COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 1 Jun 2006

Chapter 4.1 — Shortcomings in Financial Control.

Mr. A. Murray (Commissioner of Valuation) called and examined.

Chairman

We will now discuss the 2004 annual report of the Comptroller and Auditor General and Appropriation Accounts: Vote 15 — Valuation Office; chapter 4.1 — shortcomings in financial control.

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

Mr. Aidan Murray

With me are Mr. Gilbert Storrs, managing valuer, strategy and IT, in the Valuation Office; Ms Mary Smyth, head of finance and personnel, and Mr. Declan Lavalle, managing valuer in the revaluation unit.

Chairman

Will the officials from the Department of Finance introduce themselves?

Mr. Jimmy Doyle

I am a principal officer in the public expenditure division. I am accompanied by my colleague, Ms Máiread Emerson.

Chairman

Will the Comptroller and Auditor General introduce Vote 15 and chapter 4.1?

Paragraph 4.1 of the report of the Comptroller and Auditor General reads:

4.1 Shortcomings in Financial Controls

An Accounting Officer is required by law to sign and present for audit an Appropriation Account for each Vote for which he/she is responsible before 1 April of the year following that to which the account relates. It is my responsibility to audit the Accounts and to report on them by 30 September of the same year. The Appropriation Account for the Valuation Office — Vote 15 — for the year ended 31 December 2004 was signed on 31 March 2005 and submitted to me on that date.

Following the commencement of the audit the following deficiencies in the Account were noted:

·Monthly statements from the Paymaster General (PMG), who acts as the Valuation Office's banker, were not reconciled to the Office's accounting records on a regular basis throughout the year. A year end reconciliation had been completed in February 2005 and was presented for audit. However this contained an error of approximately €1.3 million.

·The statement of outstanding payable orders, supplied by the PMG, did not reconcile with the figure for outstanding payable orders in the Appropriation Account.

·The PMG was requested by the Valuation Office to cancel two payable orders, for amounts of €108,210 and €37,284, in July and August 2004 respectively. These instructions were not acted upon by the PMG in 2004 but this was not noticed by the Valuation Office and resulted in a duplicate charge to subhead C of the Vote. The charge to the Vote was therefore overstated by an amount of approximately €145,000 and the surplus to be surrendered understated by an equivalent amount.

·Suspense and deduction accounts are operated by the Office as part of normal financial recordkeeping. However these accounts were not reconciled on a monthly basis and it was noted that some contained unexplained balances going back a number of years.

A corrected Appropriation Account was submitted on 20 July 2005.

In addition to these shortcomings noted in the course of audit, my Office was informed by the Valuation Office in December 2004 that it had been brought to its attention in September 2004 that income from the public office for a week in November 2003 and, subsequently, for a week in January 2004 had not been lodged. While all the cash involved has been recovered, an amount of €2,041 in respect of cheques was still outstanding. The failure in control relating to the prompt lodgment of receipts to the PMG had been identified by the Valuation Office itself and was addressed by the introduction of new procedures and controls. However my audit found that new procedures recommended to, and operated by, the Valuation Office did not reconcile receipts to bank lodgments on a regular basis.

It is important that there are effective and sound financial control systems and procedures in operation in the Valuation Office, as in any organisation, to ensure that the risk of financial loss, because of errors or irregularities, is minimised and that accurate and up to date information is available to management. In this regard the carrying out of reconciliations on a regular and prompt basis and the correct recording of transactions in the financial records is essential. As it was a matter of concern to me that there was a failure by the Valuation Office to ensure that these functions were properly carried out in 2004 I sought the views of the Accounting Officer.

Accounting Officer's Response

The Accounting Officer informed me that the new Management Information Framework financial system went live in the Valuation Office at the start of 2004 thereby introducing many different procedures for staff to follow. While the system had been tested extensively prior to implementation, there was a lot of pressure on staff in the accounts area throughout the year.

He explained that the lapses and failings were due, in the main, to a lack of knowledge by staff as to the correct procedures to be followed. While staff were aware of the error of the amount of €1.3 million in the PMG account they were unaware of the correct procedures to be followed to correct the balance. Neither were staff aware of the necessity to undertake monthly reconciliations. He informed me that the outstanding payable orders difference was due to a financial system interface giving inaccurate information that resulted in the value of payable orders being understated for some months. The software supplier was now taking steps to rectify the problem. The problem relating to the two non-cancelled payable orders was also due to unfamiliarity with correct procedures and resulted in the failure to make the necessary journal entries until 2005. Staff had been unaware of the need to reconcile all accounts, including suspense and deduction accounts, monthly. This was now being done and some old irreconcilable balances identified would be considered for write off in 2005.

He assured me that new procedures and controls had been introduced and were in place to address and correct all the deficiencies and weaknesses noted.

He stated that public office receipts had been the responsibility of one officer only. When it was noticed that lodgments had not been made, the money could not be found and the officer concerned was on maternity leave and could not be contacted. Correct procedures were not in place to ensure that the failure to make a lodgment in a timely manner would be brought to attention. Lodgments were not made on a regular basis, only one person was responsible for money at all stages of the process and checking procedures were inadequate. Accounts staff had attempted to solve the problem themselves rather than bringing the matter to the attention of management. A full investigation had since been carried out which had resulted in disciplinary action being taken. New interim procedures had been introduced but all procedures would be examined by a project group that was being set up to examine the issue and recommend improved procedures. All outstanding cash had now been lodged but a small amount of income represented by cheques was still outstanding pending the submission of re-dated cheques.

Mr. John Purcell

Vote 15 is straightforward, with only two matters of note, the savings on subhead A.1 and other related administration expenses explained by the failure to recruit staff as quickly as might have been anticipated when the Estimates were drawn up. The doubling in the amount of appropriations-in-aid for valuation revision fees is explained in the account.

In chapter 4.1 I draw attention to the circumstances that led to the presentation of an incorrect appropriation account to me by the statutory date, 31 March of the year following the year of account. During the audit we found that fundamental accounting controls, such as agreeing bank statements with the accounting records, were not being performed on a regular basis. To compound matters, when the year end accounting was being finalised, there appeared to be a lack of appreciation among the staff of what had to be done to correct the effects of the earlier deficiencies. After the errors that had been brought to light by the audit had been corrected, a revised appropriation account, the one before the committee today, was submitted on 20 July.

Needless to say, I was concerned about this unsatisfactory state of affairs and sought explanations from the Accounting Officer. He attributed the shortcomings to the introduction of a new financial management system and the additional pressure this placed on staff, together with a lack of knowledge on their part about how to deal with technical accounting matters and the failure to recognise the importance of monthly reconciliations of accounts. All of these matters have since been addressed.

The other matter referred to in this chapter is the belated discovery by the Valuation Office that receipts for two separate weeks in its public office had not been lodged in the bank. While this oversight is likely to result in little or no loss to the State, it points to a breakdown in basic controls which, when taken in association with the failings referred to earlier, potentially could have serious financial repercussions. Changes in procedures have since been introduced following an external review.

Chairman

Will Mr. Murray now make his opening statement?

Mr. Murray

I thank the committee for the invitation to attend to consider this report. This is my first opportunity to appear before the committee since my appointment as Commissioner on 23 November 2005. The Comptroller and Auditor General has outlined the two issues dealt with primarily in his report — deficiencies in the appropriation account and the loss of income arising from the failure to make prompt lodgments to the PMG. I propose to deal with these sequentially.

With regard to deficiencies in the appropriation account for 2004, and as stated in the then Accounting Officer's response to the Comptroller and Auditor General, the lapses and failings were due in the main to a lack of knowledge at the time by staff as to the correct procedures to be followed. While the staff were aware of the error in the amount of €1.3 million in the PMG account, they were unaware at that time of the correct procedures to be followed to correct the balance. Neither were staff aware at that time of the necessity of undertaking monthly reconciliations. Staff are now aware of the correct procedures, which are to be applied in the event of a similar situation arising in the future. All necessary reconciliations are now done on at least a monthly basis.

The outstanding payable orders difference was due to a financial system interface giving inaccurate information that resulted in the value of payable orders being understated for some months. In essence this was an anomaly in the software systems used by the office. Having been called in by management, the software supplier rectified the problem during 2005. I am confident that information is now accurate and that all reasonable steps have been taken to provide against any recurrence of such an anomaly.

The issue of the two non-cancelled payable orders was also due to a lack of knowledge of the relevant correct procedures on the part of staff at the time in question. This resulted in the failure to make the necessary journal entries until 2005. Staff are now aware that where figures involved can impact significantly on the appropriation account, the related journal entries must be made within the year affected.

At the time in question, staff had also been aware of the requirement for monthly reconciliation of all accounts, including suspense and deduction accounts. These accounts are now being reconciled on a monthly basis as a matter of established practice and some old, irreconcilable balances which had been identified during the audit of accounts in 2004 were written off in 2005 under the guidance and with the agreement of the Comptroller and Auditor General.

To obtain an additional outside perspective, and to provide additional assurance as to the integrity of procedures, an independent consultant was engaged in March 2004 to undertake a review of financial procedures throughout the office. The consultant's report was received in June 2005. A total of 36 recommendations were made in the report and over 95% of these were accepted and have now been implemented. The small number of recommendations not implemented were not relevant to the circumstances that obtained by then.

We put in place measures of our own to address particular points of detail. Considerable effort was put into addressing issues of procedure, control, reporting and accountability in the financial dimension of the office over the past two years. The procedures and controls that have been introduced correct all the deficiencies and weaknesses noted.

The second issue to which the Comptroller and Auditor General's report drew attention relates to the loss of income arising from failure to make prompt payments to the PMG. The Valuation Office has within its operational remit a public office that provides academics, researchers and the public with access to historical valuation maps and records on request and on payment of the appropriate fees.

During 2004 the processing, including the lodgement of receipts from the public office, were the responsibility of one officer in the accounts section. When it came to light that two lodgements had not been made to the PMG, the money could not be accounted for and the officer concerned was on leave. The matter was eventually brought to light by routine checks undertaken by personnel in the accounts section. Despite persistent effort on the part of senior management, the officer in question could not be contacted.

As my predecessor, in his response to the Comptroller and Auditor General's comments, has acknowledged, correct procedures were not in place at that time to ensure the failure to make the lodgement in a timely manner would be brought to immediate attention. Lodgements were not made on a regular basis, only one person was responsible for money at all stages of the process and checking procedures were inadequate. The staff in the accounts section had initially inclined towards attempting to solve the problem themselves and delayed bringing it to the attention of management. Once management was made aware of the issue, a full and thorough investigation was carried out, with due regard to fair procedures and the principles of natural justice, which resulted in disciplinary action being taken against the officer concerned.

To prevent the recurrence of such a situation, interim procedures were introduced when the matter was brought to light. An internal project group was set up by my predecessor to urgently examine all relevant procedures for the recording, processing etc. of office receipts. This was augmented by the review of financial procedures undertaken by independent consultations to which I have already referred and which generated recommendations particular to this area. All such recommendations have now been fully implemented.

All outstanding cash was recovered and lodged but income represented by out of date cheques remains outstanding despite persistent efforts by staff in the accounts branch to secure replacement cheques. A sum of €4,528.60 was recovered, leaving the total account outstanding at €2,096.77.

I must clearly acknowledge that failures and shortcomings in controls of this kind are regrettable and unacceptable. I am satisfied, however, that the circumstances operating at the time for financial procedures that led to the failure to make these lodgements no longer apply and that sound procedures are now in place within the office to ensure that all such receipts are brought to account and lodged in a timely manner.

Chairman

May we publish Mr. Murray's statement?

Mr. Murray

Yes.

Deputy Deasy

In 2003 Mr. Murray's office surrendered a surplus of approximately €3.25 million and in 2004 the surplus was €3.1 million. Can he explain that substantial handback for two years in a row?

Mr. Murray

When the Deputy looks at the account he will see that there are savings under several headings. The main statutory work of the Valuation Office is revisions with which anybody who has been involved in local authorities will be familiar. This entails looking at material changes to buildings that are subject to rates and recasting the rateable value in order that the local authority can then strike a rate, multiply the rateable value and generate a rates bill for the following year. We also undertake global valuations of large undertakings throughout the country.

Our third area of work, mandated under the 2001 Act, is the revaluation project which involves going back for the first time in 130 years and carrying out a national revaluation of all industrial and commercial property throughout the country. This covers approximately 160,000 premises and establishes rateable values that have a close approximation with the actual market value of the property, namely, the rent it would generate in a year on the open market. To accomplish that task we needed to establish a dedicated unit within the organisation.

An independent report carried out some time ago concluded that we would need 30 contract valuers to conduct that work. In 2004 we were able to recruit 15 contract valuers. We did not recruit any in 2003, although we were mandated to carry out the revaluation project under the 2001 Act. After that Act was passed there was a period of industrial relations problems within the office which inhibited the revaluation work and affected other work too.

In 2003 money had been provided for an activity which did not get going, hence the underspend. In 2004 we recruited 15 contract valuers, half of the 30 we needed to roll this out and develop serious momentum. Most of those 15 joined us in November, resulting again in a significant underspend of the provision made for the revaluation project which had not started.

The revaluation project began in November 2005 and the savings which regularly appeared on our account in recent years will no longer appear to the same extent, if at all as the project progresses

Deputy Deasy

The core business statement of the office describes its purpose as being to provide accurate and up-to-date valuations of commercial and industrial properties to ratepayers and rating authorities. The previous Comptroller and Auditor General's report made it clear that from 1998 to 2005 a total of 457 leased licence reviews were submitted to the office, of which 36 were completed.

Mr. Murray distinguished between statute-based work and non-statute based work. When the Department of Communications, Marine and Natural Resources came before this committee it said these valuations had never been done because the office was not getting involved in some of these reviews, beyond its statutory obligations. The figures I cited for foreshore leased licence reviews are staggering.

Under the administration subhead the office recorded an underspend of €2.2 million in 2004 and €2.8 million in 2003 but this work has not been done. While this administration money has not been used there is a massive backlog of work left undone. That is a fundamental problem. The industrial relations issues must have been very serious.

Mr. Murray

In the market value work, to which the Deputy refers, we provide a service for Departments and Government agencies which ask us for advice on the market value of properties that they want to buy, sell, rent or lease. That is what the Department of Communications, Marine and Natural Resources was doing, as other Departments and agencies have done. That is non-statutory work which we must do as well as discharging our statutory mandates which underpin some €1,000 million per annum of rates income to local authorities.

Deputy Deasy

Should the office be doing that work, or should it stick to its statutory obligations and cede that non-statutory work to another office? The Department of Finance appears to be advising Departments and agencies to get outside valuations if they can because the Valuation Office will not do it.

Mr. Murray

I accept the point and have some sympathy with it. My predecessor acknowledged in respect of the Department of Communications, Marine and Natural Resources that we are not equipped to deliver, on demand, instant responses to market value requests from Departments and agencies, while we are also charged with doing this heavyweight mandatory work. The issue arises as to whether a demand on the office for market value work will continue.

As part of our business planning process we have started to contact all our market value clients and examine their likely demand on us. We will continue to have limited resources and will reach a fork in the road when the Valuation Office decides it cannot provide the type of service these people need. At that point we will discuss with the Department of Finance an approach to dealing with that problem. Until recently the Department of Finance imposed a stricture under which Departments and agencies had to come our way to get advice. They could not go anywhere else. That has been relaxed in recent years. The number of requests we receive is diminishing noticeably. Market value requests for 2005 were down one third on 2004. To date this year they are one third on the annual total for last year.

It is a matter of policy, which is outside our realm, whether people continue to be told to come to the Valuation Office which cannot provide an on-demand service.

Deputy Deasy

It is obvious that some years ago the Department of Finance decided where to source valuations. Will Mr. Doyle explain that decision?

Mr. Doyle

Last year we wrote to the Valuation Office explaining that Departments and offices are no longer required to go to the Valuation Office but that they must follow a tendering process. The Valuation Office may participate in the tender if it wishes or it need not bother.

Deputy Deasy

What has happened since? Do the Departments do that?

Mr. Doyle

As far as I know, they do but I do not have the details here. I can forward them to the Deputy. We wrote to the Valuation Office in March 2005 setting that out.

Deputy Deasy

I wish to return to a point made by the Accounting Officer in the Valuation Office, namely, that the office provides a consultancy service for Government agencies based on staff resources. The Estimate for the 2004 account for salaries, wages and allowances was €7.9 million and the outturn was €6.6 million. Can the Accounting Officer reconcile those two statements? The resources were available but not spent in 2004.

Mr. Murray

That gap arises from the revaluation project. Under the 2001 Act the provisions made for the office each year were to allow the different work components to operate at full throttle. The revaluation project, which is sizeable and would take up 30 contract staff and possibly another ten permanent staff, did not get off the ground until November 2005. A block of money provided for the office in relation to this project was not used. This was due primarily to industrial relations and recruitment difficulties. One issue we are wrestling with is that we are in the property business. To recruit staff on a contract or permanent basis, we must compete with people being offered large sums of money and commission in the private sector by estate agents, valuers and property consultants. We have half the complement of contract valuers needed to undertake the revaluation project. The project involves going back over 160,000 properties across the country, examining the current market value of those properties and striking a rateable value. Last November we started on south County Dublin where 6,500 properties are involved. Our target is to complete that by the early months of next year and to have draft certificates available by June.

As matters stand we have 15 contract valuers. A while ago, we decided to ask the Public Appointments Service for a licence to recruit directly rather than through the commission's process. It would give us greater flexibility and allow us to recruit at colleges at a particular time of the year and call people from panels. We now have the licence and the week before last the first recruitment advertisements appeared in the newspapers. Those staff will be paid for out of the savings made in recent years. If they had been recruited two years ago, those savings would not have been seen because the revaluation project would have soaked up the unspent money. This year we hope to have better success in recruitment than in previous years. We have also broadened the base to include the Polish community in which we believe there are many highly qualified people in jobs that are probably at a level beneath them. That accounts for the fact that the revaluation project did not get off the ground and the money provided for was not spent in those years.

Deputy Deasy

When did Mr. Murray take up his position in the office?

Mr. Murray

On 23 November 2005

Deputy Deasy

On the shortcomings of financial controls, the Accounting Officer submitted the 2004 accounts the day before the due date on 1 April. Is that normal procedure?

Mr. Murray

Yes, it would be normal.

Mr. Purcell

I can confirm that is normally the situation.

Deputy Deasy

These are pretty fundamental mistakes. I do not mean to be rude but when one looks at the monthly reconciliations, a GAA club would have handled its finances better. I am not an accountant but the fact that the monthly reconciliations between the Paymaster General's and these records could not be balanced is simply extraordinary. In the statement from the Accounting Officer, it stated on the ongoing effectiveness of the offices that a system of administrative and financial controls are provided for at managerial and audit level including the internal audit unit and the audit committee. When was the audit committee established?

Mr. Murray

The audit committee was established in 2005. As I stated in my opening statement, those shortcomings are not acceptable and are regrettable. My predecessor also acknowledged that. They were fundamental shortcomings. We were in a transition period in the office between the introduction of a management information framework and the training of staff to operate various procedures under that. A chasm developed between the two. Some new procedures were introduced and people were not up to speed in implementing them. I accept that some of the fundamental errors made appear striking on the face of it. That was acknowledged by my predecessor.

Measures were put in place afterwards. A firm of consultants with expertise in the area of financial control was engaged. It reported in June of last year with 39 recommendations, 95% of which we have implemented. I am happy to make that document available to the committee.

In addition to the other issue raised by the Comptroller and Auditor General concerning the public office controls, there were fundamental errors. It is not wise to have one person dealing with receiving and lodging receipts. Six specific steps were put in place to deal with that. I accept Deputy Deasy's comments that the errors at the time were fundamental. I am satisfied they have been corrected since.

Deputy Deasy

With regard to the failure of procedures and controls and dealing with the officer already mentioned, Mr. Murray referred to formulaic language being used to describe the situation. Will Mr. Murray describe it in layman's terms?

Mr. Murray

In summary form, money was taken in by the public office which was then passed to an accounts division in the office. It was the job of a particular officer to take that money and to lodge it. She took the moneys for a two week period. The money was not lodged and was essentially taken home along with the lodgement book record. We had neither the money or the lodgement records. There then followed a period when the officer in question was out on protracted leave and was not contactable. There was a medical dimension to that as well, had we more robustly pursued her. As soon as was humanly possible, when the officer in question returned to work, my senior colleagues interviewed her. All of the cheques and the cash were returned along with the lodgement book. Some of the cheques had gone out of date by that time.

A full investigation was carried out in the office. I have looked at the papers and I believe the interviews with the person concerned were done scrupulously. Checks were made with the Paymaster General regarding cross-checking lodgements. As a result of that, the person in question was demoted. Immediately following that, a series of steps was put in place to ensure such an event could not happen again. There will never be a situation where one person will control the money coming in and the recording and lodgement of it.

Deputy Deasy

The cash was taken home and the result was that the person in question was demoted. It is hard to get fired from the Civil Service.

Mr. Murray

I have gone over the transcripts of the interviews held with the person in question. Speaking personally, and not having interviewed the person, the water was somewhat muddy as to whether there was an attempt to permanently deprive the office of the funds in question — in other words, as to whether one could establish theft. In those circumstances and having looked at the files, I feel the appropriate sanction was taken and the person in question was demoted.

Deputy Deasy

Was the Garda involved in this matter?

Mr. Murray

The Garda was not involved at the time.

Deputy Deasy

Was there no communication with the Garda?

Mr. Murray

No, there was not. When the incident occurred the person was on maternity leave. Contact was made with her to let her know that we had come across an issue that we urgently needed to speak to her about. She was spoken to at the earliest opportunity. On the basis of the interviews that took place, I personally feel that the water was somewhat muddy as to whether a charge of theft could be laid against her. She gave explanations which she said were, from her point of view, credible — attempts to lodge on a particular day, the bank being shut, and so on. At the end of the day I feel the sanction imposed was probably appropriate.

Deputy Deasy

Fair enough. I did not know Mr. Murray was in the job for only a short time of period of time. Having listened to officials at the Department of Communications, Marine and Natural Resources, knowing the difficulty involved with foreshore licences being reviewed, and so on, and looking at the comments of the Comptroller and Auditor General, the failure to review rents can clearly lead to a loss of income to the Exchequer. Indeed a good deal of money has been so lost.

The office in general seems to have been lost in the bowels of time. It is badly in need of modernisation. Considering the number of licences which have not been reviewed, and the amount of money not used with regard to administration, the handbacks or surpluses involved, it is obvious the office has been very badly run. Mr. Murray has made it clear he is not happy with that situation. He has stated this is a matter of policy and will be decided shortly. What will be decided shortly? Does he refer to the role of the Valuation Office?

Mr. Murray

I do not share the view the office has been very badly run.

Deputy Deasy

How does Mr. Murray reconcile that with saying there were fundamental errors in the management of money?

Mr. Murray

In terms of the transition between what were outmoded financial procedures and a new management framework, fundamental mistakes were made at the time. However, I would then look at other areas of the office, at the fact that in a booming economy, one in which we daily see new hotels, shops, shopping centres and pubs being set up, the office has kept pace with somewhat fewer staff with the valuation of all that. We signed service levels agreements with every local authority in the country at the beginning of every year. We deliver a first-class service to them, and customer feedback indicates high ratings. We capture what in effect is a form of taxation. People are building new hotels, for example, and we go out and value them for the public good, so the money collected can be channelled into the financing of the local government authority or agency in question. We have fully kept pace with that.

We deal too with global projects, such as valuing the Vodafone or Meteor network, the new telecommunications companies which have arrived in Ireland in recent years. We have valued those very sophisticated businesses and have captured something which would, on a conservative estimation, contribute €130 million annually to rates.

Regarding the revaluation project, we had industrial relations problems in the first two or three years of this decade. That was not unusual, involving resistance to change and a belief that people had foisted on them a whole new raft of work, which would add to their existing work and make it difficult for them to cope. Those issues were worked through and resolved, and we now have the revaluation project up and running. We have sound personnel systems and robust management of our finances. I have explained the savings which were made through one area of our operations, which arises repeatedly under each of the subheads, where we have underspent. That relates to revaluation. First, the revaluation project was the subject of the industrial relations problems, and second, staff had to be recruited, and contract people had to be attracted to do the work.

I am not being defensive about the errors made as reflected in the 2004 report of the Comptroller and Auditor General, but in terms of this being an organisation which is drifting, derelict or losing its way, I do not believe that is the case. There is a problem with the market value service because that is not our main statutory work. Somebody has to do it——

Deputy Deasy

Let us say we accept what Mr. Murray says. Essentially, the job, the remit, in its entirety, is too big for the agency. The Department of Finance made that determination a long time ago. Is that the issue?

Mr. Murray

No. In terms of the revision project, we are keeping up to pace but we cannot service the market value part of the job on demand, with the resources we currently have. I can provide figures to indicate where we are. I will not bore the committee with all the details but essentially, the customers coming to us for market value would be the Departments of Communication, Marine and Natural Resources, Social and Family Affairs, Education and Science; and the Health Service Executive, the Revenue Commissioners and the tenant purchase scheme, where we get a small amount of adjudication work regarding differences between local authorities and tenants in renting or purchasing houses. In 2004, the sum total of requests we got from all those agencies, with the Department of Communications, Marine and Natural Resources accounting for 90% of them, was 326.

Deputy Deasy

Mr. Murray has made quite a significant and worthwhile statement. It is great to be forthright on the matter because it correlates in many respects with what was said by the Secretary General of the Department of Communications, Marine and Natural Resources who felt that the agency cannot deal with that kind of workload, particularly on a non-statutory basis. At the very least we should take note of that.

Mr. Murray

What I mean is that we cannot do all that work without compromising statutory work. To deal with it we would have to take people off statutory work.

Chairman

We will note this for a recommendation in our report.

Deputy Ardagh

How many market value projects would the agency expect to handle this year, based on the record to date?

Mr. Murray

The sum total of the requests to date is 85, from 1 January to 30 April, and 41 of those are from the Department of Communications, Marine and Natural Resources. There are eight from the HSE, 23 from the Department of Social and Family Affairs and the rest are single figures.

Deputy Ardagh

How far advanced is the agency regarding the revaluation project it is undertaking for South Dublin County Council involving 6,500 properties?

Mr. Murray

The order of assignment was made on 7 November last year. We have started into the inspection work on the ground. Our business plan target for the current year is to complete 5,500 of the 6,500, and so far we have inspected 1,700. We are in the throes of a recruitment campaign to augment our resources there and hope the new staff will arrive in September this year. We have also simplified some of the procedures which were being used on the ground, which should give the work added momentum.

Deputy Ardagh

I wanted to see what effect this has on the rateable income for South Dublin County Council. Regarding the 1,700 dealt with, what is the comparison for the rateable valuation previously with the new figure?

Mr. Murray

We have inspected them and have not yet begun applying values.

Deputy Ardagh

Have values been put on any of them?

Mr. Murray

A very small number have been valued.

Deputy Ardagh

In any numbers game, one can use a sample which reflects well throughout. Of the values applied, what percentage increase in value is there?

Mr. Murray

I think it would be early to extrapolate. A number of issues must be borne in mind. First, the 2001 Act imposes a cap on the local authority in the year following revaluation, which means that in aggregate, it cannot raise more in rates income than it did in the year prior to revaluation.

Deputy Ardagh

Let us consider a hotel, perhaps for example Abberley Court Hotel in the middle of Tallaght, which might have been valued ten years ago and might now be valued again today. What is Mr. Murray finding as being the increase in the value on the properties already valued?

Mr. Murray

In some cases we will see very marked increases in the rateable value.

Deputy Ardagh

I am not necessarily seeking figures, but a band.

Mr. Murray

On the basis of advice I have, one could be looking at a rateable value increase of perhaps 300% to 400%.

Deputy Ardagh

Is that 400%?

Mr. Murray

Yes, in some cases. The last national revaluation of the base on which rates are calculated was done 130 years ago. In 1988, almost 20 years ago, an exercise was undertaken where Grafton Street and I believe Henry Street were considered and an attempt was made to raise the rateable values that had existed for decades to a current basis. That was then extrapolated——

Deputy Ardagh

Can they not reduce the rateable value if they——

Mr. Murray

Yes, they can.

Deputy Ardagh

Therefore, the rate base could increase significantly to three or four times the current level.

Mr. Murray

It could. However, it is important to recognise the building blocks in this process. The first is the rateable value, which is simply the market value of the property. The properties being rated at present are assessed on a rateable value determined in 1988, which is well out of date. Some values will have increased considerably since then and some will have declined, for example, in a derelict urban area. When we complete the revaluation project, we will put a current rental market value on each property. The 300% or 400% increase that may occur in the case of some properties does not necessarily mean the rates bill will go through the roof.

Deputy Ardagh

I want to ensure that the local authorities do not use this as a way of creaming off more money from businesses that are hard-pressed at present and finding it difficult to survive. What is Mr. Murray's view in this regard? How can that problem be mitigated?

Mr. Murray

The first point we bear in mind is that if we deal with south County Dublin, as we are doing at present, we will deal with all the 6,500 commercial properties there. At the end of the day, irrespective of whether the rateable value goes up or down, South Dublin County Council in the year succeeding revaluation, which for its purposes will be 2008, will not, for a 12-month period, be able to raise a cent more in terms of rates income than it did preceding revaluation. A cap will prevent the type of windfall approach to which the Deputy refers.

Deputy Ardagh

Will there be no increase?

Mr. Murray

No.

Deputy Ardagh

Whereas there is normally a 3% or 4% increase.

Mr. Murray

Yes. In general what one would expect to happen — this is not within the realm of the Valuation Office but within the realm of the local authorities — is that a local authority on the basis of a new list of rateable values will, as it normally does, strike a rate each year to make up the difference between what it gets from central Government and what it needs to run its services. I expect — I speak personally because it is a matter for local county managers — that there would be strong reasons for local authorities to take a sensible view with regard to business within their areas. If one operates completely on a windfall basis and strikes an exorbitant rate, business will be driven out of the area.

Deputy Ardagh

There would be a reduction in the rateable valuation.

Mr. Murray

Yes.

Deputy Ardagh

As Deputy Deasy noted, some of the mistakes in the financial controls of the Valuation Office were fundamental and basic. I do not know who Mr. Murray's predecessor was — I have no knowledge of him whatsoever. It is the office I wish to examine, not an individual. That office was held by somebody who was not competent to manage an organisation of the size of the Valuation Office. As Deputy Deasy stated, it did not have the financial controls which would apply in a GAA club. They would not apply in any business, whether a newsagents, hardware shop or hairdressers, let alone a pub, hotel or manufacturing or distribution business.

The situation is appalling. It reflects principally on the senior management in so far as they did not know what was going on, did not have control of the situation, did not ensure that the staff who worked for them did the job that was supposed to be done and did not ensure that the type of controls that should be second nature were in place. It must have been an awful place for accounts staff to work, given that the situation was a total mess, no controls were in place and staff had no confidence in the operation. I am astounded at what was happening. However, I accept that Mr. Murray is changing the systems. I hope they are fully changed.

What form of risk management analysis was undertaken? What are the greatest risks? Is Mr. Murray on top of every detail to ensure that what needs to be done is done? He should not accept it is not done, for any reason. I am horrified.

Mr. Murray

I believe we are on top of matters. There is a management committee which comprises me and the senior managers in the office — it is a group of approximately ten staff — which routinely meets once a week. The agenda of that group would include everything from finance to personnel issues to other issues that crop up from time to time within the office, including the management of the core areas of activity. We also put in place an organisation-wide risk management system in the early part of this year. We have had managers throughout the organisation identify the risks in each area of activity, whether current or emerging. We would routinely discuss these and consider means of addressing them. In addition, we set up an internal audit committee. I am currently considering ways in which we could strengthen that committee, and we are also examining our internal audit plan for the next year or two to ensure that this element of control is also strengthened. With regard to the financial systems that have been put in place in recent years, we now have a fully fledged financial information system which generates good quality data in a modern format, which is what management needs.

I accept the criticisms made by Deputies Ardagh and Deasy in regard to the comments of the Comptroller and Auditor General, whose comments I also accept. The Valuation Office has come a considerable way since 2004. The systems and structures in place today at management level would very quickly pick up any emerging difficulty before it became a problem of the type referred to earlier.

Deputy Ardagh

I am concerned. Mr. Murray is effectively the Accounting Officer of the Valuation Office. He takes responsibility to personally check that all of the necessary reconciliation items are listed and accounted for. Is that done? Given what has happened in the past, Mr. Murray should take extra responsibility that others may have been able to delegate previously. Until he is absolutely sure that the staff to whom responsibility is delegated are operating in the way he wants, will Mr. Murray take that responsibility?

Mr. Murray

Yes.

Deputy Ardagh

What checks does Mr. Murray carry out to ensure the correct procedures are applied and that all necessary reconciliations are done on at least a monthly basis, as he stated in his opening remarks?

Mr. Murray

A system of management meetings is in operation. On a monthly basis, a full financial report of all income and expenditure in the office, broken down to a great level of detail, is generated by the systems we have in place. I have ongoing contact with the head of personnel and finance and the type of questions which the Deputy asked have been pointedly asked by me in recent months. Furthermore, we did not rely on personnel within the office when devising systems to address issues that arose in the past. Independent consultants were employed in 2004 and they produced a report in early 2005. One of the questions I asked soon after taking this post was the extent to which their recommendations were implemented. Their work involved a review of financial controls throughout the office, including the public office, the management of various ledgers and so on. I am satisfied that 95% of the recommendations have been implemented.

Deputy Ardagh

Was Mr. Murray told they were implemented or was he shown this was the case? Can he tick off the various recommendations as being implemented or is the information in this regard anecdotal?

Mr. Murray

It was a combination of both. I did not sit in the accounts division and go through the individual lodgements and receipts from the public office.

Deputy Ardagh

Did Mr. Murray see that reconciliations were signed off and that somebody had accepted responsibility for and agreed them?

Mr. Murray

Yes. I have spoken to both the senior and junior officers involved in the process.

Deputy Ardagh

That is good.

Mr. Murray

I can detail all the steps we have taken if the committee so requires.

Chairman

We would appreciate if Mr. Murray could provide this information by correspondence.

Mr. Murray

I will do so.

Deputy Ardagh

I wish Mr. Murray well in his new role. I understand he has been in it less than a year.

Mr. Murray

I started five months ago.

Deputy Ardagh

I wish him the best of luck.

Mr. Murray

I thank the Deputy.

Chairman

I will follow up on one of Mr. Murray's replies to Deputy Ardagh. When the Valuation Office undertakes a revaluation for a local authority — such as that currently under way for South Dublin County Council — does it issue the new valuations to the authority on an annual basis or when the full revaluation is completed?

Mr. Murray

New valuations are issued when the revaluation is completed in full. The best way to characterise revaluation is as an equitable redistribution of rateable values within an area. In the case of South Dublin County Council, for example, we are currently working through this process. In June next year the occupiers of the 6,500 properties in the local authority area will receive a draft certificate. This certificate indicates a property's rateable value as assessed by the Valuation Office. The Valuation Act 2001 provides that an occupier who is dissatisfied with this assessment can raise it with the officer who conducted the valuation. In such cases the initial valuation may be amended. By the end of next year we will issue final certificates, which represent our final determination of the rateable values of the properties concerned. The objective is that these properties will be included on the local authority list for the following year, 2008.

Chairman

Will the entire 6,500 be included?

Mr. Murray

Yes.

Chairman

I understand the Valuation Office inspects every building that is to be revalued; it does not work from plans or estimates or by some rule of thumb. Is each building inspected individually?

Mr. Murray

There is a combination of approaches. One of the issues we have had to address is the fact that getting involved in inordinate detail — measuring the height of walls and the circumference of pipes and so on — means we would be at this forever. Our revisions work means we already have properties with which we are familiar on the list and this allows us to draw on existing data to some degree. A property that has not changed in its physical dimensions and structure and to which nothing has been added or removed will nonetheless have a changed market value.

In a given area, such as an industrial estate, we gather information about the rents paid in that area and can then approximate in terms of the average rent we would expect to be paid for 50 or 100 units in that estate. It may well be that of that 50 or 100 units, there might be three with a higher and ten with a lower valuation. When draft certificates are issued, there may be some argy-bargy with a particular occupier claiming he or she is paying more than another person down the road.

In the case of more complex properties such as hotels and pubs, we go out and conduct detailed inspections. It is a combination of both approaches. To get through the work efficiently, we must make judgments as to which buildings require a detailed inspection and which, because they are already familiar, can be assessed using data already available to the office.

Chairman

When the owner receives the draft valuation order from the Valuation Office, is there an informal appeal procedure whereby he or she can raise any objections with the person who conducted the valuation?

Mr. Murray

That is correct. This process is referred to as a representation procedure in the Valuation Act 2001. It is a good feature because it means people are not immediately propelled into a formal appeals system which involves costs and formalities. Occupiers can make contact with the office and announce their intention to take issue with the draft certificate. Nothing is set in stone at this stage and nobody is boxed into a corner. Rather, a debate can take place between the person who conducted the valuation and the occupier. If there is a disagreement between them, a resolution may be found without people being pinned to the wall or forced into appeals. If no resolution is found and the Valuation Office is satisfied with the initial valuation, the final certificate will reflect that. After this, a formal appeals mechanism is available to the occupier.

Chairman

What percentage of owners go through the informal representational appeal process?

Mr. Murray

We have not reached that stage in the revaluation project because that will only arise after the draft certificates issue. I do not have data in regard to the current revision because it is a relatively new provision and we are still at a low level with it. In terms of the revaluation project in south County Dublin, since nobody has yet received a rateable value, the process to which the Chairman refers will only begin in June. That process will come into play when an envelope drops in a door and the recipient disagrees with what it says and wishes to speak to the person who conducted the valuation.

Chairman

I understand there is a formal appeal process to the valuation tribunal.

Mr. Murray

There are two steps. The Valuation Act 2001 provides that a ratepayer who is dissatisfied with the final certificate may appeal to the Commissioner of Valuation for a review of the rateable value. If that appeal is unsuccessful, the ratepayer can then go to the valuation tribunal, a body entirely independent of the Valuation Office. As a final level of appeal, ratepayers may go to the courts on a point of law.

Chairman

Although the valuation tribunal is independent, it is covered in the Valuation Office Vote. The Estimate for 2002 was €217,000 but the outturn was only €168,000. Why was there such an underspend?

Mr. Murray

Does the Chairman refer to the cost of the tribunal?

Chairman

Yes.

Mr. Murray

The underspend arose as a consequence of the lower than anticipated level of appeals during 2004.

Chairman

What percentage of valuations in 2004 went to formal appeal?

Mr. Murray

The figures for 2004 and 2005 were 6.4% and 5%, respectively.

Chairman

How many cases is that?

Mr. Murray

We processed some 7,000 requests in 2004. In terms of the cases processed at appeal, we had an opening balance at the beginning of the year of 536 cases and 684 came in during the year. We had an output of 914 and a closing balance of 306. These were the cases appealed to the commissioner in 2004 and 2005. Very few cases go all the way to the tribunal.

Chairman

Of those which do, does the tribunal have the statutory power to increase as well as reduce a valuation?

Mr. Murray

Yes. It can vary the valuation as it sees fit and we are bound by that.

Chairman

Does Mr. Murray have data on how many of those cases that were referred to the tribunal were varied, and the numbers that were increased and reduced, respectively?

Mr. Murray

I have figures relating to appeals to the commissioner but not in regard to the tribunal. I can get those figures for the Chairman.

Chairman

Will Mr. Murray detail the figures relating to appeals to the commissioner?

Mr. Murray

Yes. We should bear in mind this is the second stage in the appeals process. Representations are first, after which an occupier may go to the appeals commissioner. In 2004, for example, 6.02% of cases were appealed to the commissioner. Of those, 55.5% were changed while 44.5% were unchanged. In 2005, 5% of cases were appealed, of which 44.96% were changed and 55.04% were unchanged.

The reasons people made appeals may be of interest. A total of 88% of appeals were made against the financial amount of the valuation, while 11% involved claims for exemption. Such claims arose from the involvement of charitable or voluntary organisations which did not believe they were rateable. A further 1% of cases were appealed for a variety of reasons, such as the discontinuation of commercial activity on a premises, thus rendering it no longer rateable.

I have been——

Deputy Ardagh

Are charities rateable? I refer to the 11% of appeals mentioned by Mr. Murray.

Mr. Murray

Broadly speaking, no. The Act contains a list of exemptions, which includes charities. However, one must also consider the premises. In a case in which one part of a premises is used for charitable purposes while commercial activity is carried out in another, one must segregate the two activities.

To return to the Chairman's question, I have figures to hand which may be of assistance in respect of the valuation tribunal appeals. In 2004, the tribunal had an opening balance of 169 case appeals and a further 206 came in during the course of the year. As 198 cases were determined during the year, the closing balance was 179 cases. Last year, the tribunal's opening balance was the aforementioned 179 cases. It had an intake of 174 during the year, as well as an output of 212 cases, which left it with a closing balance of 139 cases. This year, our business plan is to deal with 7,000 requests for revision work from local authorities. If one was to apply that rate of appeal to this work, only a small percentage goes all the way to appeal.

Chairman

Does Mr. Murray have to hand the success and failure rate of appeals to the tribunal?

Mr. Murray

No, I can correspond with the committee in this regard.

Chairman

I would appreciate it if Mr. Murray could send the figures to the committee.

Deputy Ardagh

However, the question as to whether a particular appeal is a success depends on the side one is on.

Chairman

The appellant is either successful or unsuccessful.

The appeals to Mr. Murray as Commissioner of Valuation appear to have a very high rate of success. A change rate of 55% in the cases referred to him appears to be extraordinarily high. Mr. Murray does not appear to have great confidence in those who performed the original valuations.

Mr. Murray

I refer the Chairman to the basic figure. The figure of 55% relates to the 6% of cases which were appealed. In other words, only 6% of the cases handled in 2004 were appealed to the commissioner. And 55%——

Chairman

In the work I do, that would constitute a reason for advising people to appeal.

Deputy Ardagh

Is Mr. Murray telling the other 94% that they should appeal to him?

Chairman

This suggests that the other 94% should lodge an appeal, as half of such appeals are successful. Is there any evidence to the effect that only hard cases are appealed?

Mr. Murray

I do not believe so. Since my appointment to this office in November 2005, the variations that I have encountered and endorsed in respect of appeals to the Commissioner of Valuation have been fairly minor. The adjustments in the rateable value under discussion have been relatively minor. During my time in office, I have not come across any cases in which our valuers have been a million miles off the true value. This is also borne out by the satisfaction ratings we receive from the local authorities. For example, if the Valuation Office continually came up with rateable values which were subsequently appealed, thus causing a leakage in respect of the rateable value base, local authorities would be in a state of acute anxiety as to what their incomes would be at the end of the year. Moreover, the level of confidence in this office would be diminishing, whereas it has been increasing in recent years.

Chairman

I refer to the €168,000 spent in respect of valuation tribunal members' fees and expenses, which I understand also includes postal costs.

Mr. Murray

Yes.

Chairman

Are tribunal members paid an honorarium or are they paid on the basis of cases handled or days attended?

Mr. Murray

Their fees are set by the Department of Finance. At present, the daily sitting rate is €533.66 for a senior counsel and €472.88 for a junior counsel.

Deputy Ardagh

They only come in on bad days.

Mr. Murray

I cannot comment.

Chairman

What costs are paid to the members?

Mr. Doyle

An ordinary member receives €332 for a sitting day and €97 for a day on which a conference is held.

Chairman

Is it normal for a full attendance to be present, or do only two or three people turn up?

Mr. Doyle

Cases are assigned to different members. They do not all sit on the same cases. Each case is assigned a chairman and a number of members. Hence, the members take different cases and see them through.

Chairman

All tribunal members are appointed by the Minister for Finance.

Mr. Doyle

That is correct.

Chairman

That is somewhat unusual in modern times. Usually, a group representing the consumers' interest, one of the accountancy bodies or one of the valuation bodies would have the right to nominate.

Mr. Doyle

Under the legislation, the Minister appoints the members.

Chairman

Can Mr. Doyle provide the committee, either now or in correspondence, with the breakdown of fees paid to existing members for 2004 and 2005?

Mr. Doyle

I will examine the matter and will write to the Chairman.

Deputy Boyle

I was also interested in the appeals procedure and I am grateful for the answers supplied. I have a general question for Mr. Murray. Given the chapter in the Comptroller and Auditor General's report, has the organisation experienced, or does Mr. Murray fear it may experience confidence issues? As this organisation is involved in the business of assessment, the failure of financial controls is a quite serious charge. In general, what has been the experience? Might the exposure of these failings yet have an impact within the organisation?

Mr. Murray

I do not believe so. When I was appointed to the office, I also was surprised by the situation as depicted by the Comptroller and Auditor General's report and by some of the shortcomings it highlighted.

Given the organisation's present situation, I take a positive view. Obviously, the Comptroller and Auditor General and his staff will visit the Valuation Office on an annual basis and I am quite satisfied that anyone who comes into the office will find an organisation which has robust controls. We have augmented them in the past year and will augment them further in the coming year.

Hence, I do not believe that confidence is an issue for the office in respect of misappropriation of public funds or financial mismanagement. As I told Deputy Ardagh, the office has frequent management meetings and produces detailed financial reports which are broken down. Such management reports are made available to the management committee on a frequent basis. Any and all questions which must be asked about those accounts are asked. Hence, as I noted earlier, the present situation in the Valuation Office with regard to financial controls, is markedly different from that of 2004.

Deputy Boyle

My only other question is also general and is slightly outside the scope of Mr. Murray's legal obligations. I am curious as to whether the Valuation Office keeps in touch with alternative international practice regarding valuation. The standard method consists of the valuation and revaluation of property. As property is extended and improved, the valuation changes. However, in recent years some jurisdictions have changed to a site value valuation. Such a valuation is simply made on the value of the land on which a building is located and should negate the need for subsequent revaluations. Is the Valuation Office aware of international practice in this regard?

Mr. Murray

It is. We are part of what is called a harmonisation group and also have connections with groups as far afield as the United States, Australia and New Zealand, as well as throughout Europe. At present, we take our brief from the Valuation Act which circumscribes and sets down the manner in which we are obliged to do our business. However, we keep in touch with what constitutes good practice, as well as with emerging practices. Some of the Valuation Office's staff, including one or two of my colleagues who are present today, are in regular contact with counterparts in other jurisdictions to examine the manner in which business is done and how valuations are approached elsewhere. However, at present we must operate within the 2001 Act.

Deputy Boyle

Mr. Murray is probably aware that in recent years, Chambers Ireland has made proposals, which have policy applications, regarding business properties.

Mr. Murray

I am aware that Chambers Ireland has an issue with the current approach and with what it sees as a narrow base in terms of generating rates income. However, addressing this area would involve moving into the realm of policy, which is for others to deal with.

Deputy Boyle

I appreciate that and thank Mr. Murray.

Mr. Purcell

In light of the important work performed by the Valuation Office, particularly for the income base of local authorities, we have decided to carry out a value for money examination of the office and recently wrote to the Accounting Officer in this regard. The examination will look at the provision of services over the last five years and progress in the implementation of the main valuation and procedural changes specified in the Valuation Act 2001. It will also examine the extent to which the recommendations of a consultant's report from 2004, which should be distinguished from the report on the financial controls, have been implemented. Specifically, it will examine the time limits and quality of the service provided, the cost of the rating service, what opportunities exist to improve the management of the service and what good practice measures have been put in place. We would certainly like to see this report produced before the end of the year.

Chairman

Is it agreed that we note Vote 15 and dispose of chapter 4.1? Agreed. The agenda for the committee's next meeting on Thursday, 15 June 2006, is the 2004 annual report of the Comptroller and Auditor General and Appropriation Accounts: Vote 36 — Defence, and Vote 37 — Army pensions. I thank Mr. Murray and his colleagues for appearing before the committee today.

The witnesses withdrew.

The committee adjourned at 12.50 p.m. until 11 a.m. on Thursday, 15 June 2006.