COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 2 Nov 2006

Minutes of the Minister for Finance on the 2002 Interim Report of the Committee of Public Accounts on Justice, Equality and Law Reform; and the 2003 Interim Report on the Office of the Revenue Commissioners, NTMA and NPRF.

Mr. J. Purcell (An tArd Reachtaire Cuntas agus Ciste) called and examined.

Chairman

We resume in public session to consider the minutes of the Minister for Finance on the 2002 third interim report of the Committee of Public Accounts on the Department of Justice, Equality and Law Reform and related issues. The Minister for Finance has examined the committee's third interim report of 2002 and has taken account of its findings. Regarding the committee's recommendation, his response has been provided and we will consider the matters separately. The clerk has created a checklist for members. We have received a good response from the Minister for Finance and in the vast majority of cases our recommendations have been accepted. Some have been implemented already.

The report suggests that a code of practice should be developed for consultation with both the local communities and the planning authorities in advance of major capital outlays. The rather careful response is that the Commissioner for Public Works undertakes consultation with local communities in all cases where the OPW has direct responsibility for major capital works. The caveat hinges on direct responsibility.

Mr. John Purcell

Nothing is said about consultation in advance, which might be pragmatic in light of last week's meeting.

Chairman

Our recommendation has been met. I regard the matter as closed.

The monitoring of the cost of accommodation services should be based on full costs, that is, including capital depreciation and ongoing insurance, security and maintenance costs. That is agreed by the Minister.

The report suggests there should be more coherence and better co-ordination between all the State agencies involved in the implementation of the strategy for providing accommodation for asylum seekers. The OPW has advised the Minister that the recommendation is now implemented.

The report suggests the OPW should review its resource base to ensure that it has the expertise necessary to undertake complex property transactions. This arose from comments made by Deputy Curran.

Deputy Curran

I am satisfied with the response.

Chairman

The next recommendation is that the OPW should adopt a more proactive approach to keeping properties in a manner that would maintain their full value.

Mr. Purcell

That recommendation stemmed from property at Myshall that was purchased for the accommodation of asylum seekers but was never used for that purpose. It was transferred to the Department of Health and Children. Deputy McGuinness suggested that the property was allowed to fall into a dilapidated condition. The Minister for Finance has advised the committee that the OPW is proactive in ensuring that the value of property will not be diminished.

Chairman

If members have any other queries I remind them that the OPW will appear before the committee on 23 November 2006.

Our report suggested that there should be more monitoring and evaluation of the causes of sick leave in the Prison Service. There is a lengthy reply that meets the point made by the committee. Like many private companies, the Department of Justice, Equality and Law Reform has moved to annualise wage payments, thereby reducing the quantum of overtime paid in the Prison Service.

Deputy Curran

This was an issue and the move to annualised payments to which the Chairman refers has made a difference.

Mr. Purcell

That is very true but on page 5 of the report there is an assumption of a 33% reduction in sick leave in the new system. The Minister states that the new system is only in place in all prisons for six months and, although progress has been made in some prisons, the projected reduction has not been achieved to date. The Minister points out that the new system effectively caps and contains the cost of sick leave replacement.

Chairman

That is the penultimate paragraph on page 5 of the minutes. The success of this measure is not yet proved. One could end with the worst of both worlds if we had changed to annualised systems at additional cost only to discover that this had not reduced overtime payment. It is a matter to which we may return when the Department of Justice, Equality and Law Reform appears before the committee. It could also be included in Mr. Purcell's report.

Mr. Purcell

I will bear that in mind.

Chairman

We will now consider the Courts Service. Chapter 5.1 of the report concerns the refurbishment of Cork Courthouse. The OPW needs to review its approach to the negotiation of property leases with a view to obtaining best value for money and, in particular, to ensure that expenditure undertaken on the refurbishment of premises is taken into account. This is fairly met here also.

Mr. Purcell

This stems from the refurbishment of Cork Courthouse. Certainly, some lack of co-operation occurred during the transition from Cork County Council to the Courts Service and the Office of Public Works. Formerly, the maintenance of courthouses was the responsibility of local authorities. This changed a few years ago with the advent of the Courts Service. The refurbishment of Cork Courthouse fell between two stools and delays occurred in getting the work done. Extra costs were involved because of that delay.

The courts had to use temporary accommodation. Perhaps the Chairman will recall Cork City Council rented a property for two years which was not sufficient. When the OPW sought to extend the rental, the best deal it could make with the landlord was for a nine year and 11 month lease, which was far in excess of what was required. Not only that, the rent was three times that paid by Cork City Council. The procedures have been updated and greater co-operation and co-ordination is in place. We can certainly keep it under review.

Chairman

The second recommendation on the Courts Service is that protocols governing the co-ordination of all State parties to significant property dealings should be drawn up. Effectively, that has been done. The three recommendations of the committee on chapter 3.1 covering the Office of Public Works provision of accommodation for the probation and welfare service were accepted also.

Value for money report No. 46 on the probation and welfare service found that as part of MIF management reporting, the probation and welfare service should monitor and analyse caseload variations between community-based teams, and insufficient information exists on how staff are deployed and the outputs they produce. This was a value for money report.

Mr. Purcell

Yes, this was a value for money report on the probation and welfare service. At that stage, its systems to track cases, workloads and variations between various teams were very underdeveloped which affected efficiency and effectiveness. That point was accepted and an extensive information technology programme was undertaken. If what was stated here was implemented in the interim, it meets the criticism in a satisfactory way.

Deputy Curran

The answer is perfect but we as the Committee of Public Accounts and Mr. Purcell in his role must be satisfied regarding future investment in IT. The minute states the director of the service is confident the system will generate quality data. We must be satisfied this happens. The answer is appropriate to the points we raised.

Chairman

The next recommendation made was:

There is some lack of clarity over the objectives of the Probation and Welfare Service and an insufficiency of performance indicators to adequately evaluate its performance. These should be addressed in the next round of strategic and business plans.

This point is quite valid. The criminal justice system is sometimes vague on what objectives are.

Mr. Purcell

That is what we found. A new statement of strategy and work plan cover this year and next year and state clearly the objectives for the period. This should bring much-needed clarity. The recommendation has been met fully by the Minister.

Chairman

The committee pointed out the staffing needs of the probation and welfare service should be reviewed in light of the additional functions assigned to the service by legislation in recent years. That point is met reasonably well.

Deputy Curran

The fact that additional staff were appointed clearly indicates the query we raised was valid.

Chairman

That completes the minutes of Minister for Finance on the third interim report on the Department of Justice, Equality and Law Reform. For the record, it completes the accountability cycle for the committee. As members know, the Comptroller and Auditor General, in line with his powers under the Constitution, audits the accounts of the Department of Justice, Equality and Law Reform and reports on various Departments in individual chapters of his annual report at the end of each September. The audit and chapters in the report become the agenda for public meetings of the Committee of Public Accounts.

Witnesses appear before the committee, led by the Accounting Officers of the relevant Departments or chief executives of agencies. The committee reflects on the evidence presented to it and publishes reports. Findings and recommendations form part of these reports. The recommendations go to the Minister for Finance who is obliged to reply in the minute of the Minister for Finance. We examine his reply to us. In this case, we find it very satisfactory because he has taken our recommendations on board. Some recommendations have been implemented already. A statement of intent has been made that others will be implemented.

The accountability cycle has been completed and a question frequently put to members of the committee has been answered. That question is whether anything is done after all the talking. The process is effective. We identify mistakes made and inadequacies in the system. We make recommendations which go to the Minister for Finance who replies in the minute. We are pleased to see in recent replies he took our views on board almost in their totality. Is it agreed to note the minute on the Department of Justice, Equality and Law Reform, chapter 4.1? Agreed.

We will now consider the second minute, the minute of the Minister for Finance on the third interim report of the Committee of Public Accounts for 2003 on the Office of the Revenue Commissioners, the National Treasury Management Agency and the National Pensions Reserve Fund. Again, for the ease of members a checklist indicates the status of each recommendation and whether the Minister has accepted it. Again, our views have been fully accepted almost in their totality.

The first recommendation we made was that the purely random audits should be included in the Revenue Commissioners' audit programme. The committee welcomed the decision to do so with effect from 2004. The Revenue Commissioners have done this and indicate they plan 400 random compliance tests this year. Perhaps we would like them to perform more random tests, but they certainly accepted the principle of the recommendation and implemented it.

Mr. Purcell

I also reported on this matter in my report for 2005 which was published recently. In it, I give the results of the random audit programme for 2005. That will be considered at next week's meeting and we do not want to pre-empt it. At the date of my report, the analysis of the programme for 2005 was almost complete. I expect and hope it will be complete by next week.

The Accounting Officer for the Revenue Commissioners will be able to give the full details of the outturn on random audits for 2005. As it says in the report, there was a yield in 30% of the cases randomly audited. We must wait to see if, over a period, that reflects the general taxpayer population. It would be unwise to extrapolate at this stage that 30% of all taxation cases would yield extra revenue for the State. It is a little early to make that assertion.

Chairman

As Mr. Purcell pointed out, the Revenue Commissioners will appear before the committee next week.

Deputy Curran

This is an issue the committee has deemed to be important for quite some time. While there were so-called random audits, according to the Department's description, when we analysed them we found they were not purely random. There was a checklist to determine how one ended up on the so-called random list. Because so much of our tax system is based on self assessment, the committee was anxious to find out if there was an underlying problem of underpaid tax, and if so, what its extent might be. If we had that kind of information, then we can decide how to target resources. That was the whole point of the random audit and the response is perfect in that it answers exactly what we asked. As we meet the Revenue Commissioners on an annual basis we will ask them what they intend to do with the information they are generating. Nonetheless, this is the response we sought.

Chairman

That summarises the committee's position. We regarded this as a very important recommendation. Self assessment does not work unless those being assessed feel there is a chance they will be audited. It is interesting that when the Revenue Commissioners returned to random audits, 30% of the sample audited had a tax liability. That is a very high figure. We will encourage the Revenue Commissioners to conduct additional random audits at next week's meeting.

The next recommendation is that the Department of Finance and the Revenue Commissioners should put in place a mechanism for evaluating the effectiveness of the changes made in the Finance Act 2005 that support the pursuit of those aiding and abetting tax evasion. The committee was strong in seeking legal change to ensure that those who aided and abetted tax evasion could be prosecuted. We now want the Department and the Revenue Commissioners to monitor the effectiveness of the provisions put in place. Previous Finance Acts had provisions in place to deal with the issue of aiding and abetting but they proved to be ineffective and no prosecutions were taken under the relevant sections. We are requesting ongoing monitoring in this area. Is Mr. Purcell happy with the response?

Mr. Purcell

Yes. This emanated from correspondence and representations to this committee that those who assisted in tax evasion were not being pursued. This was highlighted when the Revenue Commissioners pursued people with regard to DIRT, offshore and other schemes and the individuals in question said they had been advised they were doing nothing wrong and so on. They felt they were being disproportionately punished. What the Minister has said in his response is quite reasonable, namely, that one cannot really evaluate the effectiveness of the change until one initiates cases. No cases have emerged for investigation to date.

Deputy Curran

Cases would have to be current. None could have a retrospective or historic basis so it will be some time before we would see the impact of this.

Chairman

That is correct. I accept it is a good response. The next recommendation is that all further tax incentive schemes should have a mechanism built in to enable a proper monitoring of both the tax forgone and the benefits to be gained. The committee welcomes the current initiative to review tax incentive schemes. Furthermore, all proposed tax incentive schemes should be the subject of an ex ante evaluation of the likely costs and benefits.

The Minister for Finance moved significantly to meet our recommendations in the budget of 2005. I find the response acceptable. It remains to be seen what happens with the ex ante evaluations in future years.

Mr. Purcell

I agree with the Chairman. The response is exceedingly positive. The kinds of measures recommended by the committee were taken on board. Whether that was a direct result of the committee's recommendations is another question. There may have been moves to do this in any event because a head of steam had been building up about the need to have such monitoring. The response was absolutely perfect in terms of meeting the committee's recommendations.

Chairman

While the committee acknowledges the progress made in tackling tax evasion, it is timely for Revenue to establish, from macro-economic and other data, the scale of the shadow economy that currently exists. This refers to the perennial issue of the shadow or black economy. The answer from the Minister is a good one but it will not upset anyone in the black economy.

Mr. Purcell

This is a very difficult issue. The Revenue Commissioners and the Minister argue here that any such estimates, by their very nature, are unreliable as a basis for action. The concern is to get a handle on the extent of the black economy so that appropriate action can be taken. The response is reasonable and difficult to argue against. The Revenue Commissioners hold out some hope for the future with random audit testing and some of the targeted campaigns they are carrying out. They mention specifically their campaign in the construction industry, which may make some progress in this regard. However, they feel it unrealistic to talk about coming up with an estimate of the size of the black economy and the scale of activity therein. They are not unique in that view. Some countries estimate the size of their black economies but the reliability of such estimates is highly questionable.

Chairman

From my political experience, I believe much of the shadow or black economy activity is conducted by persons who operate in both economies. I do not think many people operate exclusively in the black economy. In that context, an increase in random audits is probably the solution.

Deputy Curran

I agree with what the Chairman said earlier and perhaps we can tease out the random audit issue further with the Revenue Commissioners next week. The response we were given seems reasonable from our current standpoint.

Chairman

The next recommendation is that specific attention should be given to PAYE and PRSI debt, especially for business enterprises where the tax had been deducted from employees but not passed on.

Mr. Purcell

The committee's concern here was that while tax evasion in its broadest sense is undesirable, occasionally there are mitigating circumstances. However, the committee felt that there are no mitigating circumstances where employers would deduct tax from employees and not remit it but use it for their own purposes. The Revenue Commissioners have responded to the effect that they have reduced the PAYE, PRSI element of the overall tax debt significantly, at a time of record economic growth, employment and tax receipts. The figures are positive from their point of view.

Chairman

Another recommendation is that the threshold levels for publication of tax defaulters should be occasionally reviewed. After we discussed the matter at this committee and pushed the case strongly, the levels were reviewed and are now at an acceptable level.

We will now move on to the 2003 accounts of the National Treasury Management Agency and the National Pensions Reserve Fund. The NTMA and the NPRF should continue to increase their involvement and expertise in supporting major infrastructure investment in Ireland, consistent with a satisfactory rate of return in association with the level inherent in these ventures. I think the reply is a good one. Is that agreed? Agreed.

How does Mr. Purcell respond to the recommendation that the level of fee paid by NTMA to An Post should be equitable to both parties?

Mr. Purcell

For many years the NTMA has had an arrangement with An Post with regard to its services for small savings schemes. As with any business, it wants to be satisfied it is getting value for money and that the service is being provided at the most economical level. It is a case of a tug-of-war between the NTMA and An Post and I consider the committee's recommendation as fair. When the NTMA came before the committee and the report was being compiled, the matter had not yet been resolved. Given that the relationship is a business one, it will ultimately have to be resolved, but the committee is recommending that any resolution should be arrived at on an equitable basis. That is certainly accepted.

The witness withdrew.

Chairman

May we note the minute? Agreed. The agenda for our next meeting on Thursday, 9 November is as follows: 2005 Annual Report of the Comptroller and Auditor General and Appropriation Accounts, Vote 9 — Office of the Revenue Commissioners, chapter 2.1 — revenue account, chapter 2.2 — tax written off, chapter 2.3 — outstanding taxes and PRSI, chapter 2.4 — revenue audit programme, chapter 2.5 — prosecutions and chapter 2.6 — special investigations. Next week's meeting will be somewhat longer than today's.

The committee adjourned at 12.10 p.m. until11 a.m. on Thursday, 9 November 2006.