COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 7 Oct 2004

2003 Annual Report of Comptroller and Auditor General and Appropriation Accounts.

Vote 16 — Civil Service Commission.

Chapter 5.1 — Accounting Shortcomings.

Vote 17 — Office of the Ombudsman.

Chapter 6.1 — Accounting Shortcomings.

Mr. B. Andrews (Chief Executive, Civil Service Commission) and Mr. P. Whelan (Director General, Office of the Ombudsman) called and examined.

Chairman

Witnesses should be aware that they do not enjoy absolute privilege and should be 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 person identified in the course of proceedings who is not present may have to be made aware of them and provided with a transcript of the relevant part of the committee proceedings if the committee considers it appropriate in the interests of justice.

Notwithstanding this provision in the 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. Members are also reminded of the provisions of 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.

These are two excess Votes which, in accordance with public finance procedures, shall be taken as the first items of business in dealing with the 2003 Appropriation Accounts. The role of the Committee of Public Accounts in this matter is to issue following this examination an interim report, if satisfied, to the effect that it sees no objection to the excess sums being sanctioned by the Dáil by means of an excess Vote. The Minister for Finance will then decide whether an excess Vote should be placed before the Dáil.

I ask Mr. Andrews and Mr. Whelan to introduce their officials.

Mr. Bryan Andrews

My colleagues are Mr. Padraig Love, head of operations, and Mr. Martin Bourke, head of corporate affairs.

Mr. Patrick Whelan

My colleagues are Ms Maureen Behan, head of finance, and Mr. Brendan O'Neill, head of corporate services.

Chairman

I ask the Department of Finance officials to introduce themselves.

Mr. Philip Hamell

I am the director of the finance directorate. My colleagues are Mr. Pat McBride, accountant, and Mr. Dave Hurley who deals with the Vote.

Chairman

I call on the Comptroller and Auditor General to reintroduce chapter 5.1.

Paragraph 5.1 of the report of the Comptroller and Auditor General reads:

Civil Service Commission

Accounting Shortcomings

The Appropriation Act provides the legal basis for the maximum expenditure on a Vote and for the maximum Appropriations-in-Aid which may be applied to a Vote. The Appropriation Act, 2003 states, that for the salaries and expenses of the Civil Service Commission and of the Local Appointments Commission, a Supply Grant of a sum not exceeding €11,408,000 is granted and Appropriations-in-Aid €200,000 may be applied. An Excess Vote can arise in a number of circumstances including where the total of the expenditure subheads exceeds the amount granted or where a shortfall of Appropriations-in-Aid is not matched by savings in expenditure.

During the audit of the Appropriation Account for 2003 submitted to me on 31 March 2004, a number of material errors were brought to light including:

the net salary payments for October 2003 viz. €428,186 had been posted to the wrong account;

€278,000 was recorded as being due from the Exchequer instead of to the Exchequer;

an error of €118,000 in the amount shown as uncashed payable orders in the Statement of Assets and Liabilities.

One effect of the salary misposting and other audit adjustments was to turn a surplus for surrender of €312,002 (as shown in the original signed account presented) into a net excess of expenditure over grant of €46,177. In terms of gross expenditure, the gross grant had been exceeded by €81,560.

I asked the Accounting Officer to explain the circumstances in which an incorrect Appropriation Account was presented and why the Commission's internal control checking systems did not detect the errors which led to an Excess Vote.

Accounting Officer's Response

The Accounting Officer informed me that the Commission was a small organisation and had a short history in handling its own accounts with limited experience and resources. This coupled with the development and installation of a new financial system in the final quarter of 2003 resulted in some slippage in normal checking and control functions.

He said that human error was the cause of the misposting of the salaries figure for October as these figures are transferred manually from a printout received from Salaries Section in the Department of Finance which processes payroll on behalf of the Commission. This and staff pressures coincided with a lapse in the balancing of the Vote Ledger with the Paymaster General's records.

The posting error was not detected in the course of the Commission's preparation of monthly returns of expenditure to the Department of Finance as the system in existence at that time did not allow the Vote Ledger to be used as a source document for the preparation of these returns. The salaries figure was taken from the printout received from Salaries Section Department of Finance instead of the Vote Ledger as the updating of the Vote Ledger could not be completed in sufficient time. This meant that the monthly return for November was materially correct. In preparing documentation to support a Supplementary Estimate passed by Dáil Éireann on 10 December 2003, reference was made solely to the Monthly Profile Return.

He pointed out that a number of significant changes have been implemented by his Office to prevent a recurrence. A Professional Accountant was assigned responsibility for running the Finance Unit which, given the relatively small size of the Office, he said was a considerable investment. He was also strongly of the view that the adoption of the new accounting system under the Management Information Framework (MIF) model would eliminate manual transactions and ensure that the Vote Ledger and supporting schedules are maintained and proved as correct on a continuous basis. He also pointed out that an Audit Committee had been appointed comprising primarily ex-officio members to ensure that all normal checks and balances are being correctly implemented. This Committee, he explained, had been given full access to a Professional Internal Auditor who had been retained on contract by the Office. The return of staff who had been committed to the MIF project and review of systems should prevent recurrence of this problem.

He assured me that weaknesses in staff competence would be addressed with appropriate training and that the enhanced reporting system would be implemented as part of the MIF.

Mr. John Purcell

Chapter 5.1 draws attention to the fact that the Civil Service Commission spent more in 2003 than had been approved by the Dáil. The sum concerned is €81,560, in gross terms, or €46,177, in net terms, if surplus appropriations-in-aid are taken into account. In government accounting terms, this is in the nature of a mortal sin and necessitates the implementation of a series of actions designed to regularise the position. It involves me reporting the amount of the excess Vote to the Dáil through this committee which then calls in the relevant Accounting Officer for examination as the first item of business when dealing with my report for the year in question; and, having examined the matter, as the Chairman stated in his introduction, the committee issuing an interim report to the effect that it is satisfied that it sees no objection to the excess sum being sanctioned by the Dáil by means of an excess Vote. It is for the Minister for Finance to decide whether an excess Vote should be placed before the Dáil. If approved, the excess Vote would ultimately be included in the Appropriation Bill for the year in which it was approved.

The bible of government accounting, that is, the public financial procedures book, underlines the seriousness of incurring an excess Vote by stating a refusal to authorise its introduction would render the Accounting Officer personally liable for the extra expenditure. That said — looking across the table to see the relief on faces — I cannot recall any such instance arising. There is probably a doubt as to whether any attempt to make an Accounting Officer personally liable would succeed. Since this is the first time the committee has had to deal with an excess Vote, I thought it would be useful to outline how it should be dealt with.

In many cases the incurring of an excess Vote is a manifestation of something that has gone wrong with the financial management system in the organisation concerned. In the case of the Civil Service Commission, it did not know it had an excess Vote when the Accounting Officer submitted the appropriation account to me at the end of March 2004. Several bookkeeping and balancing errors came to light during the course of the audit of the account, the effect of which was to turn a reported surplus into an excess Vote. The Accounting Officer submitted a corrected account in July and I was satisfied that it showed the true financial position. Had the accounting system been working properly, the commission would have been able to identify the potential excess in early December 2003 when it could have been encompassed by a Supplementary Estimate passed for the commission by the Dáil on 10 December.

The committee will note in the report that the Accounting Officer sets out the contributory factors that led to the problems and the actions he has taken to prevent a recurrence, on which no doubt he will elaborate during the course of the committee's examination this morning.

Chairman

I call on Mr. Andrews to make an opening statement.

Mr. Andrews

As Accounting Officer, I am glad to have the opportunity to address the various issues in the Comptroller and Auditor General's report regarding the shortcomings in our accounts. I acknowledge that there have been failings in the manner in which the accounts were originally compiled and submitted for which I accept full responsibility. The Comptroller and Auditor General has identified a number of accounting shortcomings for us. These arose from the use of manual interventions, human error and the lack of experienced or trained staff in positions of responsibility. The situation that emerged in October regarding the salary misposting is a good illustration. Our payroll service has been always provided by the salary section of the Department of Finance. We did not have an electronic interface with that payroll system, so there was a considerable amount of manual interventions required. The need for such interventions unfortunately give rise to this error. The period in which the error occurred coincided with a lack of maintenance in the vote ledger, which should underpin everything we are doing. The error therefore did not come to light to management, including myself, at the time.

By way of explanation I wish to outline some of the context issues that were going on around that time. The Civil Service and Local Appointments Commission is a small organisation with a short history of doing its own accounts. They were previously done by the Department of Finance. I have a very limited pool of people with experience in the accounting area. This pool was further diluted by a downsizing that we had in 2003. Our staffing dropped by 25% from mid-2002, which is unusual for Civil Service Departments, yet it was something we were doing so that we could pay people. Throughout the period in question, we have been involved in a major transformation of the organisation. We have drawn heavily on the resources within the organisation to make progress on a major e-government initiative within the office. We have also moved to new headquarters and have established a new structure. We had commitments under the management information framework to produce these within a certain timeframe set by the Government. There was, therefore, pressure on the limited skills we had in the finance area to do so. However, the office managed to meet all of its commitments under the management information framework deadlines.

The committee will also be aware that legislation has been introduced the purpose of which is to establish the new mechanisms under the Public Service Management Recruitment and Appointments Bill 2003. I believe it was signed by the President yesterday. The commission's staff was deeply involved in the preparations for this new regime, as well as preparations for the legislation and the structures that have to underpin it.

I am not happy to be here in these circumstances. However, I found the experience in identifying and rectifying the deficiencies and reinforcing some of the things to which we were already committed to doing to be very beneficial. I have put a number of measures in place, as Mr. Purcell pointed out, to make sure that these accounting difficulties do not occur again. I have assigned the responsibility for running the organisation's finance unit to a professional accountant.

There is a comprehensive training programme that we have been running for staff within the accounting area, using internal sources, in which the accountant has been involved, as well as using external sources. As part of the implementation of the management information framework, we now have a new accounting system which will eliminate those manual transactions about which I spoke earlier, and will ensure that the vote ledger and the supporting schedules are maintained and proved as correct on a continuous basis. We have also appointed an audit committee, comprised largely of external members, to ensure that appropriate cheques and balances are implemented and brought to my attention on a regular basis. The appointment of a professional internal auditor on a contract basis has also happened this year, to review the systems and report to the audit committee and to me. We now have a three year audit programme in place.

I am satisfied as Accounting Officer that these changes will bring a professional approach to the management of the organisation's accounts and a significant level of reassurance that these difficulties will not recur. In this regard, I have recently asked the internal auditor to carry out an independent audit of the control systems that are now in place. I have just received confirmation from him that he is satisfied that we now have a comprehensive system of checks and balances in place. He will be producing a further report to the audit committee.

Chairman

Is it not a case of bad financial management that the commission did not have an audit committee? It is now only employing an accountant when it had a turnover of €11.5 million. Were there any monthly reconciliations of the commission's balance sheet?

Mr. Andrews

We have always had monthly reconciliations. Unfortunately, around the middle of last year, these began to fall into arrears. However, it was something about which we were very meticulous. At the time, the more experienced people were involved in the development of the new management information framework. The less experienced people were moving out of the accounting area, but were in a management area. Things were not as they should have been and I accept that.

Chairman

In the 21st century it is strange that the commission is operating on manual transactions. I assume that the commission deals with state-of-the-art IT and integrated systems.

Mr. Andrews

Absolutely. We were a late starter in professionalising the accounting area. We did engage the services of a professional accountant, but his task was to develop and work with the consultants on the management information, which was to put in the new technology to underpin where we are now. We have since appointed that person as head of our accounts and finance. It was long overdue that we invested in that professional approach.

Deputy J. Higgins

Mr. Andrews indicated that there was some change recently in which he was given new responsibilities in accounting. Am I correct in saying that it was done differently previously?

Mr. Andrews

I was not given new responsibilities, but we have been taking a very professional approach to the Mullarkey recommendations in how to manage our finances. We have been moving towards a more professional approach. We have also been putting in new systems, replacing the part we did manually. During the period when a new system is being developed and most of the organisation's experienced people are engaged in that development, there is always the danger that something will not get done that should be done. This is what happened in this case. I have now got a much more professional approach under my control. I have a professional accountant, which I did not have in the past. This role was previously carried out by the more generalist civil servant, but that day is gone now, as the Chairman pointed out. We need to professionalise the approach we take and I am pleased that we have moved in that direction.

Deputy J. Higgins

Did I hear correctly that the commission's staff was downsized by 25% in 2003?

Mr. Andrews

That is correct. In 2002 we started to downsize our staffing numbers. We moved from a situation where we had 202 to a situation where we had 155 staff. That had a huge impact on the organisation. We have been investing in technology to streamline much of the business. In this organisation, when we had a difficulty in the past, there was always a tendency to throw more staff at the problem. Over the last years, we have begun to professionalise the business and we are able to do more with less people. However, under Government guidelines on staffing and because of our budget, we had to get our staffing numbers back. We were running into a situation where I could not pay people unless I let them go. That is not an easy thing to do in the Civil Service.

Through the partnership committee and the organisation, we took a people centred approach to the problem. We did not talk about last-in last-out. We worked through partnership and we talked about how best we could do this. We identified people who perhaps were at the stage where they could do with a different type of experience in a different organisation. We were able to fix them up with other organisations that had vacancies. A number of people also went to work on the Presidency. Through this voluntary and adult approach adopted by everyone in the organisation, we found a solution to what would have been a predicament. I would have ended up with staff I could not pay. This was another issue in 2003 and we were making sure we had the money to pay people. Our budget was constantly being watched, although perhaps not closely enough.

Deputy J. Higgins

Downsizing by almost 50 staff in an organisation of 202 is drastic. Is Mr. Andrews suggesting that technology alone enabled the commission to replace almost 50 staff? Is it not extraordinary to find oneself not being able to pay the people concerned unless they moved on? Was this because the initial amount appropriated was inadequate?

Mr. Andrews

No. Let us go back to the period between 1999 and 2001 when there was a huge backlog in the commission. We were the legal recruiter for the civil and public service. Departments could not recruit and we were working in a difficult recruitment market. We were competing with many others for a small pool of recruits. We had about 800 clerical vacancies that we were not able to fill. In the past, when there were backlogs, one of the approaches was to obtain sanction to employ additional staff to deal with the problem. All such sanctions have a cut-off date and we had to go back and ask for sanction covering a two or three year period. At that stage many of those numbers were being called in. We had adopted a managed approach in making sure we could return to what were our core numbers. We had a programme in place to get back down to these numbers in a short space of time and technology allowed us to do so. However, we also revamped many of the processes that we had running. Clerical recruitment is an example of this. In the past there was a nine month lead-in period from the time we advertised to the time somebody got a job. By a factor of 24, we reduced this to a matter of weeks where someone phoned in for a test and was fixed up with an appointment in a Department. That is the thinking we have instilled in the organisation. We have completely streamlined the way things are done. While technology has helped dramatically, we have also had a mindset change in the organisation.

Deputy J. Higgins

A period of a matter of weeks is entirely appropriate. It seems that Mr. Andrews was running a dinosaur if it took nine months to recruit a clerical officer. In other words, there was a bulge of staff to try to remove the backlog of vacancies that had to be filled. It was always seen that the commission would get back down to the lower numbers. I presume staff were moved to other sections of the Civil Service and not fired.

Mr. Andrews

I would not use the word "fired" but some did leave the Civil Service. By mutual agreement, we decided that it was probably not the career for them. We could not afford to carry anyone who was not able to contribute to what we had to do. In public sector recruitment there are many issues that have to be catered for such as fairness and opportunity for everyone to apply. Everyone has to have a test. Therefore, it is very time-consuming and resource intensive. We have come from a long way back and can now compete with any organisation in the way we do it.

Deputy J. Higgins

How will the Public Service Management Recruitment and Appointments Bill 2003, on which I spoke on Second Stage, affect the Civil Service Commission? It allows local recruitment by Departments. If it has been signed by the President, I presume it will be put into effect. If I remember correctly, Departments will even be allowed to hire private agencies to recruit staff. With regard to its €11 million budget in 2003, where does all this leave the commission?

Mr. Andrews

The new Act will begin within the next fortnight and we will have two new bodies, one of which will be the regulation body, the Office of the Public Service Commissioners. It will be a small body for which the funding will come from our budget. We are splitting the Vote this year and it is on the agenda of the finance committee. Next year there will be separate Votes. On the operations side, there will be the Public Appointments Service of which I will be chief executive. It will be the recruiting body for the public service. We expect to be in a position to engage in recruitment for all public service bodies; in fact, our remit will be even wider than it was. I believe there will be a saving to the Exchequer.

There is a provision whereby organisations which wish to engage in their own recruitment may apply for a licence, which licences will be regulated by the office of the commissioners and in respect of which there will be a code of practice. Therefore, there will be a strict regime for any organisation which wants to apply for its own licence to conduct its own recruitment. It may engage the services of a private sector organisation which will not be able to conduct the recruitment process for it. It can engage it in some part of the process. The head of the organisation which is the holder of a licence will be responsible for the probity, impartiality and fairness of the recruitment process.

I do not see that our organisation will be doing less business. In the work we have been doing in recent years we have been gearing ourselves to have a better client focus and making sure that our client base will wish to do business with us after the date we will no longer have a monopoly. We have put ourselves in a good position. The indications from our client base are that not only will we be doing the same business but we will be doing even more as we will be taken into other areas such as internal promotions. This will also occur in the wider public service where up until now we have only been involved in senior level appointments to local authorities and health boards. We have already begun to conduct clerical recruitment for local authorities, something we never did in the past.

Deputy J. Higgins

Carried to the extreme, one could say the commission's public appointments section could become a mere licensing authority. Mr. Andrews seems to be indicating to the committee that he does not anticipate that there will be a huge uptake by various agencies of the provision to employ at local level. Is that the case?

Mr. Andrews

I may not have made matters as clear as I should. There will be two separate organisations. There will be the small regulation body with which we will have nothing to do. It will have a separate staff and management. I will have to apply for a licence.

Deputy J. Higgins

Will it give out licences?

Mr. Andrews

Yes.

Deputy J. Higgins

Does Mr. Andrews not anticipate that there will be devolution in terms of hiring at local level?

Mr. Andrews

I anticipate that there will be some but not a huge amount. In the previous system, if the market became ridiculously difficult, we were the only body which could do it for the public service. There will now be flexibility. Therefore, if things get busy and we cannot do everything for everyone, there will be a release valve for organisations to enter the market also. We will help them and not leave them out there on their own. Our role will be advisory in nature in these cases.

Deputy J. Higgins

I would like to comment briefly on the Comptroller and Auditor General's observations and findings. The net salary payments for October 2003, amounting to almost €500,000, had been posted to the wrong account which Mr. Andrews attributes to human error. The recording of €278,000 as being due from rather than to the Exchequer is an extraordinary mistake.

Mr. Andrews

I agree with the Deputy that those errors have occurred in the accounts and it certainly does not give me any satisfaction to sit here and explain them. The checking and balancing of the accounts were poor and the errors in question are ones that result as a consequence.

Deputy J. Higgins

It is very important to say there is no question of moneys being misappropriated.

Mr. Andrews

Not at all.

Deputy J. Higgins

I note from what Mr. Andrews has reported today and what he has reported to the Comptroller and Auditor General that a professional accountant was assigned responsibility for running the finance unit. Given the relatively small size of the office, this represents a considerable investment. Is that person employed by Mr. Andrews' office or is he independent?

Mr. Andrews

That person would have worked on contract in the development of the management information framework, a contract we shared at the time with the State Laboratory. We have now engaged the person concerned as a full-time employee of the organisation and took the decision that we had to take that road.

Deputy J. Higgins

In other words, he is a civil servant.

Mr. Andrews

Yes.

Deputy J. Higgins

An audit committee has been appointed comprised primarily of ex officio members. It has been given full access to a professional internal auditor, retained on contract by the office. Is that a different person?

Mr. Andrews

The person concerned is a professional accountant and risk management consultant to boot. He is a professional person and independent of the organisation. He is employed on contract and will work with the audit committee.

Deputy J. Higgins

What is the annual cost of both the professional accountant and the professional internal auditor?

Mr. Andrews

We employed the accountant on a salary. The external internal auditor is employed on contract and paid on an hourly basis. The cost of the two professionals amounts to approximately €75,000.

Deputy Dennehy

I have some questions on the overspends and the comments of the Comptroller and Auditor General. Mr. Andrews has outlined the limited experience of the Department in reference to the development and installation of the new financial system. Given these limiting and disruptive factors, surely it was incumbent on him and senior management to ensure they would be more alert to mistakes.

Mr. Andrews

With hindsight, I agree with the Deputy that we should have been a little more vigilant and perhaps a little more aware that when one is installing a system as enormous as the one in question, one probably should take the view that something could go wrong. However, we had not encountered problems before. One will note that we had recorded a budget surplus in the previous four years and always managed our affairs extremely well. Unfortunately, the profile figures that we returned did not indicate that we were having any particular problems. There were no indicators to me that anything was wrong, but I agree with the Deputy in hindsight. As a caution or recommendation to others doing something of the scale of the project in which we were engaged, they should be safe rather than sorry.

Deputy Dennehy

I would have presumed that one would be over-cautious until one became familiar with the new formula, after which one could relax a little.

The Chairman has referred to human error and asked the reason the manual transfer of funds would be necessary in this age of technology. Will the Department of Finance state if manual account maintenance is a wide-ranging practice? Does the Department have any guidelines on how such accounts should be maintained? Is there a set procedure?

Mr. Dave Hurley

Generally, this arises because salary accounts are dealt with on a different basis from non-pay accounts. The salary system must deal with all tax matters, etc. The totals paid out on salaries must be brought to account in the overall ledgers. Generally, there will be a specially built automatic interface between the payroll system and the non-pay accounts system. In this instance, a new system was being installed in the commission and there was still no automatic interface between the salaries, handled in the Department of Finance, and non-pay accounts. Consequently, it required the manual taking of a print-out from the salary system in the Department of Finance and ensuring the relevant figures were entered correctly in the other system. This effectively means that entries must be made meticulously each and every time. With an automatic system — once it has been tested — this is not the case. In the instance in question one of the figures was entered in the incorrect position and the outturn from the overall ledger account did not give the true figure. There was insufficient time to compute the correct amount for what extra was required. There were a couple of reasons for a Supplementary Estimate and the amount requested was inadvertently incorrect. The matter did not come to light until after the end of the year.

Deputy Dennehy

I accept that is the explanation for this issue. However, are there controls over Departments? Is Mr. Andrews' office given directives? We are obviously aware that there can be errors wherever there is manual inputting, but, as a member of the Committee of Public Accounts, I would have presumed that there would have been a directive on the automatic exchange of information.

Mr. Hurley

No, the norm is that a special interface is written to transfer the information concerning what is paid out on the payroll accounts into the ledger accounts to bring them up to date. It depends on the nature of the two separate systems. Difficulties can arise in instances where a new system is being put in place in that one has to rebuild and test the interface. The difficulty in the case in question was that there was a hiatus between the two systems. Before one's account was complete one had to ensure the figures were transferred manually. The norm is that a proper interface is built. It should feed in not just the total amounts paid out on salaries but also details one may want in one's management information system such as the individual amounts for different sections of the organisation and different cost centres.

Deputy Dennehy

I am surprised by the question of the internal audit, as raised by Deputy Higgins. There is a presumption among members of this committee that there would automatically be an internal audit in each Department. Why was there none previously? I accept that it is being done now.

Mr. Andrews

We did have one of our members of staff as internal auditor. That person still runs an internal audit support service for the new person we put in place. We also had an internal audit committee. Unfortunately, it was staffed by our own personnel so we dismantled the committee in terms of the Mullarkey recommendations and moved towards what is a much better structure where we have external people on it. So, while we did have one, it did not work as well as these things can.

Deputy Dennehy

I am sure there are standards laid down and I accept that the people Mr. Andrews have are external. I again refer to the issue of cost. Where would Mr. Andrews have approximately sourced them and is there a cost factor involved? I presume there is.

Mr. Andrews

There is a very small cost involved. In fact, they are people from the public service who work in other organisations, so there is not a cost. There is one retired person on it who will only be paid on a time basis so it is a very small cost. I believe it will be of great benefit.

Deputy Dennehy

I might ask Department of Finance officials if the Department has any guidelines, or issues guidelines, to Departments on the internal audit function and how it might be handled. Does the Department use its own expertise to advise people?

Mr. Philip Hamell

If I remember correctly, the Department issued internal audit standards in the early 1990s, but more recently the report that Mr. Andrews is referring to, the Moriarty report, makes recommendations about internal audits. There is a two-year programme for implementation and they are being progressively implemented across Departments.

Deputy Dennehy

That is good. On the big question of decentralisation, I will not ask about its full role, but as Mr. Andrews outlined earlier, the Civil Service Commission is the legal recruitment arm for the State. How big a role will it have? Bearing in mind the issue of staff numbers, will the commission be able to carry out its function?

Mr. Andrews

I suppose there are two parts to that function. One is that we, as an organisation, are earmarked to decentralise a substantial number of staff to Youghal in Cork. That will be a real challenge as regards how we do it. We have been making good preparations for it in terms of our investment in technology.

The other challenge is that we are centrally involved in the decentralisation process in terms of running the central applications facility. We developed that in our organisation and we run it centrally. There will be, I have no doubt, a role down the road — whenever Government decides when and how quickly this is to happen — of matching people up to vacancies in dealing with the Departments. That will be a substantial job because behind each application is a human being considering life challenges and perhaps moves. We will have to get involved in all of that, therefore, I envisage a substantial amount of work in that respect.

Deputy Dennehy

Yesterday, Mr. Flynn, pointed out some of the potential difficulties but he was also very confident about it happening and being able to proceed. Does Mr. Andrews have the same confidence? Does he see it happening fully?

Mr. Andrews

Yes. I also attended the committee meeting yesterday with Mr. Flynn. The start being made on this is beyond all our expectations. There has been a high degree of interest in people moving to various locations. We all consider that there is every possibility this has been a good beginning and that we will move on from here. Yesterday, Mr. Flynn indicated that there may be a need to look at sequencing and there are issues that are not that easy to fix, but I would be encouraged that this is doable.

Deputy Dennehy

With your permission, Chairman, I wish to ask a brief question concerning the accounts. I suppose one of the good things is that under subhead A4, postal and telecommunications services, there was a saving of €87,000. The reason given — online recruitment facilities — intrigued me. Could Mr. Andrews elaborate on that? Perhaps we will be able to pass on that kind of information elsewhere.

Mr. Andrews

It goes back matters we discussed earlier. We have invested heavily in on-line transactions. That is the trend in the recruitment business and we are a business. I know we are civil servants but it is a business and it does not matter what way one looks at it. We looked at international trends and the public service in the United States. The trend is towards e-recruitment. As members of the committee will know, the e-Government programme has set down certain deadlines for real transactions for people by 2005. So we have invested heavily in this. At present, people are registered on our site. This is something we were never able to do before. Some 22,000 people have logged their details with us and are waiting to hear about jobs in certain areas. That is a new development for us.

There is a huge amount of traffic. Members of the committee probably know that over the past few years we have established a brand —publicjobs.ie — which is very successful. To give the committee an idea, the number of hits per day on our site amount to approximately 46,000. The average hit number, which involves the examination of just a page, amounts to approximately 39 per person. It means that at least 1,000 people per day visit the site.

We have managed to run some large volume competitions only through the Internet access. Behind that, we have a phone-in centre where we will take a person's details, but we have moved towards encouraging people to use the Internet. The younger population have taken to this, as the committee will probably appreciate, very quickly and very well. Going on line has helped us to get better connected to people like graduates, than in the past. We have saved a lot of money, not only in postage but also in time.

Earlier we mentioned having less staff. This is the only way to go. However, we have to accept that there is the issue of people not being able to access because they do not have the skills or the wherewithal. We have to facilitate them and we do so.

As the committee can imagine, we recruit consultants for the hospital service. A lot of these people are coming from abroad so we are running a 24-7 service. People can access this site any time of the day from anywhere in the world. That is something we could never do before, so we have seen the benefits of this. While it is not the complete story — the other channels must operate also — it has made huge savings not only in money but in time. It has probably enhanced the jobs of those who work for us while removing much of the mundane work.

Deputy Dennehy

That is an excellent story. I hope, if the Comptroller and Auditor General's threat was carried through and Mr. Andrews is personally accountable, we might deduct that €75,000 from the big bill.

Chairman

As regards the interface, does the Department of Finance consider that work is going forward? Would it not be better to give complete autonomy to the Civil Service Commission to mange its own staff payment procedure? Heretofore there was no interface activity, but is the Department happy with it? Is it not a cumbersome system of payment? One would imagine that the Accounting Officer could deal effectively with that from his own Department. Would it not be managed more tightly in that way?

Mr. Hurley

It is in the nature of payroll systems, as such, that one needs a different system to run a payroll, and one needs an interface, irrespective of who runs it. Given the intricacies that arise in maintaining the annual tax liabilities, and everything else, of those who are involved in payrolls, it is, by its nature, a different system. Even within the same organisation, it still should require an automatic interface to transfer the overall totals that are paid back into the accounting ledger, irrespective of who runs which system.

Chairman

It is surprising then that you did not insist on having it in place before you signed off on the delegation of payment responsibility. Was that not a lapse on behalf of the Department?

Mr. Hurley

Ideally, it is preferable to have these interfaces and such like going, but one cannot wait to pay people until one has the interface going. The salary system is continuous and it has to keep going in any event. By the nature of things, matters do not always go entirely smoothly when one is putting in new systems. Ideally, one should have an interface in place, and well tested, before one has to utilise it. However, it does not always happen that way.

Deputy Boyle

With regard to the effectiveness of the commission in light of the implementation of the decentralisation programme, what proportion of the commission's staff indicated that they are willing to transfer to Youghal?

Mr. Andrews

I wish I could be more positive on that issue. Currently only two people who work within my office have indicated a preference to go to Youghal. A number of people in Dublin who worked for the organisation in the past have indicated that they would like to transfer there. Approximately ten people from Dublin indicated they would like to go to Youghal. Most of the people who have applied for Youghal are already working outside Dublin. Some people in Cork city have applied. Perhaps this indicates the scale of the challenge in moving the organisation. There are 149 staff. Six staff will go to the new commissioner's office and 100 people are scheduled to go to Youghal. It is a real challenge to ensure we can move the organisation and still maintain the level of service we are currently achieving.

Deputy Boyle

Will Mr. Andrews be——

Mr. Andrews

Head office will remain in Dublin. No matter how one looks at it, a lot of my life will happen in Youghal. I cannot send people there and just let things happen. We are very hands on in terms of the people in the organisation. It will mean a dual split role for me. I will get to see a lot of Youghal. I have already seen quite a bit of it and I recognise what is there and what it is like. From what I have seen, I believe jobs in Youghal would be a very positive thing. It is a wonderful place but it needs the investment of jobs.

Deputy Boyle

Is Mr. Andrews concerned that the experience within the current commission is unlikely to be transferred to a new location? Does it mean he will be starting the new operation in Youghal at a remove and he will have to regain that experience? There might be a sense of loss in how he implements his activities for a certain period.

Mr. Andrews

Yes. I would be wrong to deny that there are challenges involved. Certainly there will be a loss. The hope is that I can retain a good corps in the Dublin office and build up people to move to the Youghal office. It is not happening tomorrow or next week. There is a certain lead-in time. The commission is an office from which people should move in and out. Perhaps many people have stayed in the commission for too long. It is a good place to be for five or seven years at most. One can get very experienced in the recruitment area dealing with people. If one is building a career, perhaps one should use it as experience and move on somewhere else. I am confident I can get good people who can be trained in the way we do business. I would not underestimate the challenge but it can be done.

Deputy Boyle

My second question relates to the assessment of the cost implications for the commission. You will be setting up interview panels and working for bodies now based outside of Dublin which will have cost implications in the future.

Mr. Andrews

We will have to bring new thinking to much of this. Many of our clients already reside outside Dublin. We recruit for the local authorities and health boards, so that dimension exists. We already run a lot of testing and interviews outside Dublin. Many people find Dublin convenient, particularly people who travel from abroad and so on. In future we will have to examine a regional approach to the way we do things. We must work with organisations, rather than us having to do everything. We must also work with the staff in these regional locations to do that recruitment. I look on decentralisation as a new beginning in terms of how we do the business. Technology will allow this to happen from remote locations. There are challenges but there is a new type of thinking to be brought to the situation.

Deputy Boyle

My next question is more historical but it is on a similar theme. It relates to the local appointments commission, which used to be a stand alone organisation. Anecdotally, the perception would have been that the filling of positions through the local appointments commission consisted of setting up interview panels where a local government official from Cork attend for an interview in Donegal and an official from Louth would attend elsewhere. While it appears that this activity went on, it is questionable if it was of benefit to the selection process. I would like clarification on the extent to which it occurred and if it is continuing.

My second question is concerned with that area which relates to the extent to which outside appointments are being encouraged into the local government system.

Mr. Andrews

If I understand correctly the first part of the question.

Deputy Boyle

It relates to the incestuous nature of appointments within the local government system.

Mr. Andrews

On the first part of the question, is the Deputy asking if people from Cork would sit on interview boards to recruit people to other local authorities? The answer is that they would because we would always have an experienced county manager on such a board.

Deputy Boyle

I was being more cynical.

Mr. Andrews

I understand the underlying part of the question. These are open competitions for which anyone can apply. The Deputy is correct that there has not been a great deal of success with people coming in to such jobs from the outside. Some people have moved into senior positions in local authorities from the Civil Service. It has not all been internal and we have outside people on these boards. There are always issues around whether the salary levels at times attract the right people from outside industry into that environment. There are some indications that we do not attract the right people. Whether it is the salary levels or the geographical location, there are always issues one must look beyond.

Deputy Boyle

With regard to the establishment of licensing of recruiters under the new Act, is this something which will apply more to locally based bodies, particularly local government? What might happen is that the new Commission for Public Services Appointments will do what it traditionally did in the Civil Service Commission and the work of the local appointments commission is likely to be done by the newly licensed bodies who are applying for these locally based appointments.

Mr. Andrews

Some interesting legal changes are taking place. The new legislation is like an interim arrangement whereby I will take over the responsibilities of the local appointments commission. In doing so, I will be working with the relevant Ministers. In future local authorities and the health boards will come within the remit of the commissioners in terms of licensing and codes of practice. This must yet be moved. They are moving the rest of the legislation initially but the local appointments side will walk into the new era a few steps behind the rest in terms of licensing and codes of practice.

Chairman

With regard to accommodation, advertising, purchasing and printing of test papers, you received an increased Supplementary Estimate of up to €1,813,000 while the allocation was €1,400,000.

Mr. Andrews

May I ask what is the Chairman's point?

Chairman

I am querying the necessity of a Supplementary Estimate in that €200,000 was sought but the commission underspent by €400,000 under this subhead.

Mr. Andrews

It is difficult to match the Supplementary Estimate with the subheads. There is a movement of that expense between those two subheads. The bulk of the supplementary was driven by the A6 figure, which deals with outstanding costs incurred in moving to new offices in Chapter House in Abbey Street. The fit-out costs and so on were still due to the Office of Public Works. The real driver behind the supplementary was to ensure that we had the money to meet that cost.

Another part of the supplementary had to do with additional work with regard to delivering on Sustaining Progress in terms of new types of recruitment. Half of that cost was met out of the existing budget. The account is slightly confusing but considering subheads A6 and A8 together makes it a little clearer, in that the two work out at approximately the correct balance. It was the A6 subhead, regarding the OPW fit-out cost, which put us out of kilter.

Chairman

With regard to the PRSI, detailed in item 9, miscellaneous items, a sum of €18,821 was written off from PAYE-PRSI suspense balance. How can PRSI payments be written off?

Mr. Andrews

This is under subhead A1 and is a long-standing item which ran back over years and had not been reconciled. It was money which was eventually written off in that year.

Chairman

Is it not the normal procedure that PAYE-PRSI is deducted and sent to the Revenue Commissioners?

Mr. Andrews

It is.

Chairman

How can it be written off?

Mr. Andrews

I will furnish the Chairman with an explanation on that point.

Mr. Purcell

As I understand it, these were errors going back over a period of ten years. From time to time, they occur in systems in trying to reconcile pay-overs to the Revenue Commissioners, for example, as in this case. It would not be untypical in the scale of things over ten years. It is not money that was lost but rather it was mis-posted. As well as the errors identified in 2003, there were errors in previous accounts. I recall an inclusion in one of my annual reports six or seven years ago, before Mr. Andrews's time, where the Civil Service Commission was before this committee on foot of problems in the accounting system. I can obtain the reference but my recollection is fairly clear of sitting across the road in Kildare Street and having some censorious words to say about the system at the time.

Chairman

I thank Mr. Purcell for that clarification. With regard to the operating cost statement, there is an expenditure borne elsewhere item of €2,844,000.

Mr. Andrews

This covers costs on top of the Vote, including such items as building rental paid by the OPW and some superannuation costs also. These are costs which do not come directly under the Vote but are added on in terms of the operational costs of the organisation.

Deputy Dennehy

My question regarding subhead A4 has been answered but I am still concerned about subhead A9, information society, e-recruitment, which includes the most significant figures. What is that about?

Mr. Andrews

The Information Society Commission is driving the e-government agenda and it provides funds for the development of new initiatives within Civil Service organisations, which will progress this agenda. That is ring-fenced money which can only be used for the development of e-government initiatives, which is why it is under a separate subhead. It cannot be used for hardware, for example. That is why it is a separate Vote which is managed separately.

Deputy Dennehy

Will the recruitment of 22,000 people be part of this initiative?

Mr. Andrews

Yes. The new on-line recruitment facility is being built using these funds. There are many aspects and initiatives involved. This facility is being developed to be almost a self-service system for our client organisations, which will also be able to hook into it. This is the type of thing we have been doing with that investment.

Deputy Dennehy

Does the €11.5 million involve recruitment only or does it cover a range of functions within the organisation regarding IT?

Mr. Andrews

It covers recruitment, promotion and testing. The Civil Service Commission is probably a niche HR organisation in that it deals with job analysis and realignment exercises as well as training exercises for people who want to sit on interview boards or do their own recruitment. The commission delivers a significant suite of services and products. The e-government aspect of this is covered under the A9 subhead while IT development comes under the A5 subhead. Subhead 9 deals with our investment in recruitment but it is not just IT; there is a significant people aspect to our business also.

Deputy Dennehy

Will the costs associated with decentralisation be another ring-fenced effort? I believe there is a separate website for those who wish to apply for decentralisation.

Mr. Andrews

There is. When the decentralisation initiative was established, the decentralisation implementation committee wanted to set up a system, akin to the CAO system for third level entry, to catch all the applications and provide multiple options and so on. Given that the commission had just completed phase two in developing its e-government initiative, we were able to build the central applications facility on top of it. Our outlay on development costs for the CAF was €68,000, which represents a major steal and was possible because we were suitably positioned to deliver at that cost. In comparison to a paper and pen system, applicants can come in right up to the closing date and changed their application on-line by means of accessing their own secure account and selecting from up to ten different preferences. What we achieved for small money was only possible because of the previous investment in developing on-line systems.

Chairman

On the issue of decentralisation, I know civil servants from Sligo who are working in Dublin and have applied to the Civil Service Commission for a transfer to fill vacancies in Sligo. We are talking about decentralisation, yet civil servants who have tried to take up vacancies in one of the two offices in Sligo have been told they will not be moved. Is it not a contradiction for people who apply for vacancies at a time of decentralisation to be told they will not be moved?

Mr. Andrews

I do not want to dodge the question. There has been a transfer list within the Civil Service for some years which operates at clerical level, but strange as it may seem, the Civil Service Commission does not operate the list. It is compiled of people who have indicated they wish to transfer and is kept by their Department which will then contact a Department office in some place, for example, Sligo, to say somebody wants to go there. The union also keeps the transfer list. People from the list are allocated vacancies and when we are filling vacancies we must be conscious of it. The list has not been as well kept and managed as it should be, in the sense that we have had difficulty in finding out who is next or whether there is anybody on a list.

The system has not been very satisfactory. It was always difficult to know how many people were interested in going to some place like Sligo. Some people who were a bit down the list were totally frustrated by the fact they could not get a place such as Sligo and that everyone above them on the list, many of whom had gone elsewhere and were no longer interested in a move, had to be contacted. That system was very unsatisfactory.

I am pleased that with this new approach to decentralisation that list ends. Once we have captured all the preferences, the list will no longer operate. However, any of those who were on a transfer list will get preferential positioning on the new list for the new locations. We will have a much more streamlined system which will allow people to go where they want. This will create vacancies in Sligo, because some people there will move to new locations that were not there previously. The new approach will generate considerable movement in the system.

Chairman

That is only in Sligo and is out of a sense of compassion for people who have family members travelling up to Dublin. They feel totally frustrated because they get very little contact from anybody who can tell them the status of their application. Dealing with this issue may be deviating slightly from the Vote, but I felt I had to make the point. I know of people around the country who have over the years sought a transfer, but have not been transferred despite the fact there are vacancies in their home base. It seems ironic to be talking about decentralisation when staff who are prepared to fill existing vacancies are not moved. It is difficult in such a situation to convince civil servants that decentralisation is something that will happen.

Mr. Andrews

I take the Chairman's point. I was trying to indicate that the management of the central transfer list was not within the remit of the commission. We were not involved in it and at times were probably frustrated by the lack of information that would help us fill vacancies in locations. There were agreements around how vacancies would be filled, sometimes 50:50 between the transfer list and recruitment. We are moving into a more streamlined system where people will have a better opportunity of getting where they want to get quicker.

Chairman

I am delighted to hear that. Will Mr. Andrews send me a note on how it is intended to operate the system? It is an important issue for many of the people I meet.

Mr. Andrews

I will do that.

Mr. Purcell

There is not much more to say. It is important not to take one's eye off the ball when moving from the existing system to the new system. What has emerged and is worth repeating in the context of the discussion on decentralisation is that for many accounts branches — the purgatory and not the most glamorous section of many Departments — people who have not got specific expertise come and go, general service people in many cases. That is the reason it is important when moving to a more sophisticated accounting system, as most Departments are doing, to have accounting expertise. It is gratifying to see that the Civil Service Commission has somebody with expertise leading that section of the organisation.

I should mention, since this is the first meeting on the 2003 report, that members will perhaps notice that as part of the appropriation account now Accounting Officers are required to make an explicit statement on the internal financial controls in their organisation. That was always implicit, but as a result of the Mullarkey report the responsibilities of Accounting Officers are set out in much more specific terms. This is probably a recognition of the need to emphasise the importance of financial control in Departments and offices.

Chairman

On the conclusion of this Chapter we will dispose of this Vote. Is the committee satisfied that there is no objection to the excess sum being sanctioned by the Dáil by means of an excess Vote and is it agreed to report accordingly? Agreed.

I thank Mr. Andrews and his team. From what I have heard today, I am happy that the major changes in technology are in hand.

Mr. Andrews

I wish to correct the record. I may have referred to the Mullarkey report as the Moriarty report and wish to correct that. I am not sure what drove that thought into my head.

Chairman

Thank you. I hope Mr. Andrews does not end up in front of that tribunal anyway.

I invite Mr. Purcell to introduce Chapter 6.1, Vote 17 of the accounts for 2003.

Paragraph 6.1 of the report of the Comptroller and Auditor General reads:

Office of the Ombudsman

Accounting Shortcomings

The Appropriation Act provides the legal basis for the maximum expenditure on a Vote. The Appropriation Act 2003 states, that for the salaries and expenses of the Office of the Ombudsman, the Standards in Public Office Commission and the Office of the Information Commissioner, a Supply Grant of a sum not exceeding €5,038,000 is granted. An Excess Vote can arise in a number of circumstances including where the total of the expenditure subheads exceeds the amount granted.

During the course of audit examination of the Appropriation Account for the Office of the Ombudsman for 2003 it was noted that the way in which the deduction and subsequent timing of payover of Professional Services Withholding Tax (PSWT)5 was being handled by the Office's accounting system could have an adverse effect on establishing the proper charge to the Vote.

For Government accounting purposes the gross amount of payments for professional services should be charged to the Vote account with the deductions recorded in a suspense account pending payover to the Revenue Commissioners.

However, the system did not charge the amount deducted for PSWT directly to the Vote. The charge to the Vote only took place when the corresponding payover of PSWT was made to the Revenue Commissioners. The fact that the payover of PSWT deductions for the second half of 2003 was made in July 2004 meant that the corresponding charge would, inappropriately, be to the 2004 Vote rather than the 2003 Vote. As a consequence, the amount charged to the Appropriation Account as presented was understated by an amount of €61,814. After adjusting for the understatement and taking account of other audit adjustments, the result was an Excess Vote of €25,103. The excess represents 0.5% of the Office's allocation of €5,038,000. A revised Appropriation Account reflecting the adjustments was presented on 26 July 2004.

I sought the views of the Accounting Officer on the circumstances that gave rise to the Excess Vote.

Accounting Officer's Response

In July 2003 the Office of the Ombudsman, together with the Department of Finance (the Department) and the President's Establishment, rolled out the first phase of a new shared financial management system. The new system is part of the Management Information Framework (MIF) — a civil service-wide initiative to modernise financial management practices across all departments and offices.

Since its establishment in 1984, the Office's accounts had been processed by the Department and, partly for this reason, the Department and the Office, together with the President's Establishment, agreed to adopt a joint cross-organisational approach to the development of MIF. To meet the requirements of the MIF, the new financial management system operates dual accrual and cash accounting. The accruals ledger is the first source of all entries onto the system. The cash element of the system is charged with the expenditure only when a payment has been processed.

The accruals ledger treated the transactions involving PSWT correctly. However, the way the cash ledger system was structured meant that the timing of the full charge to the relevant subhead depended on the date of the payover of PSWT to the Revenue Commissioners.

When the new system was introduced, the Office assumed responsibility for many of the accounting processes and procedures formerly carried out by the Department but responsibility for others, including payovers to the Revenue Commissioners remained with the Department and the Office continued to forward PSWT returns to the Department for processing.

He now understands from the Department that following the introduction of the new system in July 2003, the payovers to the Revenue Commissioners were not processed in a timely fashion and that this resulted in expenditure under certain subheads being understated in the initial 2003 Appropriation Account presented. He also understands that following the queries raised by the Comptroller and Auditor General's audit team, the Department has put in place a monthly procedure to ensure that payovers to the Revenue Commissioners occur at the appropriate times.

The accounts staff of the Office and of the Accounts Branch in the Department were involved in the preparation of the Appropriation Accounts for their respective offices and it was at this time that it came to light that the Department had not, in fact, made the payovers of PSWT to the Revenue Commissioners. The Office brought this fact to the attention of the Department and the PSWT was treated in the manner presented in the 2003 Appropriation Account submitted for audit on the advice of the Department.

The errors and delays in payments were not detected by the Office by normal internal checks and controls, by monthly returns to the Department or during the preparation of the Office's financial position prior to the presentation of a Supplementary Estimate because the Office's accounts staff were, at that time, in the course of familiarising themselves with the capabilities of the new system (and, at the same time, were involved in the development of other modules of the system), and in any event, they had no reason to suspect that PSWT would not be paid over by the Department and were unaware, at that time, of whatever capability the system might have had to confirm this fact.

In order to avoid a recurrence of the problem the Office had agreed in principle a new service level agreement with the Department covering issues such as payovers to the Revenue Commissioners the Office had presented the Department with a draft service level agreement as early as March 2003. He had also established a working group within the Office, comprising members of the management advisory committee, accounts staff and the internal auditor, to devise and implement procedures to enhance further the monitoring of the accounting function and identify any skills deficits that may exist and, where appropriate, source training for the relevant staff.

Mr. Purcell

Chapter 6.1 draws attention to another excess Vote, in this case for the Office of the Ombudsman and in the amount of €25,103. I have already outlined the procedure for dealing with excess Votes and there is no need to go through it again.

The excess in this case arose more because of a misunderstanding of how the new accounting system treated the deduction of professional services withholding tax than for any fundamental problem with the financial management in the office. The fact that the Department of Finance, which provides certain accounting functions for the Ombudsman's office, failed to pay over the deducted tax to Revenue in a timely manner did not help in the particular situation that arose. The upshot was that the appropriation account presented to me for audit at the end of March 2004 showed a slight surplus for surrender to the Exchequer, while the true position established on audit was that the office had exceeded its Vote allocation by the modest amount of approximately €25,000. A corrected account was submitted in July 2004. The full circumstances surrounding the occurrence of the excess Vote are set out in the Accounting Officer's response in the report, together with the measures being taken to prevent it happening again.

Chairman

Mr. Whelan may now make an opening statement. May we also publish the opening statement by Mr. Andrews?

Mr. Andrews

Yes.

Mr. Patrick Whelan

The details are outlined in the Comptroller and Auditor General's report. The excess was €25,103 and amounts to 0.5% of the office's budget allocation of €5,038,000 for 2003. The principal factor giving rise to the excess Vote was that professional services withholding tax, PSWT, in the sum of €61,814, which was due to be paid to the Revenue Commissioners in respect of invoices for the period July to December 2003, was not paid until 2004. PSWT is paid by the Department of Finance on behalf of the office. The office was unaware of the fact that the payments were not made until the first quarter of 2004 when the 2003 appropriation account was in preparation. The office alerted the Department and on its advice treated the unpaid PSWT as an accrued expense in the 2003 appropriations account. However, the Comptroller and Auditor General disagreed with this approach as it had the effect of understating a charge proper to the 2003 Vote. The net result was that the office's projection of a modest surplus of €18,974 in the 2003 Vote, after taking account of other audit adjustments, became an excess Vote of €25,103.

The reasons the Department's failure to pay PSWT to the Revenue Commissioners was not discovered by this office in good time are as follows. First, a new financial management system was developed by the Department, the President's Establishment and the office and went live on 1 July 2003. The new system meets the requirements of the management information framework, a Civil Service-wide initiative to modernise financial management. Unlike previous systems which were solely cash based, the new system is accrual and cash based. Unfortunately, because of the manner in which PSWT was processed in the new system, information which would have facilitated early identification of unpaid PSWT from the system itself was not readily available. Following the Comptroller and Auditor General's intervention, arrangements were made for the financial system to be modified to meet his concerns and facilitate early identification of non-payment of PSWT.

The second reason was that because it was a new system, throughout the second half of 2003 the staff of the office were familiarising themselves with its capabilities and developing new modules. However, there had been no problems in the past with the non-payment of PSWT by the Department and the office had no reason to suspect problems would arise in the second half of 2003. Throughout 2003 and in accordance with usual practice the office received blank monthly forms from the Revenue Commissioners which the office forwarded to the Department for completion and return by it to the Revenue Commissioners. However, in order to guard against a recurrence of the problem, the office signed a service level agreement with the Department which covers all of the accounting functions currently carried out by the Department on behalf of the office, including the timely pay-over of PSWT to the Revenue Commissioners.

The Comptroller and Auditor General's report refers to the service level agreement as having been under discussion since March 2003. This is based on information we supplied to the Comptroller and Auditor General and which we discovered late yesterday is incorrect. The correct date is March 2004. I apologise for this error which does not materially affect my point about the system.

I will now summarise the procedural changes which have been implemented or are in the course of implementation in the office. The financial system is being modified to meet the Comptroller and Auditor General's concerns in regard to the processing of PSWT payments. In the meantime, temporary arrangements have been put in place in the Department to ensure all PSWT amounts are recorded in the relevant subheads on a daily basis and for pay-over to the Revenue Commissioners to be made at the appropriate times. The office and the Department have signed a service level agreement which commits the Department to prompt payment of PSWT. The office's audit committee is reviewing the circumstances which gave rise to the excess Vote and will make recommendations to further enhance the monitoring of the accounting function. The office will identify any skills deficits and, where appropriate, source training for the relevant staff.

The accounts for 2003 cover expenditure by the office, the Standards in Public Office Commission and the Office of the Information Commissioner. The allocation for 2003 was €5,038,000 while expenditure amounted to €5,063,000, giving rise to an excess Vote of €25,000. Expenditure in 2003 was just over 12% higher than in 2002, due mainly to benchmarking and other pay increases. Non-pay expenditure actually decreased in 2003 mainly because of once-off items of expenditure such as furniture fit-outs in 2002 which did not recur in 2003. A breakdown of expenditure over the various subheads is outlined in the appropriations account.

Chairman

Can we publish the statement?

Mr. Whelan

Yes.

Chairman

Will the Department of Finance comment on it?

Mr. Hamell

As the Comptroller and Auditor General's report states, under Government accounting rules, the gross sum of payments for professional services, namely, the fee actually paid to the supplier plus the withholding tax deducted from it, should be charged to the Vote when the payment is made to the supplier, with the tax recorded in a suspense account pending pay-over. The new system which covers the Department, the ombudsman's office and the President's office does not record this in the same way. As with modern financial systems generally, the new system is essentially geared to accrual accounting which has been modified to cater for Government accounting rules which are essentially cash based.

That is the primary part. The accounting difficulty was undoubtedly added to by the fact that the Department did not pay withholding tax to the Revenue Commissioners in a timely way. The same issue arises in moving from one system to another, training of staff etc. We fully accept that this should not have happened and steps have been taken to ensure it does not happen again. The Department will ensure pay-over of withholding tax is carried out on time.

With regard to the financial management system, as an interim measure, the Department now manually updates the cash ledger in our system daily in order that payments of withholding tax are treated in accordance with Government accounting rules. We have also asked our technical advisers to advise the Department on modifying its systems in order that the gross amount, including tax, is automatically recorded against the Vote at the same time as the payment to the supplier. As stated in the report, the Department has also concluded a service level agreement with the ombudsman's office. These new arrangements should ensure the circumstances which contributed to the excess Vote in this case do not recur.

The Department fully accepts that what happened should not have. All we can do is to come out with our hands up. This happened during a changeover of systems. As Mr. Andrews stated, we were trying to keep our eye on two balls at the one time. Moving from one system to another is a major undertaking but we are very disappointed that this happened. However, we accept it should not have happened and have taken steps to ensure it does not happen again. I have outlined the measures taken. In accordance with our audit plan, the internal audit unit of the Department has been asked to audit this area. In due course the unit will produce a report for the Department's audit committee. This will ensure these procedures operate correctly.

Chairman

Has this happened in any other Department?

Mr. Hamell

No. I am not aware of any other instances regarding the management information framework which the Department promotes. I accept it is a major undertaking for any office or Department to move from one system to another and that it involves trying to keep an eye on two systems at once. In general, there tends to be only one set of experienced staff who would be used for the more difficult work of installing the new system. However, the Department accepts that what happened should not have.

Deputy J. Higgins

When the Department deducts the professional service withholding tax, is it paid to the Department of Finance? Why do members of the Department fill out the forms?

Mr. Whelan

Traditionally, the Office of the Ombudsman has had an arrangement with the Department whereby it handles the payment of tax on our behalf.

Deputy J. Higgins

In whose bank account is the money held?

Mr. Whelan

It is held in the Office of the Ombudsman's bank account. The payments are then made to the Revenue Commissioners by the Department of Finance on our behalf. It is a traditional arrangement.

Deputy J. Higgins

Are the payments then deducted from the Office of the Ombudsman by the Department of Finance as a result of the transaction?

Mr. Whelan

Yes. Our accounts will show the net amount to be paid to the supplier, net of the withholding tax, and the tax itself is then paid by the Department to the Revenue Commissioners.

Deputy J. Higgins

Is this not the problem, that the Office of the Ombudsman's accounts are partly prepared by the Department of Finance? When a new financial accounting system was introduced, the office assumed responsibility for some functions while the Department retained others. Is this not a very cumbersome and inefficient way to manage the accounts?

Mr. Whelan

I shall explain the background. It is a common system that is shared by the Department and the Office of the Ombudsman as well as by the President's Establishment. The historical basis is that when the Office of the Ombudsman was established in 1984, the accounts branch of the Department of Finance handled the accounting requirements of the office. Salary cheques and other matters were administered by the Department on behalf of the office.

When the management information network was being planned, the office had a number of options. We could have decided to go it alone and develop our own system in conformity with the management information framework. Following discussions with the Department of Finance, however, we decided it would be more efficient to piggyback on a system that was already being developed by the Department and this view concurred with that of the President's Establishment. Being a small office, it made more sense from our point of view to be part of a wider system. It is akin to outsourcing in that it allowed the office to access the Department's expertise and resources in developing the system. While it may appear complicated, it is a common system whereby certain functions are performed in the office and some others in the Department. Professional services withholding tax is one of the payments managed by the Department on behalf of the office.

Deputy J. Higgins

Is this arrangement more efficient and cost effective than some other alternative?

Mr. Whelan

That is our view. To develop its own financial management system, the Office of the Ombudsman would have to commit financial and staff resources. This has already been done but far more resources would be required to develop a stand-alone system for what is, after all, a small office. All of its activities come under the ambit of the administrative budget, it does not have any schemes or programmes to administer in the manner in which the Department of Social Family Affairs does, for example. Our needs are relatively straightforward in terms of the sophistication required but the dilemma that faced the office was to stay out of this entire loop and then to be unable to produce information for the Comptroller and Auditor General and this committee in a format that would be compatible with what they receive from Departments and other offices. The office wanted to be included with the rest of the system but to do so in as cost-effective a manner as possible.

Deputy J. Higgins

Does the Office of the Ombudsman have professional services withholding tax payments to make virtually every year?

Mr. Whelan

Yes.

Deputy J. Higgins

Is it correct that no such payments were made to the Revenue Commissioners in 2003?

Mr. Whelan

From the date on which the new system went live, 1 July 2003, no payments were made on behalf of the office.

Deputy J. Higgins

Did nobody in the Revenue Commissioners notice that there was a dramatic dry-up which would merit a query?

Mr. Whelan

The Revenue Commissioners contacted the office in February or March of this year to raise this issue but not before then. I cannot comment on the systems in place in the Revenue Commissioners to track this type of deficiency.

Chairman

Can Mr. Hamell throw any light on this matter?

Mr. Hamell

I am unable to do so. It is fair to say that the Office of the Ombudsman should have been the taxpayer but was not.

Deputy J. Higgins

Does this mean that the Office of the Ombudsman was not tax compliant in 2003?

Mr. Hamell

That is probably going too far. There was no intention to evade tax, it was an oversight and the money was still in the Exchequer. As Mr. Whelan said, this situation arose because of the timing of the changeover from one system to another and the difficulty of installing and developing that new system while simultaneously managing the general work of the office.

Deputy J. Higgins

The committee touched on the issue of decentralisation with the delegation from the Civil Service Commission. Does Youghal or some other place appear on the distant horizon for the Office of the Ombudsman or is it staying put?

Mr. Whelan

The office is staying put.

Deputy J. Higgins

It is staying in Dublin.

Mr. Hamell

Yes. I should point out to Deputy Higgins that the office's accounts department will be moving to Tullamore rather than to Youghal.

Deputy Dennehy

Dublin representatives will have to get used to the fact that we are shifting.

Deputy J. Higgins

The budget of the Office of the Ombudsman in 2003 was approximately €5 million, shared with the Standards in Public Office Commission and the Office of the Information Commissioner. How is the Office of the Ombudsman coping in general? I believe the level of queries and complaints has been rising which places a greater demand on the office. Is the office satisfied that its resources are sufficient to provide an adequate service to the public?

Mr. Whelan

I shall deal with the three aspects of the office's work. The Ombudsman element involves dealing with complaints from the public about public bodies, of which the office has been receiving approximately 2,500 per year. This figure has been holding quite steady over the past number of years so there is no problem in that regard in terms of resources.

The Office of the Information Commissioner deals with appeals against FOI decisions where information requests have been refused by public bodies. We had a backlog when the office was established in 1998 which was caused by an early surge in FOI requests. For a year or two the staffing of the office lagged behind the demand and that is how the backlog arose. We are coming to grips with it now and the backlog is decreasing. Part of the reason for the decrease is that the number of requests has fallen off because of the impact of the fees introduced under the Freedom of Information (Amendment) Act 2003. That has caused a big reduction in requests both to public bodies generally and also to our office. Everybody has an opinion on the merits of the fees but that is one of the aspects.

Deputy J. Higgins

Have you a role in the Office of the Information Commissioner? Is that your responsibility as well?

Mr. Whelan

The organisation consists of three offices, one of which is the Office of the Information Commissioner. The Ombudsman, Emily O'Reilly, is also the Information Commissioner.

Deputy J. Higgins

If I recall correctly, many of the complaints tend to come from alleged activities of the same source, for example, there would be frequent complaints about the activities of local authorities. Have you found, as a result of your experience in your dealings with local authorities, that they learn from your processing of complaints and that the same mistakes that get people's backs up are not repeated, thus saving your resources down the line in terms of similar complaints not being made?

Mr. Whelan

Absolutely. We emphasise not only to local authorities but to all the bodies with whom we deal that they should introduce procedural or systemic changes where a complaint arises to ensure the same thing does not happen again. If we get a complaint against one or other local authority which is due to some procedural deficiency we speak to the other local authorities and encourage them in advance of the possibility of the issue arising and advise them to look at their systems. The Department of the Environment, Heritage and Local Government has been helpful to us on a number of occasions in co-ordinating circulars to local authorities where that might be an issue.

Deputy Dennehy

Referring to the previous issue, if we applied the rule referred to by the Comptroller and Auditor General of personal responsibility, it would be difficult to know who would be surcharged, whether Mr. Whelan or the Secretary General of the Department of Finance, without a tribunal. While the sum of money may appear insignificant, we would be concerned about the practice. Bearing in mind that the Department of Finance still has part of your function, and despite what you have said on the new rule about getting the forms correct, how can you give a guarantee that there will not be a recurrence of this or a similar mistake in the future? Is it beyond your control and can you give a clear guarantee that this type of mistake will not be repeated?

Mr. Whelan

I do not think it is beyond our control. As Mr. Hamell has said, he and his officials are disappointed that this unfortunate excess Vote arose and more disappointed at the circumstances which gave rise to it. I echo those sentiments. On a personal level I am disappointed this has happened, as are my officials. As I said in my opening statement, we have already put some measures in place and there are more on the way. I see the office's audit committee as being hugely important in this regard. Mr. Andrews and the Comptroller and Auditor General referred to this earlier. This is the defining issue.

The Mullarkey report has been hugely important in terms of identifying just how important it is to have properly established audit committees in place. We did a lot of work on this issue in 2003 and 2004, as did the Civil Service Commission. We see this as a new accountability issue within the office, in terms of highlighting issues such as this that might arise and putting procedural changes in place.

I wish to refer to a point made earlier on the need for professional expertise. That is an important remark. I think we have all been winging it to a degree. We have been trying to manage more with less and there are huge pressures on us all. Our core business is examining complaints, dealing with FOI requests, looking at ethical issues and so on. There is a tendency all the time to say we have to keep putting resources into those areas because they are our line functions and perhaps to forget how important are these financial support and IT systems and so on. In order to be super economical and efficient we need to revisit this issue. It has been a big lesson for us in terms of what the Comptroller and Auditor General has pointed out in regard to the excess Vote and, indeed, the committee is looking at this. We will have to look at a new agenda in terms of the expertise and the training we have available to us within the office.

Deputy Dennehy

On that note, part of our role on the Committee of Public Accounts is to highlight and emphasise the need for financial controls, a point that is not always fully understood. Mr. Whelan outlined the reasons for the errors and the delay. There were three. The first involved internal control, the second monthly returns to the Department of Finance and the third relates to the preparation of the office's presentation of a Supplementary Estimate. To a non-accounting person it would appear there were three failures on the part of management. Would that be a fair comment?

Mr. Whelan

I will not try to defend the indefensible. We have come out with our hands up and we have recognised that. The two main issues were the new system and the way it was processing these payments. Equally, there was our own role in monitoring in the office. I accept, with the benefit of hindsight, that we could have done more in terms of our own monitoring. We monitor expenditure on a monthly basis in the office. It is also monitored quarterly by our management advisory committee. In October 2003, when we knew we were going to require a Supplementary Estimate, we carried out our best estimate at that stage of where we were and we were projecting a saving at that time of just over €23,000 for the end of the year. This, of course, was done in the lack of knowledge about what was happening on the professional services withholding tax issue. The end of year position, leaving the withholding tax aside, was approximately €18,000 to €19,000. In fact, we were within €5,000 of what was the end of year position before the withholding tax issue reared its ugly head. I say that by way of pointing out that we monitor expenditure very closely.

Deputy Dennehy

One of the reasons I am concerned is that despite the amount of monitoring and your frequent revisiting of the books, nobody picked up on it. It was not a case of doing it once a year. Deputy Higgins made the point that one would have expected it to jump out at somebody. Given that it was there the previous year somebody should have found it. Did you incur any penalty for late payment of tax, as most others would had they not paid up on time?

Mr. Whelan

No. We have not had any communication from the Revenue about that.

Deputy Dennehy

You are one of the few. I wish to refer to the Vote and a question that was asked previously regarding the impact of fees, I appreciate there are arguments for and against the justification of those but could Mr. Whelan indicate the effect the change has had in terms of numbers? Has he done any analysis of the number of requests?

Mr. Whelan

Yes, we did. We carried out an investigation this year and published a report in June on the effect of the fees. In fact, they have caused a big reduction in the number of requests overall. Our report shows that overall usage of the Act has fallen by 50% and requests for non-personal information has fallen by 75%. That is a huge reduction. The usage by journalists and others has declined very dramatically. In fact, for the period in which we carried out our sampling it had reduced by over 83% and was continuing to fall. From an Information Commissioner's viewpoint, these are not welcome developments because the Act is all about increasing openness and enhancing decision making in the longer term within public bodies, and decreases in usage are not conducive to meeting those long-term aims of the Act.

Deputy Dennehy

What is the position for, say, the last quarter? Is it fairly level or fluctuating?

Mr. Whelan

I do not have the very latest figures but the last time I looked at this it had not started to climb again. I am not sure if it has bottomed out but it is at a much lower level than it was in early 2003 before the fees came in.

Deputy Connaughton

I do not want to go over all the ground covered but a serious matter arises which should be referred to. It concerns the pillars of the State making mistakes that, if not detected and allowed to continue, could have caused major problems. That is one of the reasons the Comptroller and Auditor General's office is so important to the State. Many taxpayers will have a wry smile on their faces tomorrow morning if they read about the discussion that took place here today about the Department of Finance not paying the Revenue Commissioners withholding tax. That is a remarkable by any standard and if it happened in the case of an ordinary taxpayer they would be contacted very quickly and some sort of surcharge would be imposed.

The problem for those of us on this side of the House, and this is not the first time I have said this, is that people such as the witnesses before us come into this committee and do the best they can in as professional a manner as possible but it does not work out that way. There are enormous gaps in the system and I would like Mr. Hamell to tell the committee if any heads rolled over this matter. Did anybody lose any increments or was anybody chastised as a result of it? It is incredible that there could be such a system in the Office of the Ombudsman, which ordinary citizens regard as their saviour. I accept it did not make the mistake but it happened in its office. The Department of Finance made the mistake. What were the consequences for the people who were directly involved in that? Will Mr. Hamell tell the committee what happened when this mistake was discovered?

Mr. Hamell

We are conscious of the point Deputy Connaughton makes. If it is any consolation to him, when we die, the words "professional services withholding tax" will be found engraved on our hearts. As regards the disciplinary procedures, they have been initiated. They have to go through procedures but they have been initiated.

Deputy Connaughton

What has happened? What is done about a mistake such as this one?

Mr. Hamell

We first talk to the staff involved and find out what happened. There is then a question of asking for this to be done in writing, which is where we are currently. We were changing systems. There was a lot of change. There was staff change involved. There was no intention of——

Deputy Connaughton

I fully appreciate that. There is a saying in my part of the world, "that only for something, the sky would fall." Does Mr. Hamell know what I mean? Only for something, this would not have happened. This is not a witch-hunt. Every group coming before the committee is treated the same, including the Civil Service Commission. Everybody will hold up their hands and say they are sorry and that it will not happen again but when somebody makes a mistake in commercial life, or when any of us makes a mistake in our own lives, somebody suffers. Does that happen in the Department of Finance or any other Department?

Mr. Hamell

I cannot speak for other Departments but I have seen it happen in the Department of Finance. There are procedures, which have been initiated, and they will be gone through. I can tell the Deputy that as regards people suffering, there is no question but that those involved are suffering. Nobody set out to do this.

Deputy Connaughton

That is not what this is about.

Mr. Hamell

I appreciate that. I am not trying to——

Deputy Connaughton

If they had set out to do it they should not be there in the first place.

Mr. Hamell

Absolutely, but it is only fair to say that one has to take into account all the circumstances of a case, including the issues I have been talking about — change between systems — before justice is meted out. That is the situation we are in currently.

Deputy Connaughton

I take that point. Can I take it that it was the Revenue Commissioners who contacted Mr. Whelan to say they did not get the money? Who first contacted who on this issue?

Mr. Hamell

I think the Comptroller and Auditor General is entitled to the credit of——

Deputy Connaughton

In other words, he found it.

Mr. Hamell

Yes, but——

Deputy Connaughton

He found it before the Office of the Ombudsman, the Department of Finance or the Revenue Commissioners.

Mr. Hamell

No. The matter was resolved by the intervention of the Comptroller and Auditor General, but could I come back to one aspect? The committee has made an interesting point which had not occurred to me before, namely, the question of the relationship between the Revenue and ourselves. We will be taking that up with the Revenue Commissioners going forward because it is a fair and important point. It had not occurred to me before the committee raised it but we will be taking it up.

Deputy Connaughton

For obvious reasons Mr. Hamell will understand that major problems can arise for every taxpayer, like Mr. Hamell and myself, who have to pay their dues, yet they see the pillars of the State, through the fault of no one, not having to pay any penalties due because they were not even sought. I will put the same question to Mr. Daly of the Revenue Commissioners if I get an opportunity.

Mr. Hamell

All we can do in our situation is throw ourselves at the mercy of the Revenue. The money was in the Exchequer all the time. There was no loss and there was no intention to——

Deputy Connaughton

We have no problem with that. I will not labour the point other than to ask if Mr. Hamell can imagine the reaction of millions of taxpayers when they read about what happened here today. They will wonder if the people who are continually writing to them for tax are operating in the appropriate manner. Is that not a reasonable question?

Mr. Hamell

I could not disagree with that. One can imagine the situation. That is why I say it is branded on our hearts.

Chairman

Thank you, Mr. Hamell. Does Mr. Purcell wish to comment before we conclude this discussion?

Mr. Purcell

There is not much to add. I would not like anything I said earlier to contribute to an overstatement, so to speak, of the problem. Mr. Andrews is still present. While the result in both cases was an excess Vote, if we were to grade them in terms of seriousness, I would have to say the commission's sin was graver than that of the Ombudsman and the Department of Finance. In the case of the Ombudsman's office, because the budget was so tight — as Mr. Whelan said, it had budgeted down almost to the last euro — a transaction of €60,000 had the effect of causing an excess Vote which I am statutorily required to bring to the attention of the committee.

If the Ombudsman's office had a surplus of €70,000 at the end of the year, it would not have had an excess Vote and it would have merited perhaps a management letter point from my office to the Ombudsman and perhaps copied to the Department of Finance. I want to give some perspective to the dialogue which took place earlier. It is a serious matter but perhaps the committee and I have bigger fish to fry in the balance of the report which we will consider in the coming months. Thank you, Chairman.

Chairman

Thank you, Mr. Purcell. Can we dispose of chapter 6.1? Agreed. Vote 17 is noted. Is the committee satisfied that it has no objection to the excess sum being sanctioned by the Dáil by means of an excess Vote and to report accordingly? Agreed. Next week's business is the annual report of the Comptroller and Auditor General — the Department of Communications, Marine and Natural Resources, Vote 30, chapter 10.1, the development of marinas.

The witnesses withdrew.

The committee adjourned at 1.55 p.m. until 11.00 a.m. on Thursday, 14 October 2004.