COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 29 Jan 2009

Chapter 10.1 — Redundancy Payments Scheme Debt.

Mr. Seán Gorman (Secretary General, Department of Enterprise, Trade and Employment) called and examined.

Chairman

I welcome the witnesses. I make witnesses aware that they do not enjoy absolute privilege. 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 who are identified in the course of the committee's proceedings. These rights include the rights: to give evidence; to produce or send documents to the committee; to appear before the committee either in person or through a representative; to make a written and oral submission; 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 only be exercised with the consent of the committee.

Persons invited before the committee are made aware of these rights and any persons identified in the course of proceedings who are not present may need to be made aware of these rights and provided with a transcript of the relevant part of the committee's proceedings if the committee considers it appropriate in the interest of justice.

Notwithstanding this provision in the 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, 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 also refrain from inquiring into the merits of a policy or policies of the Government or of a Minister, or the merits of the objectives of such policies.

I welcome Mr. Seán Gorman, Secretary General of the Department of Enterprise, Trade and Employment. I ask him to introduce his officials.

Mr. Seán Gorman

I am accompanied by Mr. William Parnell, finance officer; Mr. Gerry Donnelly, assistant secretary responsible for corporate services, Mr. Dermot Curran, assistant secretary responsible for employment rights and industrial relations; Mr. Dermot Mulligan, assistant secretary responsible for labour market policy; and Ms Catherine Carroll, accountant, finance unit.

Chairman

I welcome the officials from the Department of Finance, MsGráinne McGuckian and Mr. Dermot Keane.

I ask Mr. Buckley to introduce Vote 34 of the Annual Report of the Comptroller and Auditor General 2007, Chapter 10.1, Redundancy Payments Scheme Debt. The full text of the chapter can be found in the annual report of the Comptroller and Auditor General or on the website of the Comptroller and Auditor General at www.audgen.gov.ie.

Mr. John Buckley

Some €1.5 billion was spent through the Vote for the Department of Enterprise, Trade and Employment in 2007. Overall, the Department managed or supervised expenditure of around €2 billion when one takes account of resources from the national training fund and income generated by agencies that operate under the aegis of the Department. The broad strategy being pursued by the Department in using these funds is set out in its statement of strategy that covers the period to the end of 2010. There are material spends in 2007 under three high-level goals.

Some €1.1 billion, or just over half of the all the resources, goes on labour force development, largely through programmes operated by FÁS, which is designed to improve the skill levels of the workforce. Some €500 million, or about one quarter of overall resources, is invested to develop enterprise or promote competitiveness, enterprise capacity and economic growth. Approximately €150 million of this comes from income generated by agencies that are permitted to retain that income. A further €300 million goes on promoting science, technology and innovation, with a focus on generating and applying new knowledge. The Accounting Officer has already tabled a document that outlines the spending, output targets and achievement under each of the high-level programmes.

Much of the work for which the Department has responsibility is done through agencies. As a result, grants to agencies account for the vast bulk of the expenditure of the Department. There was one chapter in the 2007 report on matters that related to the Department's management. In simple terms, when the State meets the redundancy payment obligations of firms that are downsizing, it is in effect making a loan to those firms. Some of them will be successfully restructured while others will not be capable of repaying that loan.

What the chapter dealt with was the delay in pursuing and, where appropriate, writing off the redundancy payment advances made by the Department. The background is that the Department had no dedicated unit pursuing debt since 2001. A unit existed up to that year when an upsurge in redundancies forced the Department to deploy staff to manage incoming claims on a timely basis. It was not until October 2007 that a unit was re-established in order to follow up on potentially collectible claims or to write off uncollectible amounts. The unit has reviewed old payments and €2.5 million was written off up to the end of 2008. A sample of these write-offs will be examined in the course of the audit we are currently conducting. Some €48 million remained to be either written off or collected at the end of 2008.

Overall, the work in 2008 has allowed the Department to compile an accurate profile of debtors by type, the amounts which they owe and their current financial status. This should position the Department to pursue the debts from actively trading companies in 2009 and later years.

Chairman

I invite Mr. Gorman to make his opening statement.

Mr. Seán Gorman

Thank you, Chairman. My comments relate primarily to the issue of redundancy debt and the level of historic debt under the redundancy payments scheme, which was commented on in the Comptroller and Auditor General's annual report for 2007.

Redundancy and insolvency payments are paid from the social insurance fund, which comes under the remit of the Department of Social and Family Affairs. However, my Department administers these payments in accordance with the redundancy and insolvency Acts, and my Department maintains and prepares the accounts for these payments.

Under the Redundancy Payments Acts, when an employee is made redundant the onus is on the employer to pay a statutory lump-sum payment to that person. Employers make regular payments into the social insurance fund through PRSI contributions. Accordingly, when an employer makes a statutory lump-sum payment to an employee, that employer is entitled to claim a 60% rebate from the fund. The redundancy payments section of my Department processes applications from employers for these rebates. The section also pays statutory lump-sum payments directly to employees in cases where an employer fails to pay the entitlement, and seeks to recover the appropriate contribution from the employer by way of follow-up action. It is these latter cases that give rise to the redundancy debt in the social insurance fund.

In liquidation, receivership or bankruptcy cases, the Department seeks to recover 40% of the redundancy payment from the employer, on the basis that he or she would, under normal circumstances, have been entitled to reclaim the balancing 60% from the social insurance fund. In cases where the employer has refused to pay the statutory redundancy entitlement to staff, 100% recoupment is pursued by the Department. The logic underpinning the legislation is that the employee is protected first in cases where the employer has defaulted.

As the Comptroller and Auditor General's report points out, the accumulated redundancy debt stood at €37.7 million at the end of 2007, compared to €13.5 million at the end of 2002. In his report, the Comptroller and Auditor General expressed concern that there had been no active pursuit of historic debt since 2001 and that this might have compromised debt collection. It is important to clarify that while there was no dedicated recoveries unit operating in the Department between 2002 and 2007, recovery was sought in respect of all debt arising to the social insurance fund in that period.

Up to 2001, the Department had a dedicated recoveries unit which operated alongside the redundancy and insolvency payments sections. However, due to a sharp increase in redundancy applications in 2001, it was necessary to divert staff from the recoveries unit to the redundancy payments area to process payments. The number of redundancies grew from 10,799 in 2000, to 16,085 in 2001, an increase of 49%. A further 52% increase in 2002 saw redundancies rise to 24,432. This coincided with a period of strong economic growth and increasing numbers in the labour force. While it may appear to be counter-intuitive that redundancies should increase at a time of economic growth, the competitive pressures in the market place contributed to the significant increase in the level of redundancies. The economic environment was positive but the level of churn in business was high.

At that time, delays of up to 26 weeks in processing redundancy applications were not uncommon. Accordingly, it was decided that the priority was to assist redundant workers by ensuring that they received their entitlements as promptly as possible. In the absence of additional staff to cope with the increased workload, the Department redirected resources from the recoveries unit to process these payments.

Nonetheless, formal recovery letters continued to issue to employers who failed in their obligations to pay statutory redundancy to their staff and who owed a debt to the social insurance fund. These letters sought payment of the amount due from the employer. Attention was drawn to the fact the Minister's claim was a priority debt which had to be treated as a preferential claim. Despite the absence of a specific recoveries unit, moneys were recovered through this process, including €4.5 million in 2004 and €2.2 million in 2005.

In parallel with the need to redirect staff to deal with the growth in redundancy payments, new legislation was introduced in 2003 which enhanced redundancy entitlements for employees. This required a complete overhaul of the IT systems in the redundancy payments section to cater for the new provisions. The new system went live in 2005. However, the development of the system, like the processing of payments, was resource-intensive.

It is important to point out the outstanding redundancy debt was not forgotten or dismissed in any way over the period in question. It was money paid out to recompense employees for their statutory redundancy entitlements in cases where their employers had either been unable or unwilling to make the payment.

A review of the redundancy and insolvency recoveries process was undertaken by the Department in 2006. Arising from this review, I agreed a dedicated recoveries unit should be re-established in the Department and that a write-off committee should be formed to identify and write-off debts which were considered irrecoverable.

The recoveries unit was set up by the end of October 2007 and work commenced on analysing historic debt and identifying sums that might be recommended for write-off. The debts in question arise in adverse financial circumstances for companies experiencing a downturn in trading activity and the prospect of recovering the debt is not good in all cases. In this context, the age of the debt is not the key driver of recoverability. There are instances which show significant debts were recovered after the elapse of more than ten years. Rather, it is the financial circumstances of the company, if it has managed to continue to trade at all, that is a stronger factor in determining the prospect of debt recovery.

The new write-off committee was established in April 2008. By the end of last year, it had identified historic debt to the value of €8.5 million which it considered irrecoverable. Up to €2.5 million of this amount related to redundancy payments, while a further €6 million related to insolvency payments. These amounts have now been written off in the social insurance fund accounts.

The recent downturn in the economy has seen significant increases in the number of redundancies reported to the Department. In 2008, the number of redundancies totalled 40,607. This represents an increase of more than 15,100 redundancies on 2007, a rise of 59%. The Department has once again had to redeploy additional staff to the redundancy payments area to provide the best possible service to applicants. These staff have been redeployed from other areas of the Department and the recoveries unit has not been affected. However, the workload on the recoveries unit has grown, as the level of new debt is increasing in proportion to the number of redundancies. This is borne out by the fact that, in spite of the write-offs at the end of 2008, and approximately €1 million being achieved in debt recovery, the accumulated redundancy debt has risen to approximately €48 million. I am confident, however, that we are in a stronger position to pursue this debt than we have been for some time.

Significant improvements in service delivery have taken place to clients in the redundancy payments area over the past several years despite the increase in statutory redundancy claims. In general, on-line claims for rebates are processed within a ten to 14 week timeframe, while manual claims are processed within 16 to 20 weeks. Priority is given to making lump-sum payments directly to employees whose employers have not paid their statutory entitlements. These payments, as a rule, are paid within a six-week timeframe.

While service delivery targets have suffered in more recent times due to the increase in the number of redundancies notified to the Department, the decision to reallocate staff in the Department to the redundancy payments function will help to alleviate these pressures on service delivery. It is an area being kept under constant review as the volume of demand continues to rise.

The Department has taken steps over the past 18 months to ensure the recovery function is once again the focus of a dedicated resource and I am committed to ensuring it remains so. Where moneys are deemed irrecoverable, mechanisms are in place to write off these amounts after all other avenues of recovery have been considered.

Over the past few months, a considerable amount of work has been carried out in determining the nature of the outstanding debt and in assessing its collectability. The Department has an accurate profile of individual debtors and the amounts owed by them. It also has a categorisation of their legal status, be they sole traders or companies, and whether the companies are in liquidation, dissolved or still trading. This information is informing our opinion on the recoverability of the debt and is enabling the active pursuance of companies who continue to trade.

Regarding the overall Vote for the Department of Enterprise, Trade and Employment, total gross expenditure in 2007 amounted to €1.477 billion, including €16.322 million in unspent capital allocations carried over from 2006. The breakdown of this expenditure according to key programme areas in the Department has already been provided to the committee, along with the strategic objectives and outcomes for each programme area for 2007.

Under the delivery of strategic goals programme area, the Department operates an internal audit function which provides an important independent perspective on the Department's financial management systems and procedures. The internal audit unit's work programme is overseen by an audit committee, which is chaired by a former head of the Revenue Commissioners. The committee also includes two other members external to the Department, as well as two departmental members.

During 2006 and 2007, the internal audit unit conducted a total of 16 internal audits and reviews including financial controls and procedural arrangements in several offices and sections of the Department; procurement procedures in several sample areas; payment procedures in the Department's finance unit, records management in the Department; and various Structural Funds programmes.

Chairman

Thank you, Mr. Gorman. May we publish your opening statement?

Mr. Seán Gorman

Yes.

Chairman

The committee has had five public hearings with FÁS and several private committee meetings over the past few weeks. Much of members' time was exercised in dealing with the issues that emerged during those hearings. One matter has been needling me for some time. An anonymous letter arrived at the Department of Enterprise, Trade and Employment in 2004 and was passed on to FÁS for investigation and examination. From the proceedings, we know what happened subsequently.

What did the Department do to ensure that the issues raised in that letter — which we did not see, but we can guess what was in it — were investigated adequately? Is there a draft risk register of agencies under the control of the Department? Did that letter put the FÁS organisation on that risk register? If it did, what did the Department do subsequently? In view of the fact that €70 million was spent in FÁS alone on advertising and on other promotions, and given that you said in your opening statement that the Department has an internal audit committee, what kind of investigation did the Department carry out to satisfy itself that taxpayers' money was being spent properly?

Mr. Seán Gorman

The anonymous letter came into the Department to the Minister in October 2004. It was immediately referred to FÁS for consideration. The director general of FÁS at the time instructed the organisation's internal audit unit to conduct an investigation into the allegations made. Internal audit work in FÁS began in November 2004 and was completed in December 2005. The FÁS audit committee properly considered its own internal audit during 2006 and 2007 — we are not on that audit committee — and minutes of those meetings were noted by the FÁS board, on which we have a member. The minutes related to procedural issues on the structure and the presentation of the report. As is normal practice, the internal audit report on this was sent to the Comptroller and Auditor General at the end of 2007. The full extent of what was going on only became fully known to us in the Department when the Comptroller and Auditor General published its report in May 2008.

The issue that arises in all of this is the governance of FÁS and State agencies in general, and the relationship between me as Accounting Officer in the Department and that agency. Our responsibility is to ensure that moneys are being spent on what they have been allocated for. It is also to ensure that the detailed requirements in the code of practice for governance of semi-State bodies are being implemented, especially through specific reporting arrangements that are provided for in the code of practice. Those include making sure that there is a functioning internal financial control system in the agency, ensuring that appropriate action is taken where problems emerge, and ensuring value for money.

These various reports are dealt with by the chairman in his annual report and accounts, in which he gives statements of internal financial control, and an assurance that there is compliance with all of the various rules and requirements from the code of practice. Drawing from guidelines of the Department of Finance, Accounting Officers should satisfy ourselves through the reporting arrangements that the requirements of the code of practice are being implemented in bodies under our aegis. If reports indicate that a problem has emerged, then appropriate corrective action must be taken by the body as soon as possible.

Following the report of the Comptroller and Auditor General in May, I learned in substantive detail that there were some significant issues here. I wrote to the director general of FÁS, asking for assurances that the practices referred to in the report of the Comptroller and Auditor General had been discontinued and I got those assurances.

Deputy Thomas P. Broughan

How did Mr. Gorman learn this? Did he learn it from his own directors? This issue has arisen before with regard to directors.

Mr. Seán Gorman

I learned it from the May 2008 report of the Comptroller and Auditor General.

Deputy Thomas P. Broughan

Was it not from internal controls in the Department?

Mr. Seán Gorman

No. We are operating on the basis of procedures and there is a cascade arrangement, whereby responsibilities go from a high level on my part to ensure that money is deployed for the purpose it is intended, down through the chairman and the board, which has internal audit procedures.

Deputy Thomas P. Broughan

Can the Secretary General talk to his own board members?

Mr. Seán Gorman

Yes, I can. There is no difficulty with that.

Chairman

You said you had one member on the board.

Mr. Seán Gorman

That is correct.

Chairman

Was there ongoing interaction between your Department and that board member on what was going on? Can you confirm that there was a risk register?

Mr. Seán Gorman

Yes, there is a risk register and there was a reference in the risk register to FÁS, due to the amount of money that we spend to ensure that proper controls are in place.

Chairman

When was that risk registered on the register?

Mr. Seán Gorman

None of the specifics with which this committee has been dealing was on that risk register.

Chairman

Can you outline the nature of that risk register? I do not understand how FÁS was left to operate from 2004 to the present time without the Department going through the organisation at a root and branch level. The Department had a risk register, it had the contents of the anonymous letter, and it had a member on the board communicating back to it. It seems it almost stood idly by.

Mr. Seán Gorman

The reference in the risk register to FÁS was about ensuring that information would be provided and sought on the radically increased levels of public funding for the training of workers, because we had put significant additional funds into FÁS in 2006 and 2007 for in-company training. It was also there to make sure that there were sufficient reporting arrangements to ensure value for money. To address the issue of a risk of failure on the part of FÁS to provide detailed information, we proposed to carry out sample checks on projects, to carry out value for money reviews, and to keep track of work being done by European Commission auditors where there were European social funds.

The anonymous letter was sent in shortly after it was sent to the Minister of the day. It took a long time for that to come out of the system. It came back through the internal processes of FÁS.

Chairman

How long did that take?

Mr. Seán Gorman

It was sent to the Minister in May 2004 and the Comptroller and Auditor General released his report in May 2008.

Chairman

It took four years.

Mr. Seán Gorman

Yes.

Chairman

Why was the Department not proactive in asking why it did not get a response for four years?

Mr. Seán Gorman

We knew that it was in an internal process, but we did not pursue it. I have no recollection of it on our record of it being specifically pursued in its own right during that period, other than the fact that it was in an internal process.

Chairman

This happened despite the fact that it was on the risk register.

Mr. Seán Gorman

The letter was not on the risk register, but the general issue of making sure money was properly spent was on the register.

Chairman

Are you satisfied that what has been happening in FÁS has not been happening in other agencies under your jurisdiction? Does the risk register expand to other agencies?

Mr. Seán Gorman

The risk register is not an agency focused risk register. It is a general risk register that identifies risks across the areas of activity of the Department. These areas can be connected to agencies, but they can also be internal, so it is not a dedicated risk register aimed at agencies. As in the case of FÁS, it will pick up areas that relate to agencies and offices.

The obligations on us are to ensure that the required processes are in place, as provided for in the code of practice and the code of governance. We asked our internal audit unit to take stock of the arrangements in place in the Department for tracking, ensuring and checking there was compliance with the requirements of the code of practice. This was done in the form of questionnaires sometime last year by the head of our internal audit unit. The information which has been collected by the head of our internal audit unit is the subject of new work this year in the unit's work programme. The internal audit unit is working through, liaison section by liaison section, the responses to the questionnaires and drilling down below the answers which were generally positive in confirming compliance but taking it several steps further to test the assurances of compliance. That work will be done. We have the systems in place and all the assurances from the various chairs in the form of their annual reports. However, this year we are taking this further step with our own internal audit unit, working through our liaison sections, to test the responses we are getting to determine that it is actually being delivered on the ground.

Deputy Deirdre Clune

Is that as a result of the FÁS——

Mr. Seán Gorman

No, we had done this anyway. Governance of bodies and agencies is always an issue for us because we have so many agencies working for us and reporting to us and so much of our funding is delivered through agencies. We do this constantly on our own initiative. However, we are reminded by the Department of Finance and our internal audit unit of the need to ensure these governance arrangements and the code of governance are being complied with. It is the critical tool. The system is built on a process of assurances being given and people at different levels in the cascade — local accountable officer level, board level, chairman level and our level — signing off that these things are happening. The code of governance and its application, as well as the diligence with which we pursue its implementation, is a live issue on a regular basis. It is not something that——

Deputy Thomas P. Broughan

What would ring an alarm bell? Why did the alarm bells not ring with regard to FÁS for four years or longer?

Mr. Seán Gorman

Alarm bells would ring, for example, with regard to the failure of bodies to produce accounts, or where the Department picks up a very significant departure in terms of spend from the purposes for which it was intended. They would also ring regarding issues around whether we were getting a return for the money we were spending, or whether we were getting throughput outcomes for the money we were spending, or intelligence——

Deputy Thomas P. Broughan

If there were media shots of people being in America or if they seemed to be abroad much of the time, such as in the case of FÁS, would this ring an alarm bell for the Department?

Mr. Seán Gorman

No.

Chairman

I shall come to that in one minute.

Mr. Seán Gorman

It did not strike me as being excessive. On observing the media reports on the NASA science programme in Florida, I would never have considered from reading the odd piece of coverage that there was something excessive happening, in the way the Deputy suggests I perhaps should have. I would not be privy to detailed internal day-to-day decisions at that level. It is a different level of oversight.

Chairman

I wish to conclude my line of questioning. First, could the committee have all the information available on the risk register from 2004 onwards?

Mr. Seán Gorman

Yes, we can give the Chairman the risk register for each year.

Chairman

Second, in regard to the representative of the Department on the board of FÁS, while I have only had limited experience as a Minister, I would have expected that representative to report back on the issues related to the anonymous letter. I find it incredible that there did not seem to be a hands-on approach taken by the Department or its representatives on the board over a period of four years.

Mr. Seán Gorman

Our representative on the board was not a member of the internal audit committee. From observing what has happened here, it seemed to take a considerable time within the organisation for the board to find out about and understand the extent of some of the issues playing out. The Department's representative on the board would have been in the same position as the wider board in that, not being a member of the internal audit committee, they would not have been privy to some of the details of what was happening. My understanding is that reporting to the main board, until the Comptroller and Auditor General came in, was at a different level.

Chairman

I thank Mr. Gorman.

Deputy Michael McGrath

I welcome Mr. Gorman and the officials from his Department, as well as the officials from the Department of Finance.

I want to focus specifically on the issues dealt with in chapter 10 of the Comptroller and Auditor General's report in regard to redundancy debt and redundancy payments, in particular. Considering the report and given the comments of the Secretary General in his opening statement, it is clear the level of redundancy debt effectively doubled from €24.9 million in 2005 to €48 million at the end of 2008, after a write-off of €2.5 million. Given the current climate and the increasing number of redundancies due to the recession, it seems there is significant potential exposure for the State in terms of redundancy debt that we will not be able to recoup from companies going into liquidation. Will Mr. Gorman outline the actual cash outflows in redundancy payments in 2008 from the social insurance fund? If possible, could he split them between those that represented a 60% refund to employers and those that accounted for a figure of 100% in the event that a company went into liquidation? What has been the experience in the first month of 2009? What are the activity levels in redundancy payments? What is the information coming through to his Department on the claims being lodged, given that in 2008 there was a 59% increase in volume? Although it is an extremely difficult figure to calculate in the current climate, what are the Department's projections for redundancy payments and the potential increase in redundancy debt in 2009?

Mr. Seán Gorman

In 2008 the total amount paid out was €176.75 million, of which rebate payments to employers amounted to €162.6 million and liability payments to employees, €14.12 million. The level of redundancies this year is obviously running very high, at a rate of approximately 5,000 claims per month. There is no doubt that the level of debt will increase significantly. I do not have an estimate but the issue of recoverability will continue to present a huge challenge. In the more straightforward cases, in which there is either receivership or examinership and a proper structure processing company law, with a receiver, examiner or liquidator managing the affairs of wind-down or restructuring, we are preferential creditors and wait our turn. In such cases we receive either a full rebate or our share, depending on the value of the assets being distributed. The more uncertain cases concern what we call the defaulters — employers who just walk away from the whole business and simply go broke. Employers who go broke and cannot meet their statutory obligations to their employees and who are not in receivership or liquidation do not automatically present a problem in that, where they are prepared to come forward and work with us, we review the financial situation and can reach agreement with them, as they genuinely do not have the money to pay and it is not a deliberate absconding from their responsibilities. However, there are others who simply bolt the doors and depart, leaving employees high and dry in terms of their entitlement to statutory redundancy payments. Such employers are the most difficult to track down in order to effect recovery. One of the reasons recovery may be a lengthy process is that these examinerships and receiverships can take a long time to complete. Sometimes the money comes into us after several years. Last year, for example, we received an amount owing since 1992.

On the write-off committee, it is important that we do not send a message that we are simply in the business of writing off debt. The criteria in this regard are tightly controlled and approved by the Department of Finance. I do not want the message to be sent that there is any lessening of the obligation on employers and companies to meet their responsibilities. However, when receiverships are complete and the assets have been distributed, a point is reached in some cases where it is end game in the sense that a portion, all or perhaps none of the money is recovered. At the pace at which redundancies are being notified, there is no doubt that the level of debt will rise. The important issue is that we have an effective process for recovery and pursuit of that debt.

Deputy Michael McGrath

To extrapolate from the numbers, if the current level of redundancy notifications is some 5,000 per month, that equates to approximately 60,000 per year, or a 50% increase on the 2008 level which represented an increase of 60% on the figure for 2007. Is there any evidence of a trend whereby the proportion of total redundancy payments accounted for by liability payments, where the employer simply refuses to pay or where there are liquidations or examinerships, is increasing? Is it the case, because more businesses are going bust, that the proportion of liability payments is increasing vis-à-vis the figures for previous years, which may potentially lead to a higher level of redundancy debt in the future?

Mr. Seán Gorman

Yes, it is my view that there will be a higher level of redundancy debt. Various liability payments will be in different positions in terms of how the companies in question are being wound down. Some will be in liquidation, others in receivership and so on. Within the figure of €14 million for liability payments, there are various scenarios playing out. In the case of companies involved in a properly structured and orderly wind-down or examinership process, it may take time to effect a recovery but we at least have the comfort of knowing that when the liquidator, receiver or examiner has completed his or her work, we will get our just entitlement as preferential creditors. The great uncertainty will be the extent to which there will be bad debt, as I will refer to it, or simply defaulters. That is something we will track during the year, examining the debt and working with the write-off committee to ascertain how much of it is properly positioned in a regulated manner, via a liquidation and so on, and how much of it is higher risk.

Deputy Michael McGrath

I have several questions on the issue of recoverability and the recoveries unit set up in October 2007. It seems odd to discover, when reviewing the figures in the Comptroller and Auditor General's report, that the highest level of recoverability was in 2004 and 2005, when sums of €4.5 million and €2.2 million, respectively, were taken in, before a significant drop-off in the recovery amount seems to have occurred. It seems illogical that recovery levels should decline following the establishment of the recovery unit in autumn 2007. Some €700,000 was recovered in total for that year and €1 million in 2008. Will Mr. Gorman account for the decrease?

Mr. Seán Gorman

It seems like a contradiction. I will roll the clock back to 2001 when the decision was taken to stand down the dedicated recovery unit but not the recovery exercise. The basis on which that decision was taken involved two main considerations, one of which was the pressure on the customer service unit to which I referred. The other was the effort and expenditure going into a recovery process that was yielding little return. It is in this context that the decision was taken. Sometimes much effort is expended for little return. However, notwithstanding this, I took the decision when the matter was brought to my attention by my staff in 2006 that there was a case for a more refined and robust recovery system. The objective was to allow us to make more informed judgments as to which debts were potentially write-offs and focus the efforts of the recovery unit in chasing recoverable debt as distinct from every debt on file. It will take time for this system to bear fruit. It is an imprecise science because some company wind-downs can be done quickly and neatly, while others drag on for years before the assets are finally distributed. We are not in control of much of that process. We are often price takers rather than price makers.

Deputy Michael McGrath

On the write-off committee, Mr. Gorman has observed that €2.5 million was written off at the end of 2008. Will he explain that process and how the analysis was done of the debtors listing? He mentioned that the age of the debt was not necessarily the significant factor. However, I assume it is the case that the longer a debt is outstanding the more remote becomes the possibility of recoverability. Did the unit begin by looking at the oldest balances? How old are some of the balances comprising the figure of €48 million? What steps were taken by the unit before reaching its conclusion that some debts were simply irrecoverable and should be written off? Mr. Gorman referred in his opening statement to a target of €10 million of irrecoverable debt. Will he explain this? In my experience, one sets a target of achieving a certain level of debt to be recovered rather than a target for write-offs.

Mr. Seán Gorman

I will begin by dealing with the profile of debts. We have drawn up age profiles by reference to the minimum age of debt in two tranches, up to mid-2004. The reason we have done it this way is that there was a change of financial management system in the Department from an old financial management system, FMS, to a new Oracle system. The debt that was extant in the period up to the middle of 2004 was broken down as follows: debt from 1995 or pre-1995 was €3.7 million; in 1997, €1.3 million; 1998, €700,000; 1999, €700,000; 2000, €700,000; 2001, €900,000; 2002, €1.6 million; 2003, €6.3 million; and 2004, €5.1 million, giving a total of €21.4 million. Since mid-2004, when we switched to a more robust and modern system, the debt has increased. At June 2004, as I said, it stood at €21.4 million. In December 2004 it had increased to €21.8 million; in December 2005, €25 million; in December 2006, €31 million; and December 2007, €37.7 million. It continues to grow.

One might assume that older debt is, by definition, more difficult to collect. However, there are some surprises in this regard, as is clear from a consideration of a random sample of debts we have managed to collect in recent times. These include amounts owing since 1992, 1993, 1994, 1997 and 1999. The fact that a debt has been outstanding for a long time does not automatically mean it is irrecoverable.

The Deputy asked about the criteria used by the write-off committee. The criteria for write-offs have been agreed with the Department of Finance and I will provide members with a sense of them. Two or three main reference points are used to approach the write-off issue. There are four categories, the first of which, which is relatively straightforward, comprises cases in which liquidations have been completed and the companies struck off the register or both. The second comprises cases in which claims against bankrupts or bankruptcies finalised by the court have been concluded and an assessment of the status of the recoverability of the debt has been made. The third comprises cases in which it is clear, on the basis of legal advice, that claims are unenforceable. Such claims only are written off when the Chief State Solicitor's office has advised it will be virtually impossible for various legal reasons to recover them. The fourth concerns cases in which a judgment call has been made that for practical, legal or other reasons, there is no prospect of a return to the State through expending further time and effort on recoveries. These categories comprise our first shot at trying to complete the initial phase of both recovery and tidy-up.

As for our targets for recovery, the manner in which the Deputy put it is interesting. While the €10 million target for write-offs was designed to put pressure on the write-off committee to keep active, our actual recovery target is to get it all back, if possible, to maximise such recovery and chase hard when we can. Because it is so difficult to know when one will get one's money, it is difficult to state one will receive €X million this year and €Y million the following year. We are in the hands of many other players; the circumstances differ widely and when something enters a process, one never knows whether it will take one month or six before one comes out at the other end with one's share as a preferential creditor.

Deputy Michael McGrath

Is Mr. Gorman able to provide members with details of the recovery unit? How many work in it and what is the annual cost? As a cost benefit analysis must be conducted when pursuing some debts, Mr. Gorman should outline such costs. Of the €48 million outstanding at the end of 2008, does Mr. Gorman have to hand an estimate based on the work of the unit and the write-off committee to date? How much is likely to be recovered? Can Mr. Gorman advise on how the recovery process works? Is it all handled internally? Are legal letters issued internally or is an outside firm of solicitors engaged? What steps are taken in this regard?

Mr. Seán Gorman

First, on the staffing and costs of the recovery unit, the unit is positioned within the redundancy payments section and staffed by a principal officer, an assistant principal officer and a higher executive officer, HEO, whose time is shared across other functions. They perform both payment and recovery, as well as all of the functions associated with redundancy and insolvency matters. As for dedicated staff, because we have job sharing, this will sound awful but technically, there are 3.1 people, that is, 1.6 executive officers and 1.5 clerical officers. The total cost of the staff engaged in collection on a full-time basis is €108,129 per annum. When we factor in the proportion of the time spent by the more senior grades, that is, the HEO, assistant principal officer and principal officer, the overall staff cost is €145,676. The processes used largely are internal and by way of follow-up, reminders and telephone calls.

When legal advice is required, it is procured from the State's legal offices, with the Chief State Solicitor's office being the main source. We do not buy in legal advice. The Department receives a good service from that source and does not have any particular problems with it.

I do not have a figure to hand for what I believe the Department will recover this year. It is something we continue to work on because since we put in place the recovery unit, we have done a great deal of work on having a better profile and understanding of the outstanding debt and its spread over different profiles. The next phase of the Department's exercise will be to ascertain the extent to which it can make a realistic estimate for the debt it will recover in a year. As I explained, for example, we do not know how long some examinerships or liquidation receiverships will take. As they could conclude quickly or continue for years, this is an imprecise science.

Deputy Michael McGrath

I wish to raise briefly a couple of other general issues on the Vote. In his opening statement Mr. Gorman mentioned the Department's internal audit work. Does it have an oversight function in respect of all the agencies within the remit of the Department? Is it empowered to go into any agency at any time and complete a report on any issue?

Mr. Seán Gorman

While the answer is no, I will explain what I mean. By definition, it pertains to internal audits. Where the internal audit unit interacts with our governance responsibilities and obligations in respect of the moneys expended by agencies, it will work through their liaison units. Each agency has a liaison unit, the unit through which the money goes and policy is agreed and tracked. The internal audit unit works with the liaison units on the enforcement of codes of governance and all the rules of public finance from the perspective of the Department and how it relates outwards. The unit does not track such matters into the agency in question. It does not go into FÁS, Enterprise Ireland or the IDA to conduct a similar detailed exercise. The single exception is that the internal audit unit functions as the financial control unit for the European Social Fund in Ireland and while working on behalf of the European Commission, it goes into agencies down to the level of individual projects. However, by definition, the unit is internal. As for our relationship with agencies, we can demand any information we need from them and can propose either that they do specific work or even send in people to do specific work. However, it is neither a standard nor an appropriate role for internal audit to become involved in the internal functioning of agencies.

Deputy Michael McGrath

Is it the case that the internal audit function within each individual agency varies significantly? Although large agencies such as FÁS have their own internal audit departments, some agencies within the Department's remit are small and it would not be feasible or viable for them to have their own unit. Mr. Gorman has noted that the internal audit unit is internal to the Department. Is he not Accounting Officer for all the agencies within his remit?

Mr. Seán Gorman

Yes, I am.

Deputy Michael McGrath

Should they not be viewed as internal to the Department? It seems inefficient that many such agencies are obliged to do their own internal audit work. It would be much more efficient to have such a function within the Department and for Mr. Gorman to have the power to send his internal audit representatives into such agencies at any time. He relies on their internal audit work and is obliging the smallest of them to invest certain resources in internal audit. This does not appear to be the most efficient approach, when the expertise is already available within the Department for which he is Accounting Officer.

Mr. Seán Gorman

A standard approach is taken across the public service to the basis on which the relationship is structured. It is based on the distinction between my role as Accounting Officer concerning overall disbursement and the application of the value for money aspect of the moneys we expend and the separate more hands-on day-to-day operational responsibilities of the chairs, boards and management. The entire system is predicated on this basis throughout the public service. While we can and have had specific work done, some of the smaller agencies such as the county enterprise boards have a liaison unit within Enterprise Ireland where we can manage them. While each county enterprise board does not have its own dedicated internal audit unit, it is audited.

It all works on the basis that there are different levels of accountability and responsibility. The concept of an agency and the way in which it is generally structured under legislation is to allow it to do a particular job with a certain degree of autonomy, but subject to controls. By and large, those controls are set out in the code of practice to which I have referred several times.

Deputy Michael McGrath

That is the point. If one considers it from the outside, all of the agencies in question are covered by Vote 34, for which Mr. Gorman is the Accounting Officer. However, the internal audit function that reports to him directly is not empowered or provided with the function to drill into the details.

Mr. Seán Gorman

No.

Deputy Michael McGrath

I understand Mr. Gorman's point, namely, that the agencies operate on an arm's length basis, but it does not sound like the best use of resources.

Regarding the Office of the Director of Corporate Enforcement, ODCE, the director's workload and the onus on him to carry out investigations into directors' loans at Anglo Irish Bank and so forth, I note from the report that the office's budget has increased significantly in recent years and that not all of it was spent in 2007. The director is satisfied that his office has the resources to carry out the necessary investigations quickly and efficiently and that the reports will not be constrained by a lack of resources.

Mr. Seán Gorman

While the ODCE is independent in the exercise of its statutory enforcement role, the director reports to us for administrative purposes, such as funding, staffing levels, etc. In recent years, we have needed to resolve issues with the ODCE, including the need for extra staff. We have met those requests and are in constant touch with the director on those issues.

Given that there is no outstanding request from him for additional staffing, I have no reason to believe that he is hampered in the exercise of his role by a lack of resources. Much of the extra money referred to relates to the legal costs associated with the director's work, although some extra staffing was involved. I have no reason to believe and there is no suggestion from the office that its work is impaired by a lack of financial or staffing resources.

Deputy Deirdre Clune

On redundancy payments, a matter that has been covered extensively, Mr. Gorman expressed confidence that lump sum payments will be made within a six-week timeframe. There are 5,000 redundancies per month, although no one knows the exact figure and I am sure that it is on an upward curve. In this light, is the Department in a position to keep the six-week timeframe? Will additional staff be involved?

Mr. Seán Gorman

The priority is the payment of entitlements to workers, the real casualties of what is occurring.

Deputy Deirdre Clune

Absolutely.

Mr. Seán Gorman

Recently, we added 12 staff to improve our capacity to continue to meet that customer service target, to which we are keeping. We did not get new staff. Rather, we moved people from other areas, such as work permits, which is not as busy as it used to be. Recently, we moved staff from that area to the statutory redundancy payments area as part of the 12 staff. I am working with Mr. Curran to keep the matter under review. It will remain a priority and we will take whatever steps are necessary to ensure that people are not left waiting for their money unduly.

Deputy Deirdre Clune

Mr. Gorman stated that he can approach agencies and demand that they change their policies or work in a certain area. In terms of FÁS retraining people to work in different sectors, we have heard of the avalanche of people approaching it. Is the Department working with FÁS directly and does the latter require additional funding? I would be interested to learn the answer. We hear policy statements from the Minister, but I would like to know how and whether they transfer across.

Mr. Seán Gorman

We are working with FÁS directly in respect of the new challenge that is the sheer volume of people. We are also working with the Department of Social and Family Affairs, which is a part of the referral and activation process.

We have agreed a number of changes with FÁS in terms of the throughput of people who are referred to it by the Department of Social and Family Affairs. I can quantify some of the agreed changes that are being put in place. We are increasing the number of places in the job search and employment support service from 78,000 to 147,000. We also plan to increase short training course places for the newly unemployed from 27,000 to 78,000. In addition, the committee may be familiar with how we are providing 400 subsidised job opportunities for redundant apprentices who have been the victims of the downturn in the construction sector in particular.

We are also in discussions with the Department of Education and Science about what it can do via the VECs, institutes of technology and the other options available to it in terms of providing training opportunities. We are working closely with the Department of Social and Family Affairs primarily and the Department of Education and Science to determine what we can do by way of improving the response. The Ministers are actively engaged in the process at the political level.

Deputy Deirdre Clune

The additional places mentioned by Mr. Gorman sound impressive, but there is obviously a cost factor. Does the money come from the FÁS budget or is there an additional budget?

Mr. Seán Gorman

It is coming from within the 2009 financial allocation to FÁS. In some cases, the funding comes from efficiencies. In other cases, it is a redirection of moneys from areas of lesser priority. To give a rough breakdown of how the 2009 FÁS allocation will be spent, the training of people for employment, those who are out of work by definition, will amount to €240 million and the training of people in employment will amount of €148 million. The latter also relates to apprentices, for whom there will be less demand.

Deputy Deirdre Clune

How do those figures compare to last year's?

Mr. Seán Gorman

I will get those figures for the Deputy. Some €43 million will be spent on what we call integration supports, including people with disabilities, and €444 million will be given to the various employment schemes, such as the community employment and job initiative schemes. This is roughly the 2009 allocation that we have given to FÁS as an indicative spread of its budget. The board of FÁS will refine the spread further at its next meeting. It will add its consideration and there may be some tweaking. We will seek an agreement if the board wants to move a little bit of money around here and there.

To give two comparators from the 2008 and 2009 FÁS employment programmes, those of the CE and JI types, the budget has increased from €439.5 million to €450 million. We have invested an extra €198 million to €208 million on training people for employment, a small amount. If it is okay, when we finalise the breakdown of the 2009 allocations at the detailed level, I will provide the committee with the spread and the comparators.

Deputy Deirdre Clune

That is okay. On the figures mentioned, will the budget increases——

Mr. Seán Gorman

To take the FÁS employment programme——

Deputy Deirdre Clune

Given that the increase in the number of places is greater than the budget increases, much of this seems to come from efficiencies.

Mr. Seán Gorman

Many efficiencies are being squeezed out of the system to accommodate extra places. In these times, it is difficult to get more money because of the public finances.

Deputy Deirdre Clune

It is interesting to hear that efficiencies are possible when a squeeze is imposed. Science Foundation Ireland is one of the bodies under the aegis of the Department. Science Foundation Ireland appeared before this committee. There is an Indecon report on value for money. It is important because this is a new body and we need to see if it is going in the right direction.

Two points emerged from the recommendations. One was that it should work with Enterprise Ireland and the IDA and intensify efforts to engage more with Science Foundation Ireland to match research and funding. I presume that Mr. Gorman is in a position to pull heads together in this respect. Is that happening?

Mr. Seán Gorman

It has and it is happening and it is one of the better examples where we are managing to pull our people's heads together and bang heads together across the system. The research and development and innovation programme work is not just across the Department but across several Departments. The Departments of Education and Science, Communications, Energy and Natural Resources and various other players, including universities and the Higher Education Authority, are involved. The whole programme is co-ordinated at the level of an assistant secretary in the Departments, who chairs a committee representative of the key players including Enterprise Ireland, Science Foundation Ireland, the IDA, the Department of Energy, Communications and Natural Resources and the Department of Education and Science. The distribution of funds is agreed by the Government and the co-ordinator ensures there is complementarity between what various people are doing so they are not duplicating one another. Funds are disbursed through Enterprise Ireland for research in the indigenous sector and through the IDA for foreign direct investment companies and through the education system. It is a good working example of the system coming together. A standing committee is charged with managing that programme.

Deputy Deirdre Clune

It is important that they work together. Another point raised concerns the availability of EU funding for research, to save the public purse. Has any progress been made? I understood that not enough was being done and that funding was available that could be leveraged.

Mr. Seán Gorman

There is a programme called the EU 7th framework programme, whereby funds are made available across the EU to member states engaged in certain types of research. We are drawing down money from that. I do not have the figures for the amounts drawn down but our objective is to maximise the drawdown from that source to complement Exchequer moneys.

The programme has a budget of €50 billion, to be distributed over 2007-13. We set a target for that period to draw down €600 million from the fund. I do not know how much we have drawn to date but that is the target. Based on the level of research activity here, one must be investing in order to draw down. It is not free money. I now have the figure available, €81.3 million has been approved from the target of €100 million.

Chairman

In respect of redundancy payments, what is the link between the Department of Enterprise, Trade and Employment and the Revenue Commissioners and the Department of Social and Family Affairs? If I close down a firm, renege on my obligations as an employer and open up under a different name, starting the operation again, what co-ordination exists between the three bodies?

Mr. Seán Gorman

We are in constant contact with the Revenue Commissioners and the Department of Social and Family Affairs for the purpose of getting intelligence on firms. The phenomenon of phoenix companies crops up across the board and is not just an issue in respect of redundancy payments. We also work through the Companies Registration Office in order to get intelligence on companies. Limited companies can be properly closed down but our objective is to get at the corporation, individual or director who owes money. In this way we work closely together. The specific activity to achieve recovery is ours but it is helped by intelligence from the Revenue Commissioners, the Department of Social and Family Affairs and the Companies Registration Office.

Chairman

We have heard so much in recent times about the race to the bottom. What about companies that invoke the redundancy situation to leave workers go and re-employ them on lower pay and with worse conditions? Is the scheme being abused? One case that comes to mind is the Aer Lingus severance package. The taxpayer could be exposed to €70 million because Aer Lingus was letting workers go and then re-employing them. There were tax implications for the lump sums paid.

Mr. Seán Gorman

With regard to the process, I will make a general observation before dealing with any particular case. The entitlement to redundancy payments is set out in legislation and particular requirements must be met in order to qualify for the redundancy rebate. We deal with these on the basis of the application made to us and decide if it meets the criteria in the Act. If we are uncertain that the criteria are not being met we have the option of referring those cases to the Employment Appeals Tribunal for direction and decision as to eligibility. The Act is constructed on the basis that these are entitlements, there is little degree of discretion. I do not want to comment on any particular case. Where there is any doubt about the extent to which the case is eligible, we refer to the Employment Appeals Tribunal.

Chairman

The question I would ask is whether the job is gone. This is the most important criterion. If there is redundancy and then re-employment, the job is not gone.

Mr. Seán Gorman

We have significant legal advice on what constitutes a job gone or a revolving door situation. Where the terms and conditions of the subsequent job are substantially different and a job description is different, that can qualify under redundancy payments legislation as eligible redundancy. The legal advice we have received is precise. The reference point, if we are unsure, is referral to the Employment Appeals Tribunal. Each case must be taken on its merits and we must look at the circumstances of each case. What might appear to be the case superficially may not correspond to the reality on the ground. A close examination takes place and if we have any doubt we refer cases to the Employment Appeals Tribunal.

Chairman

Perhaps I am straying into policy matters even though I have warned members not to do so. Is legislation too loose and should it be tightened? Is it being abused?

Mr. Seán Gorman

Changing the legislation would be a policy question but it is fair to ask. I have no reason to believe the legislation is being abused. I have not seen a raft of cases coming that would cause us to state we have a gaping hole somewhere. I am not sounding alarm bells and telling the Minister that the law on this needs to be changed. The Chairman is correct that ultimately changing the law would be a policy issue for Ministers and the Oireachtas. A more major issue for us is recovery but each case is examined meticulously in the context——

Chairman

Is it true that in one particular case there might be an exposure to the taxpayer of up to €70 million?

Mr. Seán Gorman

I would not like to give a figure. I might know the case to which the Chairman refers but I would prefer not to give a figure. I would not be able to stand over a figure this morning. Clearly, there can be——

Chairman

It can be significant exposure.

Mr. Seán Gorman

Yes, where large numbers of people are being made redundant——

Chairman

And being re-employed.

Mr. Seán Gorman

——there are significant potential costs.

Deputy Thomas P. Broughan

I welcome the Secretary General and his team. The most internationally famous agency under the Department's remit is IDA Ireland. What is the position with regard to the IDA's land bank, which is a large State asset? Are broad figures available on the size of the land bank at present? What happened in 2007 and 2008 with regard to acquiring commercial land and the readiness of the IDA at present to direct incoming business? Three or four years ago the IDA bought land in Clonshaugh at the edge of my constituency. This was the location of a large illegal waste dump and the organisation has spent a great deal of time getting ready to evacuate it.

Mr. Seán Gorman

I do not have with me a quantification of the total size of the land bank. I will provide it along with information on the distribution of where the land is situated. With regard to the approach being taken by the IDA on the issue of land and the availability of suitable land, in 2004 in agreement with the Minister a strategic sites initiative was launched. It recognised a strategic need existed for these sites to cater for the high-tech requirements of modern industry such as bio-technology and ICT, and to be competitive on the world markets in terms of winning investments. The offerings in our competitor countries can be extremely generous in terms of what they can do and often they are not constrained by State aid rules with which we must comply.

With our agreement, a seven-year initiative was developed to provide five high-spec regionally distributed service sites varying in size from 200 acres to 500 acres each. The sites are to be located in Waterford, two in Cork, Galway and County Louth. Additional sites may be added over time but as of now they are the targets. We have agreed that this is strategically important and it will help potential regional distribution of investment. Critically, it will also help our competitive offering because we are up against it with regard to Singapore, Israel, Switzerland and other countries which are head-to-head competitors of ours.

The land bank remains an extremely important strategic asset. It can be a significant——

Deputy Thomas P. Broughan

Does the IDA own all of these five sites?

Mr. Seán Gorman

Yes, to my knowledge the five sites are in its possession and are being developed. I will provide to the committee a state of play take on each of them. I do not have it this morning. Mainly, we compete for the high-tech end of the business and they will be extremely important with regard to this.

The IDA's land bank means that often it can be in a position to make a strategic swap with a local authority or other entities throughout the country when land is required for the expansion of companies. It is a flexible resource and valuable in terms of the amount of land and money tied up. The IDA is statutorily independent of the Minister in the exercise of functions at the level of individual sites or properties. In terms of the value——

Deputy Thomas P. Broughan

Concerns have been expressed in the midlands and throughout the country about sites where nothing much is happening. Is Mr. Gorman concerned about sites that could have been brought onstream for the benefit of local people and the county concerned? We are moving into a time of general fear that the great decline in residential land values could be followed by a decline in commercial land values which would have other implications for the IDA.

Mr. Seán Gorman

I would not say "concerned" but I will make observations on the matter. We went through a period of policy with the IDA of building factories in advance. This fell into disrepute because of the number of white elephants which appeared. Buildings were developed with great expectations but nothing happened. It caused expense and frustration from everybody and we moved away from this approach.

Strategically it is important that the IDA has a reserve of land available to it. Our major concern about the land bank is that it is administered efficiently. It is also important that it is available as a magnet to attract investment to the regions. While the IDA has a policy of seeking and distributing investment into the regions, a difficulty is that ultimately the company decides where it will locate the investment and its considerations can be many and varied, such as whether it wants to be beside an airport or a university or in a cluster with similar companies doing similar activities. In the Cork region we have bio-technology clustering.

On one level, empty land banks do not look or sound good. However, they can be strategically important at the right time in the right place and it is important that the IDA continues to have an option to use these land banks.

Deputy Thomas P. Broughan

Does the Department keep under close review the management of land banks by the IDA and its strategic focus?

Mr. Seán Gorman

Approximately three years ago we carried out a specific value for money review of the IDA land and its use and management and changes were made on the back of it. I will provide the committee with a copy of the review. With the IDA we monitor the use of the land and we ensure it is run and organised properly and that where land is disposed of fair value is received and that it is all up-front and above board. Difficulties or problems may arise in individual cases but overall we are satisfied that the IDA is managing its land efficiently and property. This is not to state that, no more than in any other area of business, the odd difficult or complicated case will not arise.

Deputy Thomas P. Broughan

Will Mr. Gorman provide the committee with a briefing on this?

Mr. Seán Gorman

I can provide the committee with a copy of the review along with an update by way of comments. My IDA colleagues are not present but, based on my recollection, the review was conducted several years ago.

Deputy Thomas P. Broughan

What was the total number of employed people at the end of last year and what is Mr. Gorman's estimate for the end of 2009?

Mr. Seán Gorman

The number peaked at just over 2 million. I would have been slow to answer the Deputy's question in regard to 2009 if the Taoiseach had not mentioned yesterday a figure of 120,000 redundancies this year. The numbers will certainly be reduced but a variety of projections have been made for future levels of unemployment. The projections are influenced by a range of factors, however. Immigration, for example, is a big uncertainty, although the flow of people coming here has significantly slowed and an outward movement has begun. These dynamics mean it is difficult to put a figure on the number of people in the Irish labour force at the end of this year. However, I would certainly predict that the number will be lower at the end of 2009.

Deputy Thomas P. Broughan

We are a remarkable country given that we doubled the number of people in employment over a relatively short period. That was an astonishing performance. Is Mr. Gorman concerned that, as this recession bites, the struggle to maintain employment levels will become ferocious?

Mr. Seán Gorman

That is a generally held concern not only in the context of the global turmoil being experienced in the aftermath of the credit crisis but also as a result of domestic issues in terms of the rapid slowdown of the construction sector and the competitiveness challenges that Irish businesses and exporters are experiencing. We are addressing these issues through our agencies, which continue to support indigenous industries and push the research and development agenda in order to win foreign direct investment at a level in which we are competitive. We are working through FÁS on resource allocation and distribution in order to help those who are being made redundant. We are acting on a number of levels, therefore.

These issues are also playing out in the national partnership negotiations. We need first of all to get the public finances in order so that we can manage our budgets, retain our credibility as an economy and borrow the moneys we need while keeping borrowing levels low. The intention is to maintain economic growth. As economic activity is ultimately about creating employment, we need to retain as many jobs as we can while maximising the potential for employment from growth.

Deputy Thomas P. Broughan

I want to ask about two agencies under the Department's remit. The National Employment Rights Authority, NERA, is still undergoing its birthing process and the Houses will consider the Employment Law Compliance Bill 2008 in the coming weeks. The other agency in which I am interested is the Health and Safety Authority, which has done a lot of good work over the years. What targets have been set for these agencies in terms of invigilating workplaces? When could an enterprise expect to see health and safety or employment rights inspectors? Despite the downturn in construction, the figures for deaths and injuries at work remain upsetting. How often will the inspectors visit workplaces?

Mr. Seán Gorman

The Deputy correctly pointed out that NERA is already operational even though the legislation is yet to be considered by the Oireachtas. The establishment of the agency was agreed in Towards 2016 and a commitment was given to provide a significantly enhanced number of labour inspectors, 90 to be precise. We acted immediately on that commitment and, allowing for natural turnover, we have reached the target and are hovering around the high 80s. NERA is in the process of agreeing its work programme with the Department but it has conducted several campaigns on its own initiative. It has focused its inspections on sectors and companies in respect of which it believes particular issues arise.

Deputy Thomas P. Broughan

We have all heard from the restaurants and hostelries.

Mr. Seán Gorman

The construction sector is also being targeted by the agency.

Deputy Thomas P. Broughan

Some of them are upset about the matter.

Mr. Seán Gorman

The agency has adopted a risk-based approach, which I think is appropriate. Minimum wage enforcement, the organisation of the working time directive and the protection of young persons in terms of application and compliance with legislation are priorities in its current work programme. Its approach thus far has been based on two considerations, namely, awareness among employers and workers that it has arrived and investigating areas which it considers to present compliance risks. Under the new legislation it will also become actively engaged in helping us to enforce the work permits regime from the perspective of immigrant workers and legal and illegal third country workers.

The HSA has existed for considerably longer than NERA. During 2007 its efforts were on improving health and safety across all sectors while also specifically targeting areas of particular concern in terms of numbers of accidents and deaths. These areas, which include agriculture, construction and mines and quarries, will remain a particular concern for the agency. It found in its inspections that compliance rates vary from 66% in agriculture and forestry, through 52% in construction to 44% in mines and quarries. It has considerably increased the number of inspections over the past several years from approximately 10,700 in 2003 to 13,600 in 2007 and 16,000 in 2008. It was given additional staff but the focus of these was on raising awareness of and enforcing the EU directive on chemicals, the REACH directive. A total of 33 additional staff were assigned to this area. It is notified of about 8,000 incidents per year but, while accidents are by definition a problem, deaths are a particular worry. That is not to say that it wishes to minimise the significance of any accident. Awareness and prevention are major parts of its approach. It is very active at present and is constantly increasing its level of inspections.

Deputy Thomas P. Broughan

On a final point, I will return to the matters raised by Deputy Michael McGrath and the Chairman at the start relating to the accountability of the HSA, NERA and all the way up through IDA, FÁS and so on. Deputy McGrath asked questions about that internal audit system and the risk register. The European Social Fund moneys are clearly audited and the witnesses are the Accounting Officers for that. The Chairman and the committee are working hard on a key report on FÁS and with regard to the Department's director and internal audit, how much information can be known about FÁS and similar agencies?

Our concern is that somewhere in this €1.7 billion budget there would be another agency with some practices in procurement or other areas, such as travel, which would upset the people we represent or which could not be stood over. How is that responsibility exercised with regard to the audit function? One way of summing up what has happened is that there has been a terrible audit failure by the board of directors and so on. How does that interface work?

Chairman

The Deputy should not prejudge our report.

Deputy Thomas P. Broughan

I will not. I am the transport spokesman for my own party and there was recently an issue concerning the directors in Aer Lingus, which is no longer a State commercial body. How do the witnesses see the relationship between the Minister and directors, or a Department and directors, working?

Mr. Seán Gorman

I will first deal with the European structural and social funds, which operate within a very particular and precise arrangement that is quite different from what I will call the other normal internal audit functions and role. As part of the requirements imposed on us by the European Union for drawing down European Structural Funds, we must have systems in place that give a level of comfort to the European Commission that we have checks and balances in place to ensure payments are properly made in accordance with the regulations and that very precise arrangements are in place for checking those payments are being made.

The rubber hits the road in very practical terms in the internal audit unit of our Department, which is the national managing and paying authority for the European Social Fund in Ireland. As part of us responding to that obligation of checks, balances and controls, our internal audit unit has been designated, by agreement with the European Commission, as the body that will carry out the audit checks on behalf of the Commission for the European Social Fund. That takes our internal audit into many organisations, including State, semi-State and voluntary.

Deputy Thomas P. Broughan

It nearly takes it right down to the street.

Mr. Seán Gorman

Absolutely. It takes us down to voluntary groups on the street. It is a very distinct and different arrangement from the wider issue and positioning of internal audit in the wider system outside European Social Funds.

The internal audit function, as I stated earlier, is by definition internal. Its resource comes to bear in addressing through the liaison units within the Department, the arrangements we have in place for monitoring the spend by the agencies and compliance with the code of practice. It is important to say that the entire system is predicated on different levels of responsibility and accountability. I have the overall responsibility as Accounting Officer for the proper disbursement, spend and value-for-money element of funds but it goes down through the responsibilities of the chairman, board and their internal audit systems.

It is predicated on the basis that there are very precise, clear obligations imposed on boards, directors of boards and senior management in these offices and agencies. It is very clearly set out in guidelines, rules and codes drawn up by the Department of Finance, which take that cascade from where I sit down to the level of the operation on the ground. It is monitored by us at that level.

How do we get information? We have people on some boards and the various statutes governing the appointment of boards of bodies can be very different. Some require specifically that a civil servant from a named Department will be on it but others make no provision or give Ministers power to make appointments. As a result, there may or may not be civil servants from parent Departments included on the board. It is a very hit-and-miss affair in that sense; it is not through carelessness but the key reference point is the statutory basis on which the board structure was provided. That is the foremost point.

We meet with agencies on a regular basis. We would probably have daily contact with the bigger examples and structured contact in terms of my senior management people sitting down with the senior management people in agencies; in the case of FÁS it happens once a quarter. In such meetings we review how the spend is going. At a different level in the Department we would have weekly contact regarding drawdown of funds.

Where we have representations on boards, people will participate in sub-committees of boards. When I reflected on the deliberations of the Chairman on the FÁS issue, the thought struck me of whether it is an issue bigger than just a Department like ours and whether we should, as a matter of standard practice, take a seat on the internal audit committee where we have seats on boards. We do not have seats on all boards. It is something I was kicking around as I observed and kept up with the deliberations here. It would be another way of getting a better plug-in. We do not have seats on all boards and the primary informant on that tends to be the legislation, and then ministerial policy where the legislation allows flexibility in terms of who is appointed.

Chairman

What was the Department's original target for decentralisation? I believe it was to go to Carlow.

Mr. Seán Gorman

Yes.

Chairman

What is happening and what expenditure has taken place to date on the programme within the Department?

Mr. Seán Gorman

At a general level, our target was to put just over 200 people in Carlow as part of the Government's decentralisation programme. We moved on that straight away when we got the decision of the Government to do it.

Chairman

What was the original target date?

Mr. Seán Gorman

It was 2009. We have 100 people in a temporary office for approximately the last year. I will double check the 2009 date in case I might be misleading. The people with me might be able to pull it out in the meantime. We got in there very quickly with 100 people. I will not say it was straightforward but it was quite a manageable process for us in that we moved people from NERA, the National Employment Rights Authority, and people from the CRO, who provide a frontline service nationwide. It was a very manageable proposition.

We have 100 people in a rented building secured for us by the Office of Public Works. We are part of a programme to build three permanent decentralised offices, and that is being managed by the OPW for ourselves and other Departments. Carlow, Portlaoise and Mullingar are the locations for what was a public-private partnership. The planning permission has been granted and the target date is the end of 2010. By the end of 2010 we hope to have that permanent building in place, with the full complement of about 200 people in shortly after that. We were originally going to put the work permit section in there but we decided to keep the work permits in Dublin. We are still delivering on the numbers, but NERA and the Companies Registration Office will be the core people.

Chairman

What about the rental costs?

Mr. Seán Gorman

I do not have that information with me. The board of works negotiated the package for us. The information is in the records.

Chairman

The Department has moved 100 people out of Dublin to Carlow?

Mr. Seán Gorman

Yes.

Chairman

What is happening to the offices that were being used by those 100 people?

Mr. Seán Gorman

We are retaining the offices, because they were shared offices, not dedicated offices. In the case of NERA, at the time we were actually in the process of relocating to Carlow, we were ramping up the number of labour inspectors from about 30 to 90, so we needed to find space to accommodate these people anyhow. What we have not had in Dublin is a large release of spare property. Some of the people relocating came from Davitt House in Dublin. The people involved with work permits would have expanded into some of the space vacated by people who had moved to Carlow because, unlike now, at the point when we moved 100 people to Carlow, the work permits section was at a pinnacle in terms of demand. There was serious overcrowding.

Chairman

Was there real movement of people, or were the people who went to Carlow new?

Mr. Seán Gorman

No, there was real movement of existing people. As we expanded the number of labour inspectors from 30 there was significant new recruitment of labour inspectors.

Chairman

What is the final target? How many people will be in Carlow? Mr. Gorman says there will be some left in Dublin; what will the ratio be?

Mr. Seán Gorman

Our target originally was to put about 200 in Carlow, but we will need to retain people in Dublin and we are putting some very small local offices in Sligo and a couple of other places. We are keeping some people in Dublin simply because of the size of the labour force in the Dublin area. Rather than paying expenses for people to travel up from Carlow to inspect workplaces in Dublin, we base a certain number of people in Dublin. I do not have an exact breakdown of the numbers. I am sorry about that.

Deputy Thomas P. Broughan

We do not want a situation in which people go from Dublin down to Carlow and then from Carlow to Sligo, as seemed to happen in the former Department of the Marine, for example.

Mr. Seán Gorman

No. That is why we decided to have a small office in Limerick and a small office in Sligo. We will have one in Shannon and we will have a fairly significant presence in Dublin because it would make no sense to pay people to go from Carlow to a workplace in Dublin.

Chairman

I have a question about Enterprise Ireland. I hope we will be bringing some of those agencies before the committee over the next number of months because it is an area we are determined to look at. Enterprise Ireland moved from its offices in Glasnevin to East Point Business Park some time ago. What was the rationale behind that decision? There seemed to be adequate office space even for staff consolidation in Glasnevin. From what I can see there was no logical need to rent new space in East Point. What is happening to the property that is owned by the State in Glasnevin as a result of the transfer to East Point? Could Mr. Gorman give us the details of the financial transactions involved?

Mr. Seán Gorman

With regard to the logic or the business case underpinning the move, Enterprise Ireland had four separate locations in Dublin, which was not very practical in terms of its operations or in terms of gelling as an organisation. Thus, it was decided that the most practical and sensible thing to do was to look for a site location where all sections could be on the one site, so it could be better integrated and deliver a better service. It has vacated the Glasnevin site.

Chairman

The consolidation could not have taken place in Glasnevin?

Mr. Seán Gorman

No. The site in Glasnevin was not a suitable proposition for this. My understanding is that the costs of knocking buildings and finding alternative accommodation for people while Glasnevin was being revamped rendered the proposition impractical. The Glasnevin site is now included in a Government decision as a potential location for affordable housing, and Enterprise Ireland is in discussion with the Department of the Environment, Heritage and Local Government, Dublin City Council and the Affordable Homes Partnership to see what best use can be made of the site. As of now it looks as though it will stay in public ownership and be redeployed for social housing.

There are two buildings on the new site. A number of people in Enterprise Ireland are scheduled to move to Shannon as part of the decentralisation programme. On one of the buildings it has taken at East Point it has an exit option to allow for the decentralisation. However, this decentralisation is one of those of a group of agencies that are to be reviewed in 2011 as part of the wider Government decision on the decentralisation programme. I will have to obtain for the Chairman the cost of leasing the buildings at East Point as I do not have this information with me.

Chairman

I understand the duration of the lease is 25 years. Would that be normal?

Mr. Seán Gorman

I do not know, but I will check.

Chairman

Would Mr. Buckley like to comment?

Mr. John Buckley

In principle, all advances by the Department on the redundancy side are, in effect, loans from the State, and obviously recovery must be actively pursued. Because of that, we welcome the setting up of the unit. This holds out the possibility that recovery activity will be focused on cases in which there is an actual prospect of recovery, which should make debt collection more effective. Clearly, from a pragmatic point of view, the Department will have to continue to carry out a cost benefit analysis to ensure that the cost of recovery is at least commensurate with the amount of money being recovered. This will probably have to be done on an ongoing basis, but it is probably best deferred for a year or so until the smoke clears. The work to date has just positioned the Department to identify the cases in which there is a good prospect of recovery. For our own part, we will be following up and looking at the write-offs to ensure they have gone through the process outlined by the Secretary General and fit into the categories of liquidation, bankruptcy, unenforceability and the residual category, where there is no practical prospect of recovery. We will be considering this in the course of our normal audit. As I said, going forward, there is work for the Department in terms of ongoing cost benefit analysis and work for us to make sure we validate the write-offs that occur.

Chairman

That concludes our session. I thank Mr. Gorman for his responses, which were open and helpful to us. I ask the committee to agree to note Vote 34 and dispose of Chapter 10.1 — Redundancy Payments Scheme Debt. Is that agreed? Agreed.

We will agree the agenda for next week, which is Vote 27 — Department of Community, Rural and Gaeltacht Affairs. We will be looking at the Pobal annual report 2007.

The witnesses withdrew.

The committee adjourned at 1 p.m. until 10 a.m. on Thursday, 5 February 2009.