COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 11 May 2006

Minute of the Minister for Finance on Committee of Public Accounts’s Proposals for Alterations in the way that Estimates for Expenditure are considered by Dáil Éireann — issues re Central/Local Accountability.

Mr. T. Considine (Secretary General, Department of Finance) called and examined.

Chairman

We will now discuss the 2004 annual report of the Comptroller and Auditor General and Appropriation Accounts, specifically, Vote 1- President's establishment, Vote 6 — office of the Minister for Finance, Vote 7 — superannuation and retired allowances, Vote 12 — secret service, chapter 1.1 — financial outturn, contingency fund deposit account and finance accounts 2004. No. 8 is a discussion on the minute of the Minister for Finance on the committee's proposals for alterations in the way that Estimates for expenditure are considered by Dáil Éireann, specifically the response regarding central and local accountability, section 5 of the minute.

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

Mr. Tom Considine

I am accompanied by Mr. Tom Heffernan, principal officer in the public expenditure division, Mr. Donal Murtagh, assistant principal officer in the budget and economic division, Mr. Kevin Nolan, assistant principal officer in the banking, finance and international division, and Ms Áine Stapleton, principal officer in the public expenditure division.

Chairman

Will Mr. Purcell introduce Votes 1, 6, 7 and 12?

Chapter 1.1 of the report of the Comptroller and Auditor General reads:

1.1 Financial Outturn

The publication Audited Appropriation Accounts of Departments and Offices for 2004 (Prn. A5/0039) includes a summary which shows the amount to be surrendered as €568.04m. This is arrived at as shown inTable 1.

Table 1 Outturn for the year 2004

	€000	€000	€000
Estimated Gross Expenditure
Original Estimates	35,806,828
Supplementary Estimates	166,919	35,973,747

	€000	€000	€000
Deduct:—
Estimated Appropriations-in-Aid
Original Estimates	2,865,678
Supplementary Estimates	33,966	2,899,644
Estimated Net Expenditure			33,074,103
Actual Gross Expenditure		35,322,512
Deduct:—
Actual Appropriations-in-Aid		3,053,378
Net Expenditure			32,269,134
Surplus for the Year			804,969
Deferred Surrender			236,967
Amount to be Surrendered			568,002

The amount to be surrendered represents 1.72% of the supply grant as compared with 1.01% in 2003.

Extra Exchequer Receipts

Extra Receipts payable to the Exchequer as recorded in the Appropriation Accounts amounted to €211,646,246.

Surrender of Balances of 2003 Votes

The balances due to be surrendered out of Votes for Public Services for the year ended 31 December 2003 amounted to €313.96m. I hereby certify that these balances have been duly surrendered.

Stock and Store Accounts

The stock and store accounts of the Departments have been examined with generally satisfactory results.

Mr. John Purcell

Apart from chapter 1.1 that examines financial outturn, there were no reporting items arising on the accounts being considered by the committee.

Vote 1 covers the President's establishment. While the Vote outturn is just under €2 million, it is important to point out that the full operating costs are approximately €7 million when the expenditure borne elsewhere in the appropriation accounts and finance accounts is taken into account. Note 7 to the account gives the details.

Vote 6 is for the office of the Minister for Finance. It covers an eclectic mix of services, ranging from the Civil Service child care initiative to payments to promoters of certain charitable lotteries. The Department surrendered €36.8 million out of an Estimate of €127 million. This was mainly due to a substantial over-provision for the Ordnance Survey and the decision to meet the capital costs of the decentralisation programme from the Office of Public Works Vote.

Vote 7 is for superannuation and retired allowances to Civil Servants. The pensions for teachers, gardaí and members of Defence Forces are not included in this. They are contained in their specific departmental Votes.

Vote 12 is for the secret service. The outturn was a mere €350,000. In line with long established procedure, I accept the veracity of the expenditure on the basis of certificates furnished to me by the Minister for Justice, Equality and Law Reform and the Minister for Defence.

The contingency fund deposit account is well-known to members as a result of correspondence between the committee and the Department on arrangements for its use arising out of the need for funding of the Commission on Electronic Voting in the absence of enabling legislation. As a result, the amount of the contingency fund was substantially increased to reflect current day values of the £20,000 that was originally provided in the 1920s.

The finance accounts is the name given to the annual account that records all receipts and payments that go through the Central Fund together with the supporting financial statements and Schedules in Part 1 and the account of the national debt in Part 2. Those latter accounts also form part of the National Treasury Management Agency's set of annual accounts. These were considered by the committee when the Accounting Officer for the agency came before it. Much detail is contained in the finance accounts. The most informative is the Exchequer account, which brings most of the figures together.

Chairman

Mr. Considine will now make his opening statement.

Mr. Considine

I will deal briefly with the Department's Votes and then outline for the committee the management and accountability framework obtaining in Departments and offices. This framework was designed to improve the management of the public finances and enhance accountability to the Oireachtas and the public.

The committee's letter of invitation sets out the Votes for which I am the Accounting Officer in addition to the finance accounts. The Department of Finance has seven strategic priorities set out in the strategy statement approved by the Minister. These are economic and budgetary policy; taxation and public expenditure policy; EU policy development and wider international economic co-operation; financial regulation; incomes policy development and implementation; enhanced management of the public service; provision of service to our customers.

Vote 7 deals with superannuation and retired allowances. In the accounting period ended 31 December 2004 net expenditure from this Vote amounted to €194 million. The finance accounts are the most comprehensive published by the Government and include in summary form, information on almost every aspect of the Government's financial operations.

Returning to the strategic priorities for Vote 6, there are two aspects of strategic priorities I and II, dealing respectively with economic and budgetary strategy and taxation and public expenditure. The two aspects are fiscal surveillance and expenditure management and review measures. I wish to outline the framework in place to improve public expenditure management.

The key objective of the framework is to facilitate more effective and efficient allocation and management of resources by Government and Ministers, Departments and agencies, and to ensure greater accountability to the Oireachtas and the public for the use of these resources. The key elements of the framework are the Public Service Management Act 1997; the implementation of a new management information framework; the implementation of the recommendations of the Mullarkey report; the three-year budgetary cycle, the five-year multi-annual capital envelopes, ten years for the Department of Transport; the publication early each year of monthly profiles of expenditure and tax receipts; monthly reporting to Government on tax and expenditure trends, with bi-monthly specific reporting by the big-spending Departments; the guidelines by the Department of Finance for appraisal and the management of public capital expenditure; the value for money measures announced by the Government in October 2005 and later by the Minister for Finance; the reforms to public procurement; roll out of the public private partnership programmes; administrative budget agreements.

The Government's proposals for reform of the Estimates and budgetary process announced in budget 2006, and planned improvements to the operation of the expenditure review initiative, are other key elements of this framework. By defining more clearly the responsibilities of Ministers, Secretaries General and heads of offices, the Public Service Management Act 1997 provides a basis for the more efficient and effective management of public expenditure and for greater internal and external accountability.

To achieve the Act's objectives, each Department sets out its high level policy goals and strategic objectives in its strategy statement as provided for in the Act, and this strategy statement is approved by the Minister before publication.

Secretaries General are responsible for managing the day-to-day business of their Departments, implementing Government policies and delivering outputs as determined by their Minister. They are also responsible for preparing a framework for assigning operational responsibilities for areas of work to officers in their Departments. Secretaries General, as Accounting Officers, are responsible for ensuring the proper and cost-effective use of resources.

Modern financial management information is necessary to support the enhanced planning and decision-making process. In recognition of this all Departments have now installed modern computerised financial management systems. Combined with these systems, management is provided with the essential building blocks it requires to produce the annual output-focussed statement that will accompany Departments' estimates from 2007 under the reform of the Estimates and budget process announced in the 2006 budget.

Departments have also implemented the recommendations of the Mullarkey report. It recommended that Departments and offices review their systems of internal financial control and bring them up to standard as necessary, that they do the same with their internal audit arrangements and audit committees. Accounting Officers include a formal statement on internal financial controls with their annual appropriation account.

Turning to the effective and efficient management of resources, the publication each year of the monthly profiles of public expenditure and tax receipts that can then be compared with the monthly Exchequer statement through the year has improved transparency and accountability in the management of Department budgets. Furthermore, since the end of 2002, the Minister for Finance reports monthly to Government on progress against profile of the main budget aggregates. In addition, the four biggest current-spending Departments report progress on their spending to Government on a bi-monthly basis and, from this year, the six biggest capital-spending Departments do the same. These developments allow management in Departments and Ministers and Government to be kept fully up to date on emerging trends in expenditure and revenue against budget.

Reforms such as the five-year capital envelopes, the additional value for money measures announced by the Minister for Finance on 20 October last and the Government's proposals for reform of the Estimates and budget process all reinforce and implement at an operational level the principles underlying the Public Service Management Act. Together they ensure that there is a clear delineation of responsibilities and more efficient and effective planning and management of public expenditure policy.

Departments and agencies have delegated authority to manage their capital programmes and projects within five year capital envelopes, provided they adhere to Department of Finance guidelines for capital appraisal, public procurement and other value for money requirements. The capital envelopes provide Departments with greater certainty for managing their spending and this is further supported by the facility to carry over to the next year unspent capital up to 10% of the total capital budget, if that is required to improve project management.

Following the value for money measures announced by the Minister for Finance on 20 October last, the Department of Finance set out the key elements in the following terms: all major capital and ICT projects must have an individual project manager, responsible for managing and monitoring the project and for reporting progress to the board. Regular progress reports to the management advisory committees of Departments and to the boards of State agencies are also required on capital programmes and major projects and on value for money generally; Secretaries General as Accounting Officers in their annual reports on their capital envelopes and their ICT expenditure statement must certify that Department of Finance guidelines are being complied with fully. They must also certify that all expenditure on consultancy is necessary and will provide value for money. These requirements can be audited by the Comptroller and Auditor General. Departments and their agencies are also required to report progress on capital projects above €30 million in a new format in their annual strategy statement reports, detailing project outcomes against budgets and against scheduled completion dates in contracts for projects; all projects above €30 million must be subject to full cost benefit analysis and must be subject to formal review and progress reported to the boards of agencies and the management advisory committees of Departments, and to Ministers.

Smaller to medium-sized projects must also be subject to appraisal proportionate to the amounts involved; the formal peer review process for major ICT projects, announced by the Government last October, is now operational. The peer review is carried out at key decision points — preliminary business case assessment, detailed assessment, pre-tender, post-tender, and project close-out — by a team of experienced people external to the project board and the organisation. The process particularly focuses on examining the preparation of good business cases, cost benefit analysis, affordability within the approved budget for the organisation, detailed planning and the governance arrangements and so on. Peer review teams are selected by the sponsoring Department or office of each project subjected to the process, and these selections are subject to agreement with the Department of Finance. Review teams include people with relevant experience and these people can be drawn from both the public and private sector; to ensure these measures are implemented, each management advisory committee or MAC is required to have a reporting arrangement in place. Each MAC is then required to report the outcome annually to the Department of Finance. Now that this requirement is operational, the Department of Finance will audit a sample of the projects done each year to satisfy the Minister for Finance that the new arrangements are operating as he intended. In addition, Departments and offices are required to produce corporate procurement plans in accordance with the Department of Finance's procurement policy framework. The plans are designed to improve procurement outcomes in public bodies through an analysis of expenditure and purchasing processes and through setting targets. The Department of Finance has prepared a template corporate procurement plan to provide necessary guidance and is providing training to assist the process. This is an ongoing process to get public bodies to buy smarter. The aim is to maximise the return from the annual expenditure of the order of €8 billion spent by public service bodies on purchasing non-construction related goods and services.

In the case of the construction sector, the Government decided to reform construction procurement by introducing new standardised public sector contract terms for contractors, new conditions of engagement for construction consultants — architects, engineers and so on — and a supporting guidance framework for use by the public sector. Cost certainty to the extent it is practical, value for money and cost effective delivery of public capital projects are at the core of the reforms. There has been extensive consultation with the construction industry over the past year and this has proved very valuable. The final changes to reflect the totality of the discussions with the industry are now being considered with a view to having the new contracts, conditions of engagement and related material ready for use as soon as possible in 2006. The next phase will involve a comprehensive training programme for public sector practitioners to ensure the new contract conditions are used appropriately throughout the public sector.

The committee has been given other presentations on public private partnerships or PPPs. Last July the Government decided to establish a centre of expertise for PPP procurement in the National Development Finance Agency for projects in departmental areas and to concentrate on new PPP projects in the education, justice and health areas initially. The model of using a specialised agency to deliver complex projects has already been put in place with the National Roads Authority for the roads area and the Railway Procurement Agency in the rail area. The existing specialised arrangements for PPP procurement and those in the environment area are not affected by the change. The NDFA had already established itself in its role as financial adviser to State authorities on all public investment projects over €20 million. The NDFA has commenced its new role on a non-statutory basis pending the passing of the necessary legislation and is working directly with the Department of Education and Science and other relevant Departments on developing the first programme of PPP projects for procurement under the new arrangements.

Administrative budgets are in place since 1991 and the system now applies to some 30 bodies, all Civil Service Departments and almost all offices, and covers around €2.2 billion a year, or some 5% of gross voted expenditure. These budgets provide the framework under which Departments and offices now operate their expenditure on administration. They improve co-ordination between the Department of Finance and other Departments and offices while at the same time providing them with greater flexibility to use resources for local priorities.

Departments and offices now have considerable freedom to use savings from one category of administrative expenditure to another where they can get a better pay-off and greater flexibility on staffing resources. Funding is guaranteed over the period of the agreement, usually three years on a rolling basis, subject to overriding Government policy on expenditure and numbers. Unspent funds, up to a limit of 5% at present, can be carried over from year to year to facilitate better budgetary discipline and planning.

Public expenditure programmes and policies are reviewed under many headings. One of these is the narrowly defined expenditure review process. Since October 2004, expenditure review reports under this process are sent as a matter of course to the Clerk of the relevant select committee. The Minister for Finance has made it clear that he would like to see the select committees availing of these more transparent arrangements and engaging more with Ministers and their Departments in holding them accountable for their management of public expenditure and the achievement of value for money. The Minister will put proposals to Government shortly to further improve the operation of the expenditure review initiative. This will put in place another element of this new robust framework for better public expenditure management and enhanced value for money assessment. A major review of tax reliefs took place in advance of the last Budget and the result of these reviews formed the basis for a number of changes announced by the Minister in his Budget Statement last December.

Ministers and Government are responsible for policy and for determining budgets and the overall level of resources at programme level. They are accountable to the Oireachtas in this regard. The Government's reform of the Estimates and budget process announced in budget 2006 will significantly enhance that accountability and will further develop the modernisation process. The output statement to be presented by Ministers with their annual Estimates from 2007 will link the high level goals set out in departmental strategy statements approved by Ministers on the one hand with the resources provided by the Oireachtas on the other. The performance information the annual output statements will contain from 2008 on will enable the select committees, in considering the Estimates each year, to see better what was achieved in the previous year and to compare it with the objectives and budget that were put in place for that year.

The budget and Estimates reform measures will also improve the quality of pre-budget information available to members of the Houses at macro level. Specifically, where at the moment the current annual economic review and outlook simply reviews the economic and budget performance for the current year, it will now also present a pre-budget analysis of the economic and general prospects for the current year and the following two years, and will do so well in advance of the budget. As regards Government expenditure, the revised document will contain analysis based on an update on the overall existing level of services projections published with the previous year's budget.

I hope I have given a flavour of the measures we have put in place and are putting in place to improve the overall system of financial management and which I expect will give a greater degree of transparency to how public moneys are being expended on public services. My colleagues and I will be happy to answer as best we can any questions that Deputies may have.

Chairman

Mr. Considine's presentation will appear in the record of the committee. With his permission, we will publish his full statement.

Mr. Considine

That is agreed.

Chairman

Before I call Deputy Dennehy, I have a question. There are reports in the media that some kind of leak has taken place in the Department. It has been the practice for many years that the Department of Finance will on a confidential basis cost the policy proposals of the Opposition parties and that it will do this without any reference to the political side. Therefore, the Minister or his advisers would have no sight of such documents or costings. There are reports that this practice has broken down and that a policy from one of the Opposition parties found its way into the hands of a political adviser to the Minister. Is this the case? If so, does this completely undermine the trust of the facility provided by the Department to the benefit of democracy in this Republic over many years? What does the Department intend to do about it?

Mr. Considine

I am glad to say that it is not true. This simply did not happen. I wrote to the Fine Gael and Labour Party spokespersons on finance yesterday evening to make this clear. My response reads:

I refer to your letter of today's date regarding the costing of political parties' policy proposals. I wish to make it clear that at no stage has any material been passed or information supplied in any other manner to the Minister, Minister of State, political adviser or political appointee regarding the fact or details of any political party's proposals or costings. The process is fully insulated and will remain so. As Secretary General of the Department of Finance, I am perfectly happy to give you that assurance.

The issue seems to be a misunderstanding about an invitation that was issued by the Minister for Finance to finance spokespersons and Whips to attend a political briefing on the proposal to reform the budget process. In the course of a telephone conversation something that was said seems to have been misinterpreted. To the extent that the Minister for Finance knows anything about what we might or might not have been asked to cost, it was entirely brought to his attention by the letter that was sent to him. It was certainly nothing done by the Department. I would consider this to be one of the most important things that the Department does, as the Chairman rightly stated, in regard to facilitating balanced debate during elections.

Chairman

I thank Mr. Considine for his assurances. From the point of view of the committee, the proposals put forward by an alternative government need to be soundly based. The only method of basing them soundly is to ensure that the Department of Finance, which at the end of the day may have to finance their implementation, has costed them on the same basis it would cost proposals from Government. This is fundamental to the way we operate our democracy at present. Any breach of trust would undermine the procedure completely with very detrimental effects. I thank Mr. Considine again for his assurances.

Deputy Dennehy

I welcome Mr. Considine. I had some questions prepared, but he has already picked up on 50% of the issues in his briefing so we are halfway there. I appreciate he does not intend to deal with the President's establishment or the secret service, which always fascinates us. Without going into details, is there a specific reason the secret service invariably uses less than 50% of its budget?

Mr. Considine

The Comptroller and Auditor General mentioned that there is a longstanding approach, which is that one provides a very prudent Estimate in this case. The Deputy can imagine the excitement it would cause if the Minister for Finance came back to the Dáil in July or October to seek a Supplementary Estimate for the secret service Vote. There was and is general acceptance that a prudent amount should always be included in the Estimate.

Deputy Dennehy

It is still fascinating that it has never spent 50% of its budget.

Chairman

That is not correct.

Deputy Dennehy

I thought it was the case.

Chairman

When I was the Minister for Justice, there was an exhibit on file to the effect that the secret service fund ran out and the then Minister for Justice, Mr. Haughey, wrote a personal cheque to cover expenses incurred to get information on a famous occasion and had to be rebated subsequently. It did run out on one occasion.

Deputy Dennehy

That is an historical fact, Chairman. I cannot go back much further than the past ten years.

I wish to ask a question on chapter 1.1, the financial outturn for 2004, in particular on the specific item of deferred surrender of unspent budgets, which I welcome. In the 2004 examination, €234 million was deferred. Is this the first time this specific item has appeared on the Vote?

Mr. Considine

The year 2004-05 was the first year.

Deputy Dennehy

The initiative taken was one of the most pleasing ever. There had been massive waste over the years, with Departments wastefully spending money in the run-up to the end of December or taking a stop-go approach to projects. Mr. Considine anticipated one aspect of my question when he referred to the deferring of a maximum of 10% of projects. Does that apply to all projects? I realise there is a separate procedure for capital projects worth more than €30 million but with regard to the deferred surrender of funds, is there a financial limit or is it 10% across the board?

Mr. Considine

No, it is 10% at Vote level. In other words, if the Vote is €100 million, one can carry 10%.

It is not at project level but at Vote level. In theory, if one had a very big project, one could carry over, say, €10 million.

Deputy Dennehy

The primary argument used by the Department of Finance since the foundation of the State was that the procedure was just for accounting purposes.

Hence, can I ask Mr. Purcell whether this creates any difficulty for the accounting, auditing and monitoring of projects, or will the examination be seamless?

Mr. Purcell

No, it certainly does not cause any problems for the audit. It is pretty well established and while it was being introduced, the Department of Finance was in contact with my office and me as to how the accounting arrangements would work. I am glad to report that on the basis of the audit of the 2004 accounts, it has worked out very smoothly. It also has clear benefits for the management of capital expenditure. I subscribe to the Accounting Officer's view.

Deputy Dennehy

Good. On the total surrender figure, while I do not know whether there is a brief answer, I wish to put two items to Mr. Considine. First, the Opposition always asks, and sometimes members of the Government ask why X billions of euros are surrendered instead of spending the money on whatever is the topical subject. At present, that is health. Is there a simple explanation why this cannot be done?

Mr. Considine

The amount surrendered in 2004, which is the year under discussion, came to €568 million. The first point to note is that money which has been surrendered is not lost. It means that the national debt is €568 million lower than it would have been had that money been spent. Hence, there is an ongoing dividend in terms of lower interest payments for the taxpayer.

Second, some of the schemes for which provision is made in the budget are demand-led. Unemployment benefit is a good example. The rate is set and if the numbers claiming unemployment benefit rise, one is obliged to pay as many people as qualify. Equally, if the unemployment turns out to be lower than was anticipated, one will have a saving. Hence, there is no great logic in stating that because one thought unemployment benefit would cost X amount and it turned out to be somewhat lower, one should spend the money anyway. That is one way to look at the issue.

Another issue concerns the reason money should be surrendered from an area which is generally viewed to have many needs that have not been met. Sometimes, that is simply due to timing. In other words, while something was expected to happen during the course of a year and did not happen until January, February or whatever of the following year, it still happened. However, there may not have been enough time to change plans to deal with that situation.

Moreover, at the Department of Finance, we would be concerned that new schemes, which might cost €1 million in 2006 and €50 million in 2007, would not be introduced at the end of a year. These are some of the aspects involved. Sometimes, when one hears comment on this matter, one would think that the money was simply being burned or lost. Obviously however, this does not happen.

Deputy Dennehy

As for the budget figures in respect of, for example, income tax, why are they so frequently badly out of line with forecasts? We hear much criticism in that respect. Is there a simple and brief explanation?

Mr. Considine

I wish there was a simple explanation. The first question is how we arrive at these tax forecasts. While I do not wish to go into the Minister for Finance's minute again, following our experiences in 2001 and 2002, we thoroughly reviewed our process of forecasting and we believe that we have brought about certain improvements. However, the most fundamental point about the forecasting of tax revenue is that such forecasts are based on forecasts of economic activity. If that economic activity turns out not to happen, the tax forecasts will be inaccurate.

To return to 2001, we experienced the foot and mouth disease outbreak. The 11 September 2001 attacks also had an impact. Were two similar events to occur again in a particular year, it is just as likely that they would have a drastic effect on economic activity and on tax revenue. There is nothing any forecaster can do about that, since our forecasts are set at budget day and that constitutes the budget for the year. The simple answer is that our forecasts are greatly dependent on our views regarding economic activity. As the Department has stated on previous occasions, our view of economic activity is best judged by reference to the opinions of reasonable commentators at the time when our estimates are published.

In the most recent budget, we published an independent assessment of the forecasts of the Department of Finance which was independently confirmed by the IMF. It found that we were no better or worse than the other mainstream forecasters. While I wish they had said we were better, we are not. However, we are not any worse either. While I do not take much comfort from that, it is what the IMF said and the assessment is on the record as part of the Budget Statement.

Deputy Dennehy

I will move on to Vote 6, which pertains to the office of the Minister for Finance. The surplus surrendered in 2004 was €37 million. However, a Supplementary Estimate of €8.8 million was introduced. Why was that necessary if there was such a large surrender? Why was there a Supplementary Estimate?

Mr. Considine

It was for technical reasons. Under the rules, we could not transfer the money from the subheads which had the savings. That is a general reply. If the Deputy wants a more detailed reply, I will send a note to him.

Deputy Dennehy

I would appreciate that. This is not obvious to non-accountants. One wonders why this takes place.

Mr. Considine

It has more to do with the rules of Parliament. Perhaps the Comptroller and Auditor General can supply the answer. I cannot.

Mr. Purcell

While the Supplementary Estimate was for €1,000 it included an increased sum of €8.8 million for the Northern Ireland INTERREG programme. One cannot switch money from, for example, the decentralisation fund, just because a decision was made to meet such expenditure from the Office of Public Works Vote. There are certain rules regarding virement, which effectively constitutes moving expenditure from one subhead to another. It is permissible between the A subheads, which are for administration. These rules exist for a good reason. The Department must not presume approval or bypass Parliament. Such changes in spending categories must be brought before the Dáil and discussed and debated as appropriate. Hence, from that perspective this is a positive thing. As the Accounting Officer suggested, this was such a technical Supplementary Estimate.

Deputy Dennehy

Under the same Vote's heading of other liabilities, a figure of €2.8 billion is recorded for the Housing Finance Agency. I am trying to find the exact figure. While I do not wish to go into the workings of the Department of the Environment, Heritage and Local Government, was this figure cumulative or did it relate to 2004 alone? It was a sum of €2.68 billion under the heading of other liabilities. I would have to——

Mr. Considine

This appears to be the agency's debt. Did this appear in the Finance accounts?

Deputy Dennehy

I must go through my notes. I must confess that I came across this figure a couple of nights ago. It is classified under other liabilities.

Mr. Considine

I believe it constitutes the borrowing of the Housing Finance Agency and I assume it is a cumulative figure. May I return to it? The Deputy probably found the figure in the finance accounts.

Deputy Dennehy

I wondered whether this was a cumulative figure or whether the agency spent that amount in a single year.

I will move on to payments to the EU budget. My next question concerns the amount we paid in and the amount we received in benefits. The estimated EU funding was €23.4 million. In working out what we have paid in and the benefits we would receive for 2004, it appears that we will be net contributors, although I presume this will not happen for another year or two.

Mr. Considine

That is correct. Net receipts for 2004 would have been €1.416 billion, while the net receipts for 2005 would have been €945 million. Therefore, the amount is gradually decreasing. If one goes back to 1997, one can see that we received net receipts of €2.5 billion. The amount has gradually decreased more or less on a yearly basis and the figure for 2005 is less than €1 billion. The general view is that we might be net contributors some time during the period to 2013 in the next round.

Deputy Dennehy

We have a bit to go yet.

What are Mr. Considine's views on benchmarking, which is a fairly controversial subject? Are there tangible benefits to be obtained from the programme that the public can see? I appreciate that things may be happening inside an office but the programme has many critics. The public needs to see a return for the money invested in the programme. Could Mr. Considine cite examples of benefits from the programme?

Mr. Considine

Before the introduction of benchmarking, a system of relativities was used. If a particular person received an increase, another person also looked for one even though there may have been no justification for it. It was felt that this was not a good way to do business because it was simply a matter of leapfrogging and one person following another and had no relationship with the real world.

Benchmarking attempts to compare jobs in the public service with similar jobs in the private sector and price them accordingly. This allows the relativities within the public sector to move in order that everyone does not get the same rise. This is what took place the last time. When the system settles down, it could be even more apparent.

One of the tangible benefits of benchmarking is that there have been few public sector stoppages since its introduction. Benchmarking allows the payment of increases to be linked to specific outputs and represents a change in culture. Before a person receives his or her pay rise, the head of each Department must report that a set of targets have been achieved and that the pay rise in question should be granted. There were examples during the last benchmarking round where payments were delayed until certain objectives were delivered.

Benchmarking has changed the culture of the public service. Payments made under benchmarking receive far more attention than relativity payments, which were granted to individuals for no other reason than that a co-worker had received a pay rise.

Deputy Dennehy

Is there a list of offices that are now open for longer and examples of services which are more convenient for the public, which is paying the bill for benchmarking? Is there any list of benefits resulting from benchmarking that can be published or examined so that we can tell the public about the benefits they receive from benchmarking?

Mr. Considine

There is a large list of the achievements of the various Departments and offices, which, to the best of my knowledge, has been publicised. The public is receiving significant improvements in services. For example, the Revenue online service represents a major improvement in the level of service. Anyone who has taxed his or her car through this service——

Deputy Dennehy

Could this information be supplied to me? I am not looking for a large volume of material or to put Mr. Considine to considerable inconvenience but such information would be informative.

Mr. Purcell

To supplement the Accounting Officer's comments, not only must the head of each Department or office attest to the fact that particular outputs have been achieved, a report must be made to a performance verification group, which is outside the public service-type arrangement. The heads of each Department or office must satisfy this group that genuine improvements have been made. As I far as I know, all of their reports are available on the Department's website. It is, therefore, possible to see how any Department, or my own office, has performed. This procedure is transparent, although, perhaps it is not as well known we would wish. It is certainly possible to examine whether targets like the measures referred to by Deputy Dennehy, such as service levels and response times, have been reached.

Deputy Dennehy

If there is a global report available, I would appreciate if it could be sent to me rather than my trying to examine information pertaining to each Department separately. It is a very important aspect of benchmarking because the public is paying for this system and it would be good if we could demonstrate the benefits to the public.

I could ask why has it taken until now for a permanent head of internal audit to be appointed but I will not do so now. I will, instead, ask about public private partnerships, PPPs. The committee previously received a presentation about PPPs and has visited other countries to examine how PPPs perform. PPPs are a welcome source of investment but a criticism levelled at them concerns the extreme profits made by some involved in PPPs, with the most frequently cited example being toll roads. This includes both the M50 and future toll roads. Could Mr. Considine explain why profits arising out of PPPs are so high? It is a very negative approach. I borrowed from my local authority 40 years ago to buy my own house. I probably paid ten times the amount I borrowed. This has been presented in a very negative way and I do not know whether we could provide a speedy response to this negativity.

Mr. Considine

The PPP system is just one way of procuring a service. Before a Department or agency decides to go down the PPP route, it must work out what it would be likely to cost if it carried out the work itself. This is what is normally called the public sector benchmark. If it makes sense overall to take the PPP route, it should be done. Picking up on individual parts of a PPP arrangement is questionable. If a company tendered for a project, turned out to be the lowest tenderer and the Department or agency was satisfied that the company could do the job as well as the other tenderers but the company charged the Department or agency more under one particular heading than the losing tenderers which had a higher overall cost, the Department or agency would get nowhere by going back and trying to renegotiate the individual part of the PPP agreement. The argument sometimes focuses around a particular part of a PPP agreement whereas the decision is made on the basis of the total price.

A UK report examined re-financing. In other words, existing schemes have been re-financed and companies have made very high profits as a result, a situation of which we are aware. A reason the National Treasury Management Agency has given financial advice is to try to avoid such occurrences.

The Department of Finance is reviewing the guidelines for PPPs and, when the next guidelines are published, we will likely say that we should get half of the profit if there is any re-financing. I do not know what way the guidelines will ultimately be framed. While this is an issue, one must keep an eye on the bigger picture, namely, whether something is a good deal compared to the amount for which one could do it. This must be the litmus test.

Chairman

Regarding the link between benchmarked salaries and pensions, it has been the practice that a full public sector pension is 50% of final salary. However, this is index linked. In effect, a retired public servant would expect to get 50% of the current salary of a person acting in the equivalent grade.

There was a suggestion that because benchmarking awards were on the basis of changes in practice and productivity, the link between current salaries and pensions would be broken. This matter was argued during the last round of benchmarking. What is the current position and what guarantees has the Department made in respect of the next round to allay people's fears about their pensions moving away from the 50% figure, which they deem to be sacrosanct?

Mr. Considine

There are no proposals to change that relationship. The Department wants the benchmarking body to take into account the pensions paid in the public service when it compares public and private sector pay. The whole package should be examined. For example, an accountant in the private sector could be doing the same work as an accountant in the public sector, but not only basic pay is considered when comparing. Their relative pensions are also examined. A decision on awards would be based on these factors. Pensions are an issue but there are no concerns as raised by the Chairman. We are all paid a certain amount every week, fortnight, or so on, but we also bank for the future. Everything should be weighed.

Chairman

Can Mr. Considine give an assurance that retired public servants will continue to enjoy pensions of 50% of comparable grades' salaries even if practices are changed dramatically as a result of concessions made through the benchmarking process?

Mr. Considine

Irrespective of benchmarking, I could not give any assurances about what a future Government might decide on pensions or pay.

Chairman

What is the present policy?

Mr. Considine

There are no proposals to make such changes.

Deputy Burton

I thank Mr. Considine for his letter in response to correspondence sent by Deputy Bruton and I, which I received yesterday. I apologise for leaving while the Chairman was speaking. It is important that Opposition parties, which have limited resources compared to Government parties, can have confidence when they approach the Department of Finance. The same Government has been in office for nine years. It would only be human to envisage a scenario in which people have become so familiar with one another that the boundaries lack definition.

Given that the next general election is probably less than a year away, it might be helpful to clarify the guidelines. Many advisers who may not have the title "programme manager" work in various Departments and I presume they work closely with Ministers and have access to documentation. From the Opposition's point of view, we need a strong assurance that the boundaries have not been blurred through the growth of familiarity between civil servants and political advisers, which would be normal human behaviour after nine years of working together.

Mr. Considine

Some people would say that members of the Department of Finance are not that human. I can assure the Deputy that her outlined scenario is not the case, as the current Minister and previous Ministers for Finance would testify.

Regarding the system, I went to the trouble of setting up a committee after the last general election, chaired by the secretary general responsible for public service management and development and approved by the Government, to examine the procedure of making costings. Requests are sent directly to me from a nominated person in the other parties. I have no need to explain who wants the costings to those I have asked to carry them out. I must be fair to Ministers, as none of them would ask me that question. I would be amazed if they did.

Deputy Burton

There is no concern in respect of Ministers and we would all accept Mr. Considine's statement but we are referring to the significant legion of advisers employed by Ministers, some of whom might be politically zealous and partisan in favour of their Minister. Some of these people are reputedly very smart and it would not take a genius to work out whether proposals were made by an Opposition party, particularly during the year before an election.

Mr. Considine

In my letter, I did not refer to just Ministers. I also mentioned Ministers of State, political advisers, political appointees and anyone with political connections to the Departments. I applied the same rule to all of them.

Ultimately, I must ask people to carry out costings. I cannot be responsible for what they might guess about who originally asked for the costings. Inevitably, if I make a request in the run-up to an election, the people carrying out the costings could guess. The system is not secretive. Rather, the entire procedure is detailed on our website and can be read by anyone. While I can do no more than this, I assure the Deputy that I have ensured to the best of my ability that we will cost it in whatever way the Opposition parties ask. We do not raise any questions about it or give advice on it. If someone asks us how much it costs to raise five ganders on the Hill of Howth for a year we will do our best to calculate it.

Deputy Burton

Vote 6, the office of the Minister for Finance, contains a decentralisation fund of €13.7 million. By the end of 2004 none of this had been spent. Can Mr. Considine state what the fund is for and how much has been spent, given the Department's overview of management systems? This fund is not used for property, which is the remit of the OPW.

The overseas aid section of the Department of Foreign Affairs is to be transferred to Limerick. This is a controversial move and specialists in the section are refusing to decentralise. The Department of Foreign Affairs requested that the Department of Finance provide an allowance to specialists for accommodation in Limerick in the interests of expenditure control. Might the fund be used as a carrot to ease the burden of specialists moving from Dublin? Civil servants posted to foreign locations are provided with accommodation. Have such proposals been made and would they meet with Mr. Considine's approval?

Mr. Considine

This is not a fund. Rather, it is a provision in the Department's Vote to cover property costs. The capital costs were transferred to the OPW Vote. There was only €246,000 capital spending in 2004 but this figure rose to €12.6 million in 2005. The proposal to which Deputy Burton refers would not receive favourable consideration. Decentralisation is a voluntary programme and if people do not wish to transfer to Limerick or Nenagh a job will be found for them in Dublin. This issue has become fraught but the Civil Service has experience of decentralisation and much of it has been positive. Given Deputy Burton's business experience she may be aware that the movement of the Collector General to Limerick led to improvements in the service. The Civil Service has become accustomed to decentralisation despite opposition from various quarters.

I view this as a management challenge. The Department of Finance is transferring 135 staff to Tullamore. This has been a standing item on the management agenda since the programme was announced. One must take great care with training and passing on skills to replacements. Some agencies, particularly those with technical experts, do not have the same background and the challenge is greater. This can be resolved if people discuss matters in a constructive manner. Perhaps the programme will take longer because of the background of these agencies. Public servants, whose task it is to implement Government policy, should meet this challenge.

Deputy Burton

Mr. Considine referred to a comparison with a commercial business. When commercial businesses propose major changes, such as relocating from Ireland to China, they carry out scenario forecasting, examining the possibilities of different likely outcomes. Mr. Considine referred to some positive points such as the improvements on management structures, on which I compliment him. Is the Department carrying out scenario forecasting with regard to decentralisation? The figures set by the then Minister for Finance three years ago suggested 10,000 civil servants would be decentralised.

I was a Minister of State at the then Department of Social Welfare in the early 1990s during the most successful decentralisation process. The first 25% of people are enthusiastic to move to a region they like or where they come from. The next 25% of people are enthusiastic if there are promotional opportunities. However, the final 50% can be more problematic. The most accurate figures we can establish at present suggest that 5,000 of the 10,000 present a challenge, particularly those in statutory bodies and technical experts. The Government has guaranteed these people that the programme is voluntary. I recall the then Department of Social Welfare receiving extra money to hire staff temporarily at a time when unemployment was at 18% and probably higher in the north west. People in that area were very keen to take these jobs.

Staff at State bodies are unwilling to decentralise and provisions in their contracts concerning transfer of undertaking and legal issues may be difficult to surmount. Has the Department costed the possibility of 4,000-5,000 civil servants remaining in Dublin and replacing them with additional staff? Does the Department have costs and forecasts on the various likely outcomes, such as where everyone does what they have been asked to do, and the more likely outcome of only 50% doing so? Is this under regular review?

Mr. Considine

I was involved in the large amount of consultation with the Secretaries General and trade unions on how decentralisation might progress before it was announced. Some people were strongly in favour of it because their constituency wanted to avail of it. For others, age issues arose as people at different stages of life have different views on it.

As soon as we were aware of it, we immediately assigned responsibility for it at an extremely high level within the Department and ensured we put in place a system to implement it. The decentralisation implementation group went through it systematically, getting Departments to prepare and present plans. My colleague, Ms Áine Stapleton, will give committee members more information as she is involved in it.

We are conscious of the difficulties of the technical groups, and the point made that it may get more difficult to implement the programme as it progresses. The implementation group has tried to use that to its advantage by scheduling the easiest moves first. People will not be moved without their work. Statements have been made but time changes matters. The timeframe may have to be amended to acknowledge certain difficulties. However, it can be managed by taking on board some of the lessons learned from previous experience.

Ms Áine Stapleton

It might be helpful to set out the implementation arrangements and structures in place. As the Secretary General stated, the decentralisation implementation group leads the overall implementation initiative. It built the implementation plans on three pillars. It examined the overall staffing position, the business of the organisations and the availability of property. Feeding into that, each organisation at Secretary General or head of organisation level, was asked to prepare detailed implementation plans on moving the business and identifying some of the key risks involved and how they might be mitigated.

The implementation group had available to it a great deal of underlying information on those three pillars to put forward appropriate timeframes for the management of the programme. In November 2004 and June 2005 it published reports setting out a staggered implementation of the programme, taking account of the greater challenges in some areas and those organisations ready to move at an earlier stage. A large amount of detailed business planning goes on in the background through those structures.

Deputy Burton

Under the Freedom of Information Act I examined the risk analysis carried out by FÁS, the Department of Finance and the overseas aid division of the Department of Foreign Affairs. The lack of agreement of senior people in FÁS and the overseas aid division to go stood out.

I did not receive an answer on the cost of the risk that the extra civil servants who may have to be deployed. Has the Department costed the loss of corporate memory and the impact on corporate institutions if more than 75% of senior personnel in key agencies linked to spending public money and developing infrastructure needs refuse to go? The comparison with commercial operations was mentioned. Surely it is essential to cost the impact on corporate structures, performance and delivery given that we desperately need infrastructure projects in Ireland. We cannot afford to keep failing on them.

Ms Stapleton

In their deliberations, the implementation group and the Secretaries General and heads of organisation always prioritise and are conscious of the need to focus on the transfer of knowledge and appropriate skills and manage, in particular, the intake of staff at senior level. It is part of their business process. This is an ongoing transition phase. Departments continue to monitor CAF data and examine the availability at each grade level with particular skills and competencies. They are in discussions with us on how they might manage any particular issues which arise.

It is a difficult area to cost. The focus is on identifying the scale of the challenge and appropriate strategies to address it. During the past few months, the implementation group held a series of meetings with most of the Secretaries General involved in the decentralisation programme. It has begun to have similar discussions with the CEOs of State agencies. At those meetings, the issues of corporate knowledge, skills transfer and the management of that process are discussed.

Deputy Burton

Of the 33 locations, how many are extremely challenging?

Ms Stapleton

It is difficult to put a bald figure on that. The challenges are different for each organisation, although they can be grouped. The progress of some organisations due to move is linked to central progress on industrial relations issues. Transferability between agencies is an issue for a number of organisations, particularly State agencies. With Departments, the primary issue is the timing and phasing of the intake of staff. As the Secretary General stated, they are familiar with and experienced in decentralisation. This is a more complex programme because so many organisations will move at the same time. Prudent management and intake of staff is key to ensuring the organisation receives the skills transfer and experience required to be able to do business.

Mr. Considine

There are no plans to duplicate staff. We have no proposals whereby people in the country will do the work previously done by people in Dublin while those people in Dublin will have no work to do. That will not happen. That is why this is a challenging issue which must be worked through. The costs bandied about are based on the assumption that the problems cannot be solved. They will be solved.

Deputy Burton

Will that be in ten, 20 or 30 years?

Chairman

Mr. Considine will be familiar with the recommendation of the committee that responsibility for the audit of local authorities should lie with the Comptroller and Auditor General and consequently, come within the remit of this committee. We have seen the Department of Finance's response to that proposal but would like to discuss some of the issues with Mr. Considine again.

We realise that this is a policy issue but it is also one which relates to how this committee conducts its business. We consider we are within our rights to discuss it but appreciate that Mr. Considine may have difficulties in dealing with a policy issue. I suggest we discuss it in the context of the objectives of the Public Services Management Act 1997, the reference in Mr. Considine's opening remarks to the responsibility of the Department of Finance to ensure there is a framework for greater accountability to the Oireachtas for all expenditure and the fact that over 50% of moneys expended by local authorities now come from the Exchequer and are voted for by the Oireachtas. If we deal with the matter in that context, we will not have a conflict of objectives.

Deputy McGuinness brought this matter to the attention of the committee in the first instance. He has an in-depth knowledge of the subject, is committed to the change being proposed and will now speak on behalf of the committee.

Deputy McGuinness

Before I address that matter, I wish to briefly deal with something that was mentioned earlier with regard to benchmarking. I respect the fact there is a positive side to benchmarking and the linking of public sector pay to the private sector and so forth. However, the other side of the coin is the delivery of services by public sector employees. The performance verification group was mentioned but what concerns me about benchmarking, in the Department of Finance and other Departments, is that members of the public in receipt of services have a different view on the matter.

I think it was Mr. T. K. Whitaker who first spoke about clientelism. The clinics of public representatives are filling up, which clearly indicates that the systems within various Departments are not working well, vis-à-vis delivery of services to the public. Deputy Dennehy made a valid point regarding performance verification groups and asked about the extent to which members of the public are consulted about their satisfaction with public services and how openly they can engage with various Departments. An ongoing issue for people is the fact that the relevant official is not available when sought or the telephone is not answered. That is a basic complaint but one also hears many more serious ones.

Politicians in this House will have a rendezvous with reality in June 2007 and I hope that the public, which acts as our performance verification group, will not take their dissatisfaction with public services out on us. This is an issue that should be addressed in the context of benchmarking, to ensure that services are delivered. Since the introduction of benchmarking, costs have increased enormously, particularly in terms of local government and the establishment of the director of services and so forth. So-called big government is creeping in, where there is little tangible connection to local community groups. As a result, the value for money issue can become skewed with regard to what is being delivered, how effective is the delivery and if, in fact, it is good value for money. I would like to see that issue addressed.

Mr. Considine

I could not agree more. I spoke about the requirements on individual Departments and the responsibility of the Accounting Officer to sign off on the fact that progress is being delivered. While this is vetted by an external group, the ultimate responsibility rests with the head of the Department and the Accounting Officer to ensure that value for money is being achieved. In the case of my Department, standards are set with regard to written correspondence time limits, telephone calls, treatment of visitors to our offices and so forth. We conduct surveys to obtain feedback from the public. We do not always meet the targets we set ourselves, often because requests are very complex and difficult, but we do our best. The targets are monitored regularly and effectively within the Department.

Nonetheless, there is always room for improvement and I could not say otherwise. However, I do not think Deputy McGuinness will find many senior civil servants who would disagree with what he is saying. I am sorry to hear his perception is that things are not improving because my experience would suggest otherwise. We have a more even and higher standard of service for the people we serve, many of whom are making representations to the Minister for Finance on various issues and so forth.

The implementation of the Freedom of Information Act has resulted in a much more open system, although some would dispute that. If one takes a comparative framework, a number of years ago the idea that one could get access to material by making a simple request was unheard of. This opens up a whole area of government to people who did not have access previously. Perhaps the standards themselves are rising, which is a good thing. However, I find it hard to believe that we are not providing a greater insight into the way government is run than was the case a number of years ago.

Deputy McGuinness

I do not dispute that. My issue is the engagement members of the public have with various Departments concerning their rights. That has not improved. If it was improving, that should be clear to the cynics among the public representatives, but it is not.

Chairman

One constant complaint is that since answering machines were introduced in Civil Service offices, the public cannot talk to anybody anymore. Public representatives do not have that problem, obviously, but I have heard that complaint on countless occasions.

Mr. Considine

I have heard that myself but to be honest, I judge that issue differently. If I leave a message the test is whether somebody returns my call within a reasonable amount of time, for instance, a half an hour or an hour.

Chairman

Members of the public say that does not happen. They just talk to answering machines and nobody ever calls them back. That may be somewhat exaggerated but it is a complaint that we have heard many times.

Mr. Considine

I accept that is what the Deputies are hearing.

Deputy McGuinness

The Minister for Finance has stated that he has requested that the local government audit process reflects best practice. Each Thursday, when we sit, we deal with the Accounting Officers of the various Departments. Officials from the Department of Finance also attend our meetings and hear, first hand, what is being said and the issues being addressed. In the context of local government, we can ask direct questions of the Accounting Officer regarding the €2.23 billion now being allocated to local government.

However, behind that figure is another figure, which is the revenue raised and spent by local authorities themselves. It is very difficult to get an overall picture of how that money is being spent. Given the Department of Finance's responsibility for overseeing other Departments, how is local government made accountable in the context of value for money reports? I developed concerns about this matter after questioning three local authorities on their spending of substantial amounts of money. One of the authorities was in a particularly weak position because a sum of €9 million was involved. Does the Department oversee the audit service to determine whether value for money is being achieved? I understand that 22 value for money reports have been completed since 1997, although I wonder whether some should in fact be classified as such. What happens to these reports?

Does it not make sense that this committee should engage with local authorities in order to understand the bigger picture in terms of their spending programmes? In addition to the €2.3 billion allocated to local authorities, they now earn money from development charges of up to €10 million per year for each authority. Are all of the 207 local authorities under the local government audit service audited every year? Is the work completely up to date or are efforts ongoing in that regard? How does the Department of Finance oversee the work?

Mr. Considine

Even though this is a policy area, I wish to make a few comments because policy issues are not always aired to the extent some feel they should. In 1992, a White Paper was published on the role of the Comptroller and Auditor General which signalled a lot of changes. The role of local authorities was investigated, as was the issue of how they are funded. The Local Government Act 2001 reflects the attention it received in the Oireachtas and the concerns of the Government of the day. When we inquired about the matter to the Minister for the Environment, Heritage and Local Government, we were told that no changes were being proposed.

As regards how we can be satisfied that an acceptable framework is in place for managing local government business, the Government and Oireachtas have to decide on the responsibilities that are assigned to various tiers of government. In recent times, this matter has been examined on two occasions. Given that the Minister for the Environment, Heritage and Local Government is responsible for relations with local authorities, I am not clear as to why this committee cannot hold him to account under the Local Government Act. We cannot involve ourselves in every level of government because, while 600 people may seem a large number of staff, only three or four may be assigned to individual Departments. We are limited in terms of what we can do. What we can do is make sure the structures are in place.

The potential for improving the existing structure is a separate issue which can be explored by the Department of the Environment, Heritage and Local Government and local authorities and there is a channel for that. Europe now monitors the general Government balance, including local authority spending, rather than the Exchequer. Therefore, we have an interest in ensuring that our returns accurately tell us what, for example, local authorities borrow. However, the responsibility for day-to-day business rests with local management, with supervision by the Department of the Environment, Heritage and Local Government. The Accounting Officer of that Department is, in turn, subject to the scrutiny of this committee. I may have stepped over the line in my comments but that is my view of the matter.

Chairman

That is inevitable in the context of our conflicting responsibilities. Mr. Considine will be forgiven for commenting on policy with reference to the Local Government Act 2001 and the 1992 White Paper on the Comptroller and Auditor General.

Deputy McGuinness

I accept that legislation is in place. As this morning's business involves an exchange of views, straying from the line is not unwelcome.

The Committee of Public Accounts is trying to determine the role of the Department of Finance. I specifically inquired about value for money audits and how frequently local authorities are audited. Does the Department engage with the system? I want to find a way under current legislation by which this committee can ask the necessary questions while remaining within its remit. Can these questions be put to Mr. Considine in the context of corporate governance? The Comptroller and Auditor General might comment on the extent of our role and how far the boundaries can be pushed because, while we may cite Acts that have been passed, time has also passed. Since the legislation was passed, significant moneys have been handled by local authorities across a wide range of issues. While one engages with the NRA or the Secretary General, some of the remit for delivery of a road project falls to the county councils and we cannot investigate them, although local authorities spend large amounts of money. I have given the example of the recent practice of generating money through development charges. I am not saying money is being spent in the wrong way, just that it is an enormous amount of money.

As a member of the Committee of Public Accounts, I would like to see the bigger picture on how the Department of Finance engages with the Department of the Environment, Heritage and Local Government and what we can do to push the boundaries within the legislation to get the information we want. Other governments have moved to a one stop shop in how accounts are audited by their comptroller and auditors general. In the private sector there is a move to bring departments together, particularly finance and accounts, to get an overview of what is going on within a group of companies. We do not seem to be able to do this. While I respect the existing legislation, it may need to be changed. I have a different view from the one put before us by the Minister for Finance.

Mr. Considine

At a previous meeting the Comptroller and Auditor General spoke on value for money audits and the limitations on access to them. He can do this better than I. The 2001 Act specifies what is to happen to the various reports produced. We cannot second guess people at local authority level. However, we can seek to improve the reporting arrangements to us by the Department of the Environment, Heritage and Local Government. As I explained, we have an immediate interest in the matter because the borrowings of local authorities make up part of the borrowings of the Government, a key target set at budget time, on which we have been trying to improve. As I outlined, there are requirements for tighter management of the bigger projects. There is also an arrangement whereby we will spot check some of these to ensure what the Minister for Finance sets down will happen. The problem with how Deputy McGuinness is managing this has to do with whether it is a structural issue or whether he wants to change the way government operates in Ireland and the line between central and local government. If it is a structural issue, I am concerned that the Department of the Environment, Heritage and Local Government exercises its supervisory functions in respect of local authorities, that big projects are appropriately managed. When it comes to the job of local government, we cannot get into that space because if we were to do so, we would lose sight of the bigger picture we are trying to manage. That is for the Department and Minister for the Environment, Heritage and Local Government to do. If the legislation is to be changed, it is for that Minister to propose it. If we had a specific problem with the way money was being spent in the environment area, including local authorities, we would raise it with the Minister for the Environment, Heritage and Local Government.

Deputy McGuinness

I want to press the two questions. I am leaving the legislation to one side and asking a specific question about the value for money audits conducted by the local authority audit service. Has Mr. Considine seen the 22 value for money reports? Is this not a matter in which the Department of Finance, in the context of the structure and how it manages its affairs, should be interested? Is it concerned about the fact that there are five vacancies in the local government audit service? Should it not be interested in these management issues in the context of the significant growth in moneys collected by local authorities? Surely this falls within its remit. Its officials come here and we look back at what has happened, although sometimes we do not get full answers from them on what has happened on particular projects where value for money has not been achieved or where there has been an overspend. I am trying to understand the Department's engagement, even at a macro level, with the Department of the Environment, Heritage and Local Government on how it manages its audit service. Surely that is a matter for it in the context of legislation. For example, the legislation refers to what would effectively be local public accounts committees. This is stated either in the commentary or the legislation. Has the Department investigated whether local authorities have put in place these separate groups to examine their local finances? That is not asking it to become involved in the management of each local authority but to have an overview of it. For example, on the issues raised regarding the three local authorities of which I spoke, one was a case of simple financial management where it did not repay the Housing Finance Agency a significant amount of money. That did not come through the local government audit service but this committee. The need to examine a second local authority on the same issue did not arise from the local government audit service but here. A third more recent case forced the local authority concerned to repay money to the Department of the Environment, Heritage and Local Government and, again, the issue was raised here. What type of quality audit is undertaken? I am not asking Mr. Considine to go outside the terms of legislation but to attend here with his officials on a regular basis. Does this not concern him? Does he have reports on these issues?

Mr. Considine

The Accounting Officer has replied to the committee outlining the position on the 2004 audit. He said, from my recollection, that apart from two areas in Wicklow, all of the audits had been undertaken.

Chairman

I must intervene. When the question was raised here and the assurance given that the audits were complete, the issue was raised whether that meant the fieldwork had been done or the full reporting process had been completed. We raised the issue again in correspondence. At today's meeting we have received a brief letter from the Secretary General assuring us that the audits are complete. Mr. Considine will be familiar with it. However, we have also received information from the Comptroller and Auditor General that while they are complete, 19 of the local authorities finalised their audits in April, after we had looked for assurances. Three of the city councils or borough councils also finalised their audits in April. Therefore, 22 local authorities finalised their audits because the committee had raised the issue and the assurance we received from the Secretary General that the audits had been completed was incomplete. We have concerns. While I cast no aspersions on the efficacy of the fine men and women who conduct audits, there is the issue of best practice. The flags waved most often in contemporary parliamentary debates are those of accountability and transparency. Accountability is delivered adequately during the audit process. For the most part, auditors carry out effective audits. However, transparency is not being delivered. Like many on this committee, I was a member of a local authority and cannot remember a detailed debate on an audit report. A report would appear on the agenda but two or three councillors of long standing would say: "Another fine job done there, manager. Congratulations, not a penny wasted." Unless matters have changed recently, there was certainly no scrutiny in my time.

I agree one would not normally reverse a well established policy position. If the Administration decided, by way of the Local Government Act 2001, on a policy for auditing local government, that policy position should be respected. However, international events in countries which have systems like ours have changed the picture. In the United Kingdom, for example, there is a more developed system of local government and arguments about having two audit systems for two layers of government are more relevant than in this state. They have changed to a single audit office in Scotland, Northern Ireland and Wales. In England there is the Audit Commission which arrives at the same destination by a different route. Developments are taking place which should influence the policy debate in Ireland. The Comptroller and Auditor General is not looking for extra work and has not prompted these recommendations. They have come from the committee because of what we see happening on the ground.

My final point was made ably by Deputy McGuinness. Enormous amounts of money are being spent by local authorities, on large capital projects in particular, of which there is no effective value for money audit. A financial audit is carried out but no one assesses value for money. I am not criticising any local authority, in particular, but individual members and I have received correspondence about the Eyre Square project in Galway which may have represented outstanding value for money. However, I do not know. I have no information on it but the committee and the Comptroller and Auditor General have been asked to intervene, although neither can do so. If the project was carried out by a private sector company and 50% or more of the funding was provided by the Exchequer, we could discuss it and the Comptroller and Auditor General could investigate it. Because it is a local authority which is involved, the Comptroller and Auditor General is statute barred from assessing it in terms of value for money.

There is something peculiar about a situation where the committee and the Comptroller and Auditor General have the power to investigate a capital project if it is being delivered by the private sector but are statute barred from doing so where it is managed by a local authority. The cause célèbre is the main drainage scheme being carried out by my local authority, Limerick City Council. Members will know that a contractor was dismissed half way through the job, following which he sued the council. When the matter was referred to conciliation, a requirement under the contract, the conciliator found in his favour. The local authority, with the full acquiescence of the Department of the Environment, Heritage and Local Government, then took the case to arbitration and again the contractor was successful. We now await the final figure. In the meantime the cost of the project has risen to approximately €180 million from a significantly smaller original estimate and the compensation bill could be anything between €40 million and €60 million. While the Comptroller and Auditor General and the committee have access to the files on this issue in the Department of the Environment, Heritage and Local Government, they have no access to those in Limerick City Council. Since the council was the agent managing the project, it is not possible for us or the Comptroller and Auditor General to establish the full picture. Because local government auditors are not involved in value for money audits, to the best of my knowledge, they will only recite the details of the financial audit, which I have no doubt will be very thoroughly carried out.

These are issues that have arisen since 2001, influenced by aspects of international best practice and the fact that the position on corporate governance has changed enormously in the past three or four years. Vast amounts of money are now being channelled through local authorities for capital programmes. I know Mr. Considine cannot answer the points I am making today because he is constrained by policy considerations. As he said, it is the primary function of public servants to implement Government policy. When Government policy is clearly established, public servants must implement it and the committee understands this position. I suggest that, when he is discussing what happened at today's meeting in private at MAC meetings, he consider some of the issues we have raised. They are issues of substance essential to the delivery of value for money and best practice in the management of huge local authority projects.

Mr. Considine

In response to Deputy McGuinness's question, we have made a huge effort to improve the quality of public contracts and procurement. Where we have a role to play, we can make a positive impact. However, as the Chairman said, most of the arguments concern policy and must be made in a different forum. On the question of value for money, I understood the Comptroller and Auditor General to say he was able to gain access to details of some projects but not others.

Deputy McGuinness also asked about the filling of vacancies for auditors. Our job is to provide the money to pay auditors but the job of hiring them must be left to those responsible for it.

The committee has been successful in focusing on certain issues. It may well be that the capacity of the 2001 Act has not yet been exhausted. Deputy McGuinness asked about the provision in the legislation relating to local audit committees. As I understand it, it is an enabling provision; it is not compulsory. I do not know how many councils have such committees. The Deputy also asked about access to reports. That matter is determined by the provisions of the Act. I read it, and there is a procedure for dealing with all the reports within the Act. The Comptroller and Auditor General can get access to only some of the reports because they do not come within the ambit of that Act. I cannot comment on the committee's difficulties with another Accounting Officer, but I am sure it can be sorted out.

Chairman

I will ask Mr. Purcell to intervene and the Deputy can conclude.

Mr. Purcell

Like everyone here I am constrained in regard to policy. I could probably make some comments that would not go over the line. Anything I say is not intended to be an implicit or explicit criticism of the local government audit service. It is a very professional service that works to a code of practice which is very much in line with what auditing standards are on the financial audit side.

Effectively, I rely on its reports, and I have access to all its reports available in the public domain. Both the financial audit reports and the 22 value for money reports compiled over the years are available. Some years ago, the then Minister responsible for local government made the decision that these should be published, and they are available on the web. As value for money reports go, they are of a different nature to examples with which the committee and most of us here would be familiar. They tend to compare performance — be it on refuse collection, a machinery yard or the collection of fees — across different local authorities. In that way it is possible to highlight where efficient practices might be implemented etc.

It is fair to say there is a problem — I am on record as saying it before — in that there is a lacuna in the accountability arrangement for capital expenditure funded from central Government but administered through local authorities. I was given statutory responsibility for the audit of the National Roads Authority when it was set up, and I was enabled to carry out value for money audits of the authority. That half-way house has enabled me to carry out two value for money reports on the roads programme. The latest one was titled a special report. Some of the outcome of that report has led to the type of developments the Accounting Officer has mentioned relating to the nature of the construction contracts and the negotiation of professional fees. I would like to believe that report contributed to that change.

If one goes back to base principles, different levels of accountability are applied to different types of central Government expenditure. The Chairman mentioned one example. Although I can carry out value for money examinations on roads expenditure, I cannot carry out similar work to the same level with regard to capital expenditure on water supply and sanitary services, and considerable amounts of money are expended in that area.

There are legal impediments to getting involved under the 1993 Act, as I explained before to the committee. I am excluded from having access to local authorities. This is fairly clear and I have operated under this constraint. I have no wish to do otherwise. On occasions, when, for example, we have carried out a review of An Bord Pleanála, we have with consent had dialogue with some local authorities in order to see their side of things. The issues had to be examined in the round. One always has to tend to get around the problem, and it would not be possible if it was not for the co-operation of particular local authorities. We currently have an agreement with Dublin City Council with regard to a value for money report on the regeneration of Ballymun. That is atypical, as there is a wholly-owned subsidiary company of Dublin City Council promoting the project. That gives us some access. I am not quite sure if a full examination would withstand a legal challenge, if Dublin City Council wished to take a particularly hard line. It has not, and has rather been very co-operative.

The Chairman mentioned developments in some of the neighbouring jurisdictions. There are some subtle differences between each of them. In Scotland they have Audit Scotland. It is essentially an auditing organisation that provides services to the Auditor General of Scotland, and also to the Accounts Commission, which is like a local government audit commission. In Northern Ireland the process is in place for practical purposes, as the local government audit remains independent but within the fold of the Comptroller and Auditor General for Northern Ireland. There is a unitary system more recently in Wales. The audit of local government moneys and expenditure authorised by the assembly is totally catered for by the office of the Auditor General in Wales.

It is different in England, but it is on a very different scale. The Audit Commission in England has up to 2,000 staff. It is larger than the National Audit Office there, which would be the counterpart of the Comptroller and Auditor General's Office here. It has approximately 800 staff. Interestingly, the same problem arises there with regard to accountability for central Government funded initiatives delivered through local authorities. In recent years there have been joint audits and reports produced covering that type of expenditure. That would go some way towards solving the problems, specifically accountability for central Government funds going through local government.

The same arrangement may not be possible here under existing legislation, but I have made suggestions along those lines to the director of audit in the local government audit service. In a situation where the service is trying to get up to date with arrears of audit because of staff shortages, I can understand how that is a priority. I do not know if it is acceptable within current legislative arrangements to have a joint audit of the Limerick sewerage scheme, for example, or the Eyre square pedestrian scheme. There would be a certain logic in that type of approach. It is clearly not envisaged in the legislative arrangements, but there are sometimes ways around those types of problems. That is as close as I wish to get to policy, and it is a frank expression of where I see the difficulty.

I will speak on the audit of local authorities. As the Accounting Officer has stated, the Comptroller and Auditor General (Amendment) Act 1993, the White Paper which preceded it and the Local Government Act 2001 indicate that the financial audit of local authorities should be carried out by local government audit — fair enough. The only argument for changing that arrangement would be more pragmatic than philosophical. Up to 40 staff work in the local government audit service, and the critical mass is not there to carry out the full range of services that are now needed in a modern audit office or service. There are many technical matters to be dealt with. There have also been major developments in respect of corporate governance and so on. To deal with this support staff are required. I find it difficult to handle with 160 or 170 staff. I can only think that it must be pure hell and virtually impossible to do it with 40 staff.

Deputy McGuinness

As previous speakers said, our comments do not reflect badly on those involved; rather they are about the system and how the committee deals with it and the structure in place under the legislation. This is accepted by all. I hope the debate will widen, that there will be a good open political debate on the issue of accountability in local government and the office of the Comptroller and Auditor General and that a view will emerge on how they should be merged. The skill base could then be acquired to enable a one stop shop audit system to be put in place.

I take it from the questions asked that there is no direct engagement with the local government audit service by the Comptroller and Auditor General or analysis of the reports the service produces. Reports may be published but that is not the issue. I am aware they are published and made available on the relevant website but it is useless to present a report if action required on foot of it is not taken. If action is required on a recommendation, it should be taken. Who monitors if this is done? It is not this committee, as we do not have a role. In the 25 years I was involved in local government there was never a debate on a value for money report relevant to the local authority. During that time we never had an extensive debate on a local government service audit report. A debate tended to happen two or three years after the event when the report was presented to members when it was simply too late to do anything about a matter and the issues were forgotten. By and large, the report was rubber-stamped and passed on. It is regrettable that local government has not put in place a local committee of public accounts, for want of a better description. The lack of such a committee leaves a major gap in how we report on the spending of moneys across Departments.

It is regrettable that the Minister for Finance has not seen fit to broaden the debate. We should explore ways and means by which a mechanism can be put in place to enable us to do some of the work. Perhaps we could do it in conjunction with the local government audit service. By arrangement, the required critical mass could be achieved. The skills base would be in place and the required competencies would be on tap.

We are living in changing times; costs are changing radically upwards. There is now a greater demand for public accountability. The onus is on us as members of the committee to continue to press for such a debate and, within the framework of the legislation, to push the limits to the maximum to obtain the required information from Department of Finance or the local authorities.

Mr. Considine

On that point I draw attention to what the Minister stated in his letter to the Chairman of 26 April. He stated that where the committee was not satisfied with the reply, it could consider seeking a Dáil debate. In such circumstances, he said he would favour a Dáil debate to note the relevant PAC report and the minute of the Minister of Finance. I draw this to members' attention because it is one way of broadening the debate, if that is the committee's wish.

Deputy McGuinness

That is the conundrum for the Whips. I do not believe we are mature enough to allow a free vote in the Dáil on the issue.

Chairman

We discussed the letter of the Minister for Finance which included that proposal but decided to wait until after this debate with the Secretary General before replying. We have not turned down the option of a Dáil debate on the issue. We thought it was a proposal that had considerable merit but do not want to run to the Dáil on all sorts of issues arising from finance minutes. Our view was that if we were to use that mechanism, we would do so sparingly.

The other way by which we can widen the debate is, when we come to deal with the interim report on today's proceedings, to make further findings and recommendations arising from the exchange of views. They would be formally sent to the Department and we would expect to receive another minute in reply. We do not have many options, although we have some to advance the debate. I thank the Secretary General for being so forthcoming because we appreciate the constraints imposed on him in debating this issue.

Deputy Boyle

I wish to comment on the general discussion that has taken place. Mr. Considine asked a question about local government audit committees. To my knowledge, only one has been established. Half a dozen attempts have made to establish others in other local authorities, all of which have been frustrated because the committees have not been allowed to operate effectively or because their establishment was seen as a threat. That is a flaw in the 2001 Local Government Act.

My reservations about the difficulty involved in engaging in public and parliamentary scrutiny of moneys spent under the local government system concern the growing tendency for local authorities to become involved in public private partnerships with private companies and the difficulties highlighted in cases such as those in Limerick city and Eyre Square, to which I would add the controversy surrounding the Trim Castle project in which there might be some State involvement through an estate agency. European funding might be allocated in that regard, which could be subject to parliamentary scrutiny because of the involvement of a partnership but there is no such scrutiny where a local authority is involved. That frustrates the members of the committee.

The rate of inflation has reached 3.8%, from 2.5% in December, a 35% increase in a five month period. In his Budget Statement the Minister referred to an average inflation rate of 2.7% or 2.8% over the course of the budgetary year but that now seems unlikely. Mr. Considine might comment on the implications of this for public expenditure.

Mr. Considine

Unfortunately, oil prices have increased way above what was assumed in the budget. Interest rates are also rising. It remains to be seen whether they will rise further but the market is projecting further increases. In the budget for 2006 it was assumed that the price of oil would be $61.40 a barrel but it has been touching $75 a barrel. Clearly, that is an issue which has a heavy effect on the CPI. Each sustained increase of $5 in the wholesale price of oil directly increases the CPI by 0.1% and 0.2% in a full year. This does not take into account any indirect effects such as higher air fares or fuel surcharges. It is dangerous to examine economic variables in isolation. As the price of oil increases and we pay more to fill our car tanks and more for gas, it affects the level of spending elsewhere in the economy. I would not automatically assume, however, that there would be an immediate direct effect on the CPI because there could be offsetting effects as pressure increases elsewhere in the economy.

Deputy Boyle

If inflation averages more than 3%, which was not budgeted for, would Mr. Considine be confidant that additional money in excise duties, as a result of the increase in the price of fuel, will help keep down the budget deficit?

Mr. Considine

I was not referring so much to the budget deficit. The average rate of inflation for the year that we worked on was 2.7%. We have not produced a new figure. Therefore, I will not say——

Deputy Boyle

That figure is unlikely to be met. The inflation rate is 3.8% in May. It is hardly likely to average out at 2.7% over the course of the year.

Mr. Considine

We are living in an uncertain world. Even in the case of oil, there is no guarantee. All one can do at any point is examine the forward market. It is supposed to have all the relevant data factored into it. The forward market suggests that oil prices will stay high and, to that extent, the Deputy is right. If the forward markets were always right, we would not have volatile markets. All one can do is make the best assessment one can at any time.

As to what impact these circumstances will have on the budget in terms of the immediate tax revenue, we have a figure, in respect of which the Minister replied to a question from a member of this committee, Deputy Burton, the day before yesterday. The impact additional VAT on the higher price would have in 2006 is €34 million. If one spends money on oil, one does not have it to spend on something else — therefore, VAT is on the round. Our take from VAT is in respect of total spending. To get extra revenue from the increase in the price of oil, people must spend more than they intended to spend previously because if they do not and they channel into oil spending that they would spent on something else, there will not be that much of an increase in the take from VAT.

Deputy Boyle

It will not only apply to VAT. Having regard to the current order of the collection of taxes in terms of the ones that bring in most revenue to the Exchequer, VAT is ranked by far the highest, followed by income tax, excise duties, stamp duties and corporation tax. It seems most dependence on taxes being collected are on ad valorem taxes, which will increase as inflation rises. That is not a very safe state of affairs.

Mr. Considine

The first aspect we must consider is that we are always in a relative position. The reason all this is important is that we are competing with other countries. We are a very open economy. The Deputy has heard that time and again. One gets 140% of GDP when one adds together the value of our imports and exports. Whatever happens here we must bear in mind the position of some of our competitors. For example, in Germany wage increases have been very low in recent years. Consequently, its competitiveness is rapidly increasing. Even though it has all sorts of other problems, it is back as one of the key exporters in the world because it has exercised discipline.

The question for us is what will we do in response to this situation. We will only have a problem if we pay ourselves more then we actually earn. If oil prices increase, money will leave this country and go into the coffers of the people who produce the oil and we will be less well off. When we set our wage increases and our responses generally to take account of this situation, we cannot try to compensate ourselves for money that has gone to Saudi Arabia or wherever else it might have gone.

Deputy Boyle

I thank the Secretary General for his reply and I will leave it at that.

A matter of concern is the disposal of State assets, particularly land and a legal problem has occurred in the past 18 months or so. I refer to lessees being able to acquire State property through State agencies and Departments through being able to purchase it fee simple. A number of Acts were introduced that cover this area. The Department of Enterprise Trade and Employment introduced legislation in this respect covering the IDA, Enterprise Ireland and Shannon Development. A clause had to be inserted in a maritime Bill covering the Dublin Port Authority and the position in which it found itself. The Department of Community, Rural and Gaeltacht Affairs introduced pre-emptive legislation to make sure such consideration did not affect Waterways Ireland. I have yet to receive a satisfactory response on this issue. I presume the Department of Finance would have an overriding interest in this matter to make sure that an effective audit has been carried out of all State agencies and their property portfolios to ensure this problem will not recur. Is the Secretary General confident this is the legal position?

Mr. Considine

I will have to give the Deputy a note on this issue. I am aware of it. However, despite all the briefing material I have with me, none of it covers this issue. Therefore, I will send the Deputy a note on it in the next few days.

Chairman

I call Mr. Purcell to conclude.

Mr. Purcell

I have nothing further to say.

Chairman

I thank Mr. Considine and his officials for attending today and I thank Mr. Considine for his forthright answers. I wish him well in his retirement or in his next career as the case may be.

Mr. Considine

I thank the Chairman.

Chairman

We may note Votes 1, 6, 7 and 12. Is that agreed? Agreed. We may dispose of the contingency fund deposit account, finance accounts 2004, and chapter 1.1 of the Comptroller and Auditor General's report. Is that agreed? Agreed.

I will move on to any other business. The agenda for the meeting of Thursday, 18 May 2006 is as follows: 2004 annual report of the Comptroller and Auditor General and Appropriations Accounts, Vote 38 — Department of Social and Family Affairs, resumed, and the social insurance fund 2004.

The witnesses withdrew.

The committee adjourned at 2.40 p.m. until 11 a.m. on Thursday, 18 May 2006.