the person whom I thought was the producer, it emerged that his company's name was being used improperly. It was implied that it was an Emerald product but it was not. The person in question had the product tested by Teagasc at his own expense and it was discovered that it contains pork, chicken and various other ingredients but no beef. This product was sanctioned by the Department of Agriculture, Food and Rural Development and my constituent bought it in the belief that she was buying a beef product.

Chairman

Did the Department approve this product?

Mr. Malone

Yes. Let me go back to the beginning. This product was properly and legitimately produced in 1993, 1994, 1995 and 1996 - I do not know the exact dates of its production. What happened was that this product was surplus to market requirements. It was sold on by the company, without the approval of the Department - we had no involvement in that at all - and it ended up in a situation in which it should not have ended up.

Deputy Rabbitte

How was it approved as beef in juice? Why was this product, which is not what it claims to be, considered good enough to be exported to a potentially major market?

Mr. Malone

We do not approve the labels; we approve the product and ensure that it is produced properly and is safe for human consumption.

Deputy Rabbitte

The label states that the product is beef.

Mr. Malone

It says the product is "beef in juice". However, these canned products contain a mixture of ingredients. In this particular product, the mixture contains poultry, pigmeat and beef.

Deputy Rabbitte

It does not contain any beef. I have seen the Teagasc assessment of the product.

Mr. Malone

In fairness, if I could be allowed to develop the point, what you have are different variations or combinations of beef, poultry and pigmeat. The Department never said that it could not carry out a test. A test was carried out and a test was carried out, that we know of, by Teagasc. However, what that test will tell you - I am relying on scientific advice and I can provide the scientific evidence to support my case - is that, because of the way the product is produced using a combination of heat, pressure and time, what is actually put into the product and what one will find in it after a period may not be exactly the same. To be more specific, a canned product can contain as much as 20% beef but after a period of four to five weeks one will not find that beef in the product. That is the scientific position.

This issue is being investigated by Customs and Excise officials because it involves export refunds. As already stated, different combinations of beef, pigmeat and poultry are used and the tariff code depends on the combination used. The point I would stress very strongly is that the Department had no hand, act or part in this product appearing in a shop in Clondalkin. It should not have appeared in that shop. The clear answer was to have stated on the can that the product was not for human consumption.

Deputy Rabbitte

I wish to ask a final question regarding the fact that the Department approves the product but not the label. What product did the Department believe it had approved?

Mr. Malone

We do not stand over every tinned product produced in these establishments. There are a number of these canning operations in the country and the product they produce emerges as a paste and is immediately tinned. There are no labels on the tins when the product is placed in them.

Deputy Rabbitte

If that is the case, is it not correct that any kind of label could be wrapped around the tins? What is the merit of approving a product when the label on the tin could state that it is caviar?

Mr. Malone

That matter involves labelling, consumer relations——

Chairman

Food safety?

Mr. Malone

No, not food safety. Our responsibility is that the product should be produced in a hygienic fashion and should be fit for human consumption. Our responsibility does not extend to product labelling or——

Deputy Rabbitte

Is the product in question fit for human consumption?

Mr. Malone

It was fit for human consumption at the time. It is a moot question if it was produced in 1993 or 1994. I do not know what code is on the can in question.

Deputy Rabbitte

Why would it be ring-fenced in Clondalkin as being pet food when it was sold for human consumption in Russia?

Mr. Malone

Perhaps I am not making myself clear. The product in question, which was supplied in the mid-1990s, was surplus to market requirements in Russia and remained in stock. A use was found for it as pet food.

Deputy Rabbitte

Was the company the beneficiary of any departmental aids?

Mr. Malone

Not in respect of the tins in question. However, it would have received export refunds on the product that was under the control of Customs and Excise and which is now being investigated. We are satisfied that there was no refund, that this was not product brought back from Russia. If a marking had been put on the tin that the product was not for human consumption, this problem would not have arisen. I cannot see why the Department should have responsibility for that.

Chairman

Who is responsible?

Mr. Malone

The company is responsible and it has accepted its responsibility. The company withdrew the product.

Chairman

Is the company's name on the can?

Mr. Malone

Emerald is a brand name but one can get the company's name from an approval number that is put on the can.

Deputy Dennehy

I do not want to leave this issue hanging. This is a serious problem and officials tend to say that their Department does not cover the issue. Obviously, this has been widely publicised. Has this been followed up with the Department of Health and Children in terms of public health and safety? Customs and Excise was mentioned but is anybody being pursued? With regard to supplying this product for public consumption is there any liaison or follow up? Do we bother with world markets and our good name in regard to food hygiene?

Mr. Malone

We immediately followed up. There is an ongoing investigation by Customs and Excise into the entire issue of export refunds. We immediately took the issue up with the Food Safety Authority when it came to light. There is an issue to be dealt with. If what might be called "distress product" or product that is no longer suitable for the normal commercial market is put into pet food - and I would have thought pet food is a reasonable enough outlet for that - an arrangement is put in place and all that is needed is particular markings to be put on it. My understanding was that it was available in the pet food section of a particular shop. That is the information we have but we followed it up.

Deputy Dennehy

I would like this to be vigorously pursued. I am a health board member and we vigorously pursue local shopkeepers if they sell damaged goods or are found to be at fault. We make an example of them in the interests of public health and safety. However, it appears, as Deputy O'Malley said, that if a big operator is involved, he or she is very often let off the hook. Whoever is responsible must be pursued and an example made of them in the interest of our good name because we are beginning to lose that battle.

Mr. Malone

The company in question withdrew the product even though its people did not put it on the shelves. It was sold on to an individual for the purpose of using it as pet food but the company withdrew the product and faced up to its responsibility on this issue.

Deputy Dennehy

The majority of our discussions with Mr. Malone tend to centre on historical issues, unfortunately, and the major reason for that is poor accounting practices were in place over the years in the Department. A great deal of work is being done on the new system. The committee received a report on it and I wish to ask a few questions about it. Very often the volume and complexity of payments is cited as a reason for sloppy accounting practices, yet, for example, the Department of Social, Community and Family Affairs processes four or five times as many transactions as the Department of Agriculture, Food and Rural Development and it does not seem to offer the same excuse for bad practice.

Chairman

It used to but it——

Deputy Dennehy

It got away from it very quickly because it introduced modern technology and moved with the times. However, its system is at least as complicated as that in the agricultural sector. The report states that the implementation of the system, NASA, provides for allocation of cost by administrative units and by programme and from pooled management information. Will somebody be responsible and answerable for all costs and cost variances incurred by the Department?

Mr. Malone

The short answer is "yes". What the Deputy is talking about is getting a more detailed breakdown of costs into cost centres. I argue that our systems are quite complex. It is a dangerous business to get into comparisons with other Departments but the schemes we administer are much more complex than the social welfare code in the sense we pay on animals at ten months and 22 months. Those animals are slaughtered at two years and then we start all over again. We make 1 million individual payments most years. There is a range of different schemes with complexities but part of the new system is that we break our costs down in a more detailed way into individual costs centres. Our costs are broken down currently through various sub-heads and at a certain management level senior managers are responsible for costs in their areas and they monitor them but we want to break them down further and cascade the costs down through the system.

Deputy Dennehy

That is a critical aspect of accountability. The EU has forced restrictions on us but we have improved standards because of EU requirements. That seems to have made a difference and the report states that "management in the Department should harmonise the standards of financial control and operation over all EU and national funds". How far apart are these standards?

Mr. Malone

They are not far apart but the Deputy is right that a series of requirements has come into play arising from the money which we transact for the EU. The accreditation process has brought a new discipline and rigour into our systems and, essentially, we are trying to extend the procedures we have in place for EU expenditure into schemes that are nationally financed but it is not implied that there is a huge difference. However, it is logical that systems, manuals and procedures should be applied across all the schemes, whether they are EU or nationally funded.

Deputy Dennehy

As a layman, the report gives me the impression that two standards were applied. It then refers to financial procedures manuals. How far advanced is the provision of the manual? I presumed that a detailed procedures manual was in place covering the operation of financial procedures from day one.

Mr. Malone

The Deputy is right. We have manuals which we are updating and they should be ready very soon. We intend that manuals across the system will be ready by the end of April.

Deputy Dennehy

The report then states that "in addition, a financial manual is being prepared by the finance division used by all Departments". Is this a separate manual?

Mr. Malone

This is the one that will be ready by the end of April.

Deputy Dennehy

It states that "the division heads should be assigned responsibility and be made accountable for costs associated with the programmes". Does cost allocation equate to responsibility for the divisional head? I presume finance is allocated from central funds.

Mr. Malone

Yes, it is all part of the new approach to strategic management that there are divisions. They have work plans and goals. If they have responsibility for the corresponding finance and they measure input against output and outcome, then it is the logical way to proceed. We have our cost programme done out and, for a Department our size, it involves a great level of detail. There are approximately 50 people at divisional head in the Department. It is logical and the way to proceed.

Deputy Dennehy

A recently launched scheme was discussed on a radio programme which involved the IFA and other farm organisations. The scheme had hardly been up and running and the forms distributed before the farming organisations sought a time extension because the forms were so complicated and people could not fill them in by the required date. That appears to be par for the course. The Electronic Commerce Bill was published today and it allows for electronic contracts and signatures, all of which will allow for farmers' forms to be transmitted over the Internet. Will the new computer allow for the receipt and processing of these forms without the need for bulky paper forms which are difficult to handle? When will the Department be in a position to deal with new methods of doing business over the Internet? I do not suggest that all its business be done in that fashion as I appreciate that there will be individual transactions which cannot be done over the Internet. However, when will the Department be ready to conduct normal business?

Mr. Malone

It is part of our IT strategy. We put a great deal of effort into simplifying forms. We are implementing some schemes without an application form and are able to administer them from our database. For example, we are able to administer the new slaughtering scheme from the cattle movement system. We want to reach the point where we would use the Internet. We have discovered that there has been a substantial uptake of IT in farming and that farmers, as a group, are IT literate. The intention is to use the technology from the point of view of their making the applications and us making payments electronically so that we do not send payments out in the post to individual farmers. We would probably pay them into a bank account. We envisage some of this happening in 2001. It is at the core of what we are trying to achieve.

Deputy Dennehy

When I suggested something such as this some years ago, people said the farming community would be light years behind. However, they are all linked into a computer system of some form; they must be to survive. Therefore, it is important that we keep up with the farmers. Regarding Deputy Rabbitte's reference to Article 29, if one does not move to a system of unannounced audit inspections in the business, then one is going nowhere. We have been fighting for this type of system for years and against the vested interests of vets, staff and unions. I cannot reinforce more what Deputy Rabbitte said. If it is not dealt with, a proper inspection system will not be put in place.

Deputy Durkan

I do not understand how the traceability system operates if, as it appears, the Department has no responsibility once labelling of a product has taken place. If traceability is to apply where a product appears somewhere else, what methodology will be used to trace back that product to ascertain that it is the product it is supposed to be?

Mr. Malone

We can trace it back and it could be done quickly. The brand on the product was meaningless but we could trace the product.

Deputy Durkan

The brand name on the outside of the tin was changed and was not the original.

Mr. Malone

No, that was the brand used in the Russian market. This was a commercial transaction and it was the brand the Russians wanted on the product. Leaving the brand aside, we could instantly trace the manufacturer from the code on the tin.

Deputy Durkan

It was not Emerald Meats in this case?

Mr. Malone

No. The brand was irrelevant. That is the point.

Deputy Durkan

I accept that but I do not understand how the brand could be irrelevant.

Mr. Malone

That is in the context of tracing back. There is a number on tins and we can tell instantly from that who is the manufacturer.

Deputy Durkan

A product was exported under a brand name which happened to be the same as that of another processor in this country. Do any rules govern that? One person could be an exporting producer or processor and another could export under his or her name. That appears to be what happened in this case.

Mr. Malone

The other company is not a processor but a trader. There is a series of legislation covering brands and trademarks and all that goes with that which is not within the jurisdiction of my Department. Our job was to supervise the production of this product to ensure it was hygienically produced, that——

Deputy Durkan

It contained what it said.

Mr. Malone

No, that animal health and public health requirements were met. There are a number of different recipes for what is contained in tins. This is the low end of the market. This is not a product we would hold up as our finest. These tins were probably selling in the order of 10p per pound and the export refund was probably similar. This is the low end of the market and there are variations of different recipes and different combinations of product which went into these tins. The combination of product determined what level of export refund was received and that is where Customs became involved because this is under its control. Various recipes were then submitted. Once that particular product had 40% meat, it met the requirement of the tariff code. This product was surplus to contracts which had taken place in 1993, 1994 or 1995. The company was getting out of the meat business and it sold the product to an individual for use as pet food. In fairness, it acted in good faith. However, the product was sold to a shop without proper markings in the pet food section and the situation developed from there.

Deputy Durkan

Deputy Rabbitte's consumer did not buy it as pet food.

Mr. Malone

I am not going to get into a dispute about that. We sent people to the shop - we do not control retail outlets - and it was in the pet food section.

Deputy Durkan

Can Mr. Malone give me some indication as to the analysis of products at present? He mentioned that, if one mixes a blend of beef, pork and chicken, after a period and a certain process having been undergone, the beef disappears and the pork and chicken remain. Is that true? That would seem to be what he indicated.

Mr. Malone

It does not necessarily disappear but it will not be found on tests. I can send a copy of scientific literature to the committee, if it helps, to show that position. That is a limitation.

Deputy Durkan

No trace of it can be found?

Mr. Malone

Some trace will be found. In the analysis conducted, a certain trace or low percentage of beef was found. The question is whether more beef than that was put in it at the time and our information says yes.

Deputy Durkan

Unfortunately, the label in this case clearly indicated a bovine origin. Would that be true?

Mr. Malone

Yes, the labelling is untrue if you want my opinion.

Deputy Durkan

In response to questions earlier - and Deputy Rabbitte referred to this also from Deputy O'Malley - you rejected that you tried to mislead the committee and I accept that fully. Do you equally reject the information given to the committee - the statements made by Mr. O'Malley?

Mr. Malone

It depends on which statement you are talking about. Deputy O'Malley has outlined his view. He has outlined a whole series of events and issues and we have given our response. I think on the facts there cannot be any disagreement as to when particular events happened, but where we disagree is maybe the motivation being attributed in the context of certain things happening, which I would not agree with, and, second, the argument that we did not follow up vigorously on certain issues and, third, the point that nothing has changed. It depends on the particular——

Deputy Durkan

He seems to think that enough has not changed; you would be of the view that things have changed. I accept fully the anxiety of the Department to bring about changes of a beneficial nature, but as I said earlier, I am a little uneasy that we may find ourselves two or three years down the road with people asking why we did not arrive at a different conclusions in relation to certain matters. I do not want to engage in crystal ball gazing, but I worry about that. It is a genuine fear.

In relation to the new accounting system, would you accept that a good, accurate accounting system is fundamental to the operation of a Department such as the Department of Agriculture, Food and Rural Development?

Mr. Malone

Yes. We do have an accounting system at the moment that does the business, but I agree absolutely. We have to have the best and most modern and that is what we are trying to get.

Deputy Durkan

Given that a contractor was given responsibility for identifying the best system and putting it in place, is it not worrying to you - it certainly is to us - that that did not get off the ground in an efficient manner which would be the hallmark for future activity in that particular section? Is that not worrying?

Mr. Malone

Yes, I would regard it as one of the biggest problems.

Deputy Durkan

It is almost as if your house went on fire and you rang the Fire Brigade and someone poured petrol on it. It is almost as serious as that.

Mr. Malone

I will go back to the point that I think we have systems and we produce three different accounts - the appropriation account, the annual account for Brussels and we produce the composite account. So we can produce accounts, but what is important about the new accounts or the accounts project is that it underpins a lot of the more modern and flexible systems we want to bring into place. There is an initiative at Government level about a new financial management system across Departments. Clearly we want to put that in place and the accounts project is critical to that, so there is nobody more disappointed than I am about the way this project has gone.

At the end of the day we have to work on. We are making progress on the project; it has not been a total collapse or failure. I am satisfied we have got over the technical problems which caused it to fail in 1998. I am confident that we will get what is called a solution baseline, which is the design of the system, by 24 May. The critical thing is implementing that and we have to implement it quickly and efficiently, but at the end of the day we must get a system which will do the business and there is no point in cutting corners if we are to suffer further down the line. My point to Deputy Rabbitte was that we could get into big arguments with the contractor and get into litigation, but the primary objective has to be to get the proper accounts system, so I am agreeing with you.

Deputy Durkan

The problem is that a salvaging system or a good base system is obviously required because of the amount of financial transactions undertaken by the Department. What is the total value of transactions undertaken by the Department, roughly, in a given year?

Mr. Malone

About £2 billion.

Deputy Durkan

£2 billion. That is the serious aspect of it and that is why the Comptroller and Auditor General is a little alarmed at the difficulties this new system got into before it got off the ground at all. Liabilities and potential difficulties may arise, not through deliberate attempts to defraud the system but because the system is not operating efficiently and is obviously not watertight and has a lot of voids in it. When agreement is reached to produce a system that is such, it runs aground within a short space of time. That is a worrying factor and obviously the Comptroller and Auditor General is worried - he has said so himself - because of the degree of potential financial liability you have referred to. At this stage, given what you have told us and the potential liability, surely by way of replacement, the contractor and tendering process should have been such as to ensure there were no hiccups. It would be important from the Department's point of view not to have any hiccups and it did not happen that way.

Mr. Malone

We went into this project very carefully. As I said earlier we have implemented other projects very successfully; this is not the first big project we had undertaken. We checked out the ground regarding the project and its implementation. We put all the structures in place and did not, as I say, take a hasty decision and we are surprised as well as disappointed that things have turned out the way they have. There is one important point - this is a system for managing our accounts. We have a whole range of other controls. I would not want you to get the impression that everything hinges around this.

Deputy Durkan

I know, but there is still a gap that has been brought to our attention. I have another question.

Chairman

What is it?

Deputy Durkan

It is something that worries me on the Vote in general. I refer to page 227 under miscellaneous items. This is worrying because there is obviously contention because of the number of transactions and customers; there will obviously be some difficulty. However, if the system is not good there will be greater difficulties. For instance, the second paragraph refers to a settlement of £175,230 in legal costs. Two paragraphs on there is a reference to £450,000 with interest, plaintiffs, etc., going on to £10,000, £33,000, £66,000 paid in legal costs following surgeon's authorisation, etc., to £12,000, £444,000 paid to plaintiffs' legal costs. This goes halfway down the next page - references to legal fees and settlements in one case totalling £1,002,000 in a case taken by a plaintiff relating to eligibility to import licenses, which we have discussed at past meeting of this committee. The number of cases referred to here is alarming. I appreciate that the Department has a lot of dealings with the public, but it also has a lot of dealings with legal people also by virtue of disputes with customers or other agencies. This is very worrying. What methodologies and procedures have been put in place to deal with this?

Mr. Malone

On a monthly basis, as part of the accreditation process, we review - under a heading we call litigation - a list of all the cases involving the Minister or the Department. They amount to hundreds. We are a litigation conscious Department. A number of the schemes, such as the milk quota system, almost generate an industry around the legal profession and court cases.

Deputy Durkan

One changes the system if it is prone to that sort of thing. The system has to be changed.

Mr. Malone

In fairness, we win the vast majority of cases. The disease eradication scheme generates many cases as do dealings with the meat industry. Many of them involve people bringing the Minister to court. In other cases we bring individuals to court but, the Deputy is right, we generate a great deal of business for lawyers. However, we review it on a monthly basis.

We obviously look for the big cases where potentially large liabilities could arise. Some of these cases can be quite serious. One must bear in mind the kind of society in which we live, the kind of schemes we operate and the tendency for people to challenge things. The new milk quota system was put in place on 1 April and there is already a group formed to challenge the basis of the system despite the fact that we received legal advice from the Attorney General's office and the European Commission that we are on solid ground.

The other point I would bring to the committee's attention is that we are setting up a legal unit in the Department. The unit will not process cases itself but will give us the essential and critical legal back-up we need. I am conscious of the point made by the Deputy.

Chairman

I am very disappointed with the accounting system. I really had hoped that we were getting to the stage where the Department of Agriculture, Food and Rural Development could be taken out of intensive care. The Department of Finance is also involved in this. Are there not any guidelines in place in advance of projects like this being taken on board, to ensure that if there is a breakdown, there is a clear understanding of who bears the cost? If that is not the case is it not time that some such provision was clearly inserted into future projects?

Mr. McSweeney

The Department of Finance was closely involved in participating in the monthly project board which oversees the project. In addition, CMOD, the central unit of the Department of Finance dealing with IT issues, has continuously advised it. The Department of Finance advises the Department at all times on any specific issues which come up in the management of the project with the consultants and also with the very detailed and complex issues of the contract itself.

In recent years there has been a tendency for the Department of Finance not to direct everything centrally but rather to guide from above and come in where necessary. This gives Departments a slightly greater role in managing their systems than would have been the case in the past.

Overall guidelines are issued from time to time and the IT section of the Department can provide details on this. However, this project was exceptional and difficulties arose which we are monitoring all the time. If, as a result of the difficulties which have come up with this project, new guidelines are needed to inform other Departments, the Department of Finance will look at that and consider issuing wider instructions and guidelines for managing future projects. It is only from dealing with projects that have come up from time to time that we can learn the lessons that can be put into other cases.

Chairman

Are we not now carrying the full can? Is it not going to be shared between IBM and PricewaterhouseCoopers?

Mr. McSweeney

Absolutely and, as the Secretary General said, this is a matter on which legal advice has been obtained. The object of the exercise would be that whoever was responsible for the problems would take the hit. The Government should not carry the position if it is someone else's fault. Everyone has their own responsibilities for different parts of the project but it certainly would not be a question of the Government simply taking it because what went wrong was the responsibility of the contractor.

Chairman

Mr. Purcell, are there any points we should make?

Mr. Purcell

Perhaps the problems stem from what I said at the beginning concerning the definition of the contract. We are not talking about putting up a building where one can have a performance bond, one can see what is happening, one can have an architect looking at the building blocks and so on. This is much more complex, particularly in a situation where one has employed consultants. I am not knocking PricewaterhouseCoopers. Something similar happened in the Department of Social, Community and Family Affairs concerning the ISTIS project and there were two different contractors - another major computer firm and a different set of consultants. That issue was not quite as explicitly drawn out as in this case but I brought it to the committee's attention in a value for money report.

There is a problem in that there is a need for greater definition at the contract stage of the interrelationship of responsibilities of the various parties. I am not bashing any particular consulting firm but they are gaining from these delays and difficulties in that they are employed on an ongoing, monthly basis or whatever, at £50,000 per month without, it seems to me, sharing the responsibility for this. Remember that this is the same set of consultants who scoped the job, evaluated the tenders, were responsible for project management and their responsibilities have not been clearly delineated vis à vis the contractor’s responsibilities.

There were problems with the contractor and I do not wish to weaken any future case which the Department might have to take against the contractor in respect of performance. However, the Accounting Officer rightly stated that there was an extensive contract called a systems supply agreement which ran to 100 pages. One would expect that that would be comprehensive enough to cover such a situation. However, it did not really put the onus for specific performance on the contractor. I do not wish to inadvertently weaken any case which, ultimately, might have to be taken on these matters but there needs to be an examination of the development of major IT systems so that responsibilities are clearly defined. If things go wrong there will always be an element of one blaming the other and so on, but there needs to be a much clearer distinction of responsibilities to ensure that the State is getting value for money for the services being supplied to it. There is a serious problem.

Chairman

It is a serious problem and I am grateful to you. The committee should decide to ask the Department of Finance to come back to it in three months to report on how projects of this nature, particularly IT projects, are better planned and better kept to the original cost. Is that an adequate enough request?

Mr. Purcell

It is up to the committee to request that but I would support that request and would be willing to assist the scoping of the terms of reference of any such investigation or work by the Department.

Chairman

It is decided that, having consulted the Comptroller and Auditor General, we will write to the Department for the scope of what we need. Is that agreed? Secretary General, have you anything further to say on paragraph 29?

Mr. Malone

No, Chairman. I think the Comptroller and Auditor General has set out the situation fairly. The critical thing from our point of view is that we get the new system. There are other issues, including legal and contract issues, which must be dealt with. I think we have learned lessons from this project.

Chairman

We will move on to paragraphs 30 and 31. Does the Comptroller and Auditor General wish to take them together or separately?

Mr. Purcell

In light of the time we can take paragraphs 30, 31 and 32 together and I will try to be as brief as possible.

Paragraph 30 draws attention to deficiencies which existed in the Department's system for monitoring and recovering overpayments arising from the operation of the headage grants and premia schemes. In September 1998 the Department undertook a review of its system with the assistance of a professional accountant and as a result has tightened up on its procedures, though it is acknowledged that a comprehensive solution must await the implementation of the new accounts system about which we have just spoken. The position regarding outstanding overpayments on those headage grants and premia schemes at the end of February 2000 shows a slight improvement on the position outlined in the paragraph on page 54. My information is that there is now about £1.6 million outstanding, although worryingly about £1 million of that relates to dormant cases which are no longer in receipt of headage or premium payments. Of that £1 million, 50% represents overpayments of BSE compensation. The Department is in contact with the EU to establish the extent to which recovery has to be pursued in these cases.

The disallowances have been adequately covered in the general discussion on Deputy O'Malley's submission and I do not think we need to revisit them.

Paragraph 32 draws attention to a situation whereby certain staff on meat inspection duties at meat and poultry plants are in receipt of consistently high levels of overtime. The most up to date figures for the five years up to the end of 1999 show that six agricultural officers stationed in three factories were paid a total of £703,000 in overtime between the years 1995 and 1999, inclusive. The individual amounts ranged from £23,000 to £35,000 in 1999. Practically all agricultural officers are eligible for overtime payments for hours worked outside the period 8 a.m. to 6 p.m. However, they must work their normal hours before overtime becomes payable. The six officers referred to in the paragraph operate under a special arrangement which allows them to be paid their basic pay even though they may not have worked any of the normal hours.

An example is the best way to illustrate the point. An officer who works a week of nights, starting each day at 6 p.m., would be paid overtime for all the hours worked in that week, and all except the first eight hours would be at double time. In addition he would also get his basic pay even though he did not have to work between his core hours. Effectively he could be paid at treble time for 50 hours in an average week of night duty. In the three cases I mentioned, £10 per hour is paid by the companies towards the cost of overtime.

The accounting officer is not sanguine about the prospects of agreeing changes to these arrangements because in the short-term they are not promising, involving long standing work practices and agreements with unions which have been entered into at different times and in different circumstances.

Chairman

Would the Secretary General like to comment on what is being done to improve the situation regarding overpayments?

Mr. Malone

As has been indicated we have put in place procedural changes - the words used were "tightened up" - and I feel we have a clear policy now on overpayments. We monitor them on a monthly basis through our accreditation group. Obviously, the first issue is having a system which prevents overpayments and I think we are improving in that regard. If an overpayment occurs we notify the client - more often than not a farmer - about the overpayment and we have a procedure for dealing with it. In many instances we use an offsetting procedure. Because we make so many payments to farmers, if there is an overpayment on one scheme we can offset it against another scheme. The BSE——

Chairman

Are they always ultimately recovered?

Mr. Malone

In many cases, but there are situations where a farmer has died or might have gone out of farming. Therefore, it is not recovered in every single case, but in a large proportion of cases it is recovered. The level of overpayment in percentage terms is 0.2%, a relatively small amount. The BSE issue is a particular situation and while it fits into the overpayment category, at one level it is not an overpayment. This relates to the aftermath of the BSE crisis in 1996. Whatever money is recovered is given to another farmer, so it is essentially taking money from one category of producer and giving it to another. We take the issue seriously. We will now move a stage further and age the debt by category and perhaps down the line if our recovery systems are not proving adequate we will look at other options. I assure the committee that we take the issue seriously.

Chairman

What about the overtime? Some of these chaps are earning as much in overtime as Deputies earn for a 100 hour week.

Mr. Malone

It is a particular situation which has developed in two or three plants. In fairness to the Department we are not really geared to handle plants which work 24 hours a day. These situations pertain to plants which work through the day and the night. We tried to get into discussions with the unions about introducing shift arrangements, but this is not a normal arrangement for the public service or the Department. The only practical option is for the individuals who work through the night to be paid overtime. We are reviewing the situation.

Chairman

Even though they get their basic pay as well?

Mr. Malone

Yes, but it was the only solution we could find at the time. The other option was not to service the plant which would mean it could not operate. This would result in another debate about jobs, etc.

Chairman

I wish to be clear on this matter. Let us assume the officers are on night duty. They get paid for their 40 hours and overtime in addition to that for every hour of night duty.

Mr. Malone

Yes. We are reviewing the situation.

Chairman

Even though they have not worked any ordinary time?

Mr. Malone

Yes. We charge the plants £10 per hour for each hour worked, so the plants contribute to the overtime bill. One plant gave us £29,379 in 1998. There are two points. First, we try to charge the plants to the greatest degree possible for the service and, second, we are reviewing the position.

Chairman

Because it is charged on does not mean you get value for money. Regarding the systems review, can we be told how things stand? I have read the letter from the Department in this regard. Is the Secretary General happy that things are now improving and that satisfactory progress is being established on all fronts?

Mr. Malone

I hope the letter we sent conveyed the point that we are taking the systems review and the resultant recommendations very seriously. The review breaks down into a number of different headings and we are trying to proceed systematically through each recommendation through our management committee. I did a quick tot this morning on the number of recommendations and I feel that of the order of two-thirds of them have either been implemented or are in the process of implementation. We have to make progress on a further one-third. Some of the issues, such as the new financial management system, relate to the broader public service. The accounts project is critical to fully implementing a number of the recommendations. The report has provided us with a best practice benchmark. We have made consistent and incremental improvements in recent years and the report will give us a benchmark against which to measure ourselves. We take the report very seriously. The Minister has endorsed the report and reported to Government on it.

Chairman

What is the structure of the management committee and what are its methodologies? Does it meet regularly? Does it report to the Minister? Does it meet with the Minister? Are minutes taken? How are decisions implemented and followed up and how is progress reported?

Mr. Malone

The management committee meets every two weeks. We keep minutes which, in essence, are decisions taken at the meetings. Those are reviewed at subsequent meetings and we also have a process whereby decisions taken are reviewed on a periodic basis. The Minister meets the management committee on a regular basis. For example, we had an in-depth meeting last week covering a wide range of issues.

The committee comprises all the assistant secretaries, the chief veterinary and chief technical officers. The committee has eleven members in addition to myself and a secretary who takes minutes.

Chairman

If deadlines by which particular actions are to be taken are decided upon, is there a system of checking those?

Mr. Malone

The minutes consist of a list of decisions taken and they are reviewed at subsequent meetings. On occasions, we review all the decisions we have taken and measure progress against them. Obviously, we meet the Minister on a daily basis in regard to a range of ongoing issues. The Minister regularly interacts with the management committee which meets on a particular day every two weeks and decisions taken at the meetings are recorded.

Chairman

My concern arising from the DIRT inquiry report - and this does not relate specifically to your Department - is that many Departments do not have any in-built means of keeping on top of continuing or emerging issues. I want to satisfy myself that all Departments have appropriate mechanisms, such as early warning and early action systems, in place in this regard. At least there is a management committee in place in the Department of Agriculture, Food and Rural Development which meets regularly.

Mr. Malone

I should also bring it to the Chairman's attention that the committee examines a monthly financial report.

Chairman

Against budget?

Mr. Malone

Yes. Our internal auditor visits the committee on a quarterly basis. The Department also has a very detailed strategy statement which is measured on an annual basis.

Chairman

How many people are employed in the internal audit section?

Mr. Malone

There are 16 people altogether. We have strengthened our internal audit section.

Chairman

What rank is the internal auditor?

Mr. Malone

He is at principal officer level.

Chairman

To whom does he report?

Mr. Malone

He reports to an assistant secretary but also has direct access to me and meets the management committee on a quarterly basis. We also have a professional accountant and are in the process of hiring a second one.

Chairman

Why should the internal auditor report to an assistant secretary? Does that not compromise his independence?

Mr. Malone

I do not think so and I do not think he feels that himself. To be honest, that is the structure which is in place and I do not think there are any disadvantages to that. We also have an external audit committee - I understand a copy of its report was sent to the Chairman - and we have found that to be quite valuable. One of the big issues which it monitors relates to the manner in which the internal audit system works and how we follow up on its findings.

Chairman

Are you satisfied as accounting officer that the internal auditor has sufficient powers, access and independence to report to you on any issue about which he is unhappy?

Mr. Malone

Absolutely.

Chairman

We will move on then to the value for money report by the Comptroller and Auditor General into performance measurement in Teagasc.

Mr. Purcell

Section 9 of the 1993 Act gives me the power to carry out examinations of the systems, procedures and practices employed by public sector organisations for evaluating the effectiveness of their operations. This is an aspect of my value for money mandate which I have not exercised to any great extent to date for the simple reason that it is only in recent years that Departments and semi-State bodies have put such systems in place in a formal way.

The ongoing programme of reform of the public service emphasises the importance of developing a clear focus on outputs and impacts and on planning and managing to achieve effectiveness. The report before the committee today looks at how this process is being operated and developed in Teagasc. The result is a more technical report than usual and, in that sense, is not perhaps as immediately accessible as some of my other value for money reports.

What does the report tell us about Teagasc's evaluation of its own effectiveness? My overall conclusion is that Teagasc has moved a considerable distance towards the development of a sound system for the evaluation of the effectiveness of its operations both at the level of individual programmes and for the organisation as a whole. The remaining elements required for evaluating effectiveness could be developed relatively easily. I found that since its foundation Teagasc has applied a strategic approach to the conduct of its activities. Its most recent statement of strategy in the document entitled Teagasc 2000 sets out clear organisational objectives for most of Teagasc's areas of work. These objectives were developed through extensive consultation with stakeholders and most of the impact objectives are capable of being measured. What is missing is a set of quantified targets which should show as accurately as possible how the current position is expected to change over a defined period as a result of Teagasc's activity. In a few areas where quantified targets cannot be established, alternative evaluation processes should be formally adopted.

Some good evaluation work is already carried out in Teagasc but I was concerned that the evaluation process could be selective rather than comprehensive. To counter this, I suggested that Teagasc should produce a plan to evaluate over a defined period the extent to which it achieves each of its corporate goals. The implementation of such a plan will have resource implications and these should be identified. However, I want to emphasise that what is put in place should not be a rigid or automatic procedure or an expensive data gathering exercise. Instead, the aim should be to promote a culture of impact evaluation as an integral part of the existing strategic planning and management process.

In summary, the Teagasc experience in the whole area of performance evaluation points up some important lessons for all public sector bodies engaged in this kind of change. It is clear that changing the management culture in any complex organisation with a range of stakeholders takes considerable time and requires sustained effort. It is also likely that progress would be made at different rates in different parts of the management system. Having a clear strategy for the development of an organisation's capacity to evaluate effectiveness should help to ensure that progress is steady and consistent across the board.

Chairman

Would Mr. Malone like to comment on the Comptroller and Auditor General's findings?

Mr. Malone

Both we and Teagasc have examined this document and discussed its content. We are all in agreement that it is a very useful exercise. It is very important that Teagasc recognised it as being a helpful document. I agree with the Comptroller and Auditor General's summary. The important issue is to evaluate the effectiveness of programmes and to have impact targets. In fairness to Teagasc, it has moved some distance in this and it is recognised that it has many of the elements in place. However, the critical question is what will it do in light of this report. Teagasc is in the process of producing a new statement of strategy which will take into account the points raised in the report. The intention is to build in a more planned approach to evaluate procedures and outcomes in the design of any new major activities. It hopes to have this work completed by the end of this year. In summary, the report is acknowledged and will be acted upon this year.

Chairman

Does an Assistant Secretary in the Department oversee Teagasc?

Mr. Malone

There is a unit which deals with various semi-State bodies. An Assistant Secretary in the Department is on the board of Teagasc, therefore, there is ongoing contact with it. However, at the end of the day Teagasc has its own mandate, responsibilities, board and a number of different programmes as set out in the report.

Chairman

What are the responsibilities of the Assistant Secretary? Does he report to the Department on board meetings?

Mr. Malone

We receive information on board meetings and on a range of ongoing issues in Teagasc such as particular programmes, staff and various other issues. There is a considerable amount of interaction with Teagasc. The Minister and I periodically meet the chairman and management of Teagasc. The Department would have a fair idea at any given time of what is happening in the organisation, which is important.

Chairman

There was not a representative from Teagasc here today.

Mr. Malone

There was a misunderstanding because we assumed Teagasc was not to attend.

Chairman

On the DIRT inquiry report we had experience of the Department being represented on the board and then pleading ignorance about developments or lack of developments because it was not formally informed of matters. I am concerned about this aspect. I will defer further consideration of the matter in relation to Teagasc and then report back to the committee.

Vote noted in relation to the Department of Agriculture, Food and Rural Development and the annual financial statements 1995 and 1996 of the Irish Intervention Agency. On the value for money report, we may wish to call representatives from Teagasc in respect of this issue.

The witnesses withdrew.

The committee adjourned at 1.05 p.m.