City of Dublin Vocational Education Committee 1998-2001 Accounts and Section 7 Report.

Mr. W. J. Arundel (Chief Executive Officer, City of Dublin Vocational Education Committee) and Mr. P. Burke (Assistant Secretary General, Post-Primary Division, Department of Education and Science) called and examined.

Witnesses should be aware that they do not enjoy absolute privilege and apprised as follows. As and from 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act 1997 grants certain rights to persons identified in the course of the committee's proceedings. These rights include the right to give evidence; the right to produce or send documents to the committee; the right to appear before the committee, either in person or through a representative; the right to make a written and oral submission; the right to request the committee to direct the attendance of witnesses and the production of documents and the right to cross-examine witnesses. For the most part, these rights may be exercised only with the consent of the committee. Persons invited to appear before the committee are made aware of these rights and any persons identified in the course of proceedings who are not present may have to be made aware of them and provided with the transcript of the relevant part of the committee's proceedings if the committee considers it appropriate in the interests of justice.

Notwithstanding this provision in legislation, I remind members of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House, or an official, either by name or in such a way as to make him or her identifiable. They are also reminded of the provision under Standing Order 156, that the committee should refrain from inquiring into the merits of a policy or policies of the Government, or a Minister of the Government, or the merits of the objectives of such policy or policies.

I invite Mr. Arundel, chief executive officer, City of Dublin Vocational Education Committee, to introduce his officials.

Mr. William Arundel

I am accompanied by Mr. John McGrath, principal officer, and Mr. Dan Collison, acting finance officer.

I ask Mr. Burke, Assistant Secretary General, Department of Education and Science, to introduce his official.

Mr. Pat Burke

I am accompanied by Mr.Jerome Kelly, assistant principal, post-primary administration unit. I am the main Assistant Secretary General with responsibility for the second level division.

I now ask the Comptroller and Auditor General to introduce the accounts.

Mr. John Purcell

The accounts of the City of Dublin Vocational Education Committee for consideration cover four years. The report, over and above the normal audit certificate, covers the years 1998 to 2000. Under governing legislation, I am empowered to draw up a report, following my audit of a vocational education committee, where I have concerns about the systems of internal controls being operated. The audit revealed serious shortcomings in the systems in operation which impacted negatively on the committee's ability to produce timely and accurate accounts for the period in question. A large part of the problem stemmed from difficulties in changing over to a new financial and accounting system which were compounded by high staff turnover. Consequently, essential control tasks were not being carried out. There were also weaknesses in reviewing and dealing with balances on self-financing projects such as community employment schemes and matters such as verifying the considerable petty cash balances held.

Members will note from the report the difficulties and repercussions for the conduct of audits. I had contracted the audit of the 1998 accounts to a private firm of accountants which was unable to complete its work because of the inability of the committee to furnish it with information and explanations needed to underpin the accuracy of the figures in the accounts. My staff then took over direct responsibility for the audit of the 1998 and later year accounts but it was not until the middle of last year that the situation had improved to a stage where we were enabled to make real progress towards completion. Since then there has been a notable improvement in the quality of the documentation necessary for audit.

It may come as a surprise to members that during the years there has not been an internal audit function in City of Dublin Vocational Education Committee, the largest VEC in the country. Historically, this has been a weakness generally in the VEC sector. A few years ago the Department moved to address the issue by setting up a support services unit to provide audit services for vocational education committees. However, the mandate of the new unit did not extend to City of Dublin Vocational Education Committee. I understand it has now been decided that, due to the size and complexity of City of Dublin Vocational Education Committee, a dedicated internal audit service is required and that moves are afoot to put this in train in the context of an overall restructuring of the resources of the committee. No doubt the chief executive officer will elaborate on this development and the other action taken to rectify the reported deficiencies during the course of his evidence to the committee.

I invite Mr. Arundel to make a brief opening statement.

Mr. Arundel

As members are aware, the report of the Comptroller and Auditor General draws attention to shortcomings in the accounts which are very much regretted and, to a large extent, due to the following points. There were staff shortages, to which reference has been made, particularly in the finance area, which caused us major problems, on which I will elaborate, if members wish. We have a poor career structure for administrative staff in the sense that one third are employed above recruitment grade, in respect of which there are low promotional prospects. This is being addressed by way of a new report, the Rochford report, which recommends a substantial increase in numbers and also covers the grade to which staff can aspire in a career structure. I hope we will be able to retain staff for a greater period. Staff turnover in the period 1998 to 2000 was very high. Some 47% of core administrative staff resigned during this period. While that was bad enough, the position was aggravated by the fact that 48% of those to whom replacement offers were made did not take up duty, which left us with a serious staff shortage.

With regard to the internal audit function, we did not have any dedicated or qualified staff which gave rise to many problems. This issue is being addressed. We expect to have an audit plan before our committee at its next meeting. We then hope to move forward with the appointment of dedicated audit support staff.

During this period we, like everybody else, were going through problems in relation to Y2K compliance and the introduction of the euro. While doing so, we had to look at existing finance systems which were not satisfactory. We got consultants to advise us and found that we needed to replace them as, to put it mildly, they were antiquated. This combination gave rise to many delays and difficulties. There were also some illnesses which did not help matters.

There are, however, positive aspects to report. Since mid-2000 the annual accounts for 1998 and 1999 were signed off, eventually. We very much regret the delays that occurred with them. The accounts for 2001 have been signed off and the audits completed. We are pleased that there have been significant improvements which are continuing. The accounts for 2002 have been completed and submitted to the Department of Education and Science. They have also been copied to the Comptroller and Auditor General's office.

The other significant development, although there is probably nothing more significant than having the accounts signed off, is that the computer software introduced to the financial system is functioning well and we are pleased with it. It is delivering everything we expected of it. We are not at the end of its development but are satisfied with it. For example, the interfaces with payrolls, the euro conversion and prompt payments are done; Vision is being used with Excel; the annual accounts are easier to prepare and the reports needed for management information are available. The purchase order system is being implemented and operational in about 12 of the centres at this stage. There is ongoing roll-out of the system. There is also an enhanced coding structure. Many of our problems arose due to miscoding and, probably, misallocation to a number of different areas. Payroll reconciliations are done and staff allocations reconciled while capital accounts payments and reconciliations take place monthly.

On an ongoing basis the negotiations in relation to staffing were part and parcel of a national issue but a specific report was done on staffing in Dublin. Rochford made recommendations. In a nutshell, it recommended an enhanced staffing level compared to what we had. It brings us to a reasonable level for delivery of the type and nature of service now required.

I should mention, for the benefit of members, that there has also been a culture change. Our accounting systems were receipts and payments based. They changed over to income and expenditure which gave rise to many difficulties for staff. There was much retraining involved, not to mind the replacement of personnel, which did not help anybody during the period. We are hoping the Rochford recommendations and the offer made by the Department have been accepted by the trade union and are looking forward to getting approval in the near future for implementing the report which should address the staffing issue. To be fair, it should be pointed out that the rapid staff turnover has stabilised, as it has in most other places, as a result of the changes which have taken place in the economy.

With regard to internal audit, we have made good progress. The Department has agreed to support us in the development of a dedicated internal audit provision within the scheme, of which the first part is the preparation and delivery of an audit plan. We are expecting the report this week which should be before our committee at its next meeting in a week's time.

Was any attempt made by senior management to discover the reason the head of banking section resigned just two weeks after taking up his position in 2000?

Mr. Arundel

It was obvious. He would have received an enhanced offer from his current employer with guaranteed promotion within a six month period.

There was a mass exodus of personnel from the finance section between 1998 and 2000. Was it not the case that he was concerned by what he saw and decided to leave quickly?

Mr. Arundel

I do not think so. That did cross my mind and was one of the reasons we got in outside consultants at a later stage to assure us that matters were as we thought or hoped they were in terms of nothing being astray or missing. As we trained staff, two things happened. First, the institutes of technology would have been familiar with many of our staff and were on an expansion path with good career options. They were able to recruit staff who had good experience in education and in the type of accounting systems we had in place. Second, as we were training staff on the Sun account system, particularly on Vision, an aspect of it, even staff at less than senior level were being offered an additional £6,000 per year, plus a car, an attractive position for young people who had mortgages and so forth.

With regard to the accounting procedure, in the management of cash resources, cash floats and self-financing projects normal accounting procedures were not adhered to in any sense. VECS were dealing with up to £70 million. Do you not agree that it was a loose way to do business?

Mr. Arundel

I probably would not agree. Certainly, I agree that it looks strange. In relation to petty cash, for example, there was a misunderstanding of definitions which we have addressed. It was not that there was any cash missing but when we asked staff to certify petty cash balances, most took it to be what they regarded as the normal petty cash account. However, a considerable number of centres would have received additional funding for special activities such as graduation, an expensive item, which they would have regarded as a separate matter. Therefore, when reporting back to us on certification, they did not include it. When we investigated the matter, we found the various receipts. This has all been reconciled and balanced.

You have to agree that there was no internal audit function.

Mr. Arundel

Absolutely.

The biggest VEC in the country gave outrageous example to the other vocational education committees if this was how the accounts were certified. An accountancy firm pulled out, as more or less did the Comptroller and Auditor General who had to wait 17 months to get information.

Mr. Arundel

It was not a happy situation for us either. However, there were a small number of staff trying to do routine day-to-day business as well as respond to all the changes taking place. At the same time staff were being replaced. One of the matters——

I come from a business background and know the law regarding audited accounts. One cannot give the Revenue Commissioners ten reasons one cannot comply. Regardless of staff turnover, every company and semi-State body in the State was going through the same difficulties the vocational education committees were experiencing. Giving the committee the excuse of difficulties with staff and staff retention is hard to take.

Mr. Arundel

Perhaps there is a misunderstanding - at least I hope there is - that there was money not properly accounted for. I accept it was not accounted for in the format required. This has been adjusted, changed, reconciled, verified and certified. I am not trying to defend what——

I agree with the Comptroller and Auditor General that there has been a massive sea change. However, we are looking at the accounting period under review. On reading the Comptroller and Auditor General's report, it is disappointing to find such non-compliance, not only with the appointed auditor but also with the team sent in by the Office of the Comptroller and Auditor General. It found it extremely difficult to get the information it sought. Do you not agree, in this age of compliance and in view of the role of the Comptroller and Auditor General, that if his team is seeking information, it should be available at the push of a button?

Mr. Arundel

Certainly, we would wish to have the systems and the staff to do so. We now have them and also hope to have them in the future. However, we did not have them at the time.

You have indicated that theRochford report is not yet implemented.

Mr. Arundel

It is about to begin to be implemented.

This has been ongoing for five years. You spoke about the Rochford report, its impact and how necessary it was. What is the timescale for its implementation?

Mr. Arundel

The issues about which you have spoken in relation to petty cash and so forth have been dealt with and are now fully up-to-date.

Have they been signed off by Rochford?

Mr. Arundel

They have been signed off by the auditors.

To return to the loss of staff during the period, was the same chief executive officer in place in 1998, or was there a loss of a chief executive officer during the period? Was there a finance officer in place at the time?

Mr. Arundel

Yes, there would have been a period of illness for the finance officer.

I will not go back beyond 1998. Was there compliance in and before that year? Did everything begin to happen in and from 1998? Was there a ledger system in place?

It seems that there is a management issue in terms of staff. On the excuses given, that a person was sick and there was a downturn, everyone involved in the private sector encountered the same complications in business from 1998 and if they had dealt with them in same way Mr.Arundel dealt with his, they would not be in business today. The excuses given would not have been accepted by the Revenue Commissioners, the Companies Office or anybody else. I find it hard to accept, in the report of the Comptroller and Auditor General, that we should just accept what went wrong with the VEC which in 2000 incurred expenditure of €88.9 million.

There seems to have been a total collapse of the ledger system. Mr. Arundel referred to the position on petty cash but that is not the way the matter is handled in business. One must account for everything one gets and spends. It seems nothing was counted and very little done. Various problems arose with the ledger system. There does not seem to have been a complete system in place. Before Mr. Arundel deals with the issue of whether he was preparing for Y2K compliance at the time, my first question is based on the hard fact that there seems to have been a collapse of the ledger system, a collapse of accountability on the part of those in receipt of money, petty cash or otherwise. He stated that perhaps the definition was not understood properly. The fact is there should be accountability, that staff should sign off in respect of whatever sums they are spending on behalf of the VEC or drawing down from central office. There are shortcomings in this area. Perhaps Mr. Arundel can answer this question.

On the question of the VEC's experience of Y2K compliance, most of the problems seem to have been due to the fact that the VEC simply did not have a ledger system in place. When it went about getting information or employing consultants in respect of the computer system, according to the report, it should have been an easy process to change over. It was viewed as a low risk undertaking. When everyone in the country was employing or putting in place a project team, in spite of all the advertising by the State at the time, the VEC simply seems to have ignored the problems that might arise. I would like to hear Mr. Arundel's answer regarding the changeover from what seems to have been a shambles of a ledger system to computerisation with the assistance of information from a consultant. Excel is a reasonable software package to change over to if one has a proper ledger system in place. The project team was non-existent while the consultants reported that the VEC's financial system had significant deficiencies. Who was responsible? Who will accept the blame for the fact that the job was not done?

Mr. Arundel

To answer the last question first, at the end of the day I am responsible. There is no walking away from this. Obviously, I have staff who provide support.

To return to the points on which I want to provide assurance, there was no money missing. In many cases what was at issue was how information was analysed and shown in the analysis.

On the ledger system, essentially what we had in place was a system of receipts and payments with a list of outstanding liabilities or payments. All of the figures were accurate. Where they were analysed subsequently was where most of the problems arose. I am not trying to defend by saying this was a reasonable or acceptable way for the accounts to be managed.

Regarding petty cash, to which the Deputy referred, a simpler way to put it is that some places would have operated two petty cash accounts, one of which was a subsidiary account. When asked to verify the documentation, they verified what they would have seen as the main account. It was only when we looked into the matter that we found the subsidiary account. One must marry with this the number of staff who changed over at various stages. If one had staff in a centre consistently employed during the period, one did not have a problem but there were others who said, "Yes, this is the petty cash account", in respect of which they provided and certified the data. It was only when we went digging, that we found the subsidiary account and supporting documentation. All of the accounts have been balanced and certified.

This should not have happened and I am not saying there is an excuse. Certainly, it would not have happened if we had internal audit facilities in place, or even sufficient staff to undertake additional checking of the growth which had taken place in the scheme. As it was, we had staff trying to deal with a whole range of other matters. We just did not have the staff to address the full scale. The Rochford report recommends about 40 additional staff on top of current numbers to do the work we are doing. This gives the committee an indication of the pressure under which staff were working. I accept, however, that it still does not excuse what happened.

What the Deputy says is true, every place did have a project team in place. The problem with such teams is one has to take them from somewhere. In the initial stages our plan, most of which went very well, was to deal with the introduction of receipts which went according to plan and on time. Essentially, payments went according to plan and on time. It was the bank reconciliations which gave us problems. Perhaps we should have anticipated some of these but it took time. The banking section has four members of staff and was turned over three times in nine months which did not make life easy for anybody. However, this still does not excuse the fact that we were unable to provide the reconciliations as well as we would have wished. I will elaborate a little.

When we talk about reconciliations, we might have had some differences of opinion with the auditors. We hold that we did monthly reconciliations. We reconciled payments and receipts and went through what was called the treasurer's advice note, a listing of payments made. We crossed off from them the cheques cashed. Adjustments had to be made for what had happened in the previous month and so on. We derived the reconciliation manually because we were unable to get a full reconciliation on the computer system. This lasted for a period of about three months after which we reconciled the computer and manual systems. Perhaps this gave rise to the word "global" in the sense of the global balancing in which we were engaged and may have caused difficulty. We would have regarded this as a reasonable reconciliation in the circumstances. We would also have regarded the speed with which we aligned the computer and manual systems as reasonable, although not ideal, in the circumstances.

On computerisation and the introduction of Excel as a software package, which I presume the VEC uses——

Mr. Arundel

There was more to it than Excel. Vision, in particular, was the package in respect of which staff needed special training.

Who said initially that the changeover process would be low risk? Who within the organisation decided that the training costs would be €28,000, €35,000 or €36,000 when, in fact, they ended up three times these figures? From where did the VEC derive its figures?

I do not accept what Mr. Arundel said. Small businesses at the time were engaged in the same process as the VEC but with limited staff. In business a person must cast what he or she does against his or her bottom line. This places a tough restriction on him or her at times and he or she must act within this parameter. Businesses did this, achieved what they wanted using the staff they had, and continued trading.

The VEC appears to have misjudged the issue of computerisation. For example, the cost of training was almost three times the estimate. The basic tasks such as ledger cards, book-keeping and accounting for what was taken in and paid out appear to have been in a shambles. In every act undertaken, from manual ledgers to computerisation to training, the VEC misjudged badly.

I want Mr. Arundel's view on the contention that it related to basic management and understanding what one had at one's disposal. I am interested to hear what the representative of the Department of Education and Science has to say about this given that it was surely in a monitoring capacity or had knowledge of what was happening. The cry for help should have gone out in 1998, certainly in 1999 or 2000, that a body under the aegis of the Department of Education and Science was beginning to falter on the return of its accounts and implementing basic procedures to achieve computerisation and Y2K compliance. What was the Department of Education and Science doing in all of this?

Mr. Arundel

I will try to deal with what is a fair question. The issue is who advised us in the first instance and how we arrived at our estimates. Consultants provided advice, guidance and help for us regarding what was required initially. We took this advice and budgeted for a figure of €28,000 or €30,000 for initial training.

We did not expect to have a horrendous staff turnover. The staff of the banking section were turned over four times in nine months. They had to be retrained because not every new person recruited, whether from outside or other parts of the scheme, would have had a background in these areas. They had to be trained, not just in Vision, which is complex for anyone not advanced in his or her knowledge of computers, but also in some of the accounting principles that relate to it. This was a major exercise. Having trained them, some not surprisingly received lucrative offers from other companies and left. We had to recruit again which involved a time lag and retrain those who filled the posts.

Would you address in more detail the issue of recruitment, staff leaving the organisation, and training? If a ledger system was in place before the computerised system and was the basis for it, newly recruited staff would already have been trained to a large extent. Anyone with even half the knowledge of accounting would have understood the system quickly and moved on. My point is that it appears from the reports that the ledger system was incomplete, a shambles and that whoever was recruited had to understand much more than just entries inledgers. I do not understand the reason you play on the training element of what is and should be a straightforward system of accounting.

Mr. Arundel

I will try to put the matter in context. We have of the order of 50 cost centres - schools, colleges and other large outlets. One school would have almost 2,000 students and between 110 and 120 teachers. That would comprise one unit. In addition to these 50 units, we have about 110 other units that we use occasionally. They are not full-time units but we have access to them.

This is a complex area. It is not just a case of running schools but running a range of programmes, from social inclusion to self-financing projects referred to otherwise. During the period in question the number of these projects grew from about 40 to 150. There is a level of complexity and analysis attached to these for which I imagine no commercial outlet would pay. However, the State requires this level of analysis for other funding purposes and analyses.

The cost of training was double the original estimate because we had to train twice as many staff as a result of losing some. It is as simple as that. There is no point allowing someone who might be very good on a double entry book-keeping system and a straightforward ledger account to use Vision. I would not even know my way down through the programme. I could not handle this, neither could young people entering at grade III level.

It should be remembered that, unlike the commercial market, we cannot buy in our precise requirements. We can only recruit at a certain level. That is where our real problem lies. It is also where the solution lies, according to the Rochford report. It recognises this difficulty and that a career path is needed for staff in order that we can either retain them when they have been trained or recruit them at the skill level required.

I disagree with the Deputy in this regard but we recognise that there were difficulties which were close to what he would recognise. I imagine that, in private industry, if there is a problem for which someone with expertise in Vision is required, he or she can be recruited. We cannot do this. We have to hire and train them on basic accounts.

Recruitment in private industry is cast against the bottom line. One might like to recruit certain expertise but one may not be able to afford to do so. One must work within certain parameters, which is what everyone does.

I do not understand the reference in the report and the 1998 accounts to an inability to complete work because an adequate response to requests for audit information was not received. Audit information is basic ledger information. If it could not be obtained, why not and who did not give it? The report states that, around December 1999, scheduled meetings were postponed on a number of occasions at the request of the VEC. It also states that, because of the extent of the lateness, it was agreed that the audit of the 1998 accounts would be completed by the Comptroller and Auditor General's office. The audit procedure was finally completed in 2002. This raises the question, why? We are not going back to computerised accounts but dealing with ledgers with information that was not up to date or apparently unavailable and people who did not respond to requests. This continues to be the case. We are not getting responses on hard copy ledgers that would normally have been in place. There seems to have been a total collapse of the accounting system.

Going back to the question of employment, I accept organisations everywhere experienced difficulties at the time in employing and upskilling staff but they coped with it and got accounts in on time. This is all relative, however, and those who succeeded had their ledgers in order and their paperwork prepared which could be used immediately in providing software for computerisation or Y2K compliance. That does not seem to have been the case here with delays in receipt of audited information in 1998 and 1999, no responses and meetings cancelled.

It is hard to accept the explanations given which would not be accepted in business. There was approximately €80 million in expenditure being handled, about which I asked a question earlier. The Department of Education and Science would have been taking steps in technology and at the cutting edge in dealing with vocational education committees, schools and other organisations. I am sure it had complete knowledge of Y2K compliance. Why was it not brought into the frame? Did it not know or did it not respond? Did the VEC not go to it for a response?

Mr. Burke

Yes, the Department was brought into the frame. To put the matter in context, there are 33 vocational education committees. Therefore, the Department has limited capacity to delve into their detailed management. However, unquestionably, we are conscious of our responsibilities. Therefore, when this matter surfaced, we saw our role as being supportive in seeing what was needed to put it right. We had a major computerisation project which, effectively, went wrong in implementation for which there are different reasons. Mr. Arundel has itemised some of them. There is no doubt that the high turnover of staff was an issue which is not being offered so much as an excuse as a part explanation. It was a serious issue which in the management of a major change and computerisation programme was bound to have an adverse impact. It had consequences, of which the Department was aware. We offered additional financial support and provided extra staff for computer analysis. We also offered additional accountancy advice. It is fair to say our objective was to help the VEC sort this matter out.

We are hearing the VEC state there was a shortage of staff and finances needed to make this happen. The alarm bells rang and the Department made a limited response. Now we are being told the VEC got extra money and shared expertise with the Department, yet it was still unable to turn the ship around. I find this amazing as with the chief executive officer's argument that there were difficulties with staff, we had better economic circumstances. On top of his argument we now have information that further support, advice and finance were given to the VEC but it still could not get this matter right, which compounds the problem, the fact that this was a shambles. How much money and what advice were given? The Comptroller and Auditor General's office was also involved. Bearing in mind all this advice, the matter was still not resolved as quickly as one would have expected. Having heard this further advice from the Department, I find it extraordinary that this situation continued.

Mr. Arundel

We need to be clear about the timescale. We were dealing with this in 2000, not 1998 or 1999. To a large extent, the work about which we are talking took place during 2000. What was achieved to resolve the problems - let us remember the scale of the problems with which we had to deal, the accounts from 1998 through to 2001 - was quite extensive.

However, the audit was suspended twice, in June 2001 and February 2002. Would that not be a contradiction, if the audit was suspended twice? It would mean there were problems up to that period.

Mr. Arundel

We had. When we found out the queries raised with the Comptroller and Auditor General in March 2000, responses were given in April 2000.

Why was the audit suspended twice if the problems were being resolved?

Mr. Arundel

In some cases when material was looked for, the person responsible was unable to put his or her hands upon it which would not have pleased any auditor. It did not please me either that the material was unavailable. We were just not able to lay our hands on it at that time.

I am backing up Deputy McGuinness's point.

As a former member of City of Cork Vocational Education Committee, I have some sympathy on the staffing situation in recent years having been a member of interview panels. While the intention would always be to provide backup when staff move on, the experience has been that going through the lists subsequently one finds people have moved on to other forms of employment. This causes further delays.

I presume the financial statements provided for us are in statutory form but I cannot find a balance sheet. Therefore, they are not a full set of accounts. We should be supplied with information now or later on the assets of City ofDublin Vocational Education Committee. I know the VEC legislation restricts the right to sell property with the proceeds going to the Department but I am also aware from my own experience that there is some freedom when it comes to land swaps and reinvestments in property. The delegation should give some information on whether City of Dublin Vocational Education Committee sold property in the time in question.

Why is there no balance sheet?

Mr. Purcell

There is no balance sheet because the format of accounts does not provide for it. We are using the same format dating back to the 1930s. When I took over the audit of the VEC sector in 1994, it was recognised that this form of accounting was not appropriate. The view at the time, taken in consultation with the VEC sector generally and the Department, was that the vocational education committees were in no shape to move to a full income and expenditure balance sheet format. There have been intermittent discussions during the years on how this can be brought forward. There was a promise of legislation to change the arrangements for vocational education committees. It was also recognised - I am sure other witnesses could wax more eloquently on this - that the roles of the vocational education committees had expanded enormously in the last ten to 15 years. They are not doing the job they were set up to do in the 1930s. Matters have moved belatedly, although not as quickly as I or the VEC sector generally would have wished. However, a new Act is in place and I understand steps are being taken to move to a full accruals and balance sheet arrangement from 2004 onwards. The process has been slow, the reason information is not readily available.

I suspect engaging in disposal or acquiring of assets would be useful to a committee such as this.

Mr. Arundel

As far as I can recall, we did not dispose of assets during the period. We would have added to our assets by extensions to schools and rented some additional property. During the period Larkin College, a new school, came on stream. There would have been substantial capital expenditure in the order of approximately €3.5 million or €4 million. On the current accounting system, we pre-planned income and expenditure for a full accrual system because the 2001 Act will commence on the relevant section. In the meantime we must operate on a receipts and payments basis with lists of outstanding payments.

I have a few observations and brief questions on other areas of the Comptroller and Auditor General's statement. On the difficulties in 2000, perhaps many institutions were caught out in that respect. However, I find it more difficult to understand the difficulties encountered with the euro conversion. The Maastricht treaty came into being in 1993.

Mr. Arundel

The euro issue was straightforward.

It did not cause a difficulty.

Mr. Arundel

No. We just listed it as one of the issues we had to address and plan for. Matters went smoothly.

The other matter that stands out is the VEC's involvement in community employment schemes and the fact that there did not seem to be any overall control. To what extent has this been addressed or has the Government helped to address it in another way?

Mr. Arundel

Perhaps it has been sorted out fully. To put the matter in context, it was decided that the vocational education committees would move towards an accrual system. The problem was to establish the opening balances. Varying attempts were made by all of us involved in the VEC sector to arrive at them. The opening balance for 1997 was probably a good estimate rather than an absolute. Subsequently, we went back through the accounts into the 1980s until we established the real balance. In case anyone is under the illusion that expenditure was lost, it was not. The question which arose was, what was the correct balance? We came to the balance when we went through the matter in substantial detail, going way back in time. This involved going through all the individual payment listings and actual payments at a time when staff were under a lot of pressure. The balances were reconciled and adjusted and are correct today.

My next question relates to the City of Dublin Vocational Education Committee compared to experiences in other vocational education committees. Given that there is an umbrella organisation, the IVEA, is there an opportunity to compare and contrast, in terms of internal audits in other vocational education committees, the difficulties experienced in 2000?

Mr. Arundel

Yes, other vocational education committees would have experienced similar problems. However, their scale would have been very different. The scale of the problems in Dublin was multiples of that for even the next biggest VEC. This is part of the problem. One would have to give credit for the development of the vocational service audit support unit which has helped everyone, including us. We were not formally a member but had attendance rights and were kept informed in relation to any documentation circulated which we found very useful.

The real issue is one on which we are all agreed, that is, that a scheme of our size should have properly qualified personnel who would be able to do the job as accountants. We are not able to recruit fully qualified accountants, qualified auditors and so on. To be fair, much progress is being made. I use the words "is being made" because implementation of the Rochford report will enable us to address these issues in a real and meaningful way. The truth of the matter is that if one does not have staff with the required skills and qualifications, whether in IT, IR or internal audit, goodwill will not be enough. We are big complex organisations, operating in a very complex environment. The days when one was just dealing with what happened in individual schools are long gone. We are now dealing with multiple constituencies in the education sector, particularly in the areas of social inclusion, youth and sport where, for example, our budget is approximately €7 million. One is dealing with huge complexities in each of these sectors.

I will not delay the meeting because many of my questions have been answered. I have a soft spot for vocational education. To be fair to City of Dublin Vocational Education Committee, it does not have it easy in the educational sphere in the sense that it must interface with many social problems. However, I fully appreciate that is not the matter we are here to deal with. This is a value for money audit.

Listening to Deputy McGuinness, giving an outsider's view, you got a culture shock in the sense that you believed, as chief executive officer, with a management team, that certain things had to be done from an academic point of view, in interfacing with communities and so on. While all of this was happening, a hugely important aspect in accounting was let slip. I do not think this was intentional but the parameters in place five or ten years ago are of absolutely no use today. Reading through the report there was a turnover of €97 million in one year.

There is a large number of moving parts. I am surprised with the Department of Education and Science in the sense that, as an overall body, it has different problems. When this matter first came to your notice, what did you do? Did you say you were not satisfied with what was happening? It appears from what I have heard today that when staff joined the accounting or banking unit, they took one look at the environment and went straight back out the door like a scalded cat, deciding it was no place for them to enter. They were not able to get to grips with it and for whatever reason did not stay long in the office. As you said, you were not in a position to employ the staff with the level of expertise you would have liked. It is excellent news that there was no misappropriation which is to your eternal credit.

There is not an organisation whose representatives appear before the committee which does not blame computers or someone else. If we did not have an investigative body such as that headed by the Comptroller and Auditor General to oversee matters, one would wonder where we would have finished up if the matter had continued for another four or five years. That is the problem. When the alarm bells rang, what help, if any, did you receive? Did you understand the significance of the matter? Can you give the committee an undertaking that you are unlikely to be back here in two year's time? I presume this is the last place where you would like to be, if you had a choice.

Mr. Arundel

You are very pleasant people but I would prefer to meet you elsewhere.

You are doing a good job.

Mr. Arundel

I accept a lot of what the Deputy says. When we found that issues were becoming very complex and were unable to address them from within our own resources, I met the Secretary General of the Department of Education and Science who was very helpful. He arranged for me to have discussions with some of his internal audit unit staff who were very helpful, gave us advice and provided guidance in a number of areas. Other sections of the Department were also very helpful. It took longer to deliver help in other areas, which is understandable because the Department was looking for value for money and wanted to be assured that no money had gone astray. It was also anxious to ensure proper systems were in place to safeguard assets. It wanted to ensure we were doing all that should be done and meeting deadlines for returns which should be accurate and timely. That was our biggest problem. There was a culture shock. We were moving from a system under which our accounts were audited under a different regime to one where they would be audited by the Comptroller and Auditor General's office. We would not have been strong at the time on what nowadays is referred to as the audit file. We did not use that particular format.

How many people work for you?

Mr. Arundel

When everybody is included, there are about 3,500 full-time and part-time staff.

With that number of staff, it becomes very important to have an audit and all that goes with it.

Mr. Arundel

I agree. As an organisation, we have been seeking to have our own internal audit unit and strengthen and support that function. We are not very happy that we are in this situation but the accounts for 2002 have been submitted. We expect their format will not only be as good as that for the 2001 accounts but considerably better. We reckon there will be ongoing improvement because of development of the systems in place and thanks to the advice we have been given. While we have had our moments with the Comptroller and Auditor General's office, I acknowledge the help and support received. To put it bluntly, we did not see eye to eye on all issues.

Can you give the committee any indication of the reason you were not in agreement with the Comptroller and Auditor General's office? I assume it was not interested in fairy tales.

Mr. Arundel

It all depends on where one is coming from. For example, we would get a list of lodgements to our account from the Department of Education and Science to verify that lodgements had been made and properly accounted for within our account. If the Comptroller and Auditor General got another list with a different set of numbers and figures that did not match ours, we had to deal with them. This is something that no longer happens but, depending on the date, there would be different lists. The core of the problem which has since been addressed within the Department was that moneys were lodged directly to our account by credit transfer without there being a suitable noting system. There was a time lag in identifying them and we often had to go back to the Department to establish the source of lodgements. They were not all made by it, other Departments and bodies also made lodgements. The time involved in balancing bank statements was considerable. The situation is now much improved in terms of the information we receive from the Department of Education and Science. What happened previously rarely happens now as I think the Comptroller and Auditor General will acknowledge.

Mr. Purcell

I can identify with this problem because it is one not only for City of Dublin Vocational Education Committee but also for every VEC. It is a matter that the committee, in its previous incarnation, took up, at my behest, with the Secretary General of the Department of Education and Science but the information available within the Department did not facilitate a matching of what it stated it had paid with what the vocational education committees stated they had received. From our point of view, this is a fundamental audit check. The system has changed in the last three years and, I understand, is working much better which has made all of our lives easier.

The capital projects started in 1995 and 1997 are still ongoing.

Mr. Arundel

Do you mean dormant balances?

I mean capital projects such as the construction of buildings. Four projects commenced in 1997 remain unfinished. They are noted on page 8 of the 2001 report.

Mr. Arundel

I cannot give a precise answer. I can, however, give a general answer which I will follow up with a note to the committee.

Thank you.

Mr. Arundel

There were long outstanding balances on capital accounts. All of us involved in the VEC, the auditors and even the Department were anxious that these dormant balances were removed from the accounts but there were problems. We have got rid of most of them and I suspect that those not already written off are well on the way to being so.

Has the work which began in 1995 on the project at Coláiste Dhúlaigh, Coolock been completed?

Mr. Arundel

Yes, it is complete.

The breakdown of expenditure on youth affairs shows figures of €3.2 million in 1998, €5 million in 1999, €5.1 million in 2000 and €6.5 million in 2001. I found detailed information on self-financing and capital projects but why did the financial statement not contain a breakdown of exactly how the €20 million was spent? May we have a note on this?

Mr. Arundel

Yes.

There was an increase in expenditure from €2.8 million in 1998 to €3.8 million in 1999 in the maintenance section. In the same year there was a reduction under the subheading, maintenance non-paid. Does this indicate a drop in productivity of the section?

Mr. Arundel

I would not think so. It probably reflects the nature of the work done which includes cleaning and a range of other matters.

Vocational sector spending on teleservices fell from a figure of €662,000 in 1998 to €192,000 in 1999. Is this ongoing?

Mr. Arundel

It has been run down. The programme was to run for a fixed period. The aim was to provide training for those involved in the teleservices area.

Are you happy with the internal audit service operating within the VEC?

Mr. Arundel

No but I am hopeful. At its next meeting we will put an audit plan before the VEC, part of which will recommend the establishment of an internal audit section. We will then seek Department of Education and Science approval to put it in place and make the necessary appointments. I will be happy when the people concerned take up duty.

Will the Department sanction it?

On Deputy Connaughton's point, with a staff of 3,500 it is critically important that there be an Accounting Officer in each VEC to ensure total responsibility for the disbursement of funds from the Department. With that number of staff an internal audit is a huge operation. Despite the warnings from your own auditor and the Comptroller and Auditor General's office, I am amazed that an internal audit team is not at the top of the agenda for the VEC.

Mr. Arundel

It is now and we hope to see it established shortly.

I have the highest regard for the VEC which is doing outstanding work but our job is to ensure there is effective management of allocated funding. We must also ensure there is a good model in place, a matter on which the VEC would not come out too highly in a critical assessment. As the biggest of the 33 vocational education committees, one could ask how its accounts compare with others.

Mr. Arundel

We are in a position we would not wish to be in but in which we do not expect to end up again. What I would wish to be remembered is that once the issue arose we took effective action within a short space of time. It was a traumatic time for everybody. The current systems are good and continue to improve. The finance system is operating well, certainly to the level of expectations. This reflects a lot of credit on the staff involved. It should be remembered that it is the same two or three people one is talking about all the time, a small staff for a big organisation. We hope that when the additional 30 or 40 staff and supports are provided, we will never again see anything like this because——

Was the committee not concerned that, with 3,500 staff, it was a huge employer and that, in regard to the disbursement of funds from the Department, the level of expertise within head office did not reflect the scale of footsoldiers on the ground?

Mr. Arundel

The expertise was not available. To a large extent, 3,500 staff were doing everything other than administration.

Was the advice given not questioned? In hindsight, it is clear that the scale of economy was unwise. The whole management team, you included, had huge responsibility. I do not castigate anyone in this regard. However, it is obvious that a lot more than four or five people were needed on the management team. The Rochford report indicated a need for an increase in the number of staff. Have the extra personnel recommended been taken on?

Mr. Arundel

The report has not yet reached implementation stage but I expect clearance to be given by the Department in the next number of weeks.

We will certainly suggest that the report be implemented straightaway.

Mr. Arundel

We would be very happy to do so.

We will also ask that the recommendation that an internal audit team be established be taken on board. When representatives of City of Dublin Vocational Education Committee appear before the committee again, we would like to see a report indicating that the report has been implemented and an internal audit team appointed. As Deputies McGuinness andConnaughton said, we would like to see effective management of services the VEC provides on the ground.

Mr. Arundel

I am sure the Assistant Secretary General of the Department will support me when I say we are in agreement on the numbers, grades and levels arising from the report.

Would Mr. Burke like to comment? Does the Department support everything that Mr. Arundel has said in regard to the critical need for the VEC to get key personnel in place? It is hard to expect the chief executive officer to face scrutiny if he does not have the support of the Department to make the appointments.

Mr. Burke

The Department has been acutely aware for some years of the difficulties in the VEC sector. vocational education committees were undertaking significant additional work and their role was changing, with which many factors had not kept pace. We have moved to improve the legislation and their financial processes. We have provided for executive and reserved functions and latterly moved on the Rochford review, the first fundamental review of staffing for a long time. Our objective is to ensure representatives of vocational education committees will not be called to appear before this committee. Thankfully, this has not been a significant feature of the landscape in recent years.

The agreement with the trade unions, of which the management teams would have been part, is for phased introduction of the Rochford report which reflects the reality in respect of public service numbers and the wider financial climate. We are talking about front-loading. Effectively, 50% plus of the Rochford package is in place and the intent is to move forward in the current year with two further elements. The Department commits to implementation of the report, as agreed, in practice and in spirit.

The difficulty with an internal audit function in a sector as diverse as the vocational education committees is the scale of the various schemes. The scheme of which Mr. Arundel is part is out on its own in its complexity and scale. By contrast there are quite small vocational education committees. We have attempted to address this by having a centralised or shared internal audit service. We accept, however, that this will not cut the mustard in a scheme like the CDVEC. We intend to respond to its request for an internal audit function. We give that undertaking.

I am glad to hear it. To be fair to the CDVEC, a certain amount of the blame rests with the Department. Management needs the commitment of the Department to allow the key decisions to be made. It is critically important that an internal audit team is appointed straightaway and the elements of the Rochford report deemed necessary for a financial audit implemented. The Comptroller and Auditor General should be able to walk in and conduct an audit within normal guidelines of good accountancy practice. Is it agreed that the committee should note the accounts for the years 1998 to 2001, inclusive, and the section 7 report? Agreed.

I compliment the Comptroller and Auditor General because, as Deputy Connaughton stated, his detailed examination has uncovered huge anomalies. He has put down a clear marker for the future for City of Dublin Vocational Education Committee. I thank Mr. Arundel for being so frank. All bearers of bad news are shot but having heard the commitments given by the Department I am satisfied that what occurred in recent years will not recur.

Mr. Arundel

I thank the committee, the Comptroller and Auditor General and his team.

The witnesses withdrew.