COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 6 Apr 2006

Vote 31 — Department of Agriculture and Food.

Mr. T. Moran (Secretary General, Department of Agriculture and Food) called and examined.

Chairman

We will now discuss the 2004 annual report of the Comptroller and Auditor General and appropriation accounts: Vote 31 — Department of Agriculture and Food, chapter 12.1, damages for storage of BSE tallow, and chapter 12.2, national beef assurance scheme.

Witnesses should be aware that they do not enjoy absolute privilege. Their attention and that of members 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 and oral submission; the right to request the committee to direct the attendance of witnesses and the production of documents; and the right to cross-examine witnesses. For the most part, these rights may be exercised only with the consent of the committee. Persons invited to appear before the committee are made aware of these rights and any persons identified in the course of proceedings who are not present may need to be made aware of them and provided with a transcript of the relevant part of the committee's proceedings if the committee considers this appropriate in the interests of justice.

Notwithstanding this provision in legislation, I remind members of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official, either by name or in such a way as to make him or her identifiable. They are also reminded of the 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 policy or policies.

I invite Mr. Moran to introduce his officials.

Mr. Tom Moran

I thank the Chairman. I am accompanied by John Gillespie, assistant secretary, John Fox, assistant secretary, Seamus Healy, assistant secretary, Aidan O'Driscoll, assistant secretary, and Brendan Gleeson, principal officer, who are all from the Department of Agriculture and Food. John Thompson and David Denny of the Department of Finance are also present.

Chairman

Will Mr. Purcell introduce the Vote? Chapters 12.1 and 12.2 of the report of the Comptroller and Auditor General read:

12.1 Damages for Storage of BSE Tallow

Background

I reported in 2001 on a review I had carried out of the Bovine Spongiform Encephalopathy (BSE) eradication programme. Among the main control measures adopted by the Department as part of this programme were procedures for dealing with Specific Risk Material (SRM). SRM is defined in EU legislation as certain parts of the bovine carcase, mainly the brain and spinal column. The measures adopted involved the isolation, staining and direct removal of this material to approved plants for rendering and eventual destruction by incineration.

The control of the collection and rendering of SRM and the storage and destruction of the resultant meat and bone meal (MBM) and tallow was, from an early stage, recognised by the Department as a key anti-BSE measure. The preferred approach was to designate a specific rendering plant to exclusively process all of the SRM generated throughout the State. Having considered a number of applications, the Department approved a rendering plant (the renderer) for this purpose in February 1997. The intention was that this designation would enable the renderer to process the SRM on a commercial basis for the slaughtering sector, without financial assistance from the Exchequer. The receipt of SRM raw material, its processing, and the storage of the resulting MBM and tallow was overseen by the Veterinary Inspectorate of the Department. Its main role was to verify the quantities of SRM received and MBM and tallow dispatched. Ownership of the MBM and tallow remained with the renderer.

In May 1997

·The local Department inspector responsible for the renderer's premises notified the Department that the renderer had filled all its tallow storage tanks and was looking for additional storage. In the absence of storage facilities being found for this tallow, the renderer would have had to cease rendering all SRM.

·The renderer had identified two possible storage premises.

·One of these premises was recommended by the Veterinary Inspectorate.

·The Department issued an approval notice to the renderer in respect of the selected premises (the store).

However, due to the absence at the time of key staff, a licence was not issued to the store owners. At this time, the Department's policy was to inspect and license storage premises in regard to suitability for receipt and holding of MBM and tallow.

An agent on behalf of the renderer negotiated the contract for storage of the SRM tallow. The Department was not a contract party to the storage of tallow at the store in 1997.

The store was used from May 1997 onwards by the renderer under the supervision of the Veterinary Inspectorate. In the following three years over 5,000 tonnes of SRM tallow was sent there. In July 1998 it became necessary for the Department to make a financial contribution for the disposal of the MBM and tallow because of difficulties experienced by the renderer in securing adequate payment from the meat sector for the rendering of the SRM and subsequent disposal of MBM and tallow. As part of an overall agreement reached with the renderer for the disposal of SRM derived MBM and tallow, the Department took over responsibility for 2,511 tonnes of SRM tallow held in the store. Prior to this the tallow was owned by the renderer.

Legal Case

In February 1999 a dispute arose between the renderer and the store owners that resulted in the initiation of High Court proceedings. The action was taken against the Department and two co-defendants, (the renderer and its agent) by the owners of the store. The plaintiff claimed, at that time, that it had only then been made aware that the material stored was, in fact, derived from SRM.

A High Court case commenced in June 2004. The plaintiff's claim at that time was for €6.5 million in damages — €4 million for destruction of business based on damage to its storage tanks and €2.5m claimed as arrears of storage fees. The rent initially charged for use of the store was €1.27 per week per tonne of tallow stored. However, the store owners sought to increase this rent to €3.17 per week per tonne with effect from 1 March 2000. The Department, on legal advice, paid the increased rate. However, when the plaintiff created legal difficulties with regard to the removal and disposal of the tallow the Department ceased payment of all storage fees in February 2002. These circumstances led to arrears of rent forming part of the Department's ultimate settlement of the case.

The key issue in the case was whether or not the plaintiff had been informed from the outset that the tallow was derived from SRM. The position of the Department was that:

·While it had approved the renderer as the designated SRM processor, it was not a party to the original storage contract concluded by the renderer's agent with the store.

·It was not directly involved in what the store was told by the renderer or its agent.

·It had no control over the description of the material on the delivery dockets which accompanied the tallow being sent for storage.

I have been informed by the Accounting Officer that the Department and its legal team based and built its defence on one critical understanding. This was the understanding given to the Department by the co-defendants, prior to and throughout the duration of the case, that both could clearly and unequivocally establish, to the satisfaction of the court, that the plaintiff was on full notice and absolutely aware, from the first load going into storage, that the tallow was SRM tallow. The co-defendants had no written evidence to establish this fact, so this was a case where ultimately oral evidence was primary and the court would have to weigh up the bona fides and veracity of what was said and by whom.

The fact that the Department had issued formal documented approval of the premises for the storage of SRM was only discovered after the commencement of Court hearings.

Settlement

On day 46 of the case on the conclusion of cross-examination of co-defendants' witnesses, but prior to the commencement of cross-examination of Department witnesses, legal advice from the Department's Senior Counsel recommended that the Department urgently explore the possibility of a settlement of the case. Counsel and the Department were of the clear opinion that their co-defendants had not established sufficient primary knowledge on the part of the plaintiff, to the required degree, that the secondary evidence of the Department's witnesses would copperfasten a successful outcome to the case.

The Department immediately sought and received Department of Finance sanction for a settlement. In December 2004 a settlement in the sum of €3.75 million was signed between the parties and recorded in the High Court. In addition the agreement provided that the Minister would pay the plaintiff's costs. The agreement also provided that the Minister would make an additional payment (€22,000) for the removal of tallow. A separate agreement was recorded in the High Court whereby one of the co-defendants contributed a sum of €1 million to the Minister as its contribution towards the settlement.

In December 2004 this payment was received and the Department paid the agreed settlement sum of €3.75 million.

I have been informed by the Accounting Officer that the plaintiff's costs, to be paid by the Department, have not as yet, been assessed for payment as they had only recently been furnished to the Chief State Solicitors Office. The Department has not yet seen them. The assessment of the plaintiff's costs should be completed shortly. He felt that it would be inappropriate to indicate what the likely fees might be, due to the fact that the matter is currently sub-judice. However the Attorney General’s Office had paid out a sum of approximately €925,000 to the State’s legal team in fees.

Outcome

The outcome of these events, from the Exchequer viewpoint, is that allowing for the contribution of the renderer, net expenditure of approximately €2.75 million was incurred in settling the overall claim, including storage. In addition expenditure of approximately €1 million in respect of State legal costs has been paid and an as yet undetermined amount, remains to be paid in respect of the Plaintiff's legal costs.

12.2 National Beef Assurance Scheme

Background

Following the BSE crisis of 1996, measures were adopted to improve the production and processing conditions of cattle and beef in Ireland and to provide assurances to consumers as to the safety of Irish beef. In order to allay consumer concerns and to safeguard beef markets at home and abroad, the National Beef Assurance Act, 2000, providing for the implementation of a National Beef Assurance Scheme was enacted. The purpose of the scheme is to provide guarantees about the safety of Irish cattle and beef by:

·The development of common high standards of production and processing

·The enforcement of these high standards through a process of registration, inspection and approval

·The enhancement of the animal identification and tracing system.

During 1997, work began on the development of the computerised Cattle Movement Monitoring System (CMMS). The system records all movements of cattle on a central database, i.e. movements through livestock marts, from farmer to farmer, through cattle dealers, to slaughter plants and for live exports. The system is supplemented by the information supplied through calf birth registrations and the issuance of bovine passports. The CMMS was phased in from September 1998 and captures all data on births, movements, deaths and disposals since 1 January 2000.

As well as providing details of the origin, identity and life history of cattle before they enter the human food chain, the database is also being used to provide data to validate payments under livestock premia schemes. In 2004 payments totalling €789 million were made on foot of applications which were subject to verification and validation checks using CMMS data.

Scope of Audit

My examination of expenditure under the National Beef Assurance Scheme included a review of the contractual arrangements between the Department and a private operator for the processing of calf birth registrations and the issue of bovine passports, animal movement permits and on-farm death notifications. It also included a review of procurement procedures for the new Animal Health Computer System.

Calf Birth Registrations and Bovine Passport Issue

The contract for the registration of calf births and the issue of bovine passports has been held by the same service provider since the inception of the CMMS. The service provider successfully re-tendered for the current contract in December 2003.

Invoice Verification

The Department is invoiced monthly by the contractor for the number of calf births registered in the previous month. These registrations are input by the contractor onto its computerised system on foot of notifications received from farmers and herd owners. The data is then downloaded nightly onto the Department's system.

When the contractor's invoice is received staff cross-check the number of registrations claimed with those registered onthe CMMS. These should automatically agree as the CMMS reflects what was downloaded from the contractor's system. An amount of €4.4 million was paid to the contractor in 2004 for the registration of calf births and bovine passport issues.

My audit noted that the absence of an independent verification of calf registrations was raised as a serious finding by the Department's Internal Audit Unit in a report in March 2004. The management response at the time was that, until such time as calf birth registration is fully on line as part of the new Animal Identification Movement System, which is intended to succeed the CMMS, there is probably no truly independent mechanism available to verify all invoices in full.

I enquired how the Department satisfies itself that the invoices being submitted by the contractor for payment are accurate. In reply the Accounting Officer stated that the Department is satisfied that there are sufficient validation and control mechanisms in place in regard to the CMMS database.

He stated that calf birth registrations are not accepted onto the CMMS unless the herd number of the applicant is valid, has an active status and has been supplied with a herd identifier. Nor are registrations accepted unless the tag number applied on is valid, the dam is alive in the herd of birth at the time of birth, is over 18 months of age, has not had a calf in the previous 300 days and has matching breed details. Moreover, the CMMS database is an integrated database. All exits, disposals and other movements are validated by reference to the initial calf registration data and act as further verification of the existence of animals. With the exception of brass tagged animals that are not covered by the calf birth registration contract, registered animals may not be removed from the CMMS database unless recorded as slaughtered, exported or dead on farm. Analysis of the database provides no evidence of any anomaly or any imbalance between entries and exits.

In addition, over the past number of years, the Department has supplied herd profiles on a regular basis to all farmers both for Extensification Scheme entitlements and herd reconciliation purposes. The production of these profiles acts as a barometer of the accuracy of the database. In feedback and other notifications from farmers, the question of incorrect registrations has never arisen as an issue.

The Department is therefore satisfied as to the accuracy of payments made to the contractor despite the fact that invoices are raised and calf registration numbers are generated from the same source.

Monitoring of Administrative Controls

The contract for calf registrations and animal passport issue specifies the level of supervisory checks to be carried out by the contractor. It states that supervisory checks should be carried out regularly on the work of all staff and the computer system and these checks shall be documented. The minimum level of checks to be carried out is 15% of all transactions. As no documentary evidence was available I enquired as to what checks, if any, are carried out by the Department to ensure that the administrative controls, set out in the contract, are operating satisfactorily.

In reply the Accounting Officer stated that a Department official visits the contractor's premises on a regular basis to ensure compliance with the agreed procedures and processes and with the administrative provisions set out in the contract. The checks conducted vary and can incorporate a walk through of the relevant business processes (e.g. data-input, printing, packaging, posting, call centre, archiving, retrieval, etc.), an examination of the manual and electronic records of data input by each staff member as well as discussions with senior management and an examination of error listings.

The Accounting Officer acknowledged that the checks conducted by the Department to ensure compliance have not been documented in a systematic fashion. This issue has now been addressed and a checklist has been devised to evidence ongoing checks. In addition, for the future, the control documents used by the company to evidence checks conducted will be endorsed by the Department upon verification. The Accounting Officer also stated that the Department is satisfied from the checks that have been conducted that the administrative controls in question are operating in a satisfactory manner.

Cattle Movements

The same service provider successfully retained the CMMS contract for the handling, processing and verification of farm to farm bovine movement permits and on-farm death notifications for the year to December 2004.

Movements of cattle, whether for single or multiple animals, can only be made on foot of a movement certificate or permit issued by the contractor on behalf of the Department. The Department is invoiced monthly for the number of certificates/permits of cattle movements — certificates can be for a maximum of 10 animals — issued in the previous month.

However, as the CMMS database records the movement of each individual animal, it is impossible to reconcile the number of movements recorded against certificates issued and invoiced. A reasonableness test is carried out to verify the number of certificates invoiced by confirming that the total cattle movements per the CMMS in the month significantly exceeds the number of certificates invoiced.

The amount paid in 2004 for the issue of cattle movement certificates and the recording of on-farm death notifications was €995,000.

I enquired how the Department verifies that the amount of permits being claimed for is correct. In reply the Accounting Officer stated that the introduction of new technology under the new Animal Identification Movement System in 2005 will allow the Department access a report generating figures for the number of permits issued and this will be used, with effect from July 2005, to verify invoices received from the contractor. The Department will also use the new facility to conduct a retrospective check in respect of invoices paid to date under this contract.

Cattle Numbers — CMMS v Central Statistics Office

The Central Statistics Office (CSO) publishes a livestock survey every six months that estimates livestock numbers in the State. It was noted that the surveys for June 2004 and December 2004 included notes on a comparison of numbers with those on the Department's CMMS. The June 2004 survey indicated that total cattle numbers were some 6% higher on the CMMS than the CSO estimate at that date. At December 2004 it showed them to be some 5% higher. Both surveys noted that the CSO was continuing to compare the CMMS and CSO survey figures at farm level to provide a more detailed analysis and explanation of the reasons for the differences between the two data sources.

I asked what measures the Department had taken to establish the reasons why the CSO livestock survey figures for bovines are significantly lower that those of the CMMS, if a reconciliation has been carried out between the CMMS and CSO figures and, if so, what was the result. In reply the Accounting Officer stated that the CSO livestock survey figures for bovines are estimates based on sample surveys linked to the June 2000 Census of Agriculture whereas the CMMS statistics are based on a count on a specific day of individual animal tag numbers whose animal events (births, movements, calvings and exits) have been notified variously by farmers, marts, exporters and factories. CMMS is a dynamic database and the total figures for the live animal population will vary from day to day in line with the addition of new notifications. It is the Department’s view that the important issue is the level of accuracy, reliability and credibility of the CMMS database. The Department has taken a number of measures to ensure the accuracy of the database and is satisfied that it has an accuracy level in excess of 99% at this point.

In regard to the issue of a reconciliation being carried out between the CMMS and CSO figures the Accounting Officer stated that since 2000 there has been regular and ongoing contact between the Department and the CSO to compare the results of livestock surveys conducted by the CSO with data from the CMMS database. Initial feedback from the CSO showed that the highest level of discrepancy arose in respect of female animals in dairy herds and were caused by retagging issues, past inaccuracies in the CMMS database and delays in notifications. It is understood that the draft report of the CSO Statistical Potential of Administrative Records project envisages the eventual use of CMMS as a definitive source of control totals for the survey estimates of cattle data.

Animal Health Computer System

The new Animal Health Computer System is a fully networked computer system with dial-up internet access for veterinary practitioners and is designed so that animal health data for individual animals can be integrated with individual animal movement monitoring data recorded on the existing CMMS.

It was noted that the sum contracted for the system in 2001 was €5.8 million and that payments to 31 December 2004 amounted to approximately €8.7 million. The final payment of €304,000 was made in April 2004. I enquired as to the reasons for the cost overrun of €2.9 million, representing 50% of the original contract sum.

In reply the Accounting Officer stated that a number of factors led to delays and increased costs over and above the original contract price. The lapse of time between the design of the system, which was completed in August 2000 and its development, which ran from April 2001 to October 2003, advances in technology, changes in the Department's IT infrastructure and additional business needs resulted in the need for adaptations and additions to the original systems design. The original contract provided for single development, system test and user acceptance test phases with a pilot run due in September 2002. However, because of the number of adaptations and additions to the original systems design, including the need to respond to urgent business requirements arising during the development phase itself, a series of additional development, system test and user acceptance test phases were required followed by a pilot run in November 2003 and system roll-out which took until February 2005 to complete. In addition, progress on the project was significantly delayed in 2001 when key resources were diverted to deal with the Foot and Mouth Disease crisis.

Conclusion

On balance I was generally satisfied with the results of my examination of those aspects of the National Beef Assurance Scheme which were reviewed in the course of the audit and with the explanations provided by the Accounting Officer. There is always scope for improvement and the Department is aware of certain weaknesses but it is actively working to address them.

Mr. Purcell

I will concentrate on introducing both chapters. With regard to chapter 12.1, I draw attention to the circumstances in which the Department became liable for the payment of a substantial sum in lieu of damages plus its own and the plaintiff's legal costs as a result of the settlement of a court case.

The committee will be aware that the costs of the State's measures to counter the threat of BSE to the beef industry and the potential threat to public health have run to hundreds of millions of euro in recent years. One of the main planks of the programme was the collection and rendering of what is called specified risk material, namely, certain parts of the bovine carcass, mainly the brain and spinal column. The rendering of this material produced meat and bonemeal and also an oily substance known as tallow. I have already referred to arrangements for the destruction of meat and bonemeal in a previous report but arrangements also had to be made for storage and ultimate disposal of the tallow by means of incineration.

By May 1997 the company with sole responsibility for rendering had no capacity left for storing the tallow and it was necessary to source storage at a third party premises. In July 1998, as part of an overall arrangement with the renderer, the Department took over responsibility for the ownership of the tallow held in the off-site premises and assumed liability for the rental of the storage. In February 1999 the third party who owned the premises at which the product was being stored took legal action against the renderer and the Department as co-defendant mainly on the grounds that he was not informed at the time that the tallow originated from specified risk material. There was also a related claim for unpaid rent.

The case eventually came before the High Court in June 2004 and on the 46th day of the hearing the State's counsel advised the Department to settle. A settlement was reached for €3.75 million plus the plaintiff's legal costs. A contribution of €1 million was made by the renderer to the settlement. The legal costs were significant, amounting to approximately €1 million for the State and approaching €2.7 million for the third party. Therefore, the overall cost to the Exchequer was in the region of €6.5 million.

Without getting into the rights and wrongs of a court case that was settled, to consider the matter from the perspective of departmental accountability, while it communicated approval to the renderer for storing the tallow in question at the off-site premises, at the same time it overlooked the need to issue a licence to the third party to receive the product for storage on its premises. It was a statutory requirement to have such a licence but this was not met. It is fair to say that if it had been, it is highly probable the third party would not have been in a position to take a successful court case on the basis of not being made aware of the nature of the product.

Chapter 12.2 records the results of an examination of expenditure under the national beef assurance scheme and, in particular, a review of the contracts between the Department and the company for the processing of calf birth registrations, bovine passports, animal movement permits and on-farm livestock death notifications. I also reviewed the procurement of the new animal health computer system. I was generally satisfied with the Department's controls over the registration, movement and deletion of livestock on its systems and its arrangements with the company providing data processing services, although I made some suggestions with regard to tightening oversight of the administrative controls and enhancing verification checks. The Department took these suggestions on board.

Members will note that there is a difference between the livestock figures produced by the Central Statistics Office on the basis of its surveys and the figures per the Department's cattle movement monitoring system. The Department's figures are generally 5% to 6% higher. I was concerned that this might indicate that the Department was paying grants and the like for phantom cattle, bearing in mind the discovery of phantom sheep in the Cooley Peninsula at the time of the foot and mouth disease outbreak.

While some work has been done to try to establish the reasons for the differences, it is hard to be conclusive because of the different bases for the figures. That said, members will see in the chapter that the Accounting Officer is satisfied that the Department's livestock database has an accuracy level of 99% plus.

Although there was a cost overrun on the development of the Department's animal health computer system, the outcome is not altogether unreasonable, when viewed against the lapse of time between the original system design and the delivery of the system. Competing priorities were among the factors that affected the timescale. However, to show that every cloud has a silver lining, the delay meant that technological advances could be availed of to include additional functionality in the system. While this came at an extra cost, in the long run it might have paid its way.

Chairman

I now call on Mr. Moran to make his opening statement.

Mr. Moran

With the Chairman's permission, I wish to preface my remarks on the specific issues raised in chapter 12 of the Comptroller and Auditor General's annual report with some general background information on the finances of the Department of Agriculture and Food.

In 2004 the Department of Agriculture and Food was responsible for the expenditure of approximately €2.7 billion. Apart from the voted element, dealt with in the appropriations account, a total of €1.4 billion was directly funded EU spending on market support schemes such as intervention and export refunds and direct payments to farmers in the form of arable aid and animal premia payments. The arable aid and premia payments have since been replaced by the single farm payment.

Net voted expenditure in 2004 was some €153 million less than that provided for in the revised Book of Estimates for 2004. Most of the Department's Vote is made up of demand-led schemes, or schemes dependent on variables such as market performance or animal health status. In 2004 there were significant savings on some large schemes such as REPS and the farm waste management scheme due to relatively low take-up by farmers. This may be attributable, in part, to caution on the part of farmers in the light of the very significant changes in the introduction of the single farm payment and the nitrates directive. These were major changes, giving rise to a need for farmers to take stock of their situation, and may have led to a reluctance to make major business decisions or enter into long-term investment commitments. This was also the case in 2005. There were also significant savings in the animal health area, to a large extent because of declining animal disease rates for tuberculosis and brucellosis, and the administrative budget.

I wish to briefly mention some aspects of the financial control and corporate governance systems in the Department. In 2004 the Department was subject to 2,976 audit man days. Of this, a total of 1,897 man days was accounted for by the Department's internal audit unit, 495 were attributable to the Comptroller and Auditor General, 460 were covered by the certifying body for the FEOGA EU guarantee account, while the European Court of Auditors was responsible for 94 and the European Commission for 30. Apart from the very significant level of external scrutiny, the Department has a well resourced, experienced and trained internal audit unit and an accreditation review group, which I chair, to monitor compliance with the EU FEOGA guarantee accreditation requirements. It has an audit committee chaired by a former managing partner in a major accountancy firm, with external membership from the commercial and academic world, as well as from other Departments. It also has a well developed risk management system and a risk management committee, which is also chaired at Secretary General level.

I wish to turn to the two items specifically raised in chapter 12 of the report. The first relates to the settlement by the Department of High Court proceedings resulting from the storage of specified risk material, SRM, that is, tallow, in storage tanks owned by the plaintiff. The requirement to store SRM tallow was introduced against the backdrop of a ban in February 1997 on the use of specified risk material from cattle and sheep. This followed an announcement in August 1996 of a possible link between that disease and the human condition, new variant CJD, which had sparked a crisis in consumer confidence in beef across Europe and placed the entire sector in Ireland, including farmers, processors, exporters and others, at considerable risk. In the circumstances it was imperative to take all measures necessary to control and eradicate the disease, reassure consumers and protect human health. This was done. Control measures included a full slaughter-out policy for herds with positive cases, a ban on the feeding of meat and bone meal and the exclusion of SRM from the feed and food chains. In addition, when new technology resulted in the availability of an effective and efficient test, the Department implemented a comprehensive testing programme at slaughter plants and knackeries. More than 3.7 million cattle have been tested under this surveillance regime since its inception in 2001.

These controls were subjected to considerable external scrutiny by the Food Safety Authority of Ireland and the European Commission's Food and Veterinary Office, which concluded that from 1 January 1998 Irish controls were "optimally stable". This was the highest achievable rating. The effectiveness of the controls is also evident from the rapid decline in case numbers from a peak of 333 in 2002 to just 69 in 2005. In addition, the cases identified in recent years have, in general, been in older animals born prior to the introduction of enhanced controls in 1996 and the incidence of the disease will continue to decline as these animals leave the system. All in all, our handling of BSE cases has been extremely successful during the years, in a context where there were public health imperatives to be addressed and when there was real danger that the cattle and beef industry would suffer irreparable damage.

It is against this general background that the case referred to in the Comptroller and Auditor General's report arose. It centred on the question of whether the plaintiff who had been contracted to store SRM tallow pending its destruction had been informed from the outset of the nature of the material. The action was taken against the renderer, his agent and the Department. The Department was involved because it had approved the store, controlled the movement of SRM tallow into the store and, from July 1998, taken ownership of approximately half of the tallow in the store.

The case was extremely complex with a number of subcases within it. It was settled on the basis of strong advice from the Department's senior counsel and with the approval of the Attorney General and the Department of Finance. This advice was based on concerns about the quality of the defence made by the co-defendants and the length of the case at that point. The case was settled for considerably less than the amount originally sought by the plaintiff. It included provision for a significant contribution by the Department's co-defendants and avoided the prospect of further protracted proceedings, with all of the associated costs. My view, having regard to all of the facts, is that the settlement made sound economic sense.

I refer to second point in the chapter regarding the national beef assurance scheme. The Comptroller and Auditor General's examination included a review of the arrangements between the Department and a private operator for the processing of calf birth registrations and the issue of bovine passports, animal movement permits and on-farm death notifications, using the cattle movement monitoring system, CMMS. It also included a review of expenditure on the animal health computer system, AHCS.

I will deal with the CMMS first. Under EU legislation, member states are required to have identification and traceability systems in place for cattle. The CMMS is intended to meet this requirement. The original purpose was to build a central computer system to track the birth, movement, death and disposal of all cattle born or imported into Ireland, to protect human and animal health and to assure customers and consumers of the origin, identity and life history of Irish beef. I am pleased to say the CMMS has not only delivered on this, but that it has also been found to be very useful for a variety of functions in addition to those for which it was originally designed, including the establishment of premia payments and providing the data for pre-printed forms for farmers. The system has been extensively audited by EU bodies and reviewed by veterinary services of non-EU countries with which we trade. In overall terms, these audits and reviews have found the system to be extremely robust.

The objective of the animal health computer system was to secure a modern, flexible, fully networked system to support the Department's numerous and varied animal health and welfare activities. The first phase concentrated on the bovine tuberculosis and brucellosis testing programmes. It is acknowledged that the cost of the system exceeded the sum contracted. However, the system delivered included a great deal more functionality than had been provided for in the original design. This arose from new business needs such as the provision of a module for on-farm valuation of reactors and technological developments such as the provision of a facility to allow private vets to use hand-held devices for data capture. All significant changes in scope were subject to project board approval and every effort was made to contain costs, including the negotiation of significantly reduced rates, below the fixed price contract rates, for the additional work items involved.

Both the cattle movement monitoring system and animal health computer system have delivered far more than had been anticipated and have proven to be sound value for money. The introduction of these systems, along with the fall in disease rates, will enable us to reorganise our 28 local veterinary offices and produce significant staff savings. I will now deal with any issues the committee may wish to raise.

Chairman

May we publish Mr. Moran's statement?

Mr. Moran

Yes.

Deputy Boyle

I welcome Mr. Moran to the meeting. I would like to ascertain the final costs in respect of the court case involving the storage of BSE tallow. The Comptroller and Auditor General's report indicates that the damages were €3.75 million, €1 million of which were met by the co-defendants, who were the renderer and his agent. However, the State's legal costs were in the region of €1 million. The Comptroller and Auditor General did not have the figure for meeting the plaintiff's costs. Is this figure now available?

Mr. Moran

The overall settlement and summary damages, aside from the costs, worked out at €3.75 million. Of this, €1 million constituted a straight-up contribution from the co-defendants. The figure also included approximately €1.7 million, which related to an associated case for rent which had not been paid but which would have fallen due in any event. The settlement figure for the Department is approximately €1 million. The costs on the State's side came to €925,000 and the costs in respect of the plaintiff worked out at €2.75 million.

Deputy Boyle

Was the cost to the State €4.7 million?

Mr. Moran

Yes. The Department's costs came to €900,000 and the State's costs in respect of the plaintiff came to €2.75 million, of which €1.75 million related to an associated case for rent not paid by the State.

Deputy Boyle

What were its costs? Is Mr. Moran talking about a cost of €6.4 million?

Mr. Moran

The overall settlement was €3.75 million. Of this, €2.75 million constituted costs for the——

Deputy Boyle

These were damages against the State?

Mr. Moran

A total of €3.75 million constituted damages against all the defendants.

Deputy Boyle

Yes, minus €1 million for the co-defendants.

Mr. Moran

Minus €1 million, which was the contribution.

Deputy Boyle

The figures were €1 million for the Department's own costs and €2.75 million. Therefore, the total cost came to €6.4 million.

Mr. Moran

Yes.

Deputy Boyle

Some of the money paid as damages was presumably based on the damage done to the business, while another portion of it went towards eliminating the possibility of infected material being stored where it was. I understand that the material is still where it was originally stored and that none of it has been removed 18 months after the conclusion of that court case. What is the situation in respect of its removal?

Mr. Moran

As part of the case management at the time, the trial judge broke the case down into a number of different elements. One element related to what was called the knowledge issue; the extent to which the plaintiff knew or did not know the nature of the product.

Deputy Boyle

The facts were settled. We did not get beyond that.

Mr. Moran

Precisely, that is the point I am making. That was the first element of the case. Depending on how that element of the case had gone, the second element would have been in respect of damage done to the tank farm owned by the plaintiff at the time. Therefore, as well as other issues, the settlement would have taken all of this into account.

Deputy Boyle

Is the Department concerned about the fact that the material has not been removed?

Mr. Moran

The Department is not responsible for the movement of the product out of the plant. This condition was part of the settlement. The Department still has control over the holding of specified risk material, SRM, but if the SRM is held in accordance with legal conditions of safety——

Deputy Boyle

Does the Department no longer own the material?

Mr. Moran

No.

Deputy Boyle

In light of the fact that it was decided to settle the court case after 46 days of a High Court hearing, it must be asked why the case was contested in the first place. Why was the case contested if there was no confidence in the co-defendants' case? Why did it take 46 days of a High Court hearing for the Department to decide that it should settle? Perhaps part of the reason was that at that stage, it would have been the turn of Department officials to be cross-examined and the Department might not have wanted to put material relating to its involvement in this case on the record of the court?

Mr. Moran

I understand from where the Deputy is coming but I do not accept his assertion. The Department went into the case, along with the co-defendants, fully confident of the veracity of the position it took. The case was extremely well prepared within the Department, with the services of its legal team in the Office of the Attorney General and elsewhere. We were quite happy to contest the case that was made. An attempt was made by the Department to settle the case earlier on but this was rejected.

As members of the committee are aware, there are points along the way in any court case at which settlement talks often arise. One occasion is obviously before a case comes to court. There are other points along the way. For example, opportunities to consider a settlement arise when the plaintiff has finished presenting its case or when some of the defendants have made their contribution. In this case, the plaintiff had made its presentation to the court and the presentations had been made in the stand by one of the co-defendants. The decision to settle the case was taken in full agreement with and on the advice of the Office of the Attorney General and the Parliamentary Counsel. We were advised that in light of the way in which the case had gone and bearing in mind the likely length of the case, the balance of advantage was to settle, if possible, at that time for a reasonable figure. This was the decision that was taken.

As I noted, if the case had proceeded with the structure which the trial judge decided to use and the first element of the case, namely, the extent to which the plaintiff knew or did not know what was going into the store, had gone against the State and the co-defendants, who had to make a judgment at that stage, the second element of the case would have commenced. There would be no guessing as to the length of time this would take because there would be no close-off period. It would simply assess damages done, had we lost the first case.

In summary, our decision to settle at that time was a reasonable step and made sound sense. Attempts had been made to settle earlier but had been rejected. A settlement demands the agreement of both sides and the other side would not agree.

Deputy Boyle

I presume the earlier attempts at settlement involved a smaller amount of money. I still do not believe Mr. Moran's explanation is credible. If the Department had confidence in its case, it should have pursued it and put it on the record of the court.

I would like to discuss some areas where the Department's case might have fallen down had it decided not to settle and taken the stand instead. The storage facility was approved by the Department through the veterinary inspectorate but was not licensed because a key member of staff was missing. What was the reason behind this staff member's absence? Was it due to staff shortages or illness? How did the situation whereby just one individual was in charge of a statutory responsibility of the Department arise? What was the involvement of the Department through the veterinary inspectorate? How many inspections of the storage facility took place from 1997 to 1999 and from 1999 to the beginning of the court case in 2004?

Mr. Moran

In respect of the first question, the context in which the Department was working at the time was framed by the fact that introduction of this material as a risk material was a new area. Until its ban, it had been used as a commercial material. It suddenly became not only a waste product, but one that must be disposed of at considerable cost. The whole context was new and very much in flux, which remained the case until 2000 or 2001 when various other pieces of the carcass were added to the list of specified risk material, SRM. The legislation requiring the licensing was introduced a relatively short time beforehand.

The point implied in the Deputy's first question was that the licensing of the plant did not follow directly from the recently introduced legislation. Had it taken place and the court case arisen, we would clearly not have needed to rely on the assurances and verbal transmission of what was in the product and so on.

Deputy Boyle

That was not my question. I asked about the absence of the staff member, which was referred to specifically in the Comptroller and Auditor General's report. Why was the staff member absent? Was it because of ongoing staff shortages? Did only one person have this expertise? The reason given by Mr. Moran regarding legislation that had not been in practice for long is not credible. The Department of Agriculture and Food had a statutory responsibility and someone was allocated to handle this matter, but that person was unavailable. I would like to know the reason.

Mr. Moran

There is a division within the Department responsible for this area. To a large extent, the failure to license the storage plant was due to an oversight. A number of staff were on leave and so on at the time. The fact that the plant was not licensed was a contributing factor to the overall position but not the defining factor.

Deputy Boyle

How many oversights were there? How many inspections took place between 1997 and 2004? Were there any? There were 280 truck movements in that period but none of the dockets for the material brought in outlined that it was specified risk material. What role did the Department play in examining the administration of and associated documentation for taking the material from the rendering plant to the storage plant? From the Comptroller and Auditor General's report, it does not seem that the Department played any role whatsoever.

Mr. Moran

At the time, one rendering plant, the plant in question, was designated to handle risk material, which the Department controlled. It was the role of that particular renderer to find storage for the product, both meat and bonemeal, which is the dry material, and the tallow. The plant found storage. The Department did not deal directly with the plant where the product was stored.

Deputy Boyle

Did the Department approve its storage?

Mr. Moran

It approved the storage and conveyed that storage to the rendering plant.

Deputy Boyle

Did it send a letter to that effect?

Mr. Moran

Yes, to the rendering plant.

Deputy Boyle

However, it did not oversee the process wherein there was no written agreement between the rendering plant through the agent to the storage company.

Mr. Moran

The Department controlled the storage of the product. The contractual arrangement for the storage was between the renderer and the storage plant.

Deputy Boyle

The point of allaying public concern about BSE was to put in place mechanisms to create verifiable trails of information. There was no information on the dockets of the trucks — they went from the rendering plant to the storage plant — and there was a verbal agreement between the rendering plant and the agent with the storage plant. In his opening statement, Mr. Moran referred to the optimum stability designation given to the Department by the European Commission's Food and Veterinary Office, but was that office even aware of the existence of the transit and storage? Were there inspections? I have asked Mr. Moran twice about how many inspections of the storage facility took place.

Mr. Moran

I do not have the information with me but will be able to tell the Deputy precisely how many inspections took place.

Deputy Boyle

Did they happen at all?

Mr. Moran

Yes. The plant storing the SRM was approved by the technical veterinary inspectorate of the Department of Agriculture and Food. I will give the visitation figures to the Deputy when I get them. The overall storage and handling of SRM, which was produced by only one plant, was constantly controlled by the Department and subject to auditing by the EU and the FSAI. It was found to be satisfactory.

Deputy Boyle

Despite that the contract was verbal, not written and that the dockets for transported material did not refer to specified risk material at all.

Mr. Moran

The contractual relationship for the movement of the product from the rendering plant to the storage plant was between those two entities. The rendering plant identified the storage plant. The Department approved the storage plant but did not formally licence it, which was a problem. However, we were satisfied that it was fully controlled in its ability to handle SRM. This was subject to further audits and verified.

Deputy Boyle

I have only five minutes left and will not be able to speak on the second report on the international beef assurance schemes. May I ask a number of questions on the Vote?

Chairman

We will proceed to the Vote and will let the Deputy speak again.

Deputy Boyle

I wish to address two items outside the chapters, one of which the committee has dealt with several times but remains ongoing. There was a report in The Irish Times on 30 March regarding the Punchestown racecourse. The report quoted the chairman of Horseracing Ireland, Mr. Denis Brosnan. He indicated that the long running dispute over the ownership of the course and the State’s interest in the property is heading towards a solution. He went on to explain that the Kildare Hunt Club, which owns the land bank and of which the racecourse comprises 250 acres, is providing State security of €23 million. A number of club members want to change the terms but the trustees charged with safeguarding the interests do not support this.

Mr. Brosnan concluded by saying that the State must provide further cash to guarantee Punchestown's development, which could only be done when the ownership issue is resolved. He stated: "We want to create a structure that ensures ownership can stay with the Kildare Hunt". This basically means that despite the ongoing attempt to sort out the issues surrounding Punchestown racecourse and the event centre, Horseracing Ireland is not a neutral observer and its intent seems to be to keep the ownership within the club while at the same time seeking further State assistance on the basis of a recent history of State funding not being used particularly well there. Will Mr. Moran comment on this statement?

Mr. Moran

The issue in question relates to the rescue package worked out between Horseracing Ireland and the Kildare Hunt Club. I would rather not get into those arrangements. I am aware that the matters holding up the agreement are close to resolution. They include issues with the Revenue Commissioners in respect of certain aspects of the lease within the companies comprising the Punchestown group.

Deputy Boyle

We have heard that these issues are close to resolution for some time. This matter appeared before the committee three years ago but we are still waiting for a final resolution. In another recent newspaper report, it was stated that Mr. Larry Goodman can potentially receive money from the Iraqi Government through a bond system. As the Vote has an additional sum of money, can Mr. Moran confirm that this is the final sum for the beef tribunal? If Mr. Goodman recovers money from the Iraqi Government, where stands the money the State gave Mr. Goodman through the export credit scheme? Can this be reclaimed?

Mr. Moran

The issue to which the Deputy refers is not within the remit of the Department. The export credit scheme is administered by another Department.

Deputy Boyle

Is that the Department of Enterprise, Trade and Employment?

Mr. Moran

Yes.

Deputy Boyle

Has the Department of Agriculture and Food given any support to the Goodman companies in respect of the Iraqi situation that could be recovered if money comes from Iraq?

Mr. Moran

Over the years, as paying agent for EU support, the Department has paid export refunds payable to all beef exporters and exporters of Common Agricultural Policy products. Deputy Boyle is referring to export credit insurance and the extent to which the alleged payment of moneys forgone should be taken into account. I cannot comment on this as I had no responsibility for the export credit scheme at the time, nor do I now.

Deputy Boyle

The Department is responsible for food exports. Money has been spent on the beef tribunal in the last set of accounts. Can Mr. Moran explain that sum of money and state if it will be the final sum of money paid in respect of the beef tribunal?

Mr. Moran

There is such a sum in the Vote and I understand this is the last stage of wrap-up fees payable under the beef tribunal.

Deputy Curran

As I am a native of Dublin Mr. Moran will have to bear with me. I wish to refer to tallow and I hope my questions will add to the picture. Mr. Moran's opening statement referred to BSE and the need to restore confidence in the industry. As I remember a number of countries refusing Irish beef, Mr. Moran's work is very important. How did he find the rendering plant?

Mr. Moran

In a short period there was sudden change in classification of offal that could be rendered into risk and non-risk material. The immediate effect was that the offal and the resultant meal and tallow had to be separated. We sought a separate plant to do this properly, which others did not do.

Deputy Curran

The Department needed to avoid contamination.

Mr. Moran

We sought to eliminate the risk. The fundamental BSE food safety control relates to the proper removal of risk material in the slaughter plant and preventing meat and bonemeal returning to feed.

Deputy Curran

We see the benefit of this practice today in the reduced incidence of BSE.

Mr. Moran

We had to procure a stand-alone rendering plant. A plant, to which the report refers, became available and offered to specialise in the risk material.

Deputy Curran

It had a certain amount of storage capacity.

Mr. Moran

It is easy to store meat and bonemeal. It is a dry product that can be stored in large bags in a dry store. Tallow is a liquid, oily substance that is difficult to store and must be stored in a tank.

Deputy Curran

The Department was aware that tallow would not be used in a productive manner. It was risk material that should be destroyed.

Mr. Moran

Yes, it had to be destroyed.

Deputy Curran

When the Department entered into the agreement with the renderer, it had an idea of the capacity of the plant and the period before the tallow had to be destroyed.

Mr. Moran

It was the responsibility of the renderer to render the specified risk material offal and, ultimately, to send the meal and tallow abroad to be destroyed because Ireland had no facilities at the time.

Deputy Curran

As far as the Department was concerned, the rendering plant had to send the material abroad and have it destroyed.

Mr. Moran

This would have to be done under controlled conditions.

Deputy Curran

Was the renderer aware of that?

Mr. Moran

Yes.

Deputy Curran

Why did he not destroy it sooner? Why did a build-up occur?

Mr. Moran

It was difficult to secure destruction facilities. Increased costs in destroying the product were also a factor. Storage was needed while destruction facilities were sought abroad.

Deputy Curran

Mr. Moran states that it was cheaper to store this material than destroy it. Did the Department of Agriculture and Food decide to store the material because it was too expensive to destroy?

Mr. Moran

The material had to be rendered.

Deputy Curran

I appreciate that. I have moved beyond the rendering stage to the storage stage.

Mr. Moran

They are linked. To continue rendering one needs storage. No such place was immediately available other than the plant we used. It was held there pending destruction abroad.

Deputy Curran

Was any material that was rendered destroyed prior to the additional storage facility being made available?

Mr. Moran

Yes, although I am not sure if any material was sent abroad prior to the facility being made available.

Deputy Curran

The renderer told the Department his storage facilities were full and another plant was needed. Did the Department have a choice between accelerating the programme of destruction or seeking another site? It is unusual that the renderer suggested the sites to be used. Confidence and keeping this material out of the food chain were paramount at this stage. Why did the Department not seek a venue to store this material? Was there a sense of concern at the growing volume of tallow?

Mr. Moran

Yes, I agree with the Deputy. There was concern about meat and bonemeal and tallow. Ireland was producing 150,000 tonnes of meat and bonemeal and approximately 30,000 tonnes of tallow. It became specified risk material, or material to be destroyed, in 2000. We were concerned that we had no facilities to destroy this.

Deputy Curran

Other than the suggestions from the renderer did the Department seek other storage facilities on the market?

Mr. Moran

The contract——

Deputy Curran

I am not talking about the contract. The renderer told the Department the facility was full. The Department then needed additional capacity. The renderer made a suggestion where additional capacity could be found but I am asking if the Department sought another site.

Mr. Moran

Another site was examined but the site selected by the renderer and approved by the Department was deemed more suitable. There are not many places where one can store such a volume of tallow.

Deputy Curran

The renderer was subletting this site. Who paid for the storage facilities — the Department or the renderer?

Mr. Moran

The renderer.

Deputy Curran

The Department paid the renderer, who paid the third party.

Mr. Moran

The renderer was responsible for rendering and ultimately destroying the product. The Department took possession of some product stored in the tank farm.

Deputy Curran

Prior to that, when he took over and leased the storage facility, he paid for it, not the Department. The Department paid him and he paid——

Mr. Moran

The meat industry paid the renderer through a charge on the handling of specified risk material. The charge visited on the meat and cattle sector generally was supposed to cover the cost of rendering, ultimate destruction and any storage that might arise in the meantime.

Deputy Curran

Following what Deputy Boyle stated, the storage facility was approved but not licensed, which has been explained as an oversight. Mr. Moran also stated the Department had an inspection roll but he did not have the numbers available. The Department was trying to generate confidence and ensure that the food chain was not being contaminated. Surely if an inspector called to this storage facility, the first item he or she would have noticed was that it was not licensed.

Mr. Moran

As I stated, I acknowledged that——

Deputy Curran

I am not discussing the initial stages. I take Mr. Moran's point that it should have been licensed from day one. I am discussing what occurred during the course of inspections. What was being inspected? This involved risk material and was important to the entire industry. I assume both the individual inspector and the Department attached that level of significance to it. Consequently, when an inspector called, even if he or she was not aware of the relevant legislation, the first item to check for was the licence and then check whether it conformed to the criteria associated with the licence. Deputy Boyle's question on how often it was inspected is relevant. What did those inspections entail?

Mr. Moran

The veterinary inspection team responsible for the crucial element in BSE controls was acutely aware of the significance of risk material and the way in which it should be handled and stored. The focus of the inspections on storage, production and transport arose from that. The inspection focused on the practicalities of how the material was delivered, sealed, transported, held and how it arrived, rather than on the existence of a licence.

Deputy Curran

In most cases, the required conditions and standards contained in the licensing agreement should provoke questions and, rather than having an inspector turn up to note that a container was sealed, he or she should ask whether all the trucks which left point A arrived at point B and what happened in between. The inspection does not seem to have been rigorous. Perhaps the Department will return with documentation to show what the inspector did. The level of supervision and inspection of the storage facility seems different from those of the rendering plant.

Mr. Moran

The focus of the inspection was on the practicalities outlined by the Deputy, and it would have been desirable if it had been on the licence. It has been rectified subsequently. This was new territory, not only for Ireland but for every member state of the EU. New definitions and legislation were introduced on specified risk material, temperature and pressure. These were the heady days when BSE was a new and open-ended problem. That was the context in which the focus was on achieving proper storage, along the lines suggested by the Deputy, in terms of security of transport.

The experience of a court case held since suggests it would have been easier, clearer and in line with best practice if the paperwork and licensing arrangements had been fully met. We were satisfied that the practical elements were up and running and approval was based on veterinary knowledge of what was occurring and how the material was being held and accounted for.

Deputy Curran

Do I have time to ask a general question?

Chairman

Yes.

Deputy Curran

This question is not strictly related to accounts but it is about what is happening today. Will Mr. Moran outline the specific actions being taken by the Department on the bird flu find in Scotland?

Mr. Moran

I will be pleased to outline that. The case of H5 in Scotland has been confirmed as H5N1, high pathogenic avian flu. We are in a state of readiness for the situation. It is not surprising that a case of H5N1 has appeared in the wild bird population in Scotland, although it might have surprised some as an ornithological development. When a case occurs in the wild bird population, a risk assessment must be carried out on where the bird came from and whether it is a migratory bird. Such an assessment is being carried out by our Department of Agriculture and Food. One fact which is clear is that the bird, a mute swan, was not ringed. As most swans in the area have been ringed, this indicates it is a visitor. Nobody knows how this visitor arrived, whether it arrived dead and floated or fell sick. Many issues must be considered.

The Department is working with the UK authorities on assessing the information to hand. We will then take any further steps necessary as set down in our contingency plan. It is possible that although avian flu may be in the wild bird population, as is the case in the UK, it may not affect domestic flocks if biosecurity measures and controls are correctly applied. That is the case in most European countries where it has been identified in wild fowl. Other than in Germany, France and Sweden, where it occurred on a game farm, it has existed side by side with the poultry industry. We are keen on bringing that about.

Measures will be taken after we assess the full information and have consulted the expert committee which was established specifically for this purpose.

Deputy Curran

I will conclude with a comment on the same point. Will the Department's measures be as rigorous as they were necessary for foot and mouth disease.

Mr. Moran

Yes, the Deputy can rest assured they will be very rigorous. We have been preparing for this in conjunction with a range of agencies and Departments, such as the Department of Health and Children and the national parks and wildlife service. We will take whatever measures are appropriate. It is different from foot and mouth disease for a host of obvious reasons.

Deputy Curran

Has a project team been established to monitor and work on this?

Mr. Moran

Yes. A number of measures are in place. The Department of Agriculture and Food has a high level steering group peopled by all those involved. An expert committee will advise us on risk assessment as the situation progresses. It is chaired by the same person who chaired a similar group for foot and mouth disease. It will meet tomorrow to consider the outcome of the risk assessment of the Scottish case. We will monitor the situation very closely. As far as preparedness is concerned, we have a contingency plan which is updated with every development, and we will apply it.

Deputy Curran

I thank Mr. Moran.

Deputy J. Higgins

How does Mr. Moran account for the discrepancy between the cost of approximately €1 million for the legal action on the side of the State as opposed to the €2.7 million cost for the legal teams on the opposing side?

Mr. Moran

The figure of €925,000 represents the State's side of the costs and comes from the Chief State Solicitor's office and our own counsel. The €2.75 million on the plaintiff's side was subjected to the usual scrutiny by the Taxing Master. I cannot comment further, other than to say that the figure includes VAT and other costs.

Deputy J. Higgins

It is an astonishing discrepancy. I presume that the State counsel was competent but the costs of the opposing counsel are almost three times those of the State. The risk materials mentioned in the report are largely brains and spines, so this is a case of barristers fighting over the bones of the animals and metaphorically picking the bones of taxpayers. The legal costs against the State for the 46 days roughly amount to €60,000 per day, or €30,000 per day if we allow an additional 46 days to prepare the case. Was the entire Law Library involved? Members of the committee are justifiably concerned about the inordinate legal costs incurred by the State as a result of virtually unrestricted barristers' fees. Have the Secretaries General of the Departments ever come together to advise Ministers on how this problem could be rectified?

Mr. Moran

I understand the Deputy's argument. When embarking on any case, cost is one of the issues which must be taken into account. Cost was one of the main factors in the decision to settle in this instance because, given that the case had continued for 46 days, it looked to all concerned that we would have no influence over when it would end. As to the level of non-State costs, the Attorney General advised us on the settlement and all I can say is that while they seem high, the Chief State Solicitor's office negotiated the plaintiff's costs and recommended a lower sum than was submitted.

Deputy J. Higgins

At €2.7 million, they were writing their own cheques at the taxpayers' expense.

Mr. Moran

Decisions on cost are made by the Chief State Solicitor's office, subject to the involvement of the Taxing Master. Costs are generally high in legal cases.

Deputy J. Higgins

Some day soon the worm will turn as far as the Law Library is concerned.

Mr. Moran claimed that the uptake on REPS and farm waste management schemes was lower than anticipated. Did he ascertain whether a difference in uptake existed between small farmers and ranchers?

Mr. Moran

I am not aware of any difference in uptake across such a divide. There were clear reasons for the slow uptake and use of the voted moneys.

Deputy J. Higgins

Did the low uptake ring alarm bells in the Department? For example, does it suggest decreasing confidence within the farming community about the continued viability of farming?

Mr. Moran

No, it did not ring alarm bells because it was not surprising in light of the contributing factors. Subsequently, the uptake on REPS increased significantly for other reasons. I do not agree that confidence for the future is lacking among the farming population. The introduction of the single payment last year brought direct payments of €1.3 billion and has opened the horizons of many small farmers, who can now see where they want to go. They currently have a range of options, including part-time farming and diversification.

Deputy J. Higgins

It must have been a huge blow to the confidence of the farming community when, for example, the entire sugar beet industry was destroyed at a stroke in favour of sweated sugar from Brazil and elsewhere. Is the Department alarmed about this and could the problem develop in other parts of the agricultural sector? Does the Department have policies on the sourcing of imported farm produce? It may, for example, be produced by heavily exploited labour or, as is the case with Brazilian sugar, grown on land from which indigenous people have been expelled and subsequently rehired as exploited labourers.

Mr. Moran

I shall divide the Deputy's question into two parts. The reform of the sugar regime took place as a result of an EU decision with which we did not agree. Among the drivers of that reform was the Commission's everything but arms agreement, which set out that by 2009, exports from the poorest countries to the EU would be duty-free in everything but arms. That includes sugar.

Deputy J. Higgins

If the poor were to gain from it, there might have been some benefit.

Mr. Moran

It was one of the main reasons for the reform of the EU sugar regime. It was clear that a number of the less efficient sugar producing countries, including Ireland, would suffer as a result of the reforms.

Chairman

We have encroached on a policy issue.

Deputy J. Higgins

I do not want to discuss policy but, if an industry is wiped out in order to benefit the poor elsewhere, it is not a policy question to ask whether the Department has investigated how the products are made.

Mr. Moran

The Department has a response. It is determined to ensure that agriculture and food production in Ireland is able to withstand competition from within the EU or from outside, such as Brazil, and that is made clear in the recent publication. If countries joining the EU meet the standards of food safety and traceability set by the EU Commission's Food and Veterinary Office then they are entitled to sell their product in this country. As part of a new WTO agreement, which was last discussed at the Uruguay round of talks, countries importing into the EU will benefit from reduced tariffs. There are considerations of economics and of standards, which are made as products enter the EU at its borders.

Deputy J. Higgins

My last question is on the Department's programme expenditure on research and training and on food safety and public health, animal health and welfare and plant health. Does research and assistance to develop organic produce come under those headings? What supports does the Department give to organic production? What is the view of the Department on permissions being given to experiment with genetically modified plants and crops? Does it see organic or GM production as the future?

Mr. Moran

The Department does whatever it can and more to assist organic production. The REP scheme is a special facility for organic production and competitive measures can be submitted for funding by the Department. We are encouraging organic production and the establishment of farmers' markets which, generally speaking, attract that type of product. It is a very important area to develop and offers an alternative route to markets for retailers. It contributes to a more varied fabric of production.

Deputy J. Higgins

Can it be made affordable?

Mr. Moran

That depends on competitiveness. If products can be made affordable they will be sold. Consumers, particularly in a reasonably well off country, will opt to pay more for certain products, including organic. That is evidenced in the documentation where certain products attract higher prices, sometimes at a multiple of that of the basic product. Although the organic sector is relatively small with little over 1,000 registered operators in farming and processing in a total area of approximately 5,000 hectares, we encourage it in every possible way.

The market may decide whether or not genetically modified organisms are the future. Our role as regulator is enshrined in an EU framework. We have published a consultation document on co-existence, the way in which a GM product exists in proximity to other crops. We have had a huge number of responses to that and the consultation process is ongoing. Ultimately, the market will decide the extent to which GMOs will feature as a mainstream form of production. Issues of competitiveness and labelling, which are also enshrined in EU law, will affect the outcome.

Deputy Deasy

I thank Mr. Moran for helping me with a recent case of a sick man in Waterford. Mr. Moran said he was not surprised at the arrival of the H5N1 virus to the UK. The bird was a visitor and not ringed. Is he saying it is inevitable the virus will find its way into Ireland because of the migratory patterns? I do not want to put words in his mouth.

Mr. Moran

I want to be careful on this matter. I was not particularly surprised though it may have been later in the year than people would have thought. I do not wish to pre-empt the risk assessment but this happened on the east coast of Scotland. Much depends on winds and on flight patterns. When I say I was not surprised it probably reflects our state of preparedness for the virus. We have almost been waiting for it to happen. The east coast of Scotland is, as the crow flies, only 100 miles from Ireland, not very far. We are working very closely with Birdwatch Ireland and the national parks and wildlife service and when one hears experts from those organisations talk about the speed at which birds fly one realises such a distance would not be too great for them. However, sick birds do not travel and that limits the spread of the virus.

Deputy Deasy

Considering the bird came from Vietnam, 100 miles is not far. I will return to the REP scheme. I have held a number of hearings on the nitrates directive, particularly in the Oireachtas Joint Committee on European Affairs, which I chair. Mr. Moran said there has been significant savings in farm waste management among the larger REP schemes. How much of a reduction has there actually been?

Mr. Moran

The REP scheme figures have increased. In the year in question it was €208 million. It increased to €283 million in 2005 and €323 million in 2006, though that is an estimate. It is a hugely popular scheme and is favoured by the Commission.

Deputy Deasy

Mr. Moran mentioned the caution creeping into the work of farmers. I and every public representative are aware of that, and of the growing uncertainty in farming at the moment. Some people in REPS still do not understand the implications of the nitrates directive. They do not know how it will be implemented or the implications for remaining in the scheme if they spread at the wrong time or if they spread the wrong amount.

At the joint committee meeting a couple of weeks ago a number of questions were asked on the progress made in securing a derogation from the directive. Considering what Mr. Moran has said, why was a regulatory impact statement not prepared on the nitrates directive? I asked the question of officials from the Department of the Taoiseach, when they were before the committee, and they detailed their thresholds requiring regulatory impact statements. Primary and secondary legislation, and even some regulation, would impact enough for that Department to put together a regulatory impact statement. The committee asked this on a number of occasions of officials from the Department of the Environment, Heritage and Local Government and the Department of Agriculture and Food but they were unable to answer the question. When the potential effects on farming could be devastating it is an extremely significant question.

Mr. Moran

First, implementation of the nitrates directive is primarily a matter for the Department of the Environment, Heritage and Local Government. Second, it relates to a directive which has been transposed since 1991. Most are aware of the sequence of events since regarding voluntary imposition of measures, the plan submitted and, ultimately, the statutory instrument.

On the impact on farmers, we accept it is something that is extremely important and I understand the concern about it. It is in response to that concern that, for example, a huge number of the details have been negotiated, although they do not appear to have the same prominence in terms of the closed periods, storage capacity and so on. Much of the detail was worked out in full consultation with a view to dealing with the concerns of farmers. More important, however, is the most recent announcement on the on-farm investment scheme which will help farmers to invest to cope with the need to store slurry. It is a phenomenally attractive scheme. Farmers can apply during 2006 and have until the end of 2008 to complete work. It is important to note the grant rates which apply and the fact that the scheme goes beyond the normal areas to cover pigs and poultry, apart from cattle, and provides for new methods of dealing with slurry in terms of compaction and centrifugal treatment. The purpose is to try to address the concerns of farmers.

Deputy Deasy

I understand Mr. Moran's answer with regard to the Department of the Environment, Heritage and Local Government which is the lead Department. There are also budgetary implications. Those involved in pig and poultry production who came to see me initially understood the implications of the directive. It appears, however, there has been a dearth of knowledge on the implications for farming. Those involved in beef and dairy production began to realise the major implications for the industry in general. My point is that something should be done with regard to the potential consequences of the directive for farmers, notwithstanding what Mr. Moran said about the grants scheme. While I am aware that the Department is being lenient with regard to the dates involved and that there is a realisation of the difficulties involved, on something that has enormous implications for farming such, it should have taken upon itself the responsibility to consider the implications and harmful consequences for the industry, regardless of the fact that it had been brought forward initially in 1991. I have asked the Taoiseach's office to investigate the matter from a regulatory impact and assessment point of view. Mr. Moran has said farmers are wondering whether they should enter into long-term investments. The uncertainty continues. Where does the Department now stand on the nitrates directive? I am aware the figures have been changed and presume it is arguing with the Commission. Has the derogation issue been resolved?

Mr. Moran

I wish to make two points. The caution arose from the slower uptake of the rural environment protection scheme, REPS, because of what was coming down the tracks but as I indicated, there has been a huge uptake since. Equally, on the farm waste issue, there was caution because it had been correctly anticipated that a package would be put together to help farmers. That is now in place. It is anticipated that there will be a considerable uptake of the scheme this year.

As to where we stand on the nitrates directive, the derogation is still in play with the Commission. That is extremely important. One element of the statutory instrument has been put on hold by the Minister for the Environment, Heritage and Local Government pending new science to be brought forward by Teagasc giving rise to a possible change. That document has been sent to the Commission with which discussions have taken place and more will be held. It has sought clarifications. The next month or so will be crucial in that regard.

Deputy Deasy

Is Mr. Moran confident the Department will get a result in those discussions?

Mr. Moran

I cannot comment on that matter. All I can say is that there has been serious consultation. Much work has gone into the matter it. People have made it clear that they are willing to do whatever is possible but, ultimately, it will be determined at European Union level.

Deputy Deasy

Therefore, we are in a holding pattern.

Mr. Moran

In respect of the one aspect of the statutory instrument which has been withdrawn but the investment scheme which comes within the Department's remit is up and running. The forms are available and there is great activity. People are getting ready to avail of it while it is open.

Chairman

Will Mr. Moran return to the tallow licence issue? The Department could not produce documentary evidence that the owner of the tank farm had been notified about the nature of the material; that it was SRM material. Was this the crucial factor that had led the Department to believe it would not win the court case after the evidence of the renderer and his agent and that it would be better advised to settle?

Mr. Moran

No. It was an element but not the crucial one. Had the licensing arrangement been carried out 100%, we would not have had to rely on oral transmission. We would not have had to rely on the veracity or otherwise of the communications made. We would have been quite clear on the matter. While it was a factor, it was not by any means the main one. It was a combination of factors that caused the decision to be made collectively that we would settle. As in any case, the way it was conducted in the first 46 days was closely watched. The way the case of the witnesses for the co-defence had gone in court in that period would definitely not have convinced people that the next phase would go in the direction they had hoped. As in any other court case, there is a reading of the situation. At the beginning of the case one was very reliant on the role and involvement of the co-defendant which did not turn out to be as convincing in the circumstances as we might have thought. That was the main factor.

Chairman

Mr. Moran has mentioned that the licensing requirement arose from legislation enacted a short time previously. Was that a statutory instrument?

Mr. Moran

Yes, a statutory instrument on the control of risk material.

Chairman

How many months before the licensing issue arose?

Mr. Moran

I will check that matter. I am not sure when precisely the licence was issued but the focus of the statutory instrument was on the handling rather than the storage of SRM. The focus was mainly on the processing and the rendering side, in other words, the risk material being removed by the beef processor and being rendered. Storage was not the main feature. That is probably the reason it did not receive the level of attention it might have.

Mr. Purcell

I can assist on this aspect as I have the statutory instrument in question. It is dated 12 February 1997, some three months before the third party premises were used, and commenced in May of that year.

Chairman

Mr. Moran suggested that the omission in respect of the licence was the responsibility of a division of the Department rather than that of an individual. Did the same division of the Department have responsibility for promulgating the statutory instrument three months previously?

Mr. Moran

Yes, it would have had.

Chairman

Is it not unusual that a division of a Department that promulgated a statutory instrument which made it a statutory requirement to have a licence would have forgotten that a licence was required when the first case came up for adjudication?

Mr. Moran

Perhaps in normal circumstances, yes. However, regard must be taken of the extent of what was taking place in dealing with BSE, risk material and rendering at the time. As I said, dealing with it was new and fairly hectic territory at the time. A great deal of legislation on this matter was coming forward at EU level and the regime in this area was being created.

Chairman

When Mr. Moran previously attended a meeting of this committee he said that in respect of the new functions of the Department, approximately 400 staff were surplus to need. Will he update the committee on that position and indicate what arrangements have been made for the redeployment of staff?

Mr. Moran

I would be delighted to do that. When we attended the committee previously we said we would be able to make some savings in terms of staff and that remains the position. We met the Government's decision on staff reduction at an earlier date. The figure we mentioned of a surplus of 400 staff arose directly from the introduction of the single farm payment scheme. We are driving ahead in realising that reduction and are confident, as we said at the time, we will be able to do so.

To date 180 staff have been transferred to other Departments. Some members have transferred to the Garda operation in Castlebar where 55 members have taken up office. We are working closely with the Department of Finance on the redeployment of other members of staff who become available. We made arrangements that some staff will transfer to the national parks and wildlife service in Ballybay. We are also actively pursuing options with Garda headquarters in Thurles, the Civil Defence, the Garda human resources operation in Navan, the driver testing centres and, as recently as yesterday, the Land Registry in Roscommon. We work with the Department of Finance in reallocating staff who become available. We are confident we will achieve the target figure of a reduction of 400 staff. We will avail of the opportunities afforded by technology in terms of staff requirements in other sections of our local office structure as staff become available.

Chairman

What is the system of redeployment from a civil servant's point of view? Is it by application, is there an element of compulsion after two refusals or can a member of staff with no functions remain in the Department and be paid if he or she refuses to move elsewhere?

Mr. Moran

No, that would not be in the interests of anybody, including ourselves, and it is not something we would contemplate. The Department is downsizing. It is not so long ago since it had a staff of 6,000 people. As of today it has a staff of 4,360 people and we will further reduce the number. We will definitely not retain staff unless there is work for them.

We were able to identify a surplus of 400 jobs and that still remains the position. We have seriously dug into meeting that target reduction and we will continue in that direction. The procedure for transferring staff involves our working with the Department of Finance, which ultimately will allocate staff to other Departments that seek staff. Location is obviously an issue. Most of our excess staff are based in local areas outside Dublin. The Department of Finance works with the receiving Department, such as those I mentioned, to allocate staff as required. The first step in the process is the deployment of voluntary applicants. When they have all been transferred, the next step is the following of an agreed protocol, which involves the normal Civil Service procedures whereby the most junior in the particular grade must move.

Chairman

Mr. Moran will recall the position in the Dublin and Cork Milk Boards, on which the committee reported last week, where 50 members of staff with no identifiable functions were paid for seven years. He will also recall the position in the Land Commission where it took a long time to redeploy staff who were without function when the commission was abolished. Will he assure the committee that nothing similar will happen on this occasion?

Mr. Moran

I am pleased to assure the committee that nothing like that will happen as it would not be in our interests. We would find it unacceptable to have staff in the Department with no work to do, especially if there was a demand for staff in other areas of the Civil Service. We would have strong regard for our staff who have loyally served us over the years. We would not be doing them any service were we to retain them or keep them under-employed let alone unemployed in the Department. The Chairman has our assurance on that aspect.

Chairman

Over what period does Mr. Moran envisage the 400 members of staff will be redeployed?

Mr. Moran

The plan is that we would reach that target by the end of this year. Such redeployment has coincided with many other changes in the Department. The single farm payment scheme is a complex operation that requires the input of many staff. We were able to introduce it on time and ahead of any other member state of the European Union while also managing to re-allocate 180 staff. However, there is some pressure involved in getting that work done and we are managing to balance the two elements. As of now, I am confident we will achieve the target set by the end of 2006.

Chairman

On the issue of avian flu, which Mr. Moran dealt with in response to a question from Deputy Curran, what are the main elements of the contingency plan the Department has in place in terms of the treatment of poultry and what triggers would bring these elements into play?

Mr. Moran

A wide range of measures must be taken in the various steps involved, some of which relate to ensuring that all elements of the co-ordinated approach across Departments and agencies are in place. Others relate to the arrangements, the procedures for which are in place, that would have to be put in place, for example, in the event of an incident of avian flu in a poultry unit for depopulating the unit and handling the poultry. There are elements related to the health and safety of the people who would have to go into such a plant and of how the poultry would be disposed. Exclusion zones would be set up. The one currently in place in Scotland is set down at EU level whereby a control zone is set up in the immediate vicinity of the incident and a wider surveillance zone extending 10 km around that spot is set up. Such a plan is ready to be rolled out at any given time and we are confident about that.

As regards the triggers, dealing with them would apply in regard to any contingency plan. That is the reason we are carrying out a risk assessment of the Scottish case to determine if it would cause anything to happen here, on which we will take the advice of our expert group. I do not wish to pre-empt anything but the type of measures one would consider would be to recommend that domestic poultry be brought indoors or housed. We have registered almost all the poultry in the country. There are roughly 800 to 900 commercial flocks but there are up to 8,000 non-commercial flocks, which are backyard type arrangements. They have all been registered and we are in touch with them. All of them would have to be targeted. In the event of something happening in an area, it will be possible to control all the poultry in that area.

Deputy Boyle

I have questions about underspends in the accounts. In the last accounting year there was a significant underspend in the rural environmental protection scheme. Given that it is meant to be a means of encouraging more farmers to participate in changing farming practices, can Mr. Moran say why the underspend occurred?

Mr. Moran

The underspend in REPS arose to a large extent because of the changeover from one REPS system to another. When that happens there is inevitably an underspend in the outgoing scheme as we wait for the new scheme to be implemented. It was hoped, for example, that the new scheme would be introduced in February 2004 but it was not implemented until June 2004 because Commission approval was delayed. There was a time lag in getting Commission approval for it. However, the spend on it increased. In 2004, it was €208 million, while in 2005 it had increased to €283 million. Its popularity or its importance is not at issue.

Deputy Boyle

One of the issues with the implementation of the nitrates directive is the scheme to allow for spending on ameliatory measures and infrastructure. Farmers appear to be quite happy with the amounts that are available but there is concern that the time period for applying for the grant and subsequently using it is quite short. Is there reconsideration on the Department's part to facilitate the maximum uptake of this scheme and, hopefully, the achievement of higher standards in terms of minimising nitrate and phosphate discharges as a result of agriculture?

Mr. Moran

We had to get Commission approval for the on-farm investment scheme under the state aid procedure. That was extremely difficult to get in this case. In the end, the contentious issue with the Commission was the period of application. The final outcome of the discussions with the Commission was quite successful, in the sense that the work could be done up to the end of 2008. However, applications would have to take place within the current year. The work can still be done over the period required. It was clear that the amount of work that needs to be done could not be completed and signed off in one year. The Commission, however, was absolutely insistent that the application procedure would be completed in one year.

Deputy Boyle

I thank Mr. Moran.

Mr. Purcell

I will return to the circumstances which preceded the taking of the court case which ultimately cost the State a substantial amount of money. From time to time the committee encounters issues arising which have financial implications and which could have been addressed by ensuring that once legislation is passed, there is some mechanism in place in Departments to periodically ensure that those statutory provisions are being applied. It would probably be too strong to say that it is a recurring theme but from time to time the committee has come upon these cases. If there is a lesson to be learned from this and to protect the State from potential liabilities, there should be a mechanism whereby, in so far as possible, the division involved will check if regulations, whether passed in the form of statutory instruments or primary legislation, are being met. That is my only observation.

Chairman

Is it agreed that we note Vote 31? Agreed. Is it agreed that we dispose of Chapters 12.1 and 12.2? Agreed.

Deputy Boyle

Can I be given confirmation that further information will be supplied on the number of inspection visits that occurred at the storage facility over the time concerned?

Chairman

Mr. Moran indicated that he will do that by way of letter. Is that correct?

Mr. Moran

Yes.

Chairman

Our next meeting is on Wednesday, 12 April 2006. The agenda is: 2004 annual report of the Comptroller and Auditor General and Appropriation Accounts; Vote 27 — Department of Community, Rural and Gaeltacht Affairs, and Chapter 8.1, Financing of Rural Social Scheme.

The witnesses withdrew.

The committee adjourned at 2.10 p.m. until 11.30 a.m. on Wednesday, 12 April 2006.