COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 24 Nov 2005

The National Theatre Society Limited: Financial Statements 2004.

Chairman

The items on the agenda for today are the Arts Council financial statements for 2003 and 2004 and the National Theatre Society Limited financial statements 2004. We have some relevant correspondence, dated 15 November 2005, from Mr. Fiach MacConghail, director of the National Theatre Society Limited, re the management structure of the Abbey Theatre and also enclosing a statement from Ms Eithne Healy, chairman of the Abbey board, issued on 20 July 2005, outlining the board's response to an independent internal investigation carried out by KPMG into the financial accounts for 2004.

Witnesses should be aware that they do not enjoy absolute privilege before the committee. The attention of members and witnesses is drawn to the fact that as and from 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act 1997 grants certain rights to persons 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 or 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 being invited before the committee are made aware of these rights and any persons identified in the course of proceedings who are not present may have to be made aware of them and provided with a transcript of the relevant part of the committee's proceedings if the committee considers it appropriate in the interests of justice.

Notwithstanding this provision in 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 by name or in such a way as to make him or her identifiable. They are also reminded of the provisions in Standing Order 156 that the committee shall 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 policies.

I invite Ms Mary Cloake, director of the Arts Council, Mr. Fiach MacConghail, director of the Abbey Theatre, and the representative from the Department of Arts, Sports and Tourism to introduce their officials.

Ms Mary Cloake

I am accompanied by Ms Ellen Pugh, finance manager, and Mr. John O'Kane, arts programme manager.

Mr. Fiach MacConghail

I am accompanied by Mr. Declan Cantwell, director of finance administration at the Abbey Theatre.

Mr. Niall Ó Donnchú

I am assistant secretary at the Department of Arts, Sports and Tourism and I am accompanied by Mr. Barry Murphy, principal officer at the Department.

Chairman

I invite Mr. Purcell to introduce the Arts Council financial statements 2003 and 2004 and the National Theatre Society Limited financial statements 2004.

Mr. John Purcell

I will begin with the easy one. The Arts Council accounts for 2003 and 2004 received a clear audit report from me. There were no material issues arising from the audit on which I felt I should report.

The situation in regard to the 2004 accounts for the National Theatre Society Limited is somewhat different. I had cause to include an audit supplement to my report in that case. The society is a private company limited by shares. It operates two co-located theatres, the Abbey Theatre and the Peacock Theatre. The society carries out its purpose through those two theatres and also by touring nationally and internationally. In common with most, if not all national theatres, the company would find it impossible to exist on box office receipts and sponsorship and other income, so it is heavily dependent on the State for continuing financial support. For many years the annual operating grant has been channelled through the Arts Council. Even with this subvention the company has found it difficult to make ends meet.

The financial problems started to become particularly acute in 2003, when a deficit of €800,000 was incurred which doubled the accumulated deficit up to that point. The substantial rise in the scale of the ongoing deficit to €1.6 million prompted me to seek reassurance from the company that action would be taken to bring it back to manageable proportions. In this regard I received a letter of representation from the board to that effect and also received assurances from the then managing director that an operating deficit of €110,000 was budgeted for 2004 and that measures were proposed to reduce overheads which would have the long term effect of cutting the deficit.

On receipt of those assurances I was in a position to give an unqualified audit report on the 2003 accounts. The reality turned out to be totally different. When the accounts for 2004 were being prepared for audit, it became apparent that the deficit for that year was far in excess of the budgeted figure and the revised budgeted figure. This resulted in the board appointing an accounting firm to report on the facts underlying the discovery and disclosure that the company's financial reporting system had been substantially under-recording the operating loss for 2004.

The accounting firm pinpointed the problem as emanating from the monthly management accounts which were not prepared in a way that showed the true financial position. These accounts, which were compiled from best estimates of expenditure at various points during the year, formed the basis of the board's and its finance and audit committee's monitoring of the company's finances. While the system of monthly management accounts had been operating for many years, its deficiencies had not caused material distortions until 2004, when the upsurge in activities associated with the Abbey Theatre's centenary programme pushed expenditure up to €12.6 million in that year, from €7.4 million in the previous year.

The final amount of the operating deficit for 2004 was established by my audit at €1.85 million. However, that is before the application of €1 million of a €2 million stabilisation grant from the Arts Council towards the reduction of the accumulated deficit. The main contributory factors to the large deficit in 2004 were the costs of the activities associated with the Abbey's centenary celebrations being greater than anticipated, a shortfall in sponsorship income and a deficit incurred on the Abbey's touring programme.

The company's finances have not really improved in 2005. An audit for the first six months revealed a deficit of nearly €600,000 for the period. The company expects that the annual deficit to 31 December 2005 will be in the region of €900,000. Members will be aware that agreement has been reached on a new corporate structure for the operation of the Abbey and Peacock theatres. It is intended that the assets and liabilities of the company will be transferred to a new company, Abbey Theatre-Amharclann Náisiúnta na hÉireann, by 31 December 2005. An application will then be made to the Registrar of Companies to have the existing company voluntarily struck off the register. It is to be hoped that this new beginning incorporating the ongoing change process will help to put the national theatre on a much sounder footing for the future.

Chairman

Thank you, Mr. Purcell. Ms Cloake has indicated she does not wish to make an opening statement. Even in circumstances where a scripted opening statement is not made, the committee likes Accounting Officers to make preliminary remarks to give it some focus and set the agenda from the perspective of the body concerned. Will Ms Cloake do this, please?

Ms Cloake

Very broadly on the accounts for 2003 and 2004, the Arts Council received a grant from Government of €44 million in 2003 and €52.5 million in 2004, plus €2 million which has already been referred to as a special grant for the Abbey Theatre. These moneys are used primarily in the financial assistance of artists and organisations. Approximately 85% of its annual expenditure is directly in the form of grants either to organisations or to individual artists. The Arts Council also offers an advice and information service which accounts for approximately 5% of its expenditure on publications, conferences and other similar initiatives. Over those two years we have published reports dealing with the arts and young people, strategic support for the arts in the Gaeltacht and similar themes. Less than 10% of our funding goes to administration, with approximately €1.4 million spent on administration and €2.4 million on salaries. This is a summary of our activities.

Chairman

I invite Mr. MacConghail to make a similar statement. He also indicated he does not have a scripted opening statement. I invite him to throw some light on the crisis during the summer when we all gazed open-mouthed at the affairs of the Abbey Theatre and wondered how things could have drifted to the point that they got into such a sorry mess.

Mr. MacConghail

I will do my best. As a preface it is important to state that neither I nor Mr. Cantwell were working for the Abbey Theatre during 2004. I took up my position of director-designate on 1 May 2005. Arising out of the crisis the board invited me to forward my position as director-CEO of the organisation on 1 June 2005, which I accepted. I then appointed Mr. Declan Cantwell as interim chief financial officer in July 2005 and he subsequently won an open competition and interview and was appointed director of finance administration on 1 November 2005.

In that context we will endeavour to give the committee as much detailed information as it requires. Needless to say, the activities of the Abbey Theatre offstage were the focus of both the media and the public attention throughout the summer of 2005. This proves the interest and the stake which people have in the role of the Abbey Theatre in our society. It is also clear that the Abbey Theatre for many years had worked under very severe and extreme financial difficulties, namely, through its grant from the State and also by managing its own core business. The recommendations and findings of the report commissioned by the board of the Abbey Theatre from KPMG attest to this.

In the statement by Eithne Healy of 20 July 2005, the board has accepted the findings and recommendations of the KPMG report. The Comptroller and Auditor General will attest that we have come quite a long way in implementing them. This has included the reorganisation of the management of the organisation in terms of senior management, systems and controls and reporting to the stakeholders, namely, the Arts Council, the Department, the bank and its own staff.

We are very much on our way in terms of transforming the legal governance set-up of the Abbey Theatre and also the senior management structure. The way we do our business will become much more transparent and efficient as we move into 2006.

Chairman

I understand the present company will be liquidated and replaced by a new company structure. What is the timeline for that change? How will the new company be structured and will it have a statutory basis?

Mr. MacConghail

Following one of the recommendations arising from its internal consultation with its shareholders, the Arts Council and the Government, an EGM of the National Theatre Society Limited in August recommended that the company would dissolve itself and move from a company limited by shares to a company limited by guarantee of which there would be 11 members. A process of nomination for the board has already been initiated. The Minister for Arts, Sport and Tourism has appointed the chair, Judge Bryan McMahon, and two members, Suzanne Kelly and Tom Hickey.

What will happen next is that a selection process has been initiated. Three members on a selection committee will appoint the remaining members of the board under a very clear transparent skills matrix. The three members of the selection committee are Judge Bryan McMahon, as incoming chair of the new company, Abbey Theatre Limited, Amharclann na Mainistreach Teoranta, Olive Braiden, chairperson of the Arts Council, and a third outgoing member of the advisory council, John Fairley. Those three people are at the moment canvassing and selecting according to a skills matrix ranging from business and accounting skills to cultural and artistic skills. It is hoped that the board will be announced by the end of the year. I am not privy to the private deliberations of the committee and it would not be appropriate for me to respond to what those dealings are.

The process of transfer from the National Theatre Society Limited to the Abbey Theatre Limited is well on its way. The incorporation of the new company will shortly be done. In the meantime my colleague here, Declan Cantwell, has been in negotiations with the unions the employees and the stakeholders in terms of reassuring them and conforming to statutory and legal obligations in terms of the transfer of assets, liabilities and other assets that might pertain to the transfer.

To answer the Chairman's final question, it is not envisaged that the Abbey Theatre Limited would be established on a statutory basis. It will be a private company limited by guarantee with an appointment mechanism. It will be State-funded through the Arts Council.

Deputy M. Smith

The arts in various diverse forms play a very important role in our society and should always be supported. The past two years have seen a significant increase in grant aid which is probably close to 40%. I ask Ms Cloake the procedures when transferring grants between two different organisations to ensure the Arts Council knows as best it can know what is happening. It is not that the council should interfere with what is going on. However, it should have a reasonably good notion that the money is going where it is intended to go.

Ms Cloake

Organisations apply to the Arts Council on an annual basis in the autumn, in September or October. They submit a detailed programme for the year ahead. We take several weeks at the end of the year and subsequent to the Book of Estimates announcement we look carefully through all the competing demands on the table and make decisions on the basis of our policies. After the grant decisions are made by the council, for the bulk of our grants we set up the revenue programme which is the biggest programme we offer. In 2005 we spent €44 million in this way. Revenue funding enables organisations to pay their operating costs and something towards their activities.

A letter of offer is issued to the organisation once the decision is made. The letter of offer is based on the proposal for the activities the following year. The organisation responds and outlines the activities it can undertake on the basis of the offer. The council then proceeds to issue a document called "standard conditions of financial assistance". It is a comprehensive document — I have copies with me — which outlines 22 conditions and checks the organisation must meet if it is to receive the funding. These include the submission of regular reports to the Arts Council, the submission of accounts on the preceding year and a general commitment to keep in touch on whether plans are going according to the proposal outlined at the beginning of the year.

When the end of the year comes around and the organisation applies for funding for the following year, we ask it to include a statement of its achievements so that we know that the money has been allocated to the purposes for which it was given. That is the annual cycle. During the year there is quite a lot of contact between our staff and the various members of staff of the individual organisations to see that things are going according to plan.

Deputy M. Smith

Did the Arts Council ever have any notion of what was going wrong with the finances of the Abbey Theatre?

Ms Cloake

In about 1997 or 1998 the finances of the Abbey were very healthy. The problems started in approximately 2001 when a small operating deficit showed for the first time. There was a pattern over the subsequent years, about which we were somewhat concerned. However, for the early years of this pattern of deficit we felt it could be brought under control. In 2003, as the Comptroller and Auditor General has pointed out, the situation worsened and we took some steps when we knew how bad the situation was. I will ask Mr. John O'Kane to set out these steps, particularly from June 2004 when it became apparent that the difficulties were going to be of very significant proportions.

Mr. John O’Kane

The main thing that happened was the decision by the Arts Council to introduce an independent consultant to have a look at the basis of the operational model of the Abbey Theatre. The consultant reported in November 2004 and made a series of proposals as to how the Arts Council might proceed. Arising from that, the council decided to apply to the Government for additional funding to offer to the Abbey Theatre. The Government agreed to provide an additional special funding grant of €2 million. When the offer of €2 million was made to the Arts Council, it was linked to a series of conditions which were intended to ensure the money was used to maximum effect. These included that half of the €2 million, €1 million, would go towards deficit reduction. This would still leave the Abbey in a position in 2005 where it faced a deficit, but it would be expected and required to trade out of it.

A series of investments in a change process around how the theatre was operating in 2005 was to be introduced. The payments drawdown of the balance of €1 million would be linked to the theatre achieving various targets. That was how the Arts Council responded at that time. A certain amount of progress was made in that regard in the early part of 2005, as I have outlined. It was revealed in May 2005 that the scale of the Abbey Theatre's financial problems was much more serious than had been envisaged.

Deputy M. Smith

I would like to ask about the green document. Has the plethora of conditions for the future allocation of grants, which has been outlined by the Arts Council delegation, been dramatically changed and enhanced? Does the Arts Council propose to make changes to the conditions?

Ms Cloake

Yes. The Arts Council is due to publish a reviewed version of the conditions to coincide with the 2006 grant allocations.

Deputy M. Smith

I wish to ask Mr. Ó Donnchú a question. I am familiar with the conditions of the sports capital grants programme. Not only do voluntary sporting groups have to produce title deeds, leaseholds and proof of planning permission before a grant is allocated to them, but they also have to raise 30% of the funds they require. To what extent was the Department of Arts, Sport and Tourism aware of the matters under discussion? What conditions are applied by the Department when it is allocating the resources which have been mentioned? I compliment the Department on the system that is in place in respect of the grants with which I am familiar. The system works very well and many wonderful facilities have been provided. Is there a certain laxity in the conditions for the allocation of other grants? What does Mr. Ó Donnchú know about such conditions?

Mr. Ó Donnchú

I assume the Deputy is referring to grants which are offered directly by the Arts Council, rather than grants which are offered by the Department.

Deputy M. Smith

That would not be a very big assumption.

Mr. Ó Donnchú

The Arts Act 2003 provides that the Arts Council is independent of the Department in the exercise of its functions. Therefore, the Department does not have any direct role in the assessment of the applications which are received by the Arts Council, or in the formulation of the conditions which accompany the allocation of grant aid or which apply to the monitoring and implementation of projects which are grant aided. The Department is not aware of any particular "laxity", to use Deputy Smith's term, in the processing of such applications, in the awarding of grant aid or in the implementation of projects.

The degree of correspondence between the Department and the Arts Council at the time of the year when the council is being awarded its annual budget is extremely high. Such correspondence relates to overall programmes rather than specific projects. After the Arts Council has been awarded its annual budget through the annual Estimates process, the disposition of that budget, for example in the form of individual grant aid, is entirely a matter for the council.

Deputy M. Smith

Mr. MacConghail said that as he took up the cudgels from 1 May last, he would like the committee to be lenient on anything that happened prior to that date. The Arts Council had deficits of over €700,000 in 2002, over €800,000 in 2003 and over €1.8 million in 2004. Given that the council's overall annual income is approximately €12 million, a deficit of €1.8 million is a deficit of approximately 15%. Notwithstanding the work of the Office of the Comptroller and Auditor General, which imposed a second audit requirement, it is hard to understand why so many people, including the board members, did not know about a deficit that was quite sizeable — it was a gaping wound in the council's finances — in the context of the council's overall operations.

Most Irish people are inspired by the imagination and everything else that is related to the diversity that exists in the community. We want to encourage such activity because it is a significant part of what we are — the spirit of the people and everything else. The arts do not really have a future if some of the fundamental aspects of how they should be managed are not adhered to. Can Mr. MacConghail enlighten the committee in that regard?

The KPMG report outlined the weaknesses in the financial controls. It mentioned that some problems were undetected and some costs were underscored. It made various recommendations. It staggers me to think that an individual at some level within the council, which is a sizeable operation, did not notice that it had exceeded its budget so significantly, especially as that similar problems had been experienced in 2002 and 2003. Hardly anybody noticed that the operational deficit in 2004 was more than twice the size of the deficits in each of 2002 and 2003. Can Mr.MacConghail explain how that happened?

Mr. MacConghail

I will attempt to give my analysis of the matter. I wish to highlight the two biggest beads on my rosary; clocha mo phaidrín, as it is said in Irish. My first challenge is to continue to establish the Abbey Theatre as Ireland's national theatre, with a responsibility to the nation it helped to found in the early part of the 20th century, when it articulated the views, emotions and thoughts of all communities in all corners of Ireland. The second obligation I have — the second bead on my rosary — is to manage public funds and the theatre's core business properly. That will not be possible if I do not have an active engagement with the theatre's stakeholders.

The business of the Abbey Theatre, as a company, is to run two theatres, the Abbey Theatre and the Peacock Theatre, with approximately 16 or 17 productions each year. It has a duty to organise at least one, if not two, national tours each year. It also has a responsibility to train, develop, cajole and harass writers, artists, actors and directors. The theatre needs State support if it is to do all these things. It is my understanding that the theatre received year-on-year increases of approximately 1.4% in its State support between 2002 and 2005 to enable it to do its work. Those increases do not take inflation, increases in the cost of living, normal benchmarking and pay awards into account.

It is evident that the management and reporting of the theatre's core business was not up to scratch in the past. The KPMG report pointed the finger at the board, the finance audit committee and the management, inter alia. The Comptroller and Auditor General will agree that the KPMG report made some significant, clear and detailed recommendations. I would like to reassure the Deputy by asking Mr. Cantwell to outline what the theatre has achieved since July. I cannot speak about what happened before then, but I assure the members of the committee that the alarm bells will go off earlier if they are needed again, which I do not think will be the case. We envisage that control and reporting procedures will be put in place to ensure that direct and clear information is given to the incoming board and the stakeholders.

Deputy M. Smith

Mr. MacConghail has said that the Abbey Theatre's grant was increased by between 1% and 2% each year for two years.

Mr. MacConghail

It was increased by 1.4% between 2002 and 2005.

Deputy M. Smith

The 2004 Estimate anticipated that the theatre would make a loss of €100,000 that year. At that stage, Mr. MacConghail or staff at the Abbey Theatre were aware of the level of grant aid.

Mr. MacConghail

Let me clarify that issue as it raises a difficulty facing the Abbey Theatre and the Arts Council. The latter has made an eloquent argument to Government about the fact that it receives its estimates around this time of the year and must make decisions on what funding will be allocated to each arts organisation from the date of receipt of funding and the end of January. As a result, the Abbey Theatre does not know until late January what funding it will receive and how it will support a programme for 2006.

Deputy M. Smith

While I support multi-annual budgeting, I am afraid we have multi-annual budgeting which throws us up on the wrong side.

Mr. Declan Cantwell

As Mr. MacConghail pointed out, I came on board in early July this year in the role of interim chief financial officer and subsequently took up the full-time position of director of finance and administration. On joining the Abbey Theatre in July, my first task was to help the board and management of the company to understand, as of 30 June, what costs had been incurred and what would be the deficit or surplus. In an effort to do this, we enlisted the help of Horwath Bastow Charlton chartered accountants to perform an audit of the first six months of the year. The outcome of the audit was that the deficit for the first six months was a figure of €592,000. Out of this exercise, the board and management of the company and I had a good understanding of what was the deficit and what are the costs of running the Abbey Theatre. In turn, this allowed us to prepare a budget, a forecast to the end of 2005 and a business plan covering the period 2006 to 2008.

The other exercise I performed when I joined the Abbey Theatre was to examine its internal controls and, in particular, the financial reporting infrastructure and model being used by the theatre. As the KPMG report pointed out, the methodology used by the company in producing the management accounts had a number of weaknesses, which perhaps boil down to two categories. The root of the weaknesses lies in the insignificant level of investment in the company's accounting system, that is, the reporting system used to produce the management accounts. What this meant was that the reporting capability of the system was not used in terms of its functionality and certain modules that could be attached to the accounting system were not being used. This forced those producing the management reports into a position in which they made assumptions about costs and revenues as they produced the management reports. They assumed that certain costs and revenues were in line with budgets with the result that, in certain cases, actual costs and revenues were different from those being reported by the management reporting system.

Deputy M. Smith

What would happen to a private business concern which operated on these types of assumptions?

Mr. Cantwell

That is a difficult question. Obviously, this approach is not an effective way to produce management reports. Good quality management reports are crucial in terms of letting management know what decisions they should make in future knowing what has happened in the past. The management team and board of any company which did not have access to this sort of information would be at a disadvantage.

Deputy M. Smith

In the long run, it the assurances provided for future conduct that will count. While we do not like what occurred in the past, we cannot alter it. The witnesses already answered the Chairman's questions on the KPMG recommendations, timeframes, the establishment of a new company, the board and other matters. The Comptroller and Auditor General indicated the operating deficit thus far this year is between €800,000 and €900,000. Are the witnesses in a position to assure the committee that proper management financial controls will be in place during the ongoing process of fully implementing the recommendations and that, excluding the possibility that unforeseeable events may take place, the type of management practices and financial controls used in the past will be consigned to history? I hope the circumstances which came to light last year, when the board was described as too passive, too trusting and not robust enough, is changing.

Mr. MacConghail

The assurance I can give the committee is that the articles and memoranda of the new company, Amharclann na Mainistreach Teoranta, will impose on the incoming board of the incoming company a legal requirement to establish a finance and audit committee. This was not the case hithertofore. Part of the skills matrix required on the board will be that its members will include competent persons who can chair the new sub-committee and ask rigorous questions of the executive and management. My colleague, Declan Cantwell, and I have initiated, on foot of the recommendations of the KPMG report, systems of internal controls, appointed a new financial controller and assistant accountant and are currently implementing a controls mechanism and spot-checking particular control audits.

In terms of running our core business, because we are supporting an art form which needs State subvention and support——

Deputy M. Smith

It always gets it.

Mr. MacConghail

Yes, but perhaps it does not get enough. That is, I suppose, indicative of the sins of the past in that we tended to muddle on, trying to meet our objectives with a modest increase. The Abbey Theatre will seek from the Arts Council and the Government a substantial increase in funding, with the caveat that we will assume full responsibility for expenditure and an obligation to account for public moneys to this committee and our stakeholders.

Deputy Hayes

How was the old board constituted?

Mr. MacConghail

My employers are the National Theatre Society Limited which was incorporated and founded in 1904 and had various mechanisms of appointment and selection. The current status is that an advisory council comprised of representatives of the artistic, theatre, business and trade union community elects four members to the board. Two others are nominated by the Minister for Arts, Sport and Tourism, while one is a staff council representative, one an Actors Equity representative and one a playwright. That is the composition of the board. As the Deputy will note, representation on the board was disparate and did not necessarily provide an overview. The chairman of the board of the National Theatre Society Limited was elected by the board members, rather than being appointed.

Deputy Hayes

How often were accounting details discussed by the board? When was it brought to its attention?

Mr. MacConghail

The board had a finance and audit committee which ran for about a year. I can only comment on what I know now. I started in May, which is also when Declan Cantwell started. Both of us have done and still submit detailed management account figures and cash flow projections. We also present any variances or items we feel are exceptional to the board. The board does not have a finance and audit committee at the moment. We are giving rigorous information to the board and we wait for the incoming board to re-establish a finance and audit committee.

Deputy Hayes

How often did the old board meet?

Mr. MacConghail

Every month.

Deputy Hayes

How many of the board members applied for grants?

Mr. MacConghail

The scenario is as set out by Ms Cloake, the director of the Arts Council. Every year the board and executive of the Abbey Theatre applies to the Arts Council for funding and develops a business plan or application in terms of the money it feels is required for the subsequent year. It is a requirement of the application form that the chair or a member of the board signs off on that application so there is a full awareness at board level of the grant that is required to pursue the core business.

Deputy Hayes

There was a significant increase in funding, from €4.4 million in 2003 to €6.8 million in 2004. What was the money specifically used for?

Mr. MacConghail

I previously alluded to the kind of fragility with which arts organisations plan in advance. Deputy Michael Smith supported the concept of multi-annual funding. One of the major disadvantages of the arts sector is that, essentially, it has two minds. It is a creative, artistic industry but it also needs to do its business well. I am side-tracking a little, but if I were to commission Brian Friel, Tom Murphy or Marina Carr to write a play and I were honoured for them to accept it, it would take them about a year and a half to two and a half years to write that play. How can I plan for that production in two and a half years' time, so as to attract the best of actors, whether it is Brendan Gleeson, Pat Shortt, Tom Hickey, who is currently on the board, or whoever else? How can I attract actors of that calibre for a play in two years' time when I do not know what funding I will get from the State? How can I plan well in advance?

One of the great disabilities of an arts organisation, particularly the Abbey Theatre, as it is the national theatre, is that it cannot plan for the future. Therefore, I cannot readjust or reforecast the figures if an issue arises. That is one of the huge dilemmas and problems experienced by an organisation like the Abbey. Like Croke Park, it will have its full houses when the all-Ireland final is on but a Cumann na mBunscoil final of 200 people is just as important and provides as valuable a service to the schoolchildren who go to watch that final. The same is true of the Abbey Theatre. We might do a show that is extremely commercial and does very well over the summer yet we must also support younger writers, actors and directors. We need to give them the facility to improve. It is a very fluid business. I am also very pragmatic and if I know the amount of funding I have for one or two years I will work within that funding. My track record in the arts over the past 20 years attests to that.

Deputy Hayes

There was also €452,000 in trust funds in 2003. Why was that held in 2003 given the situation at the time?

Mr. MacConghail

I am not aware of that figure.

Chairman

Perhaps the question should be directed to the Arts Council.

Ms Cloake

We have trust funds. I will ask our finance manager, Ms Pugh, to speak about them.

Ms Ellen Pugh

We have a number of trust funds which the Arts Council administers. The money in those funds is not part of the Arts Council's funds. The money may have been left to us by people in their wills or whatever. I will take, for instance, the Joan Denise Moriarty fund. She was a dancer who left money for the Arts Council to administer. It is given out in awards to dancers. That money does not belong to the Arts Council per se.

Deputy Hayes

Will Ms Pugh clarify that for me?

Ms Pugh

There are certain conditions attached to these trust funds and they have been left to the Arts Council to administer on behalf of a person's estate. The trust funds have been left in the form of bequests.

Deputy Hayes

How many different organisations or people are involved?

Ms Pugh

There is a list of them in the financial statements. I think there are over ten trust funds altogether. The Arts Council administers these and gives out awards every year according to the conditions of the trust funds. It is separate money to the funds of the Arts Council.

Mr. Purcell

I can confirm what Ms Pugh said. There are ten trust funds, but there are, of course, conditions attaching to each of them. They are left for a specific purpose. There has been a considerable build-up of those funds as, in a sense, not very much has been spent in grants and awards. We would have a slight concern about that and we will address that issue by way of a letter to the management of the council.

Deputy Hayes

Does Mr. MacConghail intend to stick stringently to the KPMG report and to implement all the recommendations?

Mr. MacConghail

Absolutely. I shall ask my colleague, Mr. Cantwell, to elaborate on this for the reassurance of the Deputy.

Mr. Cantwell

Most of the recommendations of the KPMG report related to the structure of the finance department and the way the management reporting model was put in place. Since I joined the company we have upgraded the accounting system and we are putting in modules we did not previously have. We will integrate the front of house and wages systems with the accounting system so that we have a seamless interface of information from those separate systems into the accounting system.

We are also putting in place a standard reporting pack which has the income and expenditure account, a balance sheet, a cash flow statement, a comparison of variance and an explanation of the variances between the actual results for the month and the year to date to be budgeted — our forecast. We will also be looking at cash flow projections, the actual outturn on cash versus the forecast and we will be providing explanations with that as well. That will be done on a monthly basis.

We have also put in place a very rigorous budgeting process, which I would describe as a bottom-up approach. We have a very detailed budget which forms part of the business plan for 2006 to 2008. It sets out exactly, from the cost of envelopes all the way up to the salaries in various departments, what it will cost to run the Abbey over the 2006 to 2008 period.

We are also looking at training for the finance staff and heads of departments. We are rolling out ownership of the budgets to the heads of the various departments and we are rolling out systems that will allow them to take ownership of their budgets and will also provide them with the information they need on a regular basis to see how they are performing against their budgets.

Deputy Hayes

Is it envisaged to have somebody on the board with financial expertise that can identify problems before they happen?

Mr. MacConghail

Absolutely. I wish to reassure Deputy Hayes and Deputy Michael Smith in that respect. The early warning signals will be very much in place in the new organisation, primarily because the board will have expertise in financial accounting and business as well as in culture. Second, in its articles and memos there will be a defined role for a finance and audit committee. Declan Cantwell and I will be reporting to that sub-committee in rigorous detail, as my colleague has outlined. Correct information will be provided, line by line, on a monthly basis.

Deputy Curran

The KPMG report was fairly damning on how the Abbey was being run, particularly in respect of management accounting, to which Mr. MacConghail referred. In the period in question, which was before Mr. MacConghail's time, there were monthly meetings of the board and monthly reports. Did any board members, directors or others involved in management indicate they were dissatisfied or uncomfortable with the type of financial reporting they were receiving? In that regard, I am not referring to annual audited accounts. Did anybody flag any of the issues that became so apparent when KPMG carried out its audit?

Mr. MacConghail

I was not there but it is my understanding that there was unease at both finance and audit control committee and board levels because the information was not being made available quickly enough. The crisis was exacerbated because the centenary year of 2004 stretched the company to its extreme, and therefore the day-to-day responsibility of managing, accounting and reporting of a budget was not sufficient. In the end, it was the chair of the finance and audit committee who, in May, asked the pertinent questions, on foot of which arose the issue of the additional €1 million that was under-reported. I am aware that the information was not forthcoming. I am not being smart in saying I was not there but, having said that, I understand there was concern.

Deputy Curran

Without that type of information, would one find it difficult to create an accurate submission for the Arts Council when applying for the annual grant. Would it show up at that stage?

Mr. MacConghail

From my experience of running arts organisations, I note there is a certain level of pragmatism that waters down one's idealism just a little in that whatever one has to spend is what one spends.

Deputy Curran

It comes across loud and clear that whatever one has to spend, one has to spend. However, the Abbey operated by determining what it had and spending it only to discover at the end of the year that it has spent an extra €800,000 or €1 million that it did not have. When the grant application is being made, is the Arts Council given a very specific commitment that it will produce X, Y and Z?

Mr. MacConghail

Yes, but the Arts Council cannot give us the commitment to provide the funding required when we make the application.

Deputy Curran

When it makes the grant payment, must the Abbey not commit to doing X, Y and Z?

Mr. MacConghail

Yes. The timing of that grant application is disadvantageous, however, because it is normally dealt with into the year in which the current spending and planning occurs.

Deputy Curran

It was not the cause of the theatre's problems. The accounting problems were separate.

Mr. MacConghail

There was a combination involving underfunding but it certainly does not take from the fact that under-reporting was one of the reasons for mismanagement.

Deputy Curran

When one sees the KPMG report, particularly the reference to the fact that monthly management accounts during 2004 were, in many cases, not based on actual revenues earned, one realises the theatre company was in real trouble.

Let me turn to Ms Cloake. A significant number of individuals and groups were awarded grants in 2003, some of which were quite small, amounting to only a couple of hundred euro. Other grants amounted to tens of thousands and hundreds of thousands of euro, including one to the Opera Theatre Company. A figure of over €4 million was granted in respect of the Arts Council. These are very significant figures. Irrespective of the green forms going backwards and forwards, does the Arts Council conduct internal audits of the more substantial beneficiaries of the grants to ensure the money it has allocated is being spent precisely on that for which it was allocated?

Ms Cloake

We do not have right of audit of the organisations.

Deputy Curran

I did not ask that question. I asked specifically whether the Arts Council undertakes random audits of the beneficiaries of the larger grants? Does it audit to ensure the funding it has allocated has been spent on the specific programmes for which it has been allocated?

Ms Cloake

No, we do not audit. Our relationship is with the board of the organisations. They are independent companies, they are set up under the Companies Acts. We ensure the money is spent properly by insisting they have in place proper internal controls so that when——

Deputy Curran

That was obviously not the case with the Abbey.

Ms Cloake

No. When we found out there was a problem — we knew its scale in June 2004 — we commissioned the independent report. It was very clear, as Fiach MacConghail has pointed out, that the problems in the Abbey were largely related to issues of control at the level of governance. Our immediate response in December of that year was to insist that the board step down and that a new one be put in place.

Our method of control is to ensure the organisation has adequate internal management and control. Over the past six or eight months we have been very strong in calling for the Abbey board to expedite the process of change it has outlined.

Deputy Curran

Is Ms Cloake quite happy with the verification process concerning all the grants and awards, which process operates through the Arts Council's relationship with the recipients? Does she not feel it necessary to have a financial accounting role such that the funds granted could be monitored, as is the case regarding the Irish Sports Council? I am not referring to the Abbey but speaking more generally

Ms Cloake

When we understand that an organisation is struggling or starting to get——

Deputy Curran

I am talking about a slightly different matter and would like the conversation to move away from the Abbey. My question refers to all the very significant awards that have been made. The job of this committee is to ensure public funds have been spent in accordance with the programmes for which they were allocated. The only assurance Ms Cloake can give us is based on the Arts Council's relationship with the organisations involved. The Irish Sports Council carries out random audits of the accounts of its larger beneficiaries to ensure they are spending their funding on the programmes for which they were allocated. In some cases, they were found not to have done so. Issues arose as a result and they were resolved. Does the Arts Council not recognise a need to carry out a similar audit?

Ms Cloake

Yes, we have a programme of reviews. I would not call them audits in the sense that they are not only about the financial affairs of the organisations in question. From time to time, including in the past two years, we undertook a root-and-branch review of the operations of five organisations.

Deputy Curran

Who does that and what does it involve? Will Ms Cloake use one of the five organisations as an example?

Ms Cloake

We commission an independent person, who is commissioned normally at the beginning of the year when the grant offer is made. We outline to the organisation in question issues we want to address with it. Terms of reference are agreed and the independent person is appointed to undertake the review. In our experience, financial management and control are not stand-alone issues in an organisation — they normally arise in tandem with issues of governance and management and other very simple organisational issues, such as succession, planning and the renewal of expertise on the board.

Deputy Curran

I take the point that financial management and control are not stand-alone issues, but they are issues nevertheless. Having listened to the witnesses' responses, I believe there is a particular weakness in this regard. It is fine to talk about management but a specific issue arises concerning financial control, which is now being addressed in the Abbey. My concern is that where the Arts Council awards significant grants it ensure the funding is being spent, not only in delivering programmes that look well on a report at the end of the year, but in accordance with much tighter criteria. I am taken aback to hear the type of financial audit that would be carried out in the Irish Sports Council is not being repeated in the council.

Ms Cloake

We have detailed financial reporting throughout the year from the organisations. If they receive significant funds, anything over €200,000, they must send to us——

Deputy Curran

I understand that. The point I am making is that the reports that are coming to the Arts Council might not be much use. That must be addressed by putting in place a financial control mechanism somewhere in the Arts Council rather than receiving interim reports. The council must exercise a level of control.

Ms Cloake

We insist the organisations supply audited accounts. If there are any major variations in the accounts, we take steps to intervene and I have explained that process.

Deputy Curran

The audited accounts do not necessarily show the full picture. The Abbey Theatre gets a certain amount of funding from the Arts Council but it runs its own show. The funding given by the Arts Council is for specific purposes and that might not be reflected in the audited reports. When money is given for particular programmes, it should be ensured those programmes are delivered with that money. There should be a greater level of financial control whereby the Arts Council could carry out random audits of larger recipients.

Deputy Boyle

I am a voluntary director of several arts groups in the Cork area that apply for and receive funds from the Arts Council. The council is responsible for several national cultural institutions, most of which are based in Dublin and involve people from outside the area travelling to the city to access them. Is there a percentage breakdown of the Arts Council's annual expenditure in Dublin and outside it?

Ms Cloake

I do not have an accurate breakdown with me but I can supply that to the committee. About a third of funding is spent in Dublin and two thirds nationally. A third of the national spend goes to organisations that have a national remit, such as Music Network and Poetry Ireland. They are based in Dublin but their services are available throughout the country.

The regional distribution of funds and the local growth of the arts is a vital area of our policy and over the last ten years we have worked to address the imbalance between Dublin and the counties. The major tool we use for this is our relationship with local authorities where we invest jointly with them to build up arts activities in areas where it is under-represented.

Deputy Boyle

I read some months ago that no one had applied for or received a bursary as an individual artist in County Offaly. Is that common in many areas?

Ms Cloake

There is an active arts office in County Offaly and we gave Offaly County Council €37,000. Arts activity in Offaly is growing exponentially. In most counties there are dynamic programmes at local and grassroots levels and there are many more artists living outside Dublin than five years ago.

Deputy Boyle

With the matching funding policy the council operates with the local authorities, if a local authority is better at funding its own area, will funds be diverted to an area where there is less arts funding? My local authority is one of the best in the country. Does the Arts Council always match funds?

Ms Cloake

We always want to reward success. Local authorities have become the mainstays of our support. That, however, must be balanced against local authorities that have poor rates bases and can afford to spend very little. Some funding must compensate for that from the council. We reach a balance by responding to local authorities who invest well and encouraging development where investment is not high because it is not possible for the local authority or it had not made the arts a priority.

Deputy Boyle

What proportions of the budget are taken up by expenditure on productions inside and outside the State, productions in the Abbey and Peacock Theatres and tours in the regions?

Mr. MacConghail

I do not have those figures. We take a different view of what is meant by a national organisation in that part of our remit is to encourage artists in all disciplines to come to the Abbey Theatre and develop their skills, giving them the best resources possible. We are Dublin based but we have a national remit and output. We try to tour twice a year. Last year we toured with Brigid Cleary for five weeks and we tour abroad when invited. Primarily we are a resource for all theatre communities in the country in terms of providing training and the opportunity for expression in the Abbey Theatre building.

Deputy Boyle

How much did it cost to hire KPMG to do the report and get the finances back in order?

Mr. MacConghail

It cost around €100,000.

Deputy Boyle

Did the financial committee report at monthly board meetings on a regular basis?

Mr. MacConghail

There would have been a regular report. Initially the executive would meet the finance audit committee and the finance audit committee would then report to the board at monthly meetings.

Deputy Boyle

Was the board approving the report of a committee that met externally from it?

Mr. MacConghail

Yes.

Deputy Boyle

Would the board have asked questions about the report?

Mr. MacConghail

Yes.

Deputy Boyle

Is there a significant carry-over of membership between the existing board, the board of 2004 and the new company?

Mr. MacConghail

I am not privy to the selection process. The Minister has appointed Judge Bryan McMahon as the chairman, a barrister at law, Ms Suzanne Kelly, and the actor Tom Hickey. I am not aware who else is on the board.

Deputy Boyle

Some of the board members, however, who have been responsible until now will continue to have a role on the board of the new company.

Mr. MacConghail

I cannot comment on that because I am not privy to the selection process, which is entirely down to the selection committee and if it considers there is a need for continuity between one board and another. I am unaware of the issues involved in the selection of the new board.

Deputy Boyle

In terms of the scale of the deficit in 2004, will the new board and company act under a benchmark that stipulates deficits as a proportion of turnover, and expenditure as a proportion of income will reach no more than a certain level?

Mr. MacConghail

The incoming board will seek clarity in figures and performance, which we will provide. It will also want a relationship with, and understanding that the State provides sufficient support for it to do its core business.

Chairman

Mr. MacConghail referred to Bridget Cleary. We have two Tipperary members, Deputies Hayes and Smith. The art of succinct cross-examination survives in that area, on the lines of "Are you a witch, are you a fairy, are you the wife of Michael Cleary?"

Will Ms Cloake explain how one becomes a member of the Arts Council?

Ms Cloake

The Minister for Arts, Sport and Tourism appoints the members of the council.

Chairman

There no nominating bodies, only ministerial nominees.

Ms Cloake

That is correct.

Chairman

I presume the members have a range of expertise in the arts.

Ms Cloake

The general practice has been for most branches of the arts to be represented. There are now nine art forms, including circus, which is mentioned in the Arts Act 2003. There is also some representation of the public interest, for example, county councillors or a librarian but the members come mainly from the arts field.

Chairman

What is the council's total budget this year?

Ms Cloake

It is €61.5 million.

Chairman

How does that break down between direct grants and national lottery funds?

Ms Cloake

Last year the distribution from national lottery funds was €20 million and €33 million was distributed in grants, bringing the total to €55 million. This year the proportions are approximately the same.

Chairman

In the 2003 accounts, €6.4 million was allocated to organisations in which council members declared an interest. That seems quite high from a budget in the region of the low 40s in terms of millions of euro. I am aware that there is a procedure whereby if a council member is involved in, or associated with, an organisation he or she must declare that when grants are being considered. However, €6.4 million out of €42 million is a high declaration of interest, when the large amounts are subtracted.

Ms Cloake

Senior figures in the arts with a record of artistic achievement, as the members of the council are, will be involved with, or linked to, the large successful arts organisations. That is a pattern. We have careful procedures in place. It is more a function of the stature of the council members than any other factor.

Chairman

Ms Cloake would not agree with the argument that unless one's organisation is well connected to a member of the Arts Council it will not be successful in a grant application.

Ms Cloake

I refute that absolutely. We have fair procedures. For example, independent panellists assess on their merits the applications for grants to individual artists and small festivals around the country — for which we hope to increase the budget to €1 million next year. We rotate the panellists approximately every six months such that four or five independent people look through all the applications.

We have a good set of decision-making procedures in place because we feel strongly that decisions on the arts should be made by people with diverse perspectives. Money going into the arts will influence them for the next generation. A book written now will be read by our children and grandchildren. It is important that several different people make decisions about arts funding of that nature. No small group can say what art will be important in the next generation.

Chairman

Mr. MacConghail, did the change in emphasis and the higher priority given to financial controls and a clean set of books, have any adverse influence on the potential quantity or quality of the artistic output of the Abbey?

Mr. MacConghail

No. Knowing what funding one is to receive from the State and the targets to achieve at the box office can give one a great deal of freedom. Within that freedom one can take greater risks in the type of work one puts on. In my experience of 20 years as a producer in theatre and film, the certainty of revenue, in the form of a grant from the Arts Council or the State, allows one to be more imaginative and creative, particularly if that certainty has a long lead-in period. For example, if I knew what the Abbey will get in 2007 and 2008, which would be reasonable, I could plan better, be more creative, and enable artists and writers be more productive.

Chairman

Will Mr. MacConghail give the committee some insight into the programme for 2006 and refer briefly to some of its highlights?

Mr. MacConghail

There are two theatres, the Abbey and the Peacock. Paul Mercier, who wrote and directed a significant amount of work for The Passion Machine and is a charismatic theatre artist, will direct a play entitled, Homeland in the Abbey. This is a political mystery based on the story of Oisín in Tír na n-Óg. I do not want to give away too much detail but I would like the Chairman to come to the opening night and we could maybe discuss it afterwards.

Deputy M. Smith

That might be an education for us.

Mr. MacConghail

There is still an arms length decision between us and the Arts Council about what we stage. The second play we are staging is The Bacchae by Euripides. It is based on Greek myth but we are setting it in Baghdad as a debate about world power between Osama bin Laden and George Bush. The role of the Abbey is to present these arguments.

In the Peacock there will be two fine plays, one by a young writer from Kildare, Nicholas Kelly. That will be directed by Gerard Stembridge who is well-known for his work in radio, theatre and film. That is followed by a play by Sam Shepard, one of the best-known American writers and actors. Although it is an American play it will loosely consider what is happening in Ireland.

We have a broad eclectic range allowing for different audiences. One of the highlights next year in the Abbey which I recommend is A Month in the Country by Turgenev but adapted to Ireland by Brian Friel. That will be directed by a young director, Jason Byrne. I could continue but we will wait for our funding to be confirmed.

Chairman

Where stands the plan for a new theatre building?

Mr. MacConghail

The Government and Department are discussing that plan. I am not privy to the process of those making the decision.

Chairman

Does Mr. Ó Donnchú have anything to say that would give hope for the future?

Mr. Ó Donnchú

The Minister has said several times in the Dáil that there were several site options. We have settled on the site at George's Dock, subject to site investigative works which were recently completed. The question of how and when we proceed to the next stage is being discussed in the context of the multi-annual capital programme 2006-10.

Chairman

Is there an outline design for George's Dock, if that is the site, or will the Department advertise for an architectural competition, or has it already retained architects?

Mr. Ó Donnchú

A brief has been agreed with the existing Abbey management and board. The Minister has said in the Dáil that he envisages this going through an international design competition. We do not yet have a design.

Chairman

Could Mr. Ó Donnchú tell us something about the brief? Does it deal with the capacity of the theatre and does it maintain the two theatre format of the Abbey and the Peacock?

Mr. Ó Donnchú

It enhances the theatrecapacity, considers the ancillary facilities that support a state-of-the-art theatre building, appropriate to a national theatre, and it maintains the two auditoria approach.

Chairman

Where exactly is the site? Where is it relative to the Point Depot, Jury's Inn or the Dublin Financial Services Centre?

Mr. Ó Donnchú

Travelling along the north quays and heading towards the Point Depot, one will find it just past the weighbridge. It is about three minutes walk from Connolly station and almost directly across the river from the Tara Street DART station. It is about a six-minute walk from O'Connell Bridge. I walk fairly quickly, but I did it when I had a back problem, so I was going quite slowly. It is right in the heart of the financial services district, with frontage onto the quayside as well. Therefore it will be visible from the north quays. It is quite a central location.

Chairman

I do not want to tie Mr. Ó Donnchú into this, and anything he says will be somewhat tentative. If the site exploration is satisfactory, what sort of timeframe are we looking at?

Mr. Ó Donnchú

I do not want to be over optimistic or necessarily pessimistic as regards a project of this size and how long it might take. We are working towards a tentative outline schedule that envisages the new building being in operation around 2009. That is all going to plan, but again it will be a sizeable undertaking. Who knows what unforeseen engineering, architectural, design, planning, transport or access issues might be encountered.

Deputy Hayes

I have a question for Ms Cloake. South Tipperary has no arts officer. There are differences of view between the Arts Council and opinion on the ground there, not alone the local authority but everyone involved in the arts. The local view is that an arts officer should be based in the arts centre in Clonmel for which the Arts Council has already provided funding. However, the council insists this should be part of the local authority initiative. I am not 100% sure as to detail, but the bottom line is that we have no arts officer. The fall-out from that means that we are losing out as regards certain grants. Young people could benefit from having an arts officer in the county. I know Ms Cloake is in correspondence with the local authority. Could she agree with the terms the local authority has set down in the letter they have written to her? What is her difficulty as regards this issue?

Ms Cloake

We are absolutely happy to support a person working in the arts centre. However, the experience in 33 local authorities around the country is to the effect that an arts officer is much more effective if he or she is part of the day to day cut and thrust of local authority business. He or she is then talking to people in the housing department, to planners, people in corporate services as regards planning decisions, public architecture, the design of bridges, community work, etc. The money spent on an arts officer and his or her programme is much more effectively used if the office is within the structure and the overarching work of the local authority.

That is not to suggest a person in the arts centre is not a good idea. There are positive elements to the proposal from south Tipperary, but experience elsewhere has shown that the effectiveness of such initiatives, in terms of value for money, is way beyond the cost of the investment, if they are in the local authority.

Deputy Hayes

This is an issue that has gone on for quite a number of years. It is raised at every estimates meeting of the local authority, with lobbying groups, etc., involved. Will Ms Cloake meet with the local authority representatives to thrash out this matter? What she has said in her answer to me appears to be quite reasonable. However, they will put up a different argument and are conscious that it would cost the local authority more to have such a person in the arts centre. I am asking her to meet the representatives to try to bring this matter to conclusion at some stage.

Ms Cloake

We have met and we are still talking. We will meet them again, but it should be stressed that there is a difference between cost and value for money. I still argue that it is much more cost effective to have the post located within the local authority, even though on the face of it, this could be marginally more expensive.

Deputy M. Smith

We are more progressive in north Tipperary.

Deputy Hayes

I left myself open for that.

Deputy M. Smith

The artistic part of the south is more leisurely when it comes to matters such as this. Ms Melanie Scott leads the chart, so we would like to put pressure for ongoing support for the Thurles centre. I know the Chairman is interested because I represent a key marginal constituency. Any help I get is appreciated.

Chairman

To further our artistic endeavour close to Deputy Lowry would help Deputy Michael Smith considerably. I call on Mr. Purcell to conclude.

Mr. Purcell

I will not comment on any artistic endeavour in either north or south riding of Tipperary. I will, however, touch on a couple of points made by members and elaborate on them.

Deputy Curran spoke about the oversight of the Arts Council as regards grants and the need to ensure that moneys are used for the purposes for which they are granted. I am open to correction, but where more material amounts are concerned — we are not talking about three figure sums going to local communities and so on but where there are substantial amounts — it might be worth exploring, over and above the audited accounts, that the auditors might be required to certify that money received from the Arts Council was used for the purposes for which it was granted and in accordance with any conditions attaching to the grant. That perhaps could be taken on board in respect of material amounts.

With regard to the Arts Council, its statement of internal financial control for 2004 notes that it did not have an audit committee and neither did it have an internal audit. That has been put to rights. Having said that, there was no fundamental problem with the level of control within the Arts Council — I want to put it in that context. It just shows we are all learning something along the way as regards corporate governance and so on.

Deputy Hayes mentioned trust funds. Again, the accounts are very transparent and disclose all the information as regards the trust funds. On the basis of the market value of the investments the trust funds are probably worth in excess of €1.5 million. These were very wise investments because they have appreciated considerably. In the context of 2004, expenditure from those ten trust funds was just over €5,000. All of this information is contained in the accounts. I am not pulling any rabbits out of hats in disclosing that. It is mentioned in note 14 to the accounts.

Without going over old ground, as regards the Abbey, Deputy Boyle, I believe, asked whether the finances were discussed at board meetings. We have access, of course, to the minutes of the board meetings. Finance was very much to the forefront — almost the first item to be discussed — at those board meetings. In 2004, given the centenary celebrations, some international touring and the great opportunity identified to promote the Abbey and all it stood for, natural caution might have fallen foul of the mantra, "Abbey 100". There was a serious overrun on the Abbey 100 programme and that is recorded in the KPMG report as well.

As the statutory auditor of the National Theatre Society Limited since 1994, one has to ask why did these internal financial problems not come to the fore. A completely different process was taken on board for the production of the annual accounts, which we audited. It was usually only at that stage that the specific financial position was determined. In that sense, we would not have to go near the management accounts as we could rely on the audited accounts.

It was not until the big explosion of expenditure in 2001 that the fundamental flaws in that management reporting system came to light. It may be a blessing in disguise in that the Abbey will now be put on a sounder footing. It has acted as the catalyst for the change in the corporate status of the Abbey, which was a bone of contention with the Arts Council and with the Department and many others over the years. It was an unusual type of animal in that it was almost a club that was being financed largely by the State. We have it on a reasonably proper footing now.

If the Abbey is a national cultural institution, there is an argument for it to be put on a statutory basis in line with the National Museum, the National Library and the National Gallery which have been subject to moves in that respect.

Chairman

Thank you Mr. Purcell. The Arts Council financial statements — 2003 to 2004 and the National Theatre Society Limited — financial statements 2004 may be disposed of. Is that agreed? Agreed.

Is there any other business? No. The agenda for the meeting on Thursday, 1 December 2005 is as follows: University College Cork — financial statements 2000 to 2002; and the Carlow Institute of Technology — financial statements 2003.

The committee adjourned at 1.25 p.m. until 11 a.m. on Thursday, 1 December 2005.