The next issue is the cost of bank escorts raised at a meeting in the Department of Defence on 12 December 2002. Will Mr. Purcell make a brief opening statement?
Garda-Army Cash Escorts.
Mr. Purcell
This matter was raised with the accounting officer for the Department of Defence some months ago at which the whole question of recovering the cost of providing cash escorts to the banks was raised. Following discussion on that day, the committee asked me to prepare a report on the costs incurred by the Defence Forces and the Garda Síochána in providing this service. That is the report before the committee today.
To take Defence first, the report sets out the way in which the costs are computed, the amounts involved year on year since 1992 and the contributions received from the banks. Cash escorts typically involve movements of cash to banks and post offices. The Department of Defence costings represent the cost of providing the total service and do not distinguish between the two. The figures in the report must be viewed in that light in the context of the banks' contribution. Figure 3 shows the extra cost to the Department of Defence in providing the service. That excludes the pay of those on escort duty. It also shows the full cost, including pay. Figure 4 shows the banks' contribution over the years. It shows that it approximates to the extra costs incurred, but only represents approximately half of the full cost. My staff tested the Department's figures and they were generally satisfied as to their reliability. The exception is noted in the table. The costs for some of the years for aerial surveillance were based on previous usage and were, therefore, estimated rather than related to the actual in the particular year.
As regards the Garda element, the report sets out the base for the Garda costings and the full cost of providing the service. It is broken down into a bank-post office split, together with details of hours spent on cash escort work and the miles travelled. According to the figures, the cost of providing the service to the banks has increased over the years, reaching almost €4 million for 2002. The corresponding figure for post offices is €2.6 million. The banks' annual contribution to the Garda for this service has remained at €952,000 since 1995. It was the equivalent of €635,000 for each of the three previous years. The contribution started in 1992.
My staff examined on a test basis the Garda figures, which are compiled mostly from the divisional records. We found it difficult to reach a firm conclusion as to their correctness. We noted certain errors. While they are indicative of the scale of the costs incurred, they may not be good enough to support a full recovery arrangement. Certain reasonableness tests would have to be applied to some of the figures in taking them from the divisions. It was clear from our point of view that estimates of costs for earlier years - 1994 is mentioned in the report - were incomplete and could not be relied upon. That was in the past and pre-computerisation. Things have improved since that time.
Members will see at the end of the report that discussions are ongoing with the banks about increasing their contribution towards the costs incurred by the Garda in providing cash escorts. I will leave it to the Accounting Officer to develop those points.
Mr. Dalton
I have given you, Chairman, a statement which I am happy to put on the record, but I will try to summarise the situation. This is an old chestnut. I will confine myself to the Garda because that is the area for which I am responsible. The general perception is that the State is paying the bulk of the cost of cash escorts and the banks are paying too little, which is not sustainable against the background where the banks are making considerable profits. It is important to bear in mind that at the beginning the Government, not the banks, decided to impose or to insist on cash escorts. That happened in 1978 following a big robbery in Limerick of £430,000 from a security van. The Government decided it was unsafe to move large amounts of money around the country which would be at risk from criminal elements, particularly paramilitary elements at that time. The decision was made to insist on cash escorts.
The core question which arises is how much of the cost should be borne by the banks and how much should be borne by the State. At the beginning the Government's view was that the banks should bear the cost, but the view became accepted fairly quickly that that would not be a reasonable result because the State had a direct interest in ensuring that cash was protected from criminals. The thinking that has been accepted for many years is that it is reasonable that the State should make some contribution towards the cost. The problem is that our estimate of the Garda cost of escorts for banks is in the region of €5 million a year. I accept from what the Comptroller and Auditor General said that our estimates may be on the high side. However, our figures indicate it is approximately €5 million.
The Minister for Justice, Equality and Law Reform, Deputy McDowell, is anxious for us to revisit this issue because all we are getting from the banks is €1 million as a result of adjustments made in 1995. I met the banks last September and told them we needed a larger contribution. They argued strongly for their position. They made the point that they did not initiate cash escorts and they do not decide what escorts should be provided. They also said the Government had imposed a charge of €100 million on them in the budget, which should be deemed sufficient to cover the cash escorts. I explained that from our point of view it did not help that there was a €100 million levy because our budget needed immediate support this year. The proposition I put to them, with the Minister's agreement, was that we would treble the cost from €1 million to €3 million and that we would gradually move towards the €5 million. We could get €4 million next year, €5 million the year after and €5 million the year after that again. That would give us a total over four years of €17 million instead of less than €4 million.
The banks said they do not accept our basis of costings, but they have agreed to what we are seeking this year, namely, €3 million. Given that they are giving us what we are looking for this year, I told them we would take that, but we begged to differ on the question of costs. I said we would sit down again and discuss the question of costs and charges in future years. I asked them to confirm that was a basis on which we could settle and I am awaiting a response. I am fairly confident the response will be positive. In other words, I am sure we will treble the cost this year to €3 million and that we will negotiate the costs in future years.
One of the things worth mentioning is that when we talk about the cost, we mean the total cost, not marginal costs. The banks are of the view that we should talk about marginal costs on the basis that the Garda would be paid anyway. We do not accept that argument because I am not sure the banks would charge customers on the basis that the bank is there anyway. We charge full commercial costs. We work on the basis that the charge is approximately €5 million. The only issue is what the divide should be between the two. We say we will go to €3 million now, but we do not regard that as the end of the story. However, it would be a significant improvement if we got that far this year and it looks like we will get there.
I mentioned in my note the question of An Post and explosives escorts. An Post does not make a contribution, although the cost of escorts is approximately €2.5 million per annum. This was discussed in the past, but the view was taken that if we charged An Post, it would come out of one pocket and go into another because An Post was substantially carrying social welfare money. It was felt it would pass the charge to the Department of Social Welfare. It would come to us, but it would be taken from the Department. We are looking at that again because it is not right to say that An Post is an organisation which is focused on social welfare payments. It is much closer to banking operations now. We are going back on that and we will take it up with An Post.
In the case of explosives where the charge is higher - it is about €3.3 million - the situation is different because there is a direct vested State interest in preventing the capture of explosives. People could be looking for cash for all sorts of reasons but they are seeking explosives for only one reason, which is malign. We have not pursued the involvement of commercial interests in the movement of explosives and we do not intend to do so at the moment. We do intend, however, to pursue discussions with the banks with a view to possibly raising the €3 million this year. Our view is that it should move up closer to the €5 million we think it is costing us and that we should begin to pursue An Post. We do not have a plan at the moment to pursue the people involved in the movement of commercial explosives because the State has a direct interest in ensuring that they do not go astray.
Mr. O'Callaghan, do you want to make any comment?
Mr. O’Callaghan
Not really. I will just note what the Comptroller and Auditor General said, that our records seem to have been found to be reliable. We did not differentiate between bank and post office consignments for the simple reason that there was no real accounting reason to do so. We were never asked to produce those figures. A typical cash escort would be made up of several consignments to post offices and banks. Tables 3 and 4 show that marginal costs have been covered more or less by the banks' annual contribution to us. I was very interested in what Mr. Dalton had to say about the extra €3 million that the Department of Justice, Equality and Law Reform is getting from the banks. As we provide the service to that Department, I wonder how much of that will be passed on to us.
I was delighted to hear Mr. Dalton's comments with regard to getting the full costs but it would appear that your actual costs are about €13.5 million. When one considers that the banks are making profits of €2.5 billion it is quite extraordinary that they are not paying the total cost. Mr. O'Callaghan said that he was getting the marginal cost but not the real cost.
Mr. O’Callaghan
That does not include pay.
No, it does not include pay. I would like to think there is a possibility of getting the real cost. Given an average of 44 escorts per week, according to my calculations, any transaction from bank to bank is costing €6,000 per week, per movement. The combined profits of the banks amount to €2.5 billion so it is totally unacceptable that they are not prepared to meet the actual cost of escorts.
The banks have made the point that the gardaí would be working anyway. In recent times, however, we have followed the debate about the necessity for an increased Garda presence in areas where that is very much needed. It is outrageous for the banks to make such a comment which shows a disregard for this invaluable service that is complementing their business.
There are a number of issues relating to this matter which I find strange. I accept the historical element that subversive operations at that time warranted this system being put in place. However, the annual cost of mounting these escort operations has grown significantly from the initial figure of less than £500,000 way back at the beginning. There is no real figure for the actual cost today. When banking charges are introduced one has no option but to pay them. They are based on real figures which are imposed on customers who pay for the service. The escort service is an invaluable one and the State has some responsibility for it. I accept, therefore, that we will not be in a position to seek the total real cost from the banks. The Department of Defence and the Garda Síochána will have to reach a real figure in the context of what it is costing the taxpayer for the Garda Síochána and the Army to provide these escorts. Air surveillance in specific instances must be factored in also. As I understand it, such air surveillance is frequently used around the country as part of the escort system. What steps are being taken to determine the real figures and obtain the real costs of providing such a service? When the banks engage a private security firm they do not tell the owner of the firm "You have your man or woman in uniform anyway, and they could be sitting at home watching television, but we want them now and we will pay the marginal difference". In order for us to put a real figure on the escort service we will have to be transparent with the banks and, indeed, with An Post - it is a fact that it does not pay for the escort service. If we were to establish the real figures in the context of the banks we could establish a transparent fraction or equation that could lead us to drawing substantially more money from the banks to cover the real figure of €14 million to provide this service annually. As regards An Post, it is an accountancy exercise to move the cost from one Department to another. The real figures will have to be established, however, because there is serious public disquiet about this. Because of the lack of real figures, the banks can make the argument about marginal costs.
What steps will the Garda Síochána and the Department of Defence take to ascertain the real cost of providing the escort service? What is the proposal for breaking down that figure in order to recover that money from the banks who have made substantial profits? I would like to have a timeframe also.
Mr. Dalton
Deputy McGuinness is right when he says there has been public disquiet. That is the case and I accept there has been disquiet in this committee also. Fortunately, I am in a position to say that we have already acted as regards the banks. It is not that I have a serious overdraft or anything but I want to be fair to the banks. They have taken a reasonable approach to the recent discussions, which probably came as a surprise. There is disagreement about the figures. Obviously we will have to obtain the right figures and people are working on that at the moment. The critical question, however, is what the proportion should be between the two. I believe the €5 million figure is right, although I know there is an argument that it may be an overestimate. We believe that €5 million is about right.
Is that for the Department of Defence as well?
Mr. Dalton
No, I am speaking only for gardaí.
The Department of Justice, Equality and Law Reform.
What is the combined figure?
Mr. Dalton
I do not have a Defence figure. I just know that we charge gross costs.
Mr. O’Callaghan
Our figure is in the report.
Yes, but what is it? Mr. Dalton says his figure in relation to this service is €5 million per year, so what must we add to that to get the joint figure?
Mr. O’Callaghan
Our figure is €7.2 million.
Therefore, the figure we are talking about is €13 million.
Up to €13 million.
Mr. O’Callaghan
That includes the pay, of course, which is the most expensive element.
That would have to be included.
Is that included in the €5 million?
Mr. Dalton
As regards the gardaí, everything is included - pay and overtime.
To understand that we are on the right set of figures, Chairman, is all that is included in Mr. Dalton's figure also included in Mr. O'Callaghan's?
The Comptroller and Auditor General, Mr. Purcell, will provide some clarification as he carried out this report.
Mr. Purcell
The report makes it fairly clear. Figure 4 shows that the full cost of Defence Forces escorts in 2002 was almost €7 million but the full cost of the Defence Forces includes the service to post offices. That is the full cost. The full cost in the case of the Defence Forces includes the service to the post offices because, as the Accounting Officer said earlier, they do not break down the escorts between banks and post offices. If we were to get a definitive figure for the banks, we would have to do that in the case of the Defence Forces.
In the case of the Garda Síochána, the escort costs are broken down. Again, we are talking about the full cost, and the full cost to the banks in 2002 of Garda escort services was around €4 million by our reckoning. By that I mean it is on the basis of figures produced by the Garda Síochána and our finding errors in those figures, something which might be at the heart of some of the difference between the €4 million and €5 million total cost referred to by Mr. Dalton.
I can account for €500,000 of the difference immediately. In the returns for six months for the Cork division, and Deputies Dennehy and Boyle will be interested in this, a figure of 27,400 hours was given for one half of the year and 400 for the second half. It clearly was not 27,400 so there was a transcription error.
If this service is to be organised on a fixed cost recovery basis, the records must be fairly tight. I know if I were paying for the service, I would like that. I can understand why it might not have been so tight up to now because all we were talking about from the Garda Síochána and the Defence Forces side was a contribution. It might be asked why it was necessary to draw up or put in place a huge costing apparatus if all that was received was a contribution. If we are getting to a full recovery situation, we must have good records.
As well as that, and I hope the Department of Justice, Equality and Law Reform accepts this point, the Garda Síochána, admirably, splits its figures between post offices and banks. However, as the Accounting Officer of the Department of Defence says quite rightly, it is a very difficult thing to do scientifically because, in providing an escort service, some post offices and banks are included in the same escort run. If the costs are being split, and it is admirable and necessary to do so if both sides are to be billed, that would have to be looked at much more closely. I hope that gives a flavour of the difficulty.
The reason I pressed the issue of the split was to obtain the information Mr. Purcell has given us. Regardless of whether we are asking for a contribution for the service provided or actual payment, the assessment must be based on something. Whether it is a contribution or total cost, the figures at the bottom line must be right because they will be scrutinised by banks and now, I am sure, by post offices.
What procedure can be put in place by the Garda Síochána and the Defence Forces - I have done a considerable amount of work on this already - to reach the point where the figures are sufficiently accurate to ask banks for a contribution or costs that are substantial and in line with the thinking that one pays for the service one receives? It is important for the Department of Defence and the Garda to figure out the real cost. Negotiations with banks will have to be stiffened in the context of this meeting and the Department's intent on recouping the full cost. We should proceed as quickly as possible. There is a loss to the State given the amounts of money made by banks.
On that point, the fact the State only receives €3.8 million for this service means that it costs the State up to €10 million net and is in effect a subsidy, regardless of the proportions. I take Deputy McGuinness's point about the procedure.
Mr. Dalton is heading in the right direction. I compliment him on his discussions with the banks and his approach. He appears to be seeking almost full cost repayment. I accept the principle of An Post not paying, it being more or less a public service, and I accept the point that it would be taking money from one area of Government and giving it to another.
If we accept the principle of recouping the full cost, it will require Mr. O'Callaghan to break down the figures between banks and post offices. If a formal case is to be made to the banks, it will be essential for the Department of Defence to make such a breakdown. I accept it was not necessary up to now, but if Mr. O'Callaghan is pursuing full costs and hopes to obtain part of Mr. Dalton's €3 million, I am sure he will need figures to back that up.
Mr. O’Callaghan
I misled Deputy McGuinness with my figure of €7.2 million. I was looking at an earlier draft of the Comptroller and Auditor General's report. We have an updated version where the figure is €6.8 million. The figure of €7.2 million is wrong; it should be €6.8 million.
I take Deputy Dennehy's point and I have written to the Comptroller and Auditor General in reply to this draft saying I would be happy to co-operate with his office with a view to putting in place an agreed and accepted mechanism for such a cost attribution.
On a general point to both Secretaries General but obviously to Mr. Dalton, I note that there was a 13% to 14% reduction in the total cost last year. The Comptroller and Auditor General may have answered this already. It was the hope, especially in the case of An Post, that non-cash transactions which facilitate people with a new method of payment would eliminate the need for the transfer of huge sums of money. Has there been any progress in this regard? Do the Secretaries General see a change? I presumed the cost would be reduced because of that approach. If these figures are not accurate, we are in trouble, but they indicate a reduction of 13% to 14% in costs last year as against the previous year.
Mr. Dalton
I agree with Deputy McGuinness about figures and the need for more accuracy, but as the Comptroller and Auditor General said, they are difficult to work out because, for example, in the case of a bank escort, it could be argued that some of the money in the van is State money that is being escorted along with private money by the Garda. There are all sorts of technical arguments about how much is actually chargeable to banks.
The basis on which it is done and which we will certainly revisit is not bad. We find out how much it costs to put people out on escorts for banks every day and the calculation is based on that. The banks are disputing the figures but I do not want to give the impression that they are being utterly unreasonable in all this. They are asking reasonable questions. They are making what I think is a very reasonable start this year, assuming they come back with the €3 million. If the Comptroller and Auditor General's figures are right, that means we are up 75% already in the case of the Garda, which is a good start. If our figures are right, we are at three fifths.
Deputy McGuinness said earlier that this service cost €500,000 several years ago and now costs €5 million. That is explained by pay rates and so on. Everything else goes up. The level of commitment is probably the same. It is just that the basic pay has gone up.
Deputy Dennehy made the point about An Post not paying. We have not decided that we should go down that road. We are saying we should look at it again because An Post is a different type of organisation from what it was when we made a decision some years ago. It is much closer to banks now and is engaged much more in commercial operations. We will have a look at that.
Regarding the 13% -14% drop in costs, I do not know the precise reason for it. It may be that escorts are not as necessary as they were - obviously the paramilitary threat had a big influence on the escorts.
To clarify, you said the banks were giving €3.8 million and there would be an additional €2 million?
Mr. Dalton
Yes.
So the gross take would be €5.8 million? The service cost from €14 million so you are still subsidising the banks by up to €8 million. Is that correct?
Mr. Dalton
Forgive me for concentrating on the Garda——
The combined charge.
Mr. Dalton
Combined, yes.
The combined income to the State from Defence and Justice, Equality and Law Reform was €3.8 million. You said the banks were giving €3.8 million but they are also giving an additional €2 million, bringing the gross to €5.8 million out of a likely total charge of €14 million. That means this is still very heavily subsidised.
Mr. Dalton
The €14 million includes An Post and the Department of Defence.
Yes.
Mr. Dalton
I do not know what the true bank cost is but it would be less than €14 million.
The clear message is that we are still unhappy that we are heavily subsidising this. This is an invaluable service for the banks which, in moving money from one to another, is costing the State €6,000 per transaction. That is my view.
We should be clear on the figures. The figures from the Department of Defence and from the Comptroller's report show the bank costs alone for both Defence and Garda would be €6.8 million to €6.9 million for Defence in 2002 and €3.9 million for the Garda. Together that gives a cost of €10.8 million from the last year for which we have figures, 2002. The total receipt from the banks is €3.8 million - €1 million to Justice and €2.8 million to Defence. That still leaves a shortfall of €9 million in the cost of the operations.
There is a third party we need to remember, the private security firms hired by the banks to transport money from one point to another. It could be argued that this €9 million is a subsidy for their operations because they could decide, with the scale of security provided by the Garda and Defence Forces, to use two-person operations instead of four-person operations. If one multiplies that by the number of cash transports it is a heavy subsidy from the State to a commercial operation. Is either Department measuring the cost of this?
Mr. Dalton
We measure the total cost of the escort service and those traditionally in charge were the banks. They were not charged as much but they were the only body being charged. The pursuit of other commercial entities is a reasonable question. It has not been the case so far. We do not apportion the benefit there is to the bank or security firm in having a cash escort.
I am not here to make an argument for the banks but if they are paying the State and a private operator for a service and that private operator benefits from the service the State is providing, then there is a third actor which needs to be examined.
Mr. Dalton
I suspect the banks will make that argument the next time I meet them.
To turn the point, maybe having received extraordinary value from one supplier the banks can afford to pay heavily for the private operator.
Mr. Purcell
Deputy Boyle assessed the costs. I see the costs as €6.8 million from Defence and €3.9 million from the Garda but one has to discount some element of the Defence cost because it does not distinguish between banks and post offices. We can probably say with some certainty that it is something less than €10.8 million.
Regarding the differences between 2001 and 2002, to which Deputy Dennehy referred, there are two factors. In 2002 there were special arrangements to distribute the euro currency, which distorted the picture. Also, transport costs for the Garda changed because the rate at which this was costed changed. It went from €0.7 per mile down to 55c per mile.
In any cost recovery arrangements with the banks, post offices or others, there are at least two main components, one being the basis of the costings. There would have to be a defensible basis for one's costings. That is illustrated by what I have just said, with the differences for the Garda and the Defence Forces and the costing for aerial support, which has also changed dramatically.
The second factor is the volume of activity and having accurate figures from that to apply to the costings.
This has been an open and frank debate. We now move to the Criminal Assets Bureau Accounts, 2001.