COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 3 Jul 2008

2006 Report of the Comptroller and Auditor General on City of Cork VEC.

Mr. Timothy Owens (Chief Executive Officer, City of Cork VEC) called and examined.

Chairman

We are back in public session and considering the 2006 report on the City of Cork VEC.

Witnesses should be aware they do not enjoy absolute privilege. Their attention is drawn to the fact that 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 the transcript of the relevant part of the committee's proceedings if the committee considers it appropriate in the interests of justice.

Notwithstanding this provision in 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 within Standing Order 158 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.

Having read that for the third time today, I shall be saying it tonight in my sleep. I welcome Mr. Timothy Owens, chief executive officer, City of Cork VEC. I invite him to introduce his delegation.

Mr. Timothy Owens

I am accompanied by Ms Eimer O'Leary, senior staff officer City of Cork VEC - the officer responsible for processing the accounts of the exhibitions in question; Ms Ursula Fitzgerald, assistant principal officer and finance officer of City of Cork VEC; and Mr. John O'Regan, principal officer City of Cork VEC.

Chairman

We also have a delegation from the Department of Education and Science.

Ms Maura Owens

I am acting assistant principal officer in the Department of Education and Science, post-primary administration branch.

Mr. Matt Ryan

I am principal officer, post-primary administration section.

Mr. Brian Duggan

I am from the finance unit, Department of Education and Science.

Ms Bláithín Dowling

I am also from the finance unit, Department of Education and Science.

Chairman

I ask Mr. John Buckley, the Comptroller and Auditor General, to introduce the report on the City of Cork VEC.

Mr. John Buckley

The Crawford Municipal Art Gallery operates under the aegis of the City of Cork VEC. The alteration of its status to that of a limited company is imminent. Up to 31 December 2006 the gallery was funded by the Department of Education and Science. From 2007 onwards day-to-day funding has been provided by the Department of Arts, Sport and Tourism. This special report deals with overruns on two exhibitions that the gallery mounted in conjunction with the Cork European Capital of Culture, which was run in 2005. The exhibitions were to be self-funding and did not form part of the core operations of the gallery, nor of the VEC. As is the case with other self-funded activities, the payments are made by the VEC. The total overrun amounted to €250,000.

An overrun of €220,000 occurred on a James Barry exhibition. The costs were incurred in borrowing paintings from a wide range of art galleries for display during 2005 and 2006. The VEC met the costs because it believed the gallery had commitments from sponsors to an equivalent amount. This did not prove to be the case and ultimately, the Department of Arts, Sport and Tourism had to meet the overrun by way of a special grant in 2006.

An overrun of €30,000 occurred in respect of the Airgeadóir exhibition, which was an exhibition of coins. This was met by way of additional sponsorship from the exhibition's main sponsor. The CEO of the VEC explained that, because of the impending transfer of the gallery, it was allowed to operate with greater freedom than usual as regards exhibitions, and the normal checks and balances were relaxed. The VEC was taken by surprise due to a number of factors. It was not notified of the impending deficiency in funding by the gallery. Unlike other exhibitions where the expenditure was front loaded, a considerable amount of expenditure occurred towards the end. Finally, orders for service were not being issued by the gallery in advance, as is the norm, so that there was no record within the VEC of the amount of outstanding commitments. In short the VEC found itself without an accurate picture of either the income or expenditure commitments associated with the exhibition. The CEO will be in a position to elaborate further.

Chairman

I thank Mr. Buckley. I ask Mr. Owens to make his opening statement.

Mr. Timothy Owens

I have submitted an opening statement. Will it be in order for me to summarise that and then take a minute to give some type of context to the James Barry and Airgeadóir exhibitions?

Chairman

Is that agreed? Agreed.

Mr. Timothy Owens

Cork's designation in 2005 as European Capital of Culture was a great honour, not just for the city but for the country at large. The Airgeadóir exhibition celebrated four centuries of Cork silver and gold. With over 170 works comprising paintings, drawings and engravings, the James Barry exhibition was one of the visual art highlights of Cork's tenure as European Capital of Culture. The works were drawn from major public galleries including the Victoria and Albert Museum, the Tate, Yale University and private institutions and collections from Ireland, Europe and the US. These works were widely dispersed and had never before been brought together. It was not just a static exhibition. Monthly lunchtime lectures focussing on the life and work of Barry were held at public locations throughout the city. The exhibition culminated in an academic symposium. This bi-venue conference was held in the Royal Society of Arts London and the Crawford Municipal Art Gallery in Cork. The exhibition was regarded as a tremendous success in artistic circles. As a result, Barry is once again recognised as one of the most important neoclassical painters of 18th century Britain.

The committee fully accepts there were shortcomings in its management of the James Barry and Airgeadóir exhibitions. The committee maintains that the Airgeadóir exhibition should be considered in a different light from the James Barry exhibition. As soon as it became apparent to the committee that the gallery was incurring major liabilities in respect of the Barry exhibition, the CEO met with the director to ascertain if further commercial sponsorship could be raised to cover the over-expenditure. The director indicated that, despite his efforts to raise further sponsorship, none was available. The committee informed the Department of Education and Science, the Department of Arts, Sport and Tourism and the nominated chairperson of the board of the new gallery company of the situation. Following discussions with the Department of Arts, Sport and Tourism it agreed that, given the cultural and artistic importance of the exhibition during Cork's term as European Capital of Culture, it would make good the shortfall to the committee of the Barry exhibition. A private sponsor, who had intended to sponsor the Airgeadóir exhibition, was approached and he came up with the shortfall for the Airgeadóir exhibition.

The committee took immediate steps to control expenditure by the gallery. All order books were removed from the gallery and placed under the direct control of the committee's finance department. Proper procedures for quotations and so on must now be verified to the finance department before that department writes an order for any expenditure by the gallery.

In the original discussions between the committee, the Department of Education and Science and the Department of Arts, Sport and Tourism, it was agreed the building would be transferred to the ownership of the Office of Public Works, and the collection of art works would be transferred to the Minister of Arts, Sport and Tourism. It had been previously agreed that the City of Cork VEC would hand over ownership of the gallery to the OPW and the Department. In fact, that was to be one of the highlights of the European Capital of Culture year in Cork. The Department is currently investigating methods of transferring the collection to the Minister of Arts, Sport and Tourism.

The committee accepts that it failed to exercise proper oversight of the financial management of the Barry exhibition. Once the committee realised that over-expenditure had occurred, it took immediate action to ensure that such events did not recur by removing the order books from the gallery office. All gallery expenditure, which is now funded by the Department of Arts, Sport and Tourism, is now processed directly by the finance office, pending the new gallery board setting up its own purchasing procedures.

Chairman

May we publish that statement?

Mr. Timothy Owens

Yes.

Chairman

Can we also place on record the statement submitted prior to the meeting?

Mr. Timothy Owens

Yes.

Deputy Jim O’Keeffe

I compliment the committee on two fronts. First, it is refreshing to see people come in, put their hands up and admit that there is a problem. Second, I compliment the committee for the way in which it dealt with the problem and the shortcomings that existed. Would it be fair to say, given Cork's designation as capital of culture, that these particular incidents might be related to a certain amount of irrational exuberance and the fact that Cork was involved in something very special that year? All hands were on deck to ensure that it was a successful year, which possibly contributed to the financial difficulty that subsequently emerged.

Mr. Timothy Owens

While I might not use the word "irrational", there is no doubt that the committee and the director were intent on making this the biggest and best exhibition that was ever organised in Cork, or even Ireland. That might be irrational on my behalf, but there was an expectation that we should put our best foot forward.

Deputy Jim O’Keeffe

Apart from the financial difficulty that arose, it was an enormous national and international success.

Mr. Timothy Owens

It would have been regarded as an enormous success. To be honest, I was not exactly celebrating its success when I found out the level of over-expenditure.

Deputy Jim O’Keeffe

I appreciate that.

Chairman

Were you director or chief executive at the time?

Mr. Timothy Owens

I took up my position as chairman of the City of Cork VEC at the end of June 2005, so I was there for part of the exhibition, although I was not there for any of the pre-planning.

Deputy Jim O’Keeffe

There was a period of transition at that time anyway. Mr. Owens took over from the former CEO in the middle of last year.

Mr. Timothy Owens

That is correct.

Deputy Jim O’Keeffe

I also understand that the VEC were moving out of the gallery.

Mr. Timothy Owens

That is also correct. My predecessor showed great foresight in deciding that it would be best if the art gallery was funded by the Department of Arts, Sport and Tourism, rather than by the VEC and the Department of Education and Science. He put it to the committee in 2003 that it would be an appropriate gesture if we divested ourselves of that particular institution. He approached the Department of Education and Science and the Department of Arts, Sport and Tourism and discussions took place between them. A Cabinet meeting was held in the gallery in May 2003 and it was announced that the gallery would be transferred from the City of Cork VEC to the Department of Arts, Sport and Tourism. It was hoped that transfer would happen before the exhibition concluded by the following February. The expectation was that the Department of Arts, Sport and Tourism would be responsible during that period.

Deputy Jim O’Keeffe

Has that transfer been completed? If not, why not?

Mr. Timothy Owens

It has not been completed. There have been a few difficulties. One of my most immediate tasks was to try to ensure that a legal transfer could take place. We had great difficulty in establishing title to the building, as it was built in the late 18th century. I eventually concluded that it could take years to establish title, so I approached the Department of Education and Science.

I met with two assistant secretaries general at the Department of Education and Science to convey the need to expedite the situation. Following these discussions, it was decided that the only way to proceed was by means of legislation. Otherwise, we would have been paying large sums to solicitors for many years. Accordingly, a section of the Education (Miscellaneous Provisions) Act 2007 transferred the property to the Office of Public Works. While this section of the Act - which has not yet been commenced - made reference to the property, there was a further complication in that it was assumed that the property would go to the OPW but that the art collection would go to the Department of Arts, Sport and Tourism.

After receiving correspondence from that Department asking me to transfer the paintings to it, I sought advice from the Department of Education and Science. It was my opinion that it was not for me or my committee to interpret the will of Dáil Éireann. I was not satisfied that the word "property" encompassed an art collection. I sought legal advice, which I subsequently conveyed to the Department. The latter has agreed it is a more complicated process than was initially thought. The Department is investigating how best to proceed and one of the possibilities is that further amending legislation may be required.

Deputy Jim O’Keeffe

That is interesting. We are into the area of the difference between real property and personal property.

Mr. Timothy Owens

Exactly.

Deputy Jim O’Keeffe

Sin ceist eile and we will not go into that. In regard to the exhibitions, there is reference to the role of the curator. Is it fair to say that the curator in question has an exceptionally brilliant reputation in the art world but not much experience in the business world?

Mr. Timothy Owens

That would be a fair summary. In fairness to the director, he would acknowledge that fact. Moreover, in fairness to the Department of Arts, Tourism and the Sport and the new gallery company, they are investigating the possibility of strengthening the management team for the latter.

Deputy Jim O’Keeffe

Is it true that the director's expectations in regard to sponsorships and so on were not realised and that this was the main cause of the problem?

Mr. Timothy Owens

Yes, his expectations were not realised. Deputy O'Keeffe may be aware that the capital of culture committee failed to raise the type of private sponsorship it had hoped to raise in that particular year. The James Barry exhibition, as a subset of those activities, failed to raise the type of sponsorship the director had confidently predicted would be forthcoming.

Deputy Jim O’Keeffe

In the unlikely event that the City of Cork VEC will have to confront another European capital of culture situation or something similar, is Mr. Owens satisfied that the new arrangements he has put in place, in so far as he will have any control over the gallery and so on, will be sufficiently robust to ensure there cannot be a repetition of this situation?

Mr. Timothy Owens

Yes, I assure the Deputy we have learned our lesson.

Deputy Thomas P. Broughan

Will Mr. Owens confirm it is his view that the director was irresponsible?

Mr. Timothy Owens

I was disappointed at the level of over-expenditure. While this may have been down to enthusiasm, as Deputy O'Keeffe suggested, I was of the view that there was an element of irresponsibility in incurring that level of over-expenditure, notwithstanding that he did not set out to do so.

Deputy Thomas P. Broughan

Yet, despite the changed structures, I understand this person has retained his role in directing the gallery.

Mr. Timothy Owens

Yes, this person is still in place as director of the gallery. Arising from these events, I called a special meeting of a gallery sub-committee and issued a severe reprimand to the director. While I considered taking further disciplinary action, I did not do so because I was of the view that no fraud was involved. While I considered there to have been mismanagement, I did not believe it to be deliberate. The committee did not suffer a financial loss, although the taxpayer may have been at a loss in so far as the Department of Arts, Sport and Tourism provided the shortfall in the Barry exhibition.

In addition, by that time, the individual in question had been made director of a new company which was in the throes of being established. I was of the view that it might be injurious to that smooth transition were I to take action at that stage. Moreover, we may well have been entering a legal quagmire because while this person was still de jure an employee of the VEC, he was now de facto the director of a new company which was independent of the VEC.

Deputy Thomas P. Broughan

However, the report indicates that in September 2005, Mr. Owens and his finance director were effectively misled in regard to likely spending. A indicative figure of €100,000 was given but Mr. Owens was given no indication that a further €150,000 or €250,000 would be needed. The committee was, therefore, effectively misled at this point as to the true liability.

Mr. Timothy Owens

I am not sure I would use the term "misled". The principal officer, finance officer and I undertook a financial review in late September or October 2005. I was only some weeks in the job and wanted to know how the Barry exhibition was progressing. I was informed at that stage that the project was in surplus to the tune of €100,000. Given that the exhibition was due to finish the following February, I was of the view that we would be in a healthy position. Nevertheless, I instructed the finance officer to write to the director, pointing out the need to stay in surplus and that no over-expenditure should be allowed.

One might conclude that I was misled by the director when it subsequently transpired that so much money was outstanding. In his defence, he would point out that planning for the exhibition commenced in 2003 and that the project involved the transportation of 177 works from various international locations, including Bologna in Italy, Yale in the United States and the Albert and Victoria Museum in London. I am not sure whether the director ascertained exactly how much it would cost, for example, to bring a painting from Yale. When I asked why he did not follow our systems and procedures, he pointed out that having spent months trying to persuade the Tate Gallery, for example, to lend out a major painting, he could not go back and say it was necessary to await an order form from the City of Cork VEC and that we would like to tender for the transport costs. Had he done so, he would have been told where to go. Transport costs represented a major item of expenditure, at some €147,000. We were not aware of those costs.

Deputy Thomas P. Broughan

Was the €90,000 in unpaid bills referred to in the report part of that?

Mr. Timothy Owens

Yes. Much of that would be transport costs which did not become apparent until individual paintings were transferred back to the relevant exhibition.

Again, I would have asked how much it would cost to acquire such a painting. I expect this is what the National Gallery must do. Until then, our exhibitions usually had been of Irish works of art and there was a complete misunderstanding of what the costs would be. While hindsight is a great thing, when I looked into the costs associated with a painting from the Ulster Museum, it cost £2,000 alone to take out and put back in a window through which the painting was moved. Deputy Jim O'Keeffe mentioned inexperience in the business world and the director lacked such experience.

Deputy Thomas P. Broughan

In fairness to the director, I refer to the planning in the preceding year or two. During the committee's previous invigilation, the Comptroller and Auditor General made a point on having a full cost benefit plan in respect of any project, wherever it might be in the country. In fairness to the director, he appears to have fully believed he would receive €250,000 from the Capital of Culture office. Was there any basis for that belief? Did he receive any assurances, written or otherwise, that this was the case? He had a huge shortfall.

Mr. Timothy Owens

He received a guarantee in writing that he would get at least €100,000 from the Capital of Culture committee and he received €100,000 from it. While the Capital of Culture committee had pointed out to him that it might not be in a position to provide further funds, he still had a hope and an expectation that it would do so or that he would be able to raise the finance from a variety of other sources.

Deputy Thomas P. Broughan

Ultimately, in respective of both overruns, who carried the can? Was it the City of Cork VEC or the city council? Who bore the brunt of this development?

Mr. Timothy Owens

As for the Airgeadóir exhibition, I mentioned that when I informed the sponsor of the exhibition of a deficit of €30,000, he provided €30,000. I then went to the Department of Arts, Sport and Tourism and pointed out to it that this constituted a major cultural item that deserved funding. In fairness to the Department, it came up with that funding. While the committee was not at a loss, one could argue the taxpayer was. On the other hand, were the director present, he would argue he always expected that the Department of Arts, Sport and Tourism would realise, even if I did not, the importance of this exhibition. He always had a hope that funding would be delivered by that Department, which ultimately was the case.

Deputy Thomas P. Broughan

The Department of Arts, Sport and Tourism, which will be appearing before the committee next week, will be taking responsibility in the future. I am familiar with Dublin's municipal gallery, which effectively was run directly through the city council. It is somewhat unusual that in addition to its main responsibilities, the VEC also had this heavy responsibility. However, people might say the overrun in this regard could have employed four or five teachers or whatever for the VEC's cutting edge business. What is the position regarding the gallery's structure in the future?

Mr. Timothy Owens

A new company has been established, namely, the Crawford art company. I will refer to my notes to provide a more detailed response. The company now is a registered company. It is not yet registered as an employer as the Revenue Commissioners are seeking certain details of the directors' PPS numbers for registration purposes. While the directors still have not supplied the necessary details, the gallery director is looking after that. The gallery has set up its own bank account and will soon be issuing its own cheques. Financial procedures and a proper accounting framework have been put in place because the Department of Arts, Sport and Tourism allowed the company to engage a private finance company, Crowleys DFK. The company still is not registered as an employer and until it is fully so registered, it is not in a position to pay its own staff. Although the Department of Arts, Sport and Tourism will be the paymaster, in an effort to ensure that until its procedures are properly in place and its board is robust enough to look after its own affairs, the City of Cork VEC has agreed, on an agency basis, to look after its accounts. However, the Department of Education and Science is not the paymaster in this regard.

Deputy Thomas P. Broughan

As no representatives are present from the Department of Arts, Sport and Tourism, this will be a matter for next week. I believe a letter of undertaking will be necessary.

Mr. Timothy Owens

One of the major problems is that we continue to be the employer. This is because when the staff signed an agreement with the City of Cork VEC to transfer, they received assurances from the VEC at the time. Before I took up my post, discussions had taken place between the Departments of Arts, Sport and Tourism and Education and Science, as well as the VEC. It was agreed that upon transfer, the employees would enjoy the same terms, conditions and pension entitlements. A difficulty has arisen in that the Department of Arts, Sport and Tourism still has not issued to the employees a guarantee or a letter of undertaking that their pension rights would be similar to the pension rights they already had enjoyed. In fairness to the Department of Arts, Sport and Tourism, when it approached the Department of Finance, the latter pointed out that it might take some time before it could put in place an agreement on pension entitlement. Consequently, until the employees, who de facto have transferred, receive that letter and until that company is registered as an employer, we will be in that position. We have been asking for the aforementioned letter of undertaking from the Department of Arts, Sport and Tourism and we continue to press for it.

Chairman

Does the gallery have its own stream of funding through admission charges, sale of catalogues or restaurant revenues? If such income exists, would it have been sufficient to offset the debt?

Mr. Timothy Owens

No, it would not. Its main source of independent income is a bookshop. At the end of 31 December 2003, 2004, 2005, 2006 and 2007, the gallery shop had in its account close to €40,000, €32,000, €6,000, €7,000 and €38,000, respectively. Those moneys are used to offset certain expenses. The sale of catalogues usually is not sufficient to cover the cost of their publication. The gallery also had a non-pay budget that was provided by the City of Cork VEC. However, it would not have been sufficient to cover the shortfall arising from the James Barry exhibition. It does not have any other independent income sources.

Chairman

What about the restaurant?

Mr. Timothy Owens

The restaurant is leased to a company which pays annual rent to the VEC as such. It is now paid to the gallery rather than to the VEC.

Chairman

How much is the rent?

Mr. Timothy Owens

The rent is €2,000 per month.

Chairman

Are there any other questions? As there are no other questions, I invite the Comptroller and Auditor General to conclude.

Mr. John Buckley

We are talking in the context of self-funded programmes which are quite common in VECs. They publish a separate statement on them which is attached to each of their accounts. The question is what kind of lessons can be learned looking forward. An obvious one is that in the case of exhibitions and other self-funded programmes, there ought to be a budget which would outline the projected source and uses of funds going forward. That would apply to all self-funded programmes and all VECs.

In the case of the income, there obviously should be a commitment evidenced in writing available for vetting by the finance office. This would be good practice going forward in this area. In respect of the expenditure side and the commitments, pricing of orders ought to be the basis for commitment control within the VECs in order that they know the actual expenditure that is coming down the line. If one can capture it at the earliest possible stage, at the point of orders, one can then manage the situation going forward. Within the context of VECs these are the lessons that might be learned.

Another lesson would be that self-funded programmes and matters at the periphery might deserve more internal audit or review in some shape or form, especially around the time when the statement of internal financial control is being signed off by the CEO, which I mentioned in an earlier session. That might be a time to raise questions about the controls and so on.

The Department of Arts, Sport and Tourism should probably clarify the arrangements going forward for the accountability and audit of the museum.

Chairman

I know Mr. Owens outlined the legal reasons and difficulties in transferring interest but the period between 2005 and the present seems to be a long time to bring this matter to a conclusion. We will meet representatives from the Department of Arts, Sport and Tourism next week and we might put that question to them.

Is it agreed to dispose of the report? Agreed. Is there any other business? We must agree an agenda for the meeting next Thursday, which is the 2006 Annual Report of the Comptroller and Auditor General and Appropriation Accounts 2006, Vote 35 - Arts, Sport and Tourism and Special Report No. 62: the National Museum.

I thank the witnesses who came here today and apologise for the delay in starting. Two other bodies appeared before us today and we went over time.

The witnesses withdrew.

The committee adjourned at 2.05 p.m. until 10 a.m. on Thursday, 10 July 2008.