COMMITTEE of PUBLIC ACCOUNTS debate -
Thursday, 21 Dec 2000

Vol. 2 No. 33

Tipperary (North Riding) Vocational Education Committee - Financial Statements, l994-1995.

Mr. L. Murtagh (Chief Executive Officer, Tipperary North Riding Vocational Education Committee) called and examined.

Acting Chairman

Item No. 5 is the Tipperary (NR) VEC - Annual Financial Statements 1994-95 and General Report of the Comptroller and Auditor General on the Education Sector 1995 - relevant section - resumed, 1996-99.

The relevant documentation has been circulated as has correspondence dated 12 July 2000 from the Department of Education and Science enclosing details of the revised accounting arrangements for the VEC sector. This information was requested at the previous examination of the annual financial statements 1994 and 1995 on 13 April. A transcript of the meeting of 13 April has also been circulated.

Witnesses must be made aware that they do not enjoy absolute privilege. Their 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 Immunity of Witnesses) Act, 1997, grants certain rights to persons who are identified in the course of the committee's proceedings. Those rights have been outlined. Notwithstanding this provision in legislation, I should remind members of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against persons outside the House, or an official, either by name or in situations which make him or her identifiable.

I ask Mr. Murtagh, the chief executive officer of the Tipperary NR VEC, to introduce his officials.

Mr. Murtagh

I am accompanied by Margaret Brophy, senior staff officer, and Antoinette Coffey, adult education organiser.

Acting Chairman

Department of Education and Science officials include Mr. Des O'Loughlin, Mr. Pádraic McNamara, Mr. Jerome Kelly, Ms Kathleen McLaughlin and Ms Teresa O'Connor. You are all welcome.

I ask the Comptroller and Auditor General to reintroduce the contents of the 1994 and 1995 accounts and to introduce the 1996, 1997, 1998 and 1999 accounts.

Mr. Purcell

Thank you, Chairman. As the Chairman said, the committee is dealing with a carry-over from its meeting on 13 April of this year which considered the section 7 report by me on the 1994 accounts of the VEC. The thrust of that report concerned difficulties in achieving proper governance for activities undertaken through subsidiary companies and funds. At that time, the audits for the years 1996 to 1999 had not been finalised but that has now been achieved and, as a result, the accounts of the VEC for those years are before the committee today for consideration. Also for the information of the committee, I have recently certified the accounts of the two subsidiaries in question up to and including 1999.

Looking at the latest accounts for 1999 for the VEC, the committee will note that the accounts record the existence of certain obligations and transactions. Taking the most recent account - that for 1999 - members will see on page 5 that the outturn for the two subsidiaries is set out. On page 13, the financial obligations of the VEC in relation to the borrowings of the subsidiaries are shown. Also on page 13, in the notes 21 and 22, the accounting for the Tipperary Rural and Business Development Institute during its formative years is explained. It is recorded that a debt of £131,000 in respect of the pre-incorporation expenses incurred by the VEC on behalf of the institute is disputed by the company which now runs the institute.

Also before the committee this morning is a section 7 report on the accounts of the VEC for 1997 which draws attention to expenditure on consultancies relating to the institute to a total of £547,000 during 1996 and 1997. I was concerned that the principles underpinning public financial procedures might not have been adhered to in the way the business was given out. I am thinking in particular about open and competitive tendering and that the work would be covered by clearly defined conditions of contract. The chief executive officer pointed out that it was necessary to engage consultants to carry out the work specified in the report primarily because the institute did not have any professional staff at the time. The invitations to tender for the work were restricted to those consultants who had contact with or who had been involved previously with the committee or were known to the institute. I refer to the steering committee when I refer to "the committee" in that context.

Written contracts were used in only three out of 39 assignments, the others being verbal with payment on a per diem rate as tendered. As you will see in the report the chief executive officer states that the duration of the work involved was often difficult to estimate but that he continually monitored performance and was fully satisfied with the quality of the services provided. He also states that he believed the employment of consultants represented value for money for the institute. I am not necessarily disputing this last point but be that as it may, the way things were done would not be consistent with public financial procedures as regards equity and cost control. The committee will note that the Department appears to share some of my concern and is inquiring further into the matter.

Acting Chairman

Mr. Murtagh, do you wish to make an opening statement?

Mr. Murtagh

Yes. Would it be in order to deal with the companies first?

Acting Chairman

Yes, whatever way you want to present it. All the reports - the resumed report and the other four - are open for examination.

Mr. Murtagh

In relation to the companies, I have been in discussion and correspondence with the Department of Education and Science. Arising out of the discussion and correspondence and following legal and accounting advice the committee wishes to regularise the position and transfer the activities of the companies to the VEC and voluntarily liquidate the companies. This would involve a number of steps: the adoption of a resolution by the boards of the companies, the adoption of a resolution by the VEC, appointing a designated date, preparation of a statement of affairs as of that date and seeking approval from the Department of Education and Science to clear the mortgage in relation to Ionad Forbartha Oideachais Gnó agus Tuaithe Teoranta and the bank loans for Aonad Forbartha Tuaithe agus Gnó. It would also involve the transfer of the assets and liabilities and meeting all the statutory requirements vis-à-vis the Companies Registration Office and the Office of the Revenue Commissioners. We would draw on legal and accountancy advice during the process to ensure it was carried out properly.

In relation to the activities in which the companies are engaged, the committee proposes to establish boards of management for the centres where the activities are carried out. Members will appreciate that the process is complex and will take some time to complete. I have been in touch with the internal audit unit service recently established by the Department of Education and Science for vocational education committees which has confirmed that it will provide support in the process. However I wish to assure the Acting Chairman and members of the committee that the VEC will be proactive in the matter and give it top priority. I appreciate the ongoingsupport and advice of departmental officials in the matter.

In relation to the consultancy, I would like to make a number of points. I am not too sure but perhaps there has been a misunderstanding in the Comptroller and Auditor General's report. The consultancy was advertised in the national press. Perhaps this fact was lost in the correspondence and discussion. Quite a rigorous process was carried out. The reference to dealing with companies which had already provided services for the TRBDI related to the fact that we knew their track record. In the case of other companies which had applied, we initiated a process whereby they were interviewed, an evaluation was carried out and a report prepared for me on their ability to carry out the jobs as required. There may have been a misunderstanding in that matter.

I accept, as the Comptroller and Auditor General pointed out, there has been a technical breach in that in most cases we did not have written contracts. The reasoning for this, as I indicated in my reply, was that, because of the nature of the development of the process and the development of the institute, it was very difficult to estimate in advance the amount of time involved. Therefore we operated on the basis of a per diem rate.

I will give members an example. When the outline of a course is developed there is a need to consult with a range of interests on it. Let us take as an example a course on rural development. For it to be meaningful in the context of delivering the services of the institute it is important to consult those involved in rural development to get their view. When the course is presented to that consulting forum obviously changes, suggestions and recommendations are made which have to be taken on board. A further step in the process involves making a presentation of the course to the NCEA by whom courses in the institute have to be validated. There is an iterative process between the institute and the NCEA. The course is prepared which is followed by a consultation process involving the interests involved and the material is revised in this context. The course will then be submitted to the NCEA where, again, there will be requests for changes and so on. I am trying to explain how it is impossible to quantify the amount of time involved in the process.

The benefits of the work carried out by the consultants are there to be seen in that the institute is up and running. It is still in its developmental phase but has two campuses, one in Thurles and the other in Clonmel. It has 280 full-time students plus 150 on access mode. It is involved in a series of relationships with the community in County Tipperary for whom it is providing support. It has 96 staff. Even in the short period it has been in existence it has started to make a mark.

One of the areas of consultancy referred to in the Comptroller and Auditor General's report is alternative energy in relation to which on 13 October the institute received a European award for the quality of its work. I am trying to illustrate that the work carried out by the consultants has brought benefits to the institute. One of the people involved in developing the area of alternative energy is now a full-time employee of the institute. We have succeeded in creating a critical mass of expertise in the area.

The institute is working quite well and beginning to make an impact, not just at national level but at European level. I notice from the report of the chief executive officer to the board at its last meeting that Higher Education Authority Net was involved in the launch of an Internet video conferencing link. According to the report, the only Irish third level institution involved was the TRBDI which has succeeded in developing quite a sophisticated IT system, again, as a result of the thought and foresight put into the development of the institute.

Acting Chairman

Obviously we will be asking the Department of Education and Science for its views on the transfer of the companies. The committee has devoted much time and attention to the question of consultancies and contract works generally. They have been consistent in highlighting the merits of the works done. Our job is to ensure there is a proper procedure in place. I am sure we will move on to that during the examination. I call Deputy Conor Lenihan who will be followed by Deputy Rabbitte.

Deputy C. Lenihan

I wish to clarify a point with the Comptroller and Auditor General. He referred to pre-incorporation bills of £131,000. To whom are they due? To the consultants? I did not catch the reference. He said they were being disputed by the company. I am not clear what that is about.

Mr. Purcell

I can clarify that. Originally the activities of the institute were being treated for accounting and administrative purposes from within Tipperary North Riding VEC. Those expenses to a value of £131,000 were incurred by the VEC on behalf of this institute, which at that stage had not been incorporated in law. That institute is a company and it is disputing the validity of that charge on the company in that sense. It is standing at present to the VEC. The VEC's position is that it was sold to it by the company which operates and is the Tipperary Rural and Development Institute.

Deputy C. Lenihan

The chief executive might be able to clarify the position. It seems odd. Is the company making the argument that it has not been legally incorporated and, therefore, could not be liable for those bills?

Acting Chairman

Mr. Murtagh might take that question.

Mr. Murtagh

As I understand the situation, the argument of the company is twofold. One, it is making a legal argument in the context of pre-incorporation expenses, whether the money involved should be treated as pre-incorporation expenses and, two, the company would also need the approval of the Department of Education and Science to make the payment, if it decided it should make it.

Deputy C. Lenihan

The VEC would need——

Mr. Murtagh

No, the company, TRBDI.

Deputy C. Lenihan

Is the Department of Education and Science withholding consent?

Mr. Murtagh

No, I did not say that. I will summarise where we are at on it.

Deputy C. Lenihan

I am not clear how expenses were built up and cannot now be repaid. From the point of view of taxpayers' money, the VEC disbursed funds on behalf of a company that is now denying liability. In practical terms, what were the expenses for?

Mr. Murtagh

The expenses related to work in the main on EU projects, the development of proposals for EU projects and the running of EU projects. During its development stage, the institute was involved in a number of EU projects, which were financed by the EU. As the Deputy will be aware——

Deputy C. Lenihan

What kind of projects are we talking about?

Mr. Murtagh

We are talking about projects in the alternative energy area. I referred to one of them in the waste management area. There was also a project involving the provision of training and support for small businesses and one involving the delivery of an MSc in rehabilitation counselling in conjunction with the University of Illinois using distance education methodologies.

In the case of the EU projects, the methodology used is that once an EU project has been approved, the EU tends generally to make a down payment of about 20% and the balance of the funding is given on the basis of reports. Normally an application would be submitted for funding half-way through the project, further funding would be given in arrears and at the end of the project, provided the report was satisfactory, the balance of the money would be given.

In this case, the projects ran during the VEC agency and continued on into the life of the company. That is where the essential difficulty has arisen. I have examined the figures and last month I examined the funding relationships between the Department of Education and Science, the VEC and the TRBDI. I have reconciled the figures to the figures indicated by the Comptroller and Auditor General in his report. I have provided the financial section and the colleges section of the Department of Education and Science with the documentation and the reconciliation. I have also written to TRBDI and have sent a copy of the document to the Comptroller and Auditor General. The state of play as a result of correspondence is that the Comptroller and Auditor General has included the reconciled figure in his accounts.

The view of the financial section of the Department of Education and Science is that if the money has been legitimately spent, it should be recouped. I was in contact with the colleges section and it is currently reviewing the situation. The Deputy will appreciate that it only got the documentation in the recent past. I have been in contact with the TRBDI on the matter but it has not completed checking the reconcilement. It pointed out that it would need approval from the colleges section of the Department of Education and Science to pay the money. That is the current situation.

Deputy C. Lenihan

Is TRBDI denying liability? What kind of expenses are we talking about?

Mr. Murtagh

As I understand it, it is examining the legal aspect. I do not think there is any dispute by anybody that the work was carried out. It is being audited by the Comptroller and Auditor General and the money is due, but there is a technical issue in relation to whether they are pre-incorporation expenses.

Deputy C. Lenihan

What is the technical issue? It is pre-trading costs essentially.

Mr. Murtagh

I am not an accountant, so I am not competent to answer that question.

Deputy C. Lenihan

Is there somebody on Mr. Murtagh's team who can answer the question?

Mr. Murtagh

I would not think so.

Acting Chairman

We must accept Mr.Murtagh, as the Accounting Officer, is the one who will have the answers on the financial issues.

Mr. Murtagh

Yes.

Acting Chairman

There are questions outstanding he cannot answer and we will have to get a note on them.

Deputy C. Lenihan

I presume there is a legal argument that the company cannot incur costs if it is not incorporated. Is that the nub of the argument the company would make, that it cannot incur costs if it is not a legal entity? Is that the issue?

Mr. Murtagh

That would appear to be it.

Deputy C. Lenihan

That is quite serious because that means the VEC paid moneys to something other than an legal incorporated entity.

Mr. Murtagh

Through the Chair, the VEC was acting as agent for the steering committee during the development phase of the institute up to the time TRBDI became a legal entity in March 1998.

Deputy C. Lenihan

Is there a dispute whether the steering committee or the incorporated company is liable? I am confused about this.

Mr. Murtagh

My interpretation is that the work was properly carried out and the expenditure was properly incurred on behalf of the steering committee. I am talking as a layman. The operation, lock stock and barrel, was transferred from the steering committee to the limited company. As Accounting Officer of the VEC, I am clear that the money is due to the VEC.

Deputy C. Lenihan

But who is——

Acting Chairman

Just a moment, Deputy Lenihan. This highlights the correctness of the concern of the Comptroller and Auditor General about the 1995 accounts, that matters seemed to be done at random, nobody was sure who was accountable to whom and there were difficulties. This highlights the squabble over this considerable amount of money. Mr. Murtagh is answering for the VEC today, but we do not have anybody answering on behalf of the company.

Mr. Murtagh

No, I am not in a position to answer for the company.

Deputy C. Lenihan

Who is the shareholder in the company?

Mr. Murtagh

The Government. The Minister for Education and Science is the principal shareholder.

Deputy C. Lenihan

He is the principal shareholder, but he has not representation on the board of the company.

Mr. Murtagh

I am representing the VEC. I am a member of the board.

Deputy C. Lenihan

Of the company?

Mr. Murtagh

Yes.

Deputy C. Lenihan

As a board member, Mr. Murtagh must be privy to what the dispute is about. For him to claim lack of knowledge is surprising, given that he is a board member of the company that is disputing with his body, the VEC, the amount of money involved.

Mr. Murtagh

The board's view is that there is an issue around incorporation expenses and whether this matter can be included legitimately under incorporation expenses. I am not a legal person or an accounting person. I am Accounting Officer for the VEC, but I am not aware of the niceties. I would have thought that any activity legitimately engaged in by the VEC acting as agent for the steering committee would be taken over by the company when it was established. That was the basis on which I carried out the work.

Deputy C. Lenihan

On the background to this, is this dispute by its nature a technical one or does it arise from the VEC having decided to close down the company? Is that not correct?

Mr. Murtagh

No, they are different issues.

Deputy C. Lenihan

Is it not the intention to transfer the TRBDI from its incorporated status to——

Mr. Murtagh

No, they are two separate issues.

Deputy C. Lenihan

What is the feature status of TRBDI? Is it a limited company?

Acting Chairman

I will ask the Comptroller and Auditor General to comment on that aspect as he dealt with it earlier.

Mr. Purcell

The institute is a legal entity and it is proper it should continue to be an independent legal entity with representation of bodies such as the VEC. The other two subsidiaries were set up by a committee of the VEC in or around 1994 to overcome pragmatic difficulties in financing the particular activities. Those two companies that we call subsidiaries - although whether they are in a legal sense is not a matter on which I would like to express an opinion - are being wound up.

Deputy C. Lenihan

Their activities will revert to the institute?

Mr. Purcell

Their activities have been included not as part of those of the institute but as part of those of the VEC.

Deputy C. Lenihan

Yes.

Mr. Purcell

They are two separate matters.

Deputy C. Lenihan

Okay.

Mr. Murtagh

To answer the Deputy's question, it is a technical issue at this stage.

Deputy C. Lenihan

It is a technical issue because of the issue of the incorporation expenses.

Mr. Murtagh

Yes.

Deputy C. Lenihan

I would appreciate if Mr. Murtagh would give us a note on that matter as I am concerned about the issues arising from it. When was a decision taken to liquidate those two companies?

Mr. Murtagh

That decision was taken in consultation with the Department of Education and Science during the past few weeks.

Deputy C. Lenihan

Was there any reason for that or was it, as the Comptroller and Auditor General said, due to financial problems during that period?

Mr. Murtagh

I outlined the circumstances in which the companies were established on the last occasion I appeared before the committee in April. They were set up to carry out activities. The world has changed dramatically since then. The area of lifelong learning and adult education is now within the mainstream in the context of the recent White Paper on lifelong learning. There is a clear mechanism for managing the arrangements.

Deputy C. Lenihan

On the issue of the written contracts, why were three of the 39 consultancy contracts written? What were the characteristics of the three contracts required to be in writing? In terms of the activities involved, what made them different from the other 36 contracts which did not require to be in writing?

Mr. Murtagh

The difference was that those three contracts related to clearly defined activities in terms of time scale, whereas the other activities were ongoing and, as I said earlier, it was difficult to quantify them in terms of time. It was an issue of being able to clearly determine in advance the time scales involved.

Deputy C. Lenihan

What were the three contracts that involved a time scale? What were the consultants delivering in respect of them?

Mr. Murtagh

One related to an evaluation of the pilot programme on the MSc in rehabilitation counselling to which I referred, another related to evaluating a proposal to examine the feasibility of taking over an operation involving distance learning and I cannot give details of the other one off the top of my head.

Deputy C. Lenihan

What about the other 36 contracts?

Mr. Murtagh

As I explained earlier, the other 36 related to situations during the development phase of the institute where it was not possible to be definite and clear about the time scales involved as the nature of the work related to the development of courses and programmes and the steps necessary to set up the institute. It was not possible to forecast how long that would take. For example, to set up the institute, we had to get approval from the NCEA for it to be a designated institute. That took a fair period of time and we could not anticipate in advance how long that would take. We also had to get recognition from the CAO to have the courses included and that took a certain period. We had to develop a mechanism for the governance of TRBDI to prepare the memorandum and articles of association of the company and that took a significant period. We applied for planning permission for the building of the campuses and, as the Deputy will be aware, with applications for planning permissions, there is the issue of appeals and so on and an appeal was lodged against the application for planning permission for the Thurles campus. Therefore, there were a number of uncertainties regarding timescales.

Deputy C. Lenihan

Would it be fair to characterise the institute as a hybrid? It is neither fish nor fowl in the sense that it is not an institute of technology or a university yet it is in the third level sector. Are some of those consultancy costs associated with the fact that the policy mandate the VEC was given was for a hybrid educational structure which has no parallel elsewhere in the country? Is that part of the problem?

Mr. Murtagh

Yes. The Government decision on the establishment of the institute was quite clear. It was decided to establish it on the basis that it would be a unique institute. Therefore, the concept behind that uniqueness had to be developed and fleshed out. In the case of the development of courses, we were not able to take a template of courses that were developed in existing ITs and use it; we had to develop the programmes ab initio.

Deputy C. Lenihan

What year was that Government decision taken?

Mr. Murtagh

It was taken in 1995, to the best of my knowledge.

Deputy C. Lenihan

The mandate given to the VEC was to develop a sustainable rural business development institute.

Mr. Murtagh

Yes, Tipperary Rural and Business Development Institute. It was to have an emphasis on the question of sustainable rural development and to build a unique relationship between the institute and the community it served. It involved an arrangement whereby staff of the institute would spend 40% of their time providing services for rural businesses and communities. Therefore it was critically important in the developmental stage to think the whole issue through, to use fresh thinking and ideas. That was the reason it was necessary to use the consultants. The second reason was that there were no staff in the developmental phase.

Deputy C. Lenihan

Does the Department have any comment to make on anything it has learned from this or any other unique hybrid institutions it has established? I assume, from a policy point of view, that more of these will not sprout up around the country.

Deputy Rabbitte

Not in Tallaght.

Deputy C. Lenihan

No.

Ms McLoughlin

I am a principal officer in the colleges section of the Department of Education and Science. There are no plans to develop further institutes along the lines of the TRBDI which in terms of its growth and development is in its infancy. It took a number of years to get it up and running. Certainly in the past couple of years we have begun to reap the fruits of its development. At this point we have no plans to develop another model along these lines. What is interesting however is that some of the models being tested and developed in the TRBDI will be of value to us in other institutes afterwards, particularly in the context of the White Paper on adult education in which we are concerned about issues to do with open and distance learning access for a variety of groups from the disadvantaged to adult learners who need upskilling in the workplace and so on. In this respect the TRBDI has done some very interesting work in terms of the use of ICT, Internet communications technology, as a delivery tool for education. While we may not replicate the model many lessons will be learned about pedagogical style and so on which we can use elsewhere.

Deputy C. Lenihan

The benefit is accidental. The main benefit of this institute is to the county of Tipperary because it is hybrid, serving a community which presumably is County Tipperary based and does not have a wider remit outside.

Ms McLoughlin

As I do not have the profile of the students with me I cannot say whether it is only students from County Tipperary who are involved.

Deputy C. Lenihan

In effect it is unique in that it is being generous to County Tipperary.

Mr. Murtagh

The student intake is by definition a national student intake because it is State funded and comes within the CAO system.

Deputy C. Lenihan

How does one define the word "community"? That is where I am confused. You say that the institute was to spend 40% of its time servicing the community. Is that the national community or the local community in County Tipperary?

Mr. Murtagh

In relation to the student intake, we are talking about a national cohort. There are two definitions of the word "community" in operation - one obviously is the local geographical community.

Deputy C. Lenihan

In County Tipperary.

Mr. Murtagh

County Tipperary and the surrounding region. The third level system is designed in such a way that most communities would be within reasonable commuting distance of an institution, say 40 miles. The other definition is a community of interests. For example, the expertise developed by the TRBDI is available at national and international level. It has developed tremendous expertise in the area of biomass and alternative energy and provides services and advice for those from any part of the country interested in such services and advice.

Deputy Rabbitte

On the same theme, the 280 students, between the two campuses, come out with an NCEA validated qualification.

Mr. Murtagh

Yes.

Deputy Rabbitte

Either a certificate or diploma.

Mr. Murtagh

Currently there are national certificates in computing and four national diplomas. There is a proposal that as it evolves, subject to the approval of the Department and the NCEA, the institute provide degree level courses. It is providing the first undergraduate programme in sustainable rural development in the country.

Deputy Rabbitte

Do you propose at any stage to link with University of Limerick for the purposes of degree validation?

Mr. Murtagh

First, I want to clarify my situation. I am chief executive officer of North Tipperary VEC and a member of the board of the TRBDI, as a member of which I will comment. I was also involved in the earlier development. By definition, an institute such as the TRBDI needs to work with a range of institutions and organisations, nationally and internationally. That would be the approach of the board and the institute. For example, the first ICT certificate skills programme was delivered with the co-operation and support of Cork Institute of Technology without which it could not have been delivered. The TRBDI took in its first cohort of full-time students in 1999. At the end of 1997 and early 1998 the Government introduced an initiative with regard to skills shortages in the ICT area. At the time the institute considered it important to respond but did not have the time to go through the process of NCEA validation. We contacted our colleagues in the CIT who co-operated and ran the programme with us.

The philosophy of the institution would be to co-operate with other institutions, nationally and internationally. In terms of the EU project to which I referred the key to building the expertise of the institution in the area of biomass was that we were linked with third level institutions abroad. Through the process of being involved in the EU project expertise was gained from those in Denmark who already had expertise in the area in which, as I said in my introduction, the TRBDI has gained a European award.

Deputy Rabbitte

What exactly do you mean when you say "providing services for rural businesses"?

Mr. Murtagh

Rural businesses and communities.

Deputy Rabbitte

In practical terms what does that mean for the institute?

Mr. Murtagh

It means a number of things. Let us take rural businesses as an example. All businesses need support in the area of ICT. The institute has provided its expertise for companies which need to upgrade their ICT capability.

Deputy Rabbitte

Does that mean staff of the institute or are students involved as part of their practical work?

Mr. Murtagh

It would mean both. By virtue of their contract staff of the institute are obliged to spend 40% of their time providing services for rural businesses and communities. Courses are structured in such a way that students spend some time in businesses and communities to gain work experience. Let me give a practical example. I visited Camphill community in Kilkenny this week. Part of that operation is to use the concept of sustainability whereby the TRBDI is working with the community to develop a heating system using sustainable materials. The institute will be able to provide support for a community in County Tipperary or elsewhere in developing structures and helping it to organise and develop opportunities for its members.

Deputy Rabbitte

What exactly is meant by 150 students being in access mode?

Mr. Murtagh

Access mode is a methodology that has been devised by the——

Deputy Rabbitte

The only access mode when I was doing it was that one hitched to the university.

Mr. Murtagh

It was devised by the NCEA and the Department of Education and Science and it allows people to take courses in their own time and at their own pace on a modular basis. One could do a particular module this year and would not have to attend on a full-time basis and one could build up one's qualification over a period. It does not necessarily have to be delivered in the main campus or in the main centre. It can be delivered outside.

Deputy Rabbitte

It is validated by the NCEA.

Mr. Murtagh

Yes.

Deputy Rabbitte

In terms of the sustainable rural development what are we talking about? Is it a 21st century version of the old agricultural college?

Mr. Murtagh

The old agricultural college had a fairly narrow focus. By definition, it was focused on agriculture. Rural development is a much broader concept and involves taking on board the fact that the situation in rural Ireland is changing fundamentally where the proportion of people engaged in agriculture is declining and there is a need to provide alternative opportunities for people living in rural areas. The concept of rural development is much broader than that referred to by the Deputy.

Deputy Rabbitte

What are the projections? Will student numbers continue to rise in the next five years?

Mr. Murtagh

Are you talking about nationally or at the TRBDI?

Deputy Rabbitte

At the TRBDI.

Mr. Murtagh

The Department of Education and Science approved 500 places for phase one of the project. If the numbers are to increase the approval of the Department of Education and Science will be required. Given what has happened in the past 20 years in the third level sector, given that the State requires a third level enrolment of 50% of the population and given the need, as outlined in the White Paper, to provide much greater opportunities for those who leave the education system early, my view is that TRBDI will grow significantly.

Deputy Rabbitte

May I ask the Comptroller and Auditor General a question? Did I understand him to say that these consultancies were not put out to tender in accordance with public finance procedures? Did I hear Mr. Murtagh say they were advertised?

Mr. Purcell

The best I can do is give my understanding of the position and perhaps Mr. Murtagh can confirm or may have extra information on these matters. As I understand it, a number of consultancies were given out in 1996. On the basis of correspondence with the chief executive officer the business was given to consultants who provided services to the acting committee which supported the TRBDI project from 1978 to 1995 or to consultants who contacted the TRBDI offering to provide services or consultants who became known to the institute at TRBDI during the course of its planning. As I understand it, the advertisement seeking submissions from parties capable of supplying consultancy services in different disciplines was placed in the national press in January 1997. Looking at the companies which got contracts in 1997, at a quick glance here nine of them would have had the inside track in 1996. The contracts would have been worth amounts such as £52,000, £67,000, £59,000, £21,000, £22,000 - they are examples from the schedules.

Deputy Rabbitte

Mr. Murtagh, to say they were advertised in that context is slightly misleading.

Mr. Murtagh

No, they were advertised and a process of vetting the——

Deputy Rabbitte

Does it not look as if the advertisement was placed for the——

Mr. Murtagh

No.

Deputy Rabbitte

Some were already there in 1996 and were retained after the advertisement was placed. Maybe they were the most appropriate and associated with nurturing the project and maybe they were the most suitable, but does it not look like——

Mr. Murtagh

The advertisement was——

Deputy Rabbitte

For cosmetic purposes.

Mr. Murtagh

I wish to make a couple of points on that issue. The advertisement was not placed for cosmetic purposes. A fundamental principle is important here. In terms of developing the institute it was fundamentally important to get top class people, otherwise having regard to the nature of the task involved it would not be possible to carry out the task. I assure the committee I was ruthless in terms of taking people on board and in terms of not continuing where people were not delivering. We also took the view that it was fundamentally important to get the best knowledge and expertise that was available to develop this complicated process. There was no way, philosophically or otherwise, we would not take on board people who would contribute to the development of the institute.

Acting Chairman

We may have to ask the Comptroller and Auditor General about that again. We have gone through the matter of consultancies with all Departments. Two very strict procedures are laid down, written contracts and advertisements, to allow everybody to tender. The point Deputy Rabbitte is making is that quite a few of the consultancies were gone before the advertisement was placed in January. This is important because everybody will argue the merits of and the reasons for that but our job is to ensure that these standards are adhered to. Does Deputy Rabbitte wish to continue to pursue that angle?

Deputy Rabbitte

That is the point, Chairman, and it may well have been the correct decision. Were there new substantial tenderers as a result of the advertisement in January? The Comptroller and Auditor General has adverted to the coincidence of retention of consultancies. Were there new outside tenderers of any significance as a result of the advertisement?

Mr. Murtagh

Yes.

Deputy Rabbitte

Were they interviewed?

Mr. Murtagh

As I said earlier, an interviewing process was set up and the firms that applied were interviewed.

Deputy Rabbitte

Is this the area of Mr.McNamara and Ms McLoughlin? Ms McLoughlin, were you consulted at the time or did you come into it post hoc?

Ms McLoughlin

It was very much post hoc. I am working on this particular portfolio——

Deputy Rabbitte

I take it Ms McLoughlin is not from Tipperary.

Ms McLoughlin

I am not from Tipperary. While I have been working with the institute of technology for the past year, I have only assumed responsibility for the TRBDI in the past six weeks.

Deputy Rabbitte

Are you happy that matters are proceeding as they ought?

Ms McLoughlin

In fairness, the Department is following up with the chief executive officer. We have asked him some hard questions and he has replied. We are looking at that reply but we have not——

Deputy Rabbitte

On the main issue in terms of technical breach or otherwise, the actual decisions made in regard to acquisition of site were prudent as it has turned out. I presume the Comptroller and Auditor General would argue at another time that would be different. Presumably in terms of property prices and so on it was a good decision.

Mr. Purcell

Yes. Clearly the acquisition of property in a rising market, as it has turned out to be, is a good deal. What I was concerned about at the time was the regularity of setting up a subsidiary company to circumvent a failure or a refusal by the Department to sanction the matter. I have serious reservations about the wisdom of setting up companies to perform functions which are, in effect, extensions of the main activities of an organisation such as the VEC. It can be short-sighted because in setting up a company one takes on board a number of legal obligations with regard to the holding of meetings. There are certain standards of governance and matters, such as filing returns, if one looks at the accounts of the subsidiaries. There may even be taxation implications in a situation where a VEC is paying rent to the subsidiary. The chief executive officer also mentioned what is involved in unwinding these situations and having voluntary liquidations. There is an administrative overhead in doing these things. It may have been that the Department was not far-sighted enough at the time to enable the VEC to acquire the particular property. As well as that, I saw in this instance that there was a dilution of what I would see as proper governance in the way these subsidiaries were set up. I am happy to hear this morning, because I am hearing for the first time, that they are being wound up. It gets rid of a lot of headaches for many people, including myself.

Mr. Rabbitte

With all due respect to the properly highly regarded civil servants in the Department of Education and Science, my experience is that if the idea did not originate in Marlborough Street, it would not be adapted willingly by the Department of Education and Science. However, that is another story.

Acting Chairman

Are Ms McLoughlin and Mr. McNamara satisfied with the transfer of the companies?

Mr. McNamara

I am the principal officer in the post-primary administrative division. I confirm to the committee that the Department has in the past few days received a comprehensive proposal, as outlined by Mr. Murtagh, for the winding down of the companies. The Department must take its own legal advice on this but the general tenor of its approach is satisfactory from the Department's point of view. The Department also notes with approval that Mr. Murtagh intends to engage with the VEC support unit for advice etc. on the accountancy side. I expect, subject to our legal people signing off, we will approve the proposal made by the VEC.

Deputy B. O’Keeffe

Did Mr. Murtagh have departmental approval to set up those two companies?

Mr. Murtagh

No.

Deputy B. O’Keeffe

When Mr. Murtagh was before this committee on the last occasion——

Mr. Murtagh

In April.

Deputy B. O’Keeffe

——the Nenagh project, the purchase of a building and the initiation of a company formed part of the discussion. It was pointed out at that time that the Tipperary North Riding VEC was acting ultra vires. In other words, the Department did not give it the right to set up a particular company, yet two further companies have been set up.

Acting Chairman

It is the same company that was there. They have now been taken over by the Department.

Deputy B. O’Keeffe

I want to ask Mr. Murtagh about the sanction of money. When the two companies were set up, the Comptroller and Auditor General said the VEC spent £131,000, which it was trying to recover. That money was spent in the initiation period. Was sanction sought from the Department to spend that money?

Mr. Murtagh

The VEC was acting as the agent for the steering committee which had been established by the Minister for Education and Science as a result of a Government decision.

Deputy B. O’Keeffe

Was sanction for the spending of that money obtained from the Department or was it expected that that money would be spent out of the VEC budget?

Mr. Murtagh

It was clear that the funding of the development of TRBDI was a separate issue from the day to day running of the VEC.

Deputy B. O’Keeffe

Was it Mr. Murtagh's knowledge at that time that any money spent in the initiation process would be recouped from the Department of Education and Science?

Mr. Murtagh

Yes.

Deputy B. O’Keeffe

Is it the case that the Department is willing to pay that money?

Ms McLoughlin

We would have provided the funding and approved the budget for the expenditure in relation to TRBDI. There is no dispute about the sum. The dispute is a technical accounting point about which account it should be in and so on. We issued the money to the VEC which then moved it on to TRBDI. There is a number of issues as to whether they should have retained part of that to clear off any debt the VEC was due. In an effort to bring clarity to this point, the nub of the issue is a technical accounting one.

Deputy B. O’Keeffe

Another question relates to the consultancies. It was indicated that what was happening in Tipperary was innovative and that there was no experience of it anywhere else in Ireland.

Mr. Murtagh

Or Europe.

Deputy B. O’Keeffe

At the same time, it was indicated that there was liaison with the Cork Institute of Technology - perhaps it was called the regional technical college at the time - in terms of the validation of courses under the National Council for Educational Awards. As regards the consultancies, knowledge was available throughout the third level sector about EU funding as it had gone through that process and many institutions had benefited from it. The need for consultancies for the initiation process could be questioned. Were some of the consultants who were paid by third level institutes already involved in EU projects?

Mr. Murtagh

As regards the Cork Institute of Technology, that happened at a period post incorporation. That was the institute responding to a skill shortage nationally. As an institute, it was bound to respond. The assistance of Cork was sought to ensure that the institute was able to respond to the Government need.

As regards consultancies and expertise, there is enormous expertise in the third level-RTC sector, and some of that expertise was used in the process. Because this was a unique institution and it was trying to marry the relationship between third level provision and services to communities and businesses, it was necessary to draw on other expertise. If one looks at the area of sustainable rural development, because of the history and background of institutes of technology, there was no particular expertise in the area of alternative energy. It is a combination of things. Some expertise was used from the existing institutes of technology and expertise was used from outside the institutes of technology.

Deputy B. O’Keeffe

Mr. Murtagh cited alternative energy as being the bulwark on which the institute has flourished. The other courses available throughout the third level sector would liaise with businesses etc. Mr. Murtagh mentioned two other areas.

Mr. Murtagh

Information and communication technology and small business.

Deputy B. O’Keeffe

As regards setting up the institute, is it the norm to appoint a director? Is it the norm to have a director in place who would have overall responsibility for the focus and development of this institute? At what stage did the VEC decide to do that? Was it after it had spent all the money on consultancies? Would it have been better to appoint a director rather than a steering committee to do the work and to bring in consultancies?

Mr. Murtagh

The VEC did nothing. The steering committee was the source of authority for anything that happened in relation to the development of the institute. The concept evolved from Tipperary North Riding VEC and Tipperary South Riding VEC. It was important that the expertise and ideas which related to that concept were part of the development process.

I agree with the Deputy that if another institute of technology was being set up, for example, the approach in normal circumstances would be to appoint a director long before the event who would report to a steering committee and be responsible for the development of the institute. However, because this was something unique and fundamentally different, it was impossible to forecast a blueprint. The blueprint had to be developed and evolved over a period of time. In retrospect, it would have been desirable if a full-time director had been appointed one or two years earlier. However, these matters are complicated. There was a range of issues and approvals which had to be given and it was difficult for anyone involved to forecast how it would evolve. The approach adopted in the set of circumstances which obtained was a reasonable and fair one and the results bear that out.

Deputy B. O’Keeffe

I have a final question about the attendance figures. Mr. Murtagh said there are 250 attending at present.

Mr. Murtagh

It is in that region.

Deputy B. O’Keeffe

The projected figure is 500.

Mr. Murtagh

That was approved in phase one.

Deputy B. O’Keeffe

What number of points are needed to get into the institute and how do they compare with other institutes?

Mr. Murtagh

I do not have that information with me.

Deputy B. O’Keeffe

What is the cost base of the institute? Mr. Murtagh said there are 250 students and 90 staff. That seems a high ratio.

Mr. Murtagh

I am not directly involved or responsible. The institute is in a development phase. Any institute in a development phase must put down certain foundations so it can develop and deliver the necessary programmes and courses. There is always front-loading in terms of staffing and expenses in a start-up position, whether it is a second or third level school or other institution. However, that will be brought to the norm over a period of time.

Deputy B. O’Keeffe

I want to ask the officials from the Department of Education and Science one final question about access for the disadvantaged to this institute and other institutes generally. Is there access to this institute for disadvantaged people and those seeking second chance education?

Ms McLoughlin

This institute has been good on this front. The numbers we have are 150 access places, in addition to the 280 full-time students who are attending. That is a good ratio. There has been significant progress over the past couple of years in the institutes of technology sector generally. Each institute has an access officer whose sole function is to speak to those who need access to education and to speak to the academics at base to ensure the programmes in place are suitable for them. We have invested in a structure and we are beginning to see that pay off for us.

Deputy B. O’Keeffe

Am I right that approximately only 25% of the places on offer in Cork were taken up?

Ms McLoughlin

That may have been the situation, but things may have improved. I am not familiar with the Cork figures.

Deputy B. O’Keeffe

Is it true that approximately only one quarter of the places which were set aside nationally for disadvantaged persons have been taken up?

Ms McLoughlin

I do not have a figure which I can confirm.

Acting Chairman

Perhaps you could send us a note on that.

Ms McLoughlin

I will send you a note which will indicate the figures on the uptake nationally.

Deputy B. O’Keeffe

I know a review group has been set up.

Ms McLoughlin

That is right. It is completing its report. One of the Cork staff is on that group because it is one of the institutes which has done a lot of work on that topic.

Mr. Murtagh

The VEC is involved in the delivery of the VTOS programme. I confirm that four students from the Thurles VTOS programme are attending TRBDI on a full-time basis. That is a good indication of the potential of the institute to provide educational opportunities for those who have missed out early in life.

Acting Chairman

Mr. Murtagh is happy enough. Is Deputy Durkan happy?

Deputy Durkan

I am not happy but I did not want to get involved in a row between Cork and Tipperary as that is a dangerous place to be. Despite the fact that I am not a prolific hurler, I know a bit about rural development. Where did this idea originate? Did it originate in Marl-borough Street or in a rural area?

Mr. Murtagh

It came from two sources. The EU published a report on rural development in 1978 called "The Future of Rural Society". The idea came from the Tipperary North Riding VEC and Tipperary South Riding VEC.

Deputy Durkan

Was that in response to that report?

Mr. Murtagh

Having studied that report.

Deputy Durkan

Who was the author of that report?

Mr. Murtagh

It was published by the Commission, but I do not know the author. It is an excellent report for anyone interested in rural development.

Deputy Durkan

I would be interested in it in another life. There is a need for institutes such as this one. The development of rural Ireland has fallen dramatically behind the development of urban areas, although I am not suggesting that urban development is as it should be. However, many rural areas and the quality of rural life have remained the way they were since Independence. As regards investment in rural Ireland, local authorities, the Department of Education and Science, post offices and every State institution seem to think it is worthwhile to withdraw from rural Ireland on the basis that it is uneconomical to provide a service.

I refer to the cost. The economics are fine. It is important to get the economics right and that the job is done right. However, it should not always be the case that the final decision on such proposals is made on the basis of economics.

With regard to the success of the project, much will depend on how it will traverse into the future. The reversion of the companies to the VEC is a welcome development. Liability could occur at some stage in the future. To what extent was legal advice sought before setting up the companies outside the immediate scope of the VEC? Was legal advice sought at that time as to potential liability?

Mr. Murtagh

At that time legal advice was not sought, but I read the 1930 Act and there was no reference one way or the other in it as to whether companies could be established. I appreciate the point the Deputy made about potential liability.

Deputy Durkan

It would not necessarily apply to only the 1930 Act. A liability could fall to the VEC arising from other Acts and case law, which exists in abundance. I compliment the VECon that. There are no likely claims that mightimpact on the VEC arising from the period in question.

Mr. Murtagh

When the voluntary liquidation of both companies is completed, the State will be a significant net beneficiary.

Acting Chairman

It is important to realise that TRBDI has its own accounting officer. On the next occasion we meet, even if it is in 12 months' time, we can follow up on the outcome regarding the £131,000.

Deputy Durkan

I agree, but we might not be here then.

Acting Chairman

We will be here until June 2002.

Deputy Durkan

We can never be sure about such matters. I do not wish to anticipate a future event, but it is no harm to make general inquiries into that area. Deputy Batt O'Keeffe raised a question about the points system. What is the position on that? I presume the points system applying is dramatically lower than that prevailing in universities or other third level institutes. It would need to be, otherwise it would not serve a purpose.

Mr. Murtagh

I did not come prepared to answer that question.

Deputy Durkan

It would be no harm to get that information through some means or other. With regard to the future running of the activities of the VEC, I note the point made by the Comptroller and Auditor General to the effect that limited companies set up under the aegis of State or semi-State bodies could have a serious impact and could create liability for the State in the future. It should also be noted that in the event of a good idea appearing on the agenda, it should not be necessary to create a subsidiary body. It should be possible to examine the content of the proposal without wasting public money and to assess its credentials on a true, tried and tested method and system. Nobody has a problem with that. If one does not try, one does not succeed. We have to balance our criticism on two counts, the need to ensure and encourage development of that nature and the need to ensure proper accountability and that a major liability for the State does not arise from not following procedures.

Acting Chairman

On Deputy Durkan's point, I emphasise that the committee has no wish to deny initiative and there is no question about the merit of the work carried out. I have repeated that several times over the past six months. However, our primary responsibilities are to ensure value for money and that there is accountability. The onus is on the Comptroller and Auditor General to highlight where difficulties arise. Mr. Murtagh will accept that the Comptroller and Auditor General considered difficulties might arise in this instance regarding the purchase of property or consultancy contracts. As I said previously, many accounting officers have taken the easy option. Invariably every accounting officer has justified such matters by stating that the sum involved was too low, that there was prior knowledge by people on the inside, and there were local issues involved. An excuse is nearly always made for decisions on such matters, but once we start to stray from the regulations laid down, which are becoming more strict but also more clear, difficulties may arise. Mr. Purcell's job is to highlight these issues. If we do not work on them, chaos will ensue. Mr. Murtagh went through a difficult period when he had a dual mandate, which it is proposed will cease for politicians. I hope the issue has been resolved.

Mr. Murtagh

I hear that has been changed.

Acting Chairman

Not yet. Jackie has not spoken to anyone on that issue, so I am not sure about that. Arising from these issues, movement occurs in the Departments at the behest of the Comptroller and Auditor General. The VEC support services unit was established and it is to work with the Office of the Comptroller and Auditor General's office. Has progress been made on that? Is it in operation?

Mr. McNamara

Yes, Chairman. At the last meeting of the committee we attended in April, I announced that the Department had established the unit. Since then staff have been recruited. The unit is headed by a director, an auditor has been appointed and another one may be appointed. It operates through a steering committee on which the Department, the IVEA, which is the representative body for VEC schools, and staff interests are represented. It has developed a work programme and engaged with the VEC sector to provide technical assistance on accounting matters and, more importantly, to provide training for staff. While major advances have been made in the technical area, we need to complement that by supporting staff in the acquisition of new skills and so on. In that respect a review of administration structures is ongoing. I advised the committee on the last occasion that such a review would take place. It started in September and it is due to finish shortly. I hope the findings of that will also be of help.

Acting Chairman

While people who come before the committee will be open to criticism, it is important to ensure there is a net gain rather than examining a situation and hoping it will not happen again.

I thank Mr. Murtagh and his staff for their attendance at the meeting and the answers they gave. I also thank the Department officials for their assistance. I propose to note the accounts that have been examined. Is that agreed? Agreed.

We need to agree an agenda for Thursday, 11 January on Votes 36 and 37 - Department of Defence and Army Pensions, 1999 Appropriation Accounts, and Vote 30 - Department of the Marine and Natural Resources, 1999 Appropriation Accounts.

On behalf of the members of the committee I wish the Comptroller and Auditor General and his staff, the secretariat and their staff and our visitors a most happy, holy and, I hope, prosperous Christmas and new year.

The committee adjourned at 12.40 p.m. until11 a.m. on Thursday, 11 January 2001.