COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 26 Nov 2009

Advertising and Promotion in FÁS (Resumed).

Mr. Seán Gorman (Secretary General, Department of Enterprise, Trade and Employment), Mr. Ciarán Connolly (Secretary General, Department of Finance) and Mr. Paul O’Toole (Director General, FÁS) called and examined.

Chairman

On behalf of the members I would like to put on record my thanks to the secretariat for preparing a very good briefing for us today. A lot of work went into it. I am also grateful for the ongoing co-operation of the Comptroller and Auditor General on the issues.

I welcome everybody to the meeting. We are considering Special Report No. 66 of the Comptroller and Auditor General — Advertising and Promotion in FÁS. I draw everyone's attention to the fact that while members of the committee enjoy absolute privilege, the same privilege does not apply to witnesses appearing before the committee which cannot guarantee any level of privilege to witnesses appearing before it. I remind members of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House, or an official, either by name or in such a way as to make him or her identifiable. They are also reminded of the provision in 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.

I welcome Mr. Niall Saul, board member and chairman of the board's audit sub-committee. I also welcome Mr. Paul O'Toole, director general, FÁS, and ask him to introduce his official.

Mr. Paul O’Toole

I am attending with my colleague, Mr. Niall Saul.

Chairman

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

Mr. Seán Gorman

I am accompanied by Mr. Dermot Mulligan, employment rights division of my Department, and Mr. Padraig Ó Conaill, principal officer, labour market policy division.

Chairman

I welcome Mr. Ciarán Connolly, Secretary General, public service management division, Department of Finance and ask him to introduce his officials.

Mr. Ciarán Connolly

I am accompanied by Mr. John O'Connell, assistant secretary, sectoral policy division, Mr. Tony Jordan, a principal officer from the same division, and Mr. Tim Duggan, a former departmental board member of FÁS.

Chairman

Thank you. Today we will examine the two main issues of the retirement package given to Mr. Molloy and whether the board was kept in the dark about it. Before we do that I would like to outline where we are with the ongoing investigation of FÁS.

Deputy Jim O’Keeffe

There is a vote in the Dáil so I suggest that we might deal with that.

Chairman

I will let the Deputies attend the vote.At our meeting on 24 September 2009, the advertising and promotion issues were among the subjects of the latest report of the Comptroller and Auditor General. That report, No. 66, was dated June 2009. In addition, we dealt with the termination package given to the outgoing director general, Mr. Rody Molloy, whose position had become untenable in November 2008. These are not my words but those given in evidence. Given that there are issues concerning the retirement package that go beyond FÁS, we are meeting today to deal with this issue. We will also commence an examination of whether the board of FÁS was being prevented from undertaking its oversight and control functions because it was simply not being informed or allowed to make key decisions that were in breach of corporate governance guidelines made at executive level in FÁS. We regard this as a fundamental issue and while we had hoped to be able to have a report today on the outcome of the review ordered by the Tánaiste which is examining this issue, that report will have to await a report of the 23 internal audits into corporate affairs, which we now know are being cleared by the audit sub-committee headed by Mr. Neil Saul, one of our principal witnesses today.

As to where we go from here, first, a report on corporate governance, the competency development programme, and foreign travel at FÁS is being finalised by the Comptroller and Auditor General. I expect that the committee will deal with the issues raised in this report early in the new year. The other issue that will need to be finalised before this committee can conclude its examination of FÁS concerns the outcome of the 23 internal audits, and in particular to the question of whether the board of FÁS had information withheld from it. It is important that this issue is examined fully as it has implications for the running of all State boards.

The committee is seeing a large volume of correspondence from the public concerning FÁS activities throughout the country. We have forwarded those to the Comptroller and Auditor General and to FÁS itself. We will be following up on some of those issues as part of our normal examination of the FÁS accounts. As an example of the type of information we have received, I would mention the drawdown of moneys by schemes in Castlebar. I have met people involved in social services in Castlebar who have serious concerns about how money was drawn down under various schemes and used in Castlebar. As well as wanting to see the outcome of the investigation undertaken by FÁS into various allegations, we will also be looking closely at how rigorous these investigations were. As members can see from this statement, we will be devoting a fair amount of time in the coming months to the ongoing work of FÁS.

I now call on the Comptroller and Auditor General, Mr. Buckley, to make a brief opening statement.

Mr. John Buckley

Today's session deals with matters the committee decided to pursue arising out of previous hearings. I have no further observations on those topics. As the committee is aware, I am completing a report on governance and control, which will be sent to the Accounting Officer and chief executive of FÁS, in the coming week, for their observations, together with a report on the competency development programme which should be finalised by the end of December.

Chairman

I now call on Mr. Gorman to make his opening statement.

Mr. Seán Gorman

My opening statement is effectively an update on where we are with the various audits that are under consideration at the moment. The Tánaiste instructed that a review of the severance arrangements of the former director general of FÁS take place in light of reported statements regarding the deliberate withholding of information from the board of FÁS. I would like to update the committee briefly on the position concerning this review. A key component of the review will be the findings of the 23 FÁS internal audit reports to which the Chairman has referred and which are being completed.

The current situation is that the audit sub-committee of the FÁS board met on Friday, 20 November to consider these reports. However, owing to the volume and complexity of the audits, the committee did not complete its work and it is scheduled to meet again on Friday, 27 November. It is hoped that the audit committee will be in a position to sign off on the audits at its meeting on 27 November with a view to having them considered by the board of FÁS on 1 December 2009.

It is not possible, therefore, to draw any conclusions at this stage. I would like to assure the committee that on receipt of the audits, the Department will continue to work with the Office of the Attorney General on the review ordered by the Tánaiste.

Chairman

May we publish Mr. Gorman's statement?

Mr. Seán Gorman

Yes.

Chairman

I now call on Mr. Connolly to make his opening statement.

Mr. Ciarán Connolly

Thank you, Chairman, for the opportunity to make a statement. The committee will have seen my note of 16 November which outlined the discussions, correspondence and general background to Mr. Molloy's severance package. Rather than go through the same details again, I will summarise the main points behind the decision to approve the severance package.

On 25 November 2008, the Secretary General of the Department of Enterprise, Trade and Employment, Mr. Gorman, asked me for a meeting to discuss Mr. Molloy's position. At the meeting, it was clear that the Department and FÁS were seriously concerned that the public controversy about Mr. Molloy would be ended to allow the organisation to deal with the serious problems it faced. The row following Mr. Molloy's interview on the "Today with Pat Kenny" radio show was affecting the work of the FÁS board and management.

Although discussions between the chairman of the FÁS board and Mr. Molloy were still going on that morning, the chairman told the Department that he had informed Mr. Molloy that his position as director general was untenable as a result of the interview, although there had been no formal decision by the board. We understood that during these discussions Mr. Molloy said he was prepared to consider resigning immediately if terms were agreed. He had also made some suggestions about what terms he might find acceptable.

It is important to underline the point that while Mr. Molloy was not being dismissed, his offer to resign followed from the fact that his position was now untenable and was specifically conditional on terms being agreed. While I understood that Mr. Molloy had not explicitly threatened legal action, the threat of legal action obviously hung over those discussions. If he decided not to resign, either because no terms were offered or because he decided to turn down an offer, and the FÁS board wished to terminate his contract, it would have had to initiate a dismissal process which could have been prolonged. If it had concluded with the ending of his contract as director general, he could have sought compensation under the contract or the 1998 severance guidelines or go to court, any of which could have taken considerable time and resources.

The Department of Finance acknowledged that this was an urgent issue, and that the sooner FÁS was in a position to tackle its internal problems, the better. We pointed out that the usual approach in such cases, as set out in the Department of Finance guidelines of 1998, was either resignation by the person concerned, without any exceptional terms, or termination of the contract following a formal decision of the employer. In the case of resignation, the chief executive officer or director general would be entitled to whatever their contract specified. If, on the other hand, the contract were ended by the employer, they would be entitled to whatever terms were in the contract or, if the board and Ministers agreed, to those in the 1998 guidelines. The circumstances of this case, however, did not fit neatly into either category.

Given the special circumstances of the case, we suggested to the Department of Enterprise, Trade and Employment at the meeting that any terms should be informed by the 1998 guidelines, that is, terms which Mr. Molloy might reasonably have been entitled to had his contract been ended by the board. In all our internal discussions after the meeting, the main question for the Department of Finance was the need to strike a reasonable balance between allowing FÁS to deal with its present difficulties as soon as possible and any precedents which might be created by the fact that Mr. Molloy's resignation would not, in the circumstances, be strictly covered by the 1998 guidelines. A decision to refuse sanction for a resignation on special terms could mean that FÁS might not be able to resolve the issue quickly and ran the risk of a drawn-out process which could end in legal action with serious organisational and financial implications for the body. Our conclusion was that, depending on the proposed terms which might result from the discussions with Mr. Molloy, the Department would be prepared to accept a special arrangement in Mr. Molloy's case. Finance approval could be more easily given the closer the terms offered to Mr. Molloy were to those he would have received under the 1998 guidelines if his contract were formally ended by the board.

The committee will have seen the account given in my note of the telephone conversations and e-mails following the meeting. As I pointed out in my note of 16 November, some of the comments in these e-mails were made without knowledge of the earlier discussions.

The final decision to approve Mr. Molloy's severance package was made because the package was broadly in line with what Mr. Molloy would have received under the 1998 guidelines had his contract been ended by the FÁS board. The proposed terms included a payment of six months salary rather than the three months in the contract. I understood that this concession, which was significantly less than was sought originally, had been made to bring the negotiation to a close.

The question of having to seek Government approval did not arise as the superannuation package was not being agreed under the 1998 guidelines letter, although the terms of the package were informed by, and broadly consistent with, the 1998 guidelines.

The legal basis for the package was section 6(3) of the Labour Services Act 1987 which requires the approval of the Minister for Finance and the Minister for Enterprise, Trade and Employment.

The package was approved as an exceptional measure because there was an urgent need to allow FÁS to deal with the serious problems it faced. The director general had been informed that his position was untenable and that his resignation was therefore not entirely at his own initiative. There was a risk that a failure to reach agreement with the director general could lead to a long drawn out process which could take considerable time and resources, following which we would likely have been faced with a settlement not dissimilar from the terms of the 1998 guidelines. The final agreed superannuation package was broadly informed by the terms that the director general would have received had his contract been terminated.

Chairman

May we publish Mr. Connolly's statement?

Mr. Ciarán Connolly

Yes.

Deputy Darragh O’Brien

I welcome the witnesses to what is, as the Chairman outlined, another stage in our investigation into FÁS. I refer to the enhanced package Mr. Molloy was given on foot of his resignation. Mr. Connolly will know from previous meetings that members of this committee, including myself, have grave concerns about the augmentation of the package and how it was dealt with.

From my reading of it, I would contend that under his contract, Mr. Molloy was entitled to three months pay on severance and to an actuarially reduced pension which would have been to the tune of €77,000 per annum as opposed to €111,000. His lump sum entitlement would have been approximately €255,000 and not the €333,000 granted to him. There was the ex gratia payment of €132,000 which related to the uplift in the terms in his six months pay. Will Mr. Connolly explain why it was stated to the Minister for Finance that this was broadly in line with public service norms when clearly it was not?

Mr. Ciarán Connolly

The terms the Deputy described are the terms that would have applied if we were talking about a straightforward resignation.

Deputy Darragh O’Brien

I mean based on his contract and the resignation.

Mr. Ciarán Connolly

If he had resigned, it would have been a straightforward resignation. The situation in this case was that Mr. Molloy had been told his position was untenable. He indicated he was prepared to resign if he received acceptable terms. It was a negotiated situation. Therefore, he had to consider what was a reasonable outcome to the negotiations and what would be the alternative if such terms were not agreed. If such terms had not been agreed, the board would have had to consider whether to terminate the contract. As I said, this would certainly have involved a lengthy and protracted process and would probably have resulted in terms along the same lines.

Deputy Darragh O’Brien

It might have. Mr. Connolly effectively said this was an exceptional resignation. An exceptional resignation and an exceptional package would have had to go to Government for a decision.

Mr. Ciarán Connolly

No.

Deputy Darragh O’Brien

Yes. Exceptional cases can only be signed off by a Government decision. Mr. Connolly said this was broadly in line with public service norms. What we are saying here is that this was an exceptional resignation but the Minister was informed that it was broadly in line with public service norms. Which is it?

Mr. Ciarán Connolly

It was regarded as being broadly in line with public service norms. Mr. Molloy had been told his position was untenable and therefore his resignation was effectively not on his own initiative. In terms of a negotiated settlement rather than a protracted dismissal process, one had to look at what was acceptable and what was a reasonable package to give in those circumstances. The package given was the package likely to have been given if his contract had been terminated by the board

Deputy Darragh O’Brien

I understand what Mr. Connolly is saying. He referred to the guidelines. Under paragraph 2b, the terms can be approved on foot of a Government decision. He brought this to the Minister and said it was in line with public service norms. I would contest it was not. He should have brought this for a Government decision.

Mr. Ciarán Connolly

The Deputy is referring to the guidelines——

Deputy Darragh O’Brien

The guidelines to which Mr. Connolly referred.

Mr. Ciarán Connolly

I would make the distinction that the termination was not dealt with under the guidelines but that the guidelines informed the terms of the package. We were in a negotiating situation rather than a straight resignation situation.

Deputy Darragh O’Brien

I understand that but Mr. Connolly has referred to the guidelines since we started in regard to the reason a substantial uplift was given to Mr. Molloy's package. He said the decision was made in reference to the guidelines but not under those guidelines. Under what was the decision made? Was it under the Labour Services Act 1987?

If the terms of Mr. Molloy's contract had been implemented, it could have meant that his pension was not augmented at all. It would have been three months and it would have been €77,000 per year as opposed to €111,000 and his lump sum would have been 40% less. I genuinely do not understand; I am not trying to be difficult. Is Mr. Connolly saying the decision was informed by the guidelines but not under those guidelines?

Mr. Ciarán Connolly

The guidelines state that if one exceeds them, it must go to Government. It was not made under the guidelines. The terms of the guidelines would not apply where the resignation was on the initiative of the chief executive. In this case, the resignation was not on the initiative of the chief executive who was told his position was untenable.

Deputy Darragh O’Brien

In fairness to Mr. Connolly, that is nothing to do with him. If a chairman or a chief executive of a company tells someone his or her position is untenable, he or she will be sacked. One would allow him or her to resign which they would do under the terms of their contract.

Mr. Molloy's package was agreed on the basis of a fear of litigation and a protracted situation. We all agreed a change was needed at the top of FÁS very quickly. I am not at all happy with the fact we said we used guidelines but that those guidelines state this would have to go to Government for a decision. Who decided this did not have to go to Government for a decision and that it could be made internally by the Departments and FÁS? Who decided in a case as prominent as this that a decision could be made behind closed doors among officials without reference to or a Government decision?

Mr. Ciarán Connolly

In regard to what Deputy O'Brien said about the package not being in line with the guidelines, in assessing how it compared with the guidelines, the judgment we made was that the appropriate thing to do was to decide what his package would be if his position ended in termination rather than resignation. He would only resign if terms could be agreed. The alternative was a termination process. The option of applying the resignation terms, the actuarially reduced pension, and so forth without the added years was never an option in the discussions. He was not going to resign on that basis.

Deputy Darragh O’Brien

That would not have been a decision for the Department either. That would have been something for FÁS, where it probably should have sacked him. Let us be fair about it. That is another issue to which we will come. What I am trying to get to is who decided that this package could be agreed between the Departments of Enterprise, Trade and Employment and Finance and FÁS and to effectively tell the Minister it was in line with public service norms when clearly it was not?

The guidelines were applied to allow Mr. Molloy to get an enhanced package and get him out the door. Under the guidelines, that is supposed to go to Government for approval but that aspect of the guidelines did not apply. That is where I have a major problem. Will someone explain to me why that did not happen?

Mr. Ciarán Connolly

It was not being dealt with strictly under the guidelines because the situation did not fit neatly with the guidelines. The guidelines were being used as a guide in terms of what were the appropriate terms to apply. In our judgment, one had to look at the terms that would apply in the case of a termination.

As I said before, the application of the resignation terms, if one wants to call them that, was never an option because he was not going to resign on that basis. We had to make a judgment in this regard, that is, either we negotiated terms with him and he resigned or if we were not prepared to negotiate those terms, the board would have to decide to terminate his contract. There would be a process and there would be all the damage that would do to FÁS. If the board had decided not to negotiate those terms, it would have been obliged to decide to terminate his contract and a legal process — with all the damage it could do to the reputation of FÁS — would have had to have been undergone. We were obliged to ask whether the terms he would have obtained at the end of that process would have been any worse than those in question. On that basis, the terms seemed reasonable.

On the other matter to which the Deputy referred, I made the decision that it did not have to go to Government.

Deputy Darragh O’Brien

If he were obliged to deal with the matter again, would Mr. Connolly make the same decision?

Mr. Ciarán Connolly

On the basis of the circumstances of which I was then aware I would make the same decision.

Deputy Darragh O’Brien

Mr. Connolly and previous witnesses have stated that this matter was dealt with quickly because FÁS was being damaged. As has been indicated on many occasions, it has nothing to do with the 2,000 people who work for FÁS. Those individuals to whom I refer are doing a superb job at an extremely difficult time. FÁS was, therefore, being tainted and tarnished by what was happening. I put it to Mr. Connolly that, with hindsight, the enhanced package that was given in order to try to remove this man as quickly as possible has had a more negative effect on FÁS than would have been the case if legal proceedings had been brought in the courts. If he were to review the matter now, would he make the same decision not to approach the Government in order to seek approval? Has what occurred since the decision was taken to encourage Mr. Molloy to resign in a speedy manner assisted FÁS in any way or enhanced its image?

Mr. Ciarán Connolly

I am not in a position to judge that, it is a hypothetical question. A consideration, when agreeing this package, was that it was in everybody's interests, particularly those of FÁS, that the matter be resolved quickly rather than having it dragging on with Mr. Molloy remaining in situ. That was one part of the judgment; the other was——

Deputy Darragh O’Brien

Mr. Connolly did not want him to remain in situ because it would have damaged FÁS. In such circumstances, my original question is fair. Mr. Connolly said it would damage FÁS if Mr. Molloy remained. Has the provision of an enhanced package damaged FÁS?

Mr. Ciarán Connolly

That is not really for me to say.

Deputy Darragh O’Brien

Mr. Connolly has provided what he believes to be a sound reason for dealing with the manner speedily and for drawing up an enhanced package in order, for the good of FÁS and its reputation, to move on Mr. Molloy. I am of the view that I am entitled to ask about the decision made by Mr. Connolly in conjunction with his colleagues. It was their aim to remove Mr. Molloy quickly in order that FÁS would not be damaged. Was the right decision taken and has the enhanced package — regardless of whether it was within the guidelines — improved the reputation of FÁS?

Mr. Ciarán Connolly

The negative publicity has not been to anyone's benefit. I wish to make one point clear in respect of the package. As already stated, if I was faced with the same circumstances, I think my judgment would also be the same. Let us be clear, it was not solely a matter of getting this done quickly. However, it was a consideration. We had to make a judgment to the effect that if we had not done the deal at that stage, what would be the likely outcome at the end of the process. Our judgment was that the eventual package would not have been much different to what was agreed at that time. There could have been a prolonged process with much the same result at the end of it.

Deputy Darragh O’Brien

I understand that. What guidelines were used to calculate the figures and under the provisions of what legislation was the decision implemented? As we have discovered in this matter, a mixture of both was used. Who provided legal advice to the effect that certain aspects of the guidelines should be used to enhance the pension arrangements and that the resignation should be dealt with under separate legislation, thereby avoiding the need for FÁS to approach the Government?

Mr. Ciarán Connolly

I do not believe we required legal advice in respect of it. We understood what the guidelines stated. We also understood that this case and the circumstances relating to it did not fit neatly with the guidelines. However, the guidelines were something of a measuring stick which we could use when dealing with the matter. We also knew what was the position with regard to the termination of a contract under the legislation. We did not perceive a need for legal advice on those aspects of the issue in so far as they concerned us. We knew what our powers——

Deputy Darragh O’Brien

The Department told the Minister that the guidelines were not being used as a basis for the settlement. How could that be the case?

Mr. Ciarán Connolly

The reason the guidelines were not used was because the case did not fit exactly with them. It was neither a straightforward resignation nor a termination.

Deputy Darragh O’Brien

So the Department used a bit of both.

Mr. Ciarán Connolly

We said that the guidelines did not strictly apply but that they would provide a useful criterion on which to judge what constituted a reasonable package. If the process had developed in a certain way, the guidelines would have been a reference point in the context of a termination package if Mr. Molloy's contract had been terminated by the board.

Deputy Darragh O’Brien

On what was the decision actually based? Mr. Connolly stated that it was not the guidelines. Effectively, was it treated as an exceptional case?

Mr. Ciarán Connolly

We said it was an exceptional case and that it did not fit within the terms of the guidelines. We were obliged to make a judgment and there was two considerations in that regard. First, whether there were good grounds for trying to terminate the process as quickly as possible and, second, if a negotiated settlement was not reached and if there was a possibility of court action being taken, what would be the likely sub-package that would emerge from this process. The guidelines would have been a major touchstone in that regard. Our final judgment was that if the process had been pursued to a formal termination, Mr. Molloy would have obtained a package which would have been largely in line with what we agreed at that time. That was a very important part of the judgment. I am of the view that it was a reasonable judgment.

Deputy Darragh O’Brien

The decision was guided by the Department's experience but nothing else. As Mr. Connolly stated, it did not fall within the terms of the guidelines. On what basis was the decision actually made? Legal advice was not sought and the decision was not made under the terms of the guidelines, the Act or Mr. Molloy's contract. If the terms of Mr. Molloy's contract had been applied to the package, he would only have received what he had at that time.

Mr. Ciarán Connolly

The legal basis for the package was the 1987 Act.

Deputy Darragh O’Brien

And the enhancement was made under the guidelines.

Mr. Ciarán Connolly

It was made by reference to the guidelines.

Deputy Darragh O’Brien

Mr. Connolly indicated that he informed the Minister that this package was in line with the public service norm. From everything that he has stated in the past ten to 15 minutes, it is clear that this is not the case. How normal would such a package be in the experience of Mr. Connolly and that of the Department?

Mr. Ciarán Connolly

The 1998 guidelines set out the terms that would apply in respect of a termination. We were faced with a situation where we could either reach a negotiated settlement or enter into a process which might have resulted in a termination. In making a judgment with regard to what he might have been likely to receive on foot of a termination, it was reasonable to assume — I accept that one can never be certain in this regard — that he would have obtained something of the same order.

Deputy Darragh O’Brien

If Mr. Molloy's contract had been terminated, under its terms he would have received his retained benefits — namely, 34 or 35 years' service up to age 55 — at the date of termination. He would also have received the tax-free cash payment that would have been applicable in respect of those years of service. On termination, he would not have received anything more. What Mr. Connolly is stating is that if Mr. Molloy had taken a case, he could have obtained more.

Mr. Ciarán Connolly

In the first instance, the guidelines provide what could be given — as opposed to what must be given — in the case of a termination. That would have been a reference point. There was also the possibility of legal action being taken in respect of the matter and that he would obtain a settlement. It was a reasonable judgment to state that he could have obtained something close to what we provided in the package and that, therefore, it was reasonable to approve it at that stage. I return to the fact that we were not dealing with a straightforward resignation. Basically, it was a negotiated resignation.

Deputy Darragh O’Brien

Why then was the Minister informed that this was in line with public service norms? It is not a normal case.

Mr. Ciarán Connolly

The guidelines——

Deputy Darragh O’Brien

Let us forget about the guidelines. The Department did not apply the guidelines, it referred to them.

Mr. Ciarán Connolly

Yes, we referred to the guidelines. The terms of the package were broadly consistent with those guidelines.

Deputy Darragh O’Brien

Why was it stated that this case and the enhancement of the package were in line with public service norms?

Mr. Ciarán Connolly

It is because they are considered to be in line with public service norms. The guidelines lay down a set of terms and one must make a judgment with regard to what might have been given in other cases. The final judgment was that if there had been a termination process, he would have been likely to have obtained a package along these lines.

Chairman

Schedule B deals with severance and early retirement packages for chief executives of State-sponsored bodies and refers to the guidelines. Is it not the case that, in effect, such guidelines are Government policy?

Mr. Ciarán Connolly

Yes.

Chairman

The safety net, therefore, where there is deviation from Government policy is to seek a Government decision. Is that correct?

Mr. Ciarán Connolly

Yes, if we were dealing with this under the guidelines.

Chairman

Paragraph No. 9 states, "The Minister for Finance does not anticipate approving any improvements on the terms set out above even in individual cases other than on foot of a Government decision". How does Mr. Connolly answer that guideline?

Mr. Ciarán Connolly

The terms were broadly in line with the terms set out above but, as I said——

Chairman

It states, "any deviation from guidelines which are Government policy" have to go back to Government.

Mr. Ciarán Connolly

As I said, this was not being dealt with strictly under the guidelines. It was a case that did not fit strictly within the guidelines. They were being used simply as a reference point to inform the terms we agreed.

Chairman

Why were they not used?

Mr. Ciarán Connolly

Because this was not a termination. It was neither a straightforward termination nor was it a straightforward resignation. The circumstances of this case did not fit neatly into either category under the guidelines.

Deputy Róisín Shortall

They were guidelines for severance, not for termination.

Chairman

That is the point I am trying to make.

Mr. Ciarán Connolly

The guidelines say, "the above terms could apply in the case of a termination or a non-renewal". They also say they would not apply where the termination is at the initiative of the chief executive officer. The circumstances here were the chief executive officer had been told his position was untenable and he said he would resign if he got acceptable terms. It fitted neither into the category of a termination by the board or a voluntary resignation. We were in a negotiating situation and, therefore, this was not dealt with strictly under the terms of the letter. At the same time, the terms set out in that letter provided a yardstick by which to judge whether the terms were reasonable.

Chairman

I am not reading selectively from the guidelines. They provide for situations, "in the best interest of the efficiency and effectiveness of the State sponsored body concerned to terminate or not to renew the contract of an incumbent chief executive officer". That is clear and, therefore, the Department did not apply the guidelines. They were Government policy. The safety net for the Government parties was that the Department would go back to them and seek clearance. Officials did not do that. Paragraph No. 9 in the letter states, "The Minister for Finance does not anticipate approving any improvements on the terms set out above even in individual cases other than on foot of a Government decision". What could be clearer than that? In addition, in fairness to Mr. Molloy, no legal action was threatened. How can Mr. Connolly justify this at all?

Mr. Ciarán Connolly

The guidelines deal with a situation where the board has decided to terminate or not to grant a renewal of a contract. That was not the situation in this case because the board had not initiated dismissal procedures. On the other hand, Mr. Molloy has been told his position was untenable. He had indicated he would resign if acceptable terms were provided and, therefore, the circumstances of this case fell outside the strict parameters of the guidelines and they were not the formal, legal or statutory basis——

Deputy Darragh O’Brien

None of this makes sense. Did the Department of Finance discuss a legal threat with the Attorney General's office on the basis of the guidelines, Mr. Molloy's contract and the 1987 Act? If he decided to go to court, what case would he have had? Was that checked with the Attorney General?

Mr. Ciarán Connolly

It was not a question of requiring legal advice at that stage. No one had indicated to me that there was a threat of legal action. One is always aware in these situations it could end in legal action but the position was that Mr. Molloy had been told his position was untenable and he said he would resign if he got acceptable terms. He was quite clear he was not going to resign on the basis of the actuarially reduced pension, without the added years, etc. His departure at that stage on those terms was not an option. He was looking for better terms than that.

Deputy Darragh O’Brien

Does Mr. Connolly agree he secured substantially better terms? Let us be straight about this. He would have received a pension of €77,000 per annum whereas now he is in receipt of an enhanced, index linked pension of €111,000 per year. He received a 40% premium on top on his lump sum and an enhanced ex gratia payment. I would walk out the door for such a deal. While I acknowledge a review is under way, this package could cost an additional €1 million if he lives for another 30 years. This decision was taken without legal advice and without reference to Ministers. The Minister was told it was in line with the guidelines when it clearly was not. A Government decision was not sought and €1 million is gone.

Mr. Ciarán Connolly

The baseline used by the Deputy to calculate the €1 million is actuarially reduced terms.

Deputy Darragh O’Brien

I understand that. I worked in the pensions industry for 15 years before I entered the House.

Mr. Ciarán Connolly

His departure on those terms was not an option. He would not go on those terms.

Chairman

The Department just caved in without a threat of legal action being made. The perception is the Department caved in, paid up and left him off.

Mr. Ciarán Connolly

The choice we had was to make a judgment of offering these terms or let it go back to the board to decide whether to move to dismiss him. We had to make a judgment on what would be the likely outcome. At the end of the day, the package he received was broadly in line with what he would have received if he had completed his term and seen out his contract. He was looking for better than that. We had to make a judgment on whether this was a reasonable package to bring this thing to a close. We made that judgment. The baseline of the actuarially reduced pension without the added years and the deferred pension to age 60 was not an option at the time because he would not resign on those terms.

Deputy Jim O’Keeffe

Is it more correct that the Department under pressure agreed a deal and constructed a legal framework afterwards to justify that deal?

Mr. Ciarán Connolly

I do not accept that. The pressure to a certain extent was on the company and to a lesser extent on the Department of Enterprise, Trade and Employment. The Department came to us to see what deal could be negotiated. We discussed it and we said this was the limit of what we could go along with. We were quite clear at the time, first, that the case did not fit strictly within the terms of the guidelines, being neither a termination or a straightforward resignation as it was a negotiated or an induced resignation and it had to be done on a negotiated basis, second, it was desirable that this be done quickly and, third, what the outcome would be if we let this go into a dismissal process. Our judgment was on that basis that——

Deputy Jim O’Keeffe

Did Mr. Connolly see the departure falling somewhere between a resignation and a dismissal?

Mr. Ciarán Connolly

We would have seen it as falling between the two and it was neither. One had to make a judgment if we did not reach a settlement and this went down the road to a dismissal, what package he would be likely to get together with the additional elements of a long drawn out process with uncertainty about the outcome and a possibility of legal action. All those factors had to be taken into account to ascertain whether this was a reasonable deal to finish this then, and when that deal was put to us by the other Department, that was our judgment.

Deputy Jim O’Keeffe

At best, if he was dismissed, his annual pension would have increased from €77,000 to €111,000 per year and his lump sum from €255,000 to €333,000. He was allowed the full whack on dismissal which amounted to an extra €34,000 a year pension for life, an extra lump sum of €78,000 and it did not stop there. Is it correct that the payment made went beyond what he would have got on dismissal and is it correct that instead of getting three months' severance pay, he got six months' severance pay, another €55,000? He also got a car valued at approximately €22,000. How can that be explained?

Mr. Ciarán Connolly

We were not involved with the car so I cannot comment on that. The three months' additional severance was more than we discussed initially with the Department of Enterprise, Trade and Employment. I understand that when it came back to us, we were told that the six months' severance was the final element and that agreement on that would help bring the negotiations to a close. The negotiations effectively had been concluded at that stage and it was a question of whether this was reasonable or whether it departed sufficiently from what we saw as the guideline as set out in the 1998 letter to justify reopening the matter. The question was whether we could live with it. Ultimately, we decided that taken in the round and against the considerations I have mentioned, we would live with it.

Deputy Jim O’Keeffe

With regard to the legal basis for what was agreed, Mr. Connolly has continually referred to the Labour Services Act 1987, of which the relevant section appears to be section 6(3): "The Director General shall hold office on and subject to such terms and conditions (including such terms and conditions relating to remuneration and superannuation) as may be determined by the Minister with the consent of the Minister for Finance." Were those terms and conditions then set out in the guidelines and attached to his contract?

Mr. Ciarán Connolly

Yes. However, with regard to the 1998 letter, which are the guidelines, we must ask in what circumstances they apply. The terms in the guidelines apply to a termination or non-renewal of a contract but, as said, do not apply where the termination is at the initiative of the chief executive. We did not see this case as falling into either category. We had a situation where the man in question had been told his position was untenable and he had indicated he would resign if he was offered acceptable terms. Therefore, it was a situation that was not covered strictly by the terms of the 1998 letter. Therefore, we could not deal with it under those terms, although the letter did provide a guideline as to what terms might be reasonable.

Chairman

That is not true or correct. The Department could have dealt with it if it got clearance from Government to do so.

Deputy Róisín Shortall

The Department is obliged to deal with it within the guidelines.

Mr. Ciarán Connolly

The guidelines provide for a situation of a termination.

Deputy Róisín Shortall

No, they are guidelines for severance.

Mr. Ciarán Connolly

Yes, but as set out they deal with a termination or non-renewal. They also make clear that they should not apply in the case of a termination at the initiative of the chief executive. This case was not a termination, a non-renewal, nor a termination at the initiative of the chief executive.

Deputy Jim O’Keeffe

Mr. Connolly has already agreed with me that we are dealing with a grey area between resignation and dismissal. However, what he was paid went beyond what he would have got if he was dismissed. How can the Department justify that?

Mr. Ciarán Connolly

We do not know what he would have got on dismissal.

Deputy Jim O’Keeffe

It is set down in his agreement.

Mr. Ciarán Connolly

We can make a reasonable assumption it would have been of that order.

Deputy Jim O’Keeffe

It is set down in his contract and in the Government guidelines.

Mr. Ciarán Connolly

The guidelines are terms that can be given, but they do not necessarily have to be given. However, it is reasonable to assume he would have got the terms on that basis.

Deputy Jim O’Keeffe

Mr. Connolly said they can be given. Does that mean the guidelines authorise the Department to give more?

Mr. Ciarán Connolly

No.

Deputy Jim O’Keeffe

I do not want to focus unduly on this individual, but he is in the firing line here. Does Mr. Connolly not accept there is huge public concern that a person whose position was found to be untenable was paid such generous amounts to depart the scene, amounts far in excess of what was provided for in his contract or in the Government guidelines? The only legal basis Mr. Connolly can provide for that is a vague provision in the 1987 Act.

Mr. Ciarán Connolly

The 1987 Act provides the legal basis under which the Minister determines the terms and conditions of the office holder. One must go back and consider what the options were at the time we were dealing with this situation in November 2008. The options before us were that we could negotiate a settlement with Mr. Molloy or decide we would not reach a settlement, thereby leaving a situation where the board would have to move against him. If we decided to go that second route, there would probably have been a prolonged termination process followed by a settlement. I do not know what that settlement would have been, but it is reasonable to assume it would have been on the lines set out in the guidelines. There would also have been a possibility of legal action and even if there was no legal action there probably would have been legal costs.

In that context, we had to consider what would be a reasonable package to secure a resignation at the time and we had to make the judgment on that basis. The question was whether we would approve a package on these lines if this was what was negotiated by the Department of Enterprise, Trade and Employment and the company. The final piece that went onto the package was the extra three months. I acknowledge that was a valuable addition to the package. The question for us at that stage was whether it was worth it.

Deputy Jim O’Keeffe

It was contrary to Government policy and guidelines. There was no provision anywhere for doing that. If anything, it required a Government decision. None of these arrangements was put in place by Government.

Mr. Ciarán Connolly

Those involved had to make a judgment in the circumstances whether it was a reasonable overall package and whether the Department could live with that final element to bring the situation to a close. We were told this was the final piece that had been offered. Therefore, in the circumstances, we agreed. Effectively, negotiations had concluded on that basis and we considered, in terms of the overall package, that it was a reasonable element.

Deputy Jim O’Keeffe

The end justified the means. Is that the case?

Mr. Ciarán Connolly

There is an element of that. One makes a practical judgment of what the alternative would have been. The package was not unreasonable by reference to what the likely outcome would have been.

Deputy Jim O’Keeffe

Who approved the package? The package seems to be in breach of Government guidelines and policy.

Mr. Ciarán Connolly

I do not accept it is in breach of Government policy.

Deputy Jim O’Keeffe

It appears to be. Who approved it? Was it approved at senior Department level or by the Minister?

Mr. Ciarán Connolly

It was approved by me.

Deputy Jim O’Keeffe

Is it the case that all this was done within 24 hours?

Mr. Ciarán Connolly

Ultimately, it was approved by me. I spoke to the Minister and outlined the package to him. He asked if it was consistent with public service norms and I said I was satisfied it was. I remain satisfied that it was.

Deputy Jim O’Keeffe

Does Mr. Connolly understand our situation as members of the Committee of Public Accounts charged with keeping an eye on the expenditure of Exchequer funds? Does he understand our concerns and our unhappiness about the manner in which this issue was dealt with?

Mr. Ciarán Connolly

I understand it was a complicated situation and people would have questions with regard to it. However, we had to make a judgment on both public money and the efficiency of the public service. If we had not received a settlement at that stage, and as I said we were a step back from the actual negotiations, that would have done continuing damage to the company and there would have been a prolonged process in which the company would have had to consider whether it would move to terminate Mr. Molloy's contract and the basis on which to do that. In terms of costs, the judgment was the cost could have been the same or more or less. We had to make the judgment whether it was better to settle then and finish with it or go into a long process with a degree of uncertainty as to the outcome.

Deputy Jim O’Keeffe

There are two other issues, apart from those——

Chairman

I wish to ask a question, with the Deputy's permission, on what Mr. Connolly said in response to the Deputy's question. He said he advised the Minister for Finance the package was in accordance with public service norms. I ask him to explain what he means by public service norms.

Mr. Ciarán Connolly

It was reasonable by reference to the general standards we apply in relation to cases such as this. In this instance we would regard the best benchmark as being the 1998 letter. This has been exceeded, as the Deputy pointed out, by the three months' extra severance. This was the element added to push it over the line. We did not feel that brought it sufficiently out of line with those norms otherwise.

Chairman

Public service norms, in my view, mean a person is entitled to a pension at retirement which he or she accumulated during the term of service in the public service or that it would be deferred until the appropriate retirement age. This was not the case here.

Mr. Ciarán Connolly

There is a range of circumstances in which other things can apply, including in the case of a termination of a chief executive's contract or a non-renewal where there was provision for earlier payment of pension.

Chairman

The Department was not terminating in this case.

Mr. Ciarán Connolly

We were not terminating but neither were we dealing with a resignation. We had to make a judgment of what would be a reasonable package to offer in the circumstances. It lay between a resignation and a termination. Some people would argue it was effectively a termination because——

Chairman

None of this detail was given to the Minister for Finance; he was just told it was in accordance with public service norms.

Mr. Ciarán Connolly

I cannot remember precisely the conversation. The Minister was aware we were in a negotiating situation and that therefore a negotiated settlement would emerge from it. As far as we were concerned, we regarded the guidelines as the reference point and they set out the terms which would apply in the event of a termination. We had to make the judgment as I said earlier, on first, the value of getting an early conclusion and second, the likely outcome if this went through the process and we ended up in a termination situation. In those circumstances our judgment would have been the package would have been likely to be along the same lines as we agreed at that stage. That is a judgment and I am quite happy. We make these judgments in cases of this nature. We must ask what the individual would get if we did not reach a settlement and it went through the processes or possibly to court. We must ask what eventual outcome would be likely. This is a judgment one makes in various situations. Our judgment was that the package would have been of the ——-

Chairman

In response to Deputy O'Keeffe's question, Mr. Connolly said he advised the Minister for Finance that the deal was within public service norms.

Mr. Ciarán Connolly

Consistent with public service norms, yes.

Chairman

Would Mr. Connolly consider now that the Minister for Finance was misinformed?

Mr. Ciarán Connolly

No. I am satisfied the deal was consistent with public service norms for the reasons I have given.

Deputy Jim O’Keeffe

Would it be fair comment to say public service norms would need to be changed if this conforms with such norms?

Mr. Ciarán Connolly

A review of public service evaluation terms is being carried out at the moment. In those circumstances this letter and guidelines will be considered, along with many other elements. The norms set out are a matter of policy. This case has shown that these guidelines do not necessarily capture every situation. We found that this case did not fit neatly within the terms of the guidelines whereas the guidelines could be a useful benchmark. The case was neither a termination nor a non-renewal nor a resignation or termination on the initiative of the chief executive, which are the three circumstances covered in the guidelines. This is an aspect we will need to examine to see whether the guidelines need to be revised to deal with a broader range of circumstances.

Deputy Jim O’Keeffe

The only difficulty from the point of view of Mr. Connolly's argument is that he initially agreed this termination. If it was not a resignation, it amounted to being in a grey area between resignation and dismissal. What in fact was paid, however, was far beyond what he would have been entitled to on dismissal. In a dismissal situation he would have been entitled to three months' notice in writing under his contract. There is no provision whatever for paying beyond that three months' notice which would have allowed him €55,000 and instead he was given twice that amount, an extra €55,000, for which there is no provision in the guidelines and no legal cover. He was also given a car which I understand is worth about €22,000. I further understand it is clear Government policy since February 2006 that retiring chief executive officers of public bodies are not permitted to retain their cars. It is also clear that his contract makes no provision for the retention by him of his official car. These are very big sums in the context of the more than €1 million expended to get Mr. Molloy out the door. Why were these additional moneys paid, the extra €55,000 of severance payment and the value of the car, €22,000, on top of the significant extra payments?

Mr. Ciarán Connolly

We had reached a judgment about what was a reasonable package to offer. The Department was not involved in the issue of the car. We were informed at some stage in finalising the agreement with Mr. Molloy that he had been given the six months' rather than three months' severance pay, in other words, an additional three months' severance. This was a lot less than what he was originally requesting, as I understand. At that stage the Department had to make a judgment as to whether to say we were not prepared to go along with this additional element which I understood had been the final piece of haggling between those involved in the negotiation or whether we would send this whole process down the road of the board considering termination. We had to decide whether we could go along with this additional element which was more than we would have wanted to see in the package but our judgment at that stage was that it did not sufficiently overbalance or remove the package from what we would have regarded as a reasonable norm, to justify re-opening the deal which had been concluded.

Deputy Jim O’Keeffe

Even that extra payment was not covered under contract or guidelines and was in breach of Government policy.

Mr. Ciarán Connolly

I would not accept it was in breach of Government policy. In a negotiating situation one must ask what is a reasonable settlement. Inevitably it is never one that I may be entirely happy with. We have a view about what was a reasonable package. We were then told subsequently that in order to bring it to a conclusion this extra three months had been offered and accepted. We had to decide at that stage whether this was sufficient to tip it over to the extent we could no longer go along with it. Our judgment was that at that stage the deal having been concluded and the company being in a position to move on, we would go along with it.

Deputy Jim O’Keeffe

At no stage even with such a payment did the Department even consider the Government guidelines which clearly and specifically provide that the Minister for Finance does not anticipate approving any improvement on the terms set out in the guidelines, even in individual exceptional cases, other than on foot of a Government decision. Did any official, Minister or adviser — perhaps advisers were not considered appropriate in this case — say this was in breach of Government policy and this should be approved by Government? Did anyone shout "Stop" and raise that issue?

Mr. Ciarán Connolly

As I said before, I do not accept we were in breach of Government policy because the policy as set out in the document did not strictly apply in the particular circumstances. The situation at that stage was that a deal had been concluded. People were ready to move on to make announcements so the question was whether we should at that stage reopen it or whether we could go along with it and live with it. We made the judgment at that stage that it was acceptable. It had been approved by the Minister and the Department and put to us for final clearance. We accepted it.

Deputy Jim O’Keeffe

It was accepted that having got the Tánaiste and Minister for Enterprise, Trade and Employment, Deputy Mary Coughlan, and the Minister for Finance, Deputy Brian Lenihan, to approve this, that was enough.

Mr. Ciarán Connolly

The requirement for Government clearances relates to cases being dealt with under the 1998 guidelines. As I have said, we were not dealing with a case under the 1998 guidelines but they were being used as a reference point — as a benchmark — for the terms.

Deputy Jim O’Keeffe

There is a rather unusual history on the car. That seemed to be thrown in as a further bonus at the end. Mr. Mulligan wrote a letter making a reference to the car on 25 November. For some reason, subsequently the reference to the car in his draft was deleted. This forms part of the rather tangled background to the decision to add in the car. Can Mr. Mulligan explain that to us?

Mr. Dermot Mulligan

In relation to the car, I think I had sent a first draft of the letter seeking sanction to the Department of Finance. It included a reference to the car, but on discussion it was agreed between the Departments that the car was not a matter for either Department to decide on. The car was the property of the organisation, FÁS, and it was for the board to decide on its disposal. Therefore, it was excluded from the final letter that was sent seeking sanction. It was excluded from the sanctions between the Departments.

Deputy Jim O’Keeffe

What was Mr. Mulligan's initial view on the car?

Mr. Dermot Mulligan

I was aware that the car was being discussed between the chairman and the director general as part of the severance arrangements, but that the car was, on reflection, the property of the board and therefore not an issue for the Department of Enterprise, Trade and Employment or the Department of Finance to decide on.

Deputy Jim O’Keeffe

However, what was Mr. Mulligan's initial view on the car? Was he in favour of the car being given?

Mr. Dermot Mulligan

The question of the car was really an issue for FÁS to take a view on rather than myself. In terms of the view of the Department, it was not departmental property — it was property of FÁS as an organisation and therefore it was a matter for the board to take view on.

Deputy Jim O’Keeffe

Mr. Mulligan's initial draft letter just gave notification that the board had given the director general ownership of the car, which he had been using and so he was not seeking approval in any way. However, he removed that section from his draft letter.

Mr. Dermot Mulligan

Yes, I was trying to explain that there. It was removed because on reflection the Departments took the view that this car was the property of FÁS as an organisation and it was an issue for the FÁS organisation to take a decision on what was going to happen in relation to the car.

Deputy Jim O’Keeffe

Mr. Mulligan talks about the responsibility of the FÁS organisation. Who pays the pension, the Department of Finance or FÁS?

Mr. Dermot Mulligan

I think it is the FÁS pension scheme.

Deputy Jim O’Keeffe

Is FÁS paying the pension also?

Mr. Dermot Mulligan

It is the open pension scheme.

Deputy Jim O’Keeffe

Did it really matter since FÁS was paying the entire amount.

Chairman

In response to Deputy Jim O'Keeffe, Mr. Mulligan said a draft letter was sent on 25 November and that the Department was of the view that the retention of the car was part of the deal. However, he said that the board was of the view that the car should be passed over to Mr. Molloy. Is that what he said?

Mr. Dermot Mulligan

No, I do not think so.

Chairman

What did Mr. Mulligan say?

Mr. Dermot Mulligan

What I said was the Departments formed the view that the issue of the disposal of the car and the issue in relation to the car was a matter for the organisation of FÁS.

Chairman

How could it be when there was a Government policy since February 2006 that retiring chief executive officers of public bodies are not allowed to retain a car?

Mr. Dermot Mulligan

The Government policy of 2006 to which the Chairman refers, I am not sure that formed part of the director general's contact which would have been signed in——

Chairman

Is Mr. Mulligan not sure?

Mr. Dermot Mulligan

I shall just find the contract if I can. It would have been signed before then.

Chairman

There was nothing in Mr. Molloy's contract about the retention of a car.

Mr. Dermot Mulligan

That is correct.

Chairman

Mr. Mulligan is saying he is not sure. Did he ask?

Mr. Dermot Mulligan

I am saying that the contract signed by the director general was signed on 23 December 2005, which would have predated the guidelines the Chairman is referring to.

Chairman

There was nothing in the contract about the retention of a car.

Mr. Dermot Mulligan

However, I am saying that the issue in relation to the disposal of the car was a matter for the FÁS organisation to decide on because it had under the Labour Services Act 1987 the power to make decisions in relation to disposal of FÁS property.

Deputy Jim O’Keeffe

Would Mr. Mulligan have thought it appropriate to draw to its attention the Government guidelines which precluded specifically the giving of cars to departing chief executive officers?

Mr. Dermot Mulligan

In relation to the director general at that time, what would have been the relevant document, if one likes, in relation to his situation would have been the contract that he signed in December 2005.

Deputy Jim O’Keeffe

However, there was nothing in the contract to permit him to get a car.

Mr. Dermot Mulligan

Yes. The point I am making is that in relation to the Department of Enterprise, Trade and Employment the issue of what was going to happen to the car was an issue for FÁS as an organisation to decide under the Labour Services Act 1987.

Deputy Jim O’Keeffe

Earlier, we discussed Government guidelines on foreign travel, which apparently were not known by senior executives in FÁS. There is a duty on Departments to bring to the attention of State bodies and the senior executives thereof the appropriate Government guidelines and specifically when a particular point arises such as arose here regarding the car.

Mr. Dermot Mulligan

Yes, that obligation exists and that is what happens. The point in relation to this individual and his employment situation would have been that the relevant document was the contract he signed on 23 December 2005.

Deputy Jim O’Keeffe

I fail to understand how a contract that makes no reference to an entitlement to a car could govern this situation or have any impact whatever. I do not understand the explanation Mr. Mulligan is offering to the committee.

Mr. Dermot Mulligan

The explanation is that in relation to the disposal of the car, it was FÁS as an organisation that was empowered under the Labour Services Act to make the decision on it. In relation to director general's particular employment contract, it was the contract he signed on 23 December 2005 that was the relevant one.

Deputy Jim O’Keeffe

What has that got to do with giving him the car?

Mr. Dermot Mulligan

The point in relation to the car — sorry to keep repeating this — is that it was FÁS as an organisation which made the decision in relation to that.

Deputy Jim O’Keeffe

Yes, we accept that. However, I presume it would do so in accordance with Government guidelines. That is the issue on which we are focusing.

Mr. Dermot Mulligan

The point is that one of the factors would have been the contract that the director general had signed and the timing of that signature.

Deputy Jim O’Keeffe

Yes, that can be taken off the table because there was no reference to a car in that contract. Is Mr. Mulligan suggesting that there was a reason for not following the Government guidelines in this case or is that a matter for FÁS? I cannot understand why the Government guidelines would not have applied and I cannot see how they could have been superseded by a contract that made no reference whatever to an entitlement to a car.

Chairman

It does not add up. Mr. Mulligan, were you not a member of the board?

Mr. Dermot Mulligan

Yes

Chairman

Did you not write your letter on 25 November?

Mr. Dermot Mulligan

What I had sent was a draft letter, not the letter that finally issued.

Chairman

Yes, a draft letter was sent by Mr. Mulligan on 25 November, in which it was stated that the Department of Enterprise, Trade and Employment was of the view that the retention of the car was part of the deal. Is that correct?

Mr. Dermot Mulligan

That was a draft letter.

Chairman

Yes, a draft letter.

Mr. Dermot Mulligan

It referred to the retention of the car.

Chairman

Mr. Mulligan is a member of the board. He was aware at that time that the board had made no decision. In fact the board did not make a decision until 17 December in a split vote.

Mr. Dermot Mulligan

In fact there was a typographical error because the past tense was used, which patently was not the case.

Deputy Jim O’Keeffe

How did Mr. Mulligan know in November that the board would give the car to the departing director general in a situation where the board did not meet until the following month?

Mr. Dermot Mulligan

I was aware at that time that the chairman of the board had discussed the issue of the retention of the car with the director general.

Deputy Jim O’Keeffe

Was it the chairman of the board who agreed to give the car to Mr. Molloy----

Mr. Dermot Mulligan

Under the Labour Services Act 1987, it is the FÁS board----

Deputy Jim O’Keeffe

——but the board had not met?

Mr. Dermot Mulligan

Yes.

Deputy Jim O’Keeffe

The board did not meet until 17 December.

Mr. Dermot Mulligan

Correct.

Deputy Jim O’Keeffe

The dates do not add up. Does Mr. Mulligan understand our confusion at a situation where in a draft letter he, a senior official of the Department and a member of the board, is referring to the fact that the board had given the director general----

Mr. Dermot Mulligan

The point I made was that was a typographical error. It should have read differently.

Deputy Jim O’Keeffe

Should Mr. Mulligan have said that the board will give him the car?

Mr. Dermot Mulligan

The most accurate thing to have said would have been that the chairman of the board was discussing the issue of the retention of the car by the director general as part of the departure negotiations.

Deputy Jim O’Keeffe

Does Mr. Mulligan appreciate our worry? Whether we are talking about lifting the pension from €77,000 to €111,000 a year and the lump sum by another €70,000 to €80,000 and the extra gratuity and the car, all seem to have been done in a big rush and in a manner that was not in accordance with Government rules and guidelines and without appropriate authorisation. As a member of the Public Accounts Committee, each of our concerns are legitimate. To be quite honest the explanations we are getting do not allay those concerns.

Chairman

On a more serious note, is Mr. Mulligan now saying that the chairman of the board agreed to the retention of the car, which implies it was part of the deal?

Mr. Dermot Mulligan

It was part of the discussions that were taking place in relation to the——

Chairman

But you said that the chairman of the board agreed to it earlier?

Mr. Dermot Mulligan

What I am saying in respect of the chairman of the board is the issue of the retention of the car did form part of the discussions between the chairman of the board and the director general in relation to his departure.

Chairman

Did he agree or not?

Mr. Dermot Mulligan

Under the Act, the disposal of the car is a matter for the board and the board so agreed on 17 December.

Deputy Darragh O’Brien

At least three board members did not agree with that aspect. The minutes of the meeting of 17 December state that three board members requested that the minutes record that they were not in agreement with regard to element No. 3, which was the retention of the FÁS registered motor vehicle. Which three members of the board did not agree with it?

Mr. Dermot Mulligan

I cannot say for certain which three members are concerned.

Mr. Niall Saul

I can, there were two staff representatives and one person from the audit committee.

Deputy Darragh O’Brien

Right.

Mr. Niall Saul

May I help in regard to this issue as I have been listening to the debate for the past hour? From experience outside this and I have no involvement in this deal, it looks very simple were I looking at it from the viewpoint ofMr. Connolly. If the board had moved to try to fire Mr. Molloy, it would have resulted in a very significant case against it because the grounds on which the case would have been made would have been very week. In such a situation, in normal circumstances one would look at making a deal.

Chairman

With all due respect, we were told earlier that Mr. Molloy's position was untenable.

Mr. Niall Saul

If somebody said that to him, in my view and I had no involvement in this, that would have created a situation. If one reads the contract, the only grounds on which that would have been applied would have been if one was guilty of conduct that would bring FÁS into disrepute. One would be relying on one interview on "Today with Pat Kenny", to base a case for dismissing somebody. My personal view, and I think any lawyer would tell the committee, is that this would not have stood up as a basis for dismissing the man. I think he would have had a very significant case.

I was not involved in the deal but am trying to deal with the question as to why Mr. Connolly may have gone outside the very strict guidelines and have seen a justification for it.

Deputy Darragh O’Brien

It is not within anyone's gift to go above Government guidelines and procedures that are in place.Nobody can decide by themselves.

Mr. Niall Saul

I am not saying that. I am trying to give members a context because people seem to be struggling around the questions.

Deputy Róisín Shortall

Mr. Saul was not asked for his opinion.

Chairman

I know that Mr. Saul was not asked that question. Will Deputy O'Keeffe conclude his questioning?

Deputy Jim O’Keeffe

Are we dealing with Mr. Saul on some other issues?

Chairman

I ask the Deputy to finish his line of questioning and then we will come to the second part.

Deputy Jim O’Keeffe

Did Mr. Saul attend the relevant board meeting where these issues——

Mr. Niall Saul

In regard to the car?

Deputy Jim O’Keeffe

In regard to Mr. Molloy's situation?

Mr. Niall Saul

No, I was not at the meeting on 17 December.

Deputy Jim O’Keeffe

So Mr. Saul does not quite know how the matter was presented?

Mr. Niall Saul

No, I do not.

Deputy Jim O’Keeffe

We are still unaware of what happened on 25 November during the 24 hours when Mr. Molloy's departure was being discussed whether the issue of the car was merely discussed, whether it was informally agreed or agreed or subject to board approval. We do not know what happened in relation to the car.

Mr. Niall Saul

I was not present. I would have had views on the day, but I was not present. I was not aware that the issue was coming up on the agenda. I was not there so I cannot comment.

Chairman

It was not on the agenda.

Deputy Jim O’Keeffe

Not specifically on the agenda.

Mr. Niall Saul

From what people have told me, I think it was dealt with by the chairman as an issue where he was explaining the context of the discussions that took place and where something had to be settled on a particular day. It was settled and this was the residue, as Mr. Mulligan stated it actually required the board of FÁS to formally sanction the award of the car.

Deputy Jim O’Keeffe

We are merely talking about the board.

Mr. Niall Saul

The vote was taken on that. I do not think the board was asked to deal with any other aspect.

Deputy Jim O’Keeffe

The board merely rubber stamped the arrangement.

Mr. Niall Saul

I do not think it rubber stamped it as some people objected.

Deputy Róisín Shortall

Mr. Saul was not present?

Mr. Niall Saul

I was not present.

Deputy Róisín Shortall

That is the end of it.

Deputy Jim O’Keeffe

There are other issues that I am anxious to put to Mr. Saul.

Chairman

Deputy Shortall wishes to come in on this issue and we will come back to that again.

Deputy Róisín Shortall

I thank the Chairman and I welcome the delegation. I wish to return to the issue of the legal basis for the deal that was done with Mr. Molloy because on the basis of the evidence I have heard so far, I am entirely unconvinced that there was any legal basis to do what was done at the time. It is important to point out that the application of the 1998 guidelines were not an optional matter for the Department. The meeting took place on 25 November. I wish to get the sequence of events in the right order. Following Mr. Molloy's interview on "Today with Pat Kenny", the most senior people in each of the two Departments concerned met on 25 November to discuss the severance package. It is clear that the terms of the severance package were covered by the 1987 Act and the 1998 guidelines from the Department of Finance, as Mr. Connolly is aware. Is that not the case? I refer to the 1998 guidelines from the Department of Finance entitled, Severance and Early Retirement for Chief Executives of State-sponsored Bodies. Did they apply to Mr. Molloy?

Mr. Ciarán Connolly

As I said previously, we did not see those guidelines as strictly applying. Those guidelines deal with a situation——

Deputy Róisín Shortall

That is okay. Mr. Connolly has answered the question. He said he did not see those guidelines as applying to the situation.

Mr. Ciarán Connolly

No, because this was not a termination or non-renewal, nor was it a voluntary termination.

Deputy Róisín Shortall

I put it to Mr. Connolly that he is entirely misinterpreting those guidelines, given the fact that the title of the regulations is, Severance and Early Retirement for Chief Executives of State-Sponsored Bodies. That is what the guidelines cover. That is how the policy is set out in those guidelines. It refers to terms that may be agreed in the case of terminations, but the policy is set out in the guidelines for all severance arrangements.

Mr. Ciarán Connolly

The guidelines state "that the application of the foregoing terms would be conditional on completion of contract or where the board decides to terminate". It did not fit into either of those equations.

Deputy Róisín Shortall

That relates to the terms. Those favourable terms are prescribed in certain circumstances which allow for an enhanced package. Overall, those guidelines refer in all cases to severance packages for chief executive officers of State-sponsored bodies. That is the legal advice I have received on the matter. We were hoping we would receive clarity today, but the lack of clarity underlines the obvious point that one should have sought legal advice on the matter. It is difficult to comprehend how, given the circumstances, that the most senior people in two Departments did not seek legal advice; given the fact that legal advice is available on demand from the Attorney General's office.

At some stage Mr. Connolly determined — I do not know whether Mr. Gorman was involved — that one could deviate from the guidelines. My view is that Mr. Connolly was ultra vires in coming to that decision. It is important to point out that it is not just a view that was reached and then pursued, however misguided that might have been. The committee sought all documentation in e-mail format and otherwise surrounding this deal so we can consider the correspondence we have received on the deal. When we consider the sequence of events we see that the two Secretaries General met on 25 November. We know that following that meeting the draft letter seeking approval from the Department of Finance was sent by Mr. Mulligan and when that letter was received in the Department of Finance, the response within the Department was impressive. We have had an opportunity to go through the correspondence we received. It is not just a question of the Secretary General coming to a view on the matter. When the draft letter arrived in the Department the following day, three senior officers within the Department considered it and expressed their serious reservations about it. We know that from e-mails we received.

Early in the morning of 26 November, the letter was sent from the Department of Enterprise, Trade and Employment to the Department of Finance. Mr. Jordan received it and he in turn sought advice from two other officers in the Department of Finance, namely, Mr. Lorcan O'Toole and Mr. Dave O'Reilly. We know from the e-mail replies that both of those officers pointed out what we would consider to be the case, for example, Mr. O'Toole said that he understood that Mr. Molloy resigned voluntarily from his job. The guidelines point out that the Minister does not anticipate approving any improvement on the terms, even in individual exceptional cases, other than on foot of a Government decision. In those circumstances he did not think the Department would oppose the submission of a memorandum to the Government seeking a decision on the issue. Mr. O'Toole within the Department advised that given that it was a voluntary resignation rather than a dismissal that the terms did not apply.

The second official, Mr. O'Reilly, said he understood that Mr. Molloy had resigned voluntarily, and if that was the case then the letter of 1998 regarding severance terms for CEOs did not apply. He recommended that sanction, as requested by the Department of Enterprise, Trade and Employment should be refused. The third official, Mr. Jordan, who is present, wrote to Mr. O'Connell indicating that given that the terms were different from the delegated sanction under the 1998 letter, that they should get the package referred to Government for approval. He considered that the Government decision might be the appropriate first step. Mr. Connolly took the view that his Department's guidelines did not apply to this case and then the following day three senior members of his staff pointed out that the terms that were being offered to Mr. Molloy were not consistent with the guidelines and therefore would require Government approval. What was Mr. Connolly's response to that advice from three of his senior officers?

Mr. Ciarán Connolly

I will take the points in sequence. I accept what the Deputy said, but it remains clear to me that this case did not fit within the terms of the 1998 guidelines because it was not a termination, a non-renewal of contract and it was not a voluntary retirement in the normal course of events. The comments of Mr. O'Toole, Mr. Jordan and Mr. O'Reilly were based on the only information available to them at that time, which was the statement that Mr. Molloy had resigned. They were not aware of all of the circumstances of the case. They were not aware of the discussions that had taken place between the Departments the previous day. The key element of which they were unaware was that Mr. Molloy had been told his position was untenable. He indicated he would only resign if the conditions were acceptable and that in effect this was a negotiated situation. They were on the basis of the information available to them, which was solely that Mr. Molloy had resigned. The situation was more complex than that and had been the subject of discussion the previous day involving their superior officers who had approved the approach being adopted.

Deputy Róisín Shortall

This is not some cosy little arrangement that could be reached by a group of pals who had been working closely together over many years. Unfortunately, one cannot operate outside the law. One is obliged to adhere to the guidelines set down by the Department on those matters. If Mr. Connolly took it upon himself to deviate from those guidelines, the least he could have done was to seek legal advice.

Mr. Ciarán Connolly

We do not accept that we were operating outside of the guidelines or the policy. I am satisfied——

Deputy Róisín Shortall

Three officers in the Department told Mr. Connolly that he was.

Mr. Ciarán Connolly

They were not aware of the full circumstances of the case. If I could just say——

Deputy Róisín Shortall

No, I am sorry Mr. Connolly.

Mr. Ciarán Connolly

There was an implication that——

Deputy Róisín Shortall

No. What were the full circumstances of the case? Mr. Molloy either resigned or was sacked. Which was it?

Mr. Ciarán Connolly

That is not the case. Mr. Molloy was advised that his position was untenable. In other words, he was induced to resign. He indicated he would resign if he got acceptable terms. That is not a case of termination on the initiative of the chief executive. It is not a straightforward resignation.

Deputy Róisín Shortall

Is it an exceptional situation?

Mr. Ciarán Connolly

It is an exceptional situation.

Deputy Róisín Shortall

The guidelines——

Mr. Ciarán Connolly

If I could just——

Deputy Róisín Shortall

No. Mr. Connolly has just said that it was an exceptional situation. What do the guidelines say about an exceptional situation? They state if one is to make an exception to the terms set down in the guidelines, Government approval is required.

Mr. Ciarán Connolly

My point is that we were not dealing with the case as one pertaining to the guidelines. The guidelines did not provide for the case; the case was being dealt with separately.

Deputy Róisín Shortall

Mr. Connolly was not at liberty to decide to deal with the case without reference to the guidelines. He is obliged to adhere to them.

Mr. Ciarán Connolly

The guidelines did not cover the case. Therefore, it had to be dealt with separately. I would consider I was entitled to do so.

The Deputy made a reference to a cosy deal between pals. I do not know if she was implying something in relation to that.

Deputy Róisín Shortall

I was, that it was a cosy arrangement that completely disregarded the law as it applied to severance payments.

Mr. Ciarán Connolly

There was an implication that there was some improper motivation in relation to that.

Chairman

In fairness, the expression used, "a deal between pals", is unfairly questioning the integrity of everybody involved.

Deputy Róisín Shortall

Okay, I accept that fully and withdraw my comment. I am saying the deal gives me the impression that the arrangement was too cosy. I withdraw my earlier remark, from which the implication was made.

Mr. Connolly had no right to deviate from the guidelines. He took a certain view on the matter and it was incorrect. He should have either listened to the advice he was receiving in his Department or taken legal advice. The advice from three senior officers in his Department was that he could not grant an enhanced severance package to Mr. Molloy because he had voluntarily resigned officially, and that if he wanted to deviate from the guidelines and give Mr. Molloy an enhanced package, he would be required to seek Government approval. On the basis of this advice, how did Mr. Connolly take the decision himself?

Mr. Ciarán Connolly

To be clear, we had made a decision on how we were dealing with it before the officers expressed those opinions. They were acting on the basis of limited information. I remain quite satisfied that we were entitled to take the action we took. I made the point repeatedly that the 1998 letter did not cover this case. It deals with situations where the guidelines can be applied where there is a termination or a non-continuance. It also states they cannot be applied where the termination is on the initiative——

Deputy Róisín Shortall

That has been said umpteen times.

Chairman

We are flogging a dead horse. We can draw many conclusions.

Mr. Ciarán Connolly

That is my position and I am not going to say——

Deputy Róisín Shortall

The fact of the matter is that the guidelines are for severance packages. They cover all severance packages.

Mr. Ciarán Connolly

No, they clearly state in one paragraph that——

Deputy Róisín Shortall

They cover all severance packages. The provision for an enhanced package relates to circumstances where a person has his or her contract terminated or is sacked for some reason. If one is proposing to give an enhanced package to somebody who has resigned, one is required to obtain Government approval. Did Mr. Connolly seek Government approval for the package at any point?

Mr. Ciarán Connolly

I did not seek Government approval because I did not consider it necessary. This is because the guidelines state:

Application of the [...] terms would be strictly conditional on completion of contract, unless the Board [...] decides to terminate the CEO's employment before the termination of the contract. It is not [...] appropriate to make such payments where the initiative for the termination of a contract comes from the CEO concerned.

Those are the three circumstances covered by the guidelines and none of them applied in this case.

Deputy Róisín Shortall

That is incorrect.

Let me move on to what happened. All the correspondence that took place and all the advice from the three officials in Mr. Connolly's Department to the effect that he was not empowered to do what he proposed without Government approval dates from the morning of 26 November.

Mr. Ciarán Connolly

Yes.

Deputy Róisín Shortall

At lunchtime, his assistant secretary, Mr. O'Connell wrote to Mr. Jordan stating: "Dermot [Mr. Mulligan] rang me to request Finance sanction — apparently the resignation letter has been received." The resignation letter was received by lunchtime on 26 November. Mr. Connolly had possession of the letter. This cannot be undone once it has been received. Mr. Molly had resigned without conditions and submitted his resignation letter. Mr. Connolly still went ahead and gave him an enhanced package outside the terms of the guidelines. At that point, Mr. O'Connell, the assistant secretary, stated:

Could the sanction note that the deal is not strictly in line with the 1998 letter, given that this is resignation rather than severance, but that "approval is given on exceptional basis on condition that your department is satisfied that this is appropriate given the circumstances"? — Might need to think about running this by the Minister for Finance.

Did Mr. Connolly run this by the Minister for Finance?

Mr. Ciarán Connolly

I informed the Minister of the terms of the deal. He asked me whether it was in accordance with public service norms and I said it was. We had the resignation letter but it had been forthcoming on the basis of understandings of the terms that would be available, which terms would be agreed with all concerned. Saying, "We have the resignation letter, we can apply whatever terms you want", was not a realistic option.

Deputy Róisín Shortall

The terms had not been signed and sealed. Mr. Molloy resigned and Mr. Connolly received a letter of resignation from him. Mr. Connolly still went ahead and gave Mr. Molloy an enhanced package outside the law that applies to such arrangements.

Mr. Ciarán Connolly

He had been told what terms would apply if he provided the resignation letter. That was the deal that——

Deputy Róisín Shortall

Was he told the terms on the previous day?

Mr. Ciarán Connolly

It was a negotiation. The end result was that he was offered certain terms and he resigned.

Deputy Róisín Shortall

Who agreed to those terms verbally on the previous day?

Mr. Ciarán Connolly

There would have been various discussions back and forth but it probably would have been myself. This arose from what is described in the note we sent to the committee and in the timeline information note we sent. There was a discussion between the two Departments the previous day, at which discussion we agreed the nature of the terms.

Deputy Róisín Shortall

Is there correspondence missing? We have pointed out that there are gaps in the correspondence and requested the missing correspondence. In spite of the many e-mails between people in the Department of Finance and despite three people saying one could not give Mr. Molly an enhanced package without Government approval, somebody at a very senior level decided by lunchtime that the Department could go ahead without Government approval.

Mr. Ciarán Connolly

The point is that the decision had been taken the previous day——

Deputy Róisín Shortall

By whom?

Mr. Ciarán Connolly

——in relation to the enhanced terms.

Deputy Róisín Shortall

Was it without legal advice?

Mr. Ciarán Connolly

We did not see it as necessary.

Deputy Róisín Shortall

Because Mr. Connolly believed he had the power to do what he did.

Mr. Ciarán Connolly

I was fully satisfied that we had the power to do what we did, that the 1998 guidelines did not strictly apply and that, as a consequence, this could be dealt with on a negotiated basis.

Deputy Róisín Shortall

Is Mr. Connolly saying he had the power to operate outside the guidelines?

Mr. Ciarán Connolly

We felt it was a case that could appropriately be dealt with outside the guidelines in that they did not——

Deputy Róisín Shortall

We will leave it at that and draw our own conclusions on it.

I want to refer briefly to the issue of the car.

Chairman

This matter raises issues about Mr. Gorman's talks with the Tánaiste. When he spoke to her on 25 November, what did he tell her?

Mr. Seán Gorman

I told the Tánaiste the negotiations had progressed to the point where the director general was prepared to resign conditionally and that the conditions included the added years and a lump sum in lieu of lost earnings. Bearing in mind the lump sum and the earlier part of the discussions, the outstanding period of the contract was a year and ten months. In the initial discussions, the director general had looked for the year and ten months and we had it reduced to a year. I continued negotiating and we reduced it to nine months, subject to approval. We did not have approvals at that stage. I informed the Tánaiste that the director general would have found reasonable and acceptable the added years and nine months in lieu of one year and ten months remaining earning potential under his contract. The Tánaiste was not prepared to consider the nine months. She said she was prepared to go to a maximum of six months and agreed the other two elements of the package.

Chairman

Did Mr. Gorman not advise the Tánaiste that the deal was in breach of the Department of Finance guidelines?

Mr. Seán Gorman

The discussions I had with the Tánaiste did not embrace any reference to the Department of Finance guidelines. The approach I was taking to the discussions was that the legal basis on which we were dealing with the issue was the Labour Services Act 1987. That Act provided for the fixing of the director general's terms and conditions, and the Minister for Finance allowed for the modification of those terms and conditions. We were discussing it on that basis. I did not discuss any detail of the other guidelines.

Deputy Róisín Shortall

Does Mr. Gorman accept that if there are modifications, then the guidelines say Government approval is required?

Mr. Seán Gorman

We were modifying the contract under the terms of the Labour Services Act. That was the basis on which I approached it.

Deputy Róisín Shortall

Mr. Gorman came to the view, rightly or wrongly, that he could ignore the guidelines and operate under the 1987 Act and Mr. Molloy's contract. Is that the case?

Mr. Seán Gorman

That is correct. I was of the view that it did not fit directly into the guidelines but that the basis on which we were dealing with it was section 6(3) of the Labour Services Act——

Deputy Róisín Shortall

And Mr. Molloy's contract.

Mr. Seán Gorman

——which allowed for the fixing of his terms and conditions and the modifications of those terms and conditions, subject to both Ministers approving.

Deputy Darragh O’Brien

Did Mr. Gorman tell the Tánaiste that this was in line with public service norms?

Mr. Seán Gorman

No, I did not.

Deputy Darragh O’Brien

It was dealt with as an exceptional case.

Mr. Seán Gorman

I discussed the nine months in the context of a negotiation, as distinct from it being in the context of a particular guideline.

Deputy Darragh O’Brien

Did the Department of Enterprise, Trade and Employment see this as an exceptional case?

Mr. Seán Gorman

We would have seen it as exceptional in the sense that there was a particular set of circumstances where we were being offered a resignation conditionally, and there was a need——

Deputy Róisín Shortall

Did the Department not have the letter of resignation——

Mr. Seán Gorman

Not on the night the negotiations took place.

Deputy Róisín Shortall

——when the actual package was agreed?

Mr. Seán Gorman

I spoke to the Tánaiste on the night of the negotiations.

Deputy Darragh O’Brien

There is a file note, dated 5 November 2008, so we are talking about later on that day when the resignation letter was received.

Mr. Seán Gorman

The resignation letter was written, as the Department of Finance was explaining, on the basis that we had an understanding, subject to ministerial approval, that those terms would be available.

Deputy Darragh O’Brien

Is Mr. Gorman telling the committee that he, as Secretary General of the Department of Enterprise, Trade and Employment, sees this as an exceptional case?

Mr. Seán Gorman

It is exceptional in the sense that it did not fit neatly into guidelines and——

Deputy Darragh O’Brien

If it was exceptional in terms of the guidelines, it should have been referred to Government for a decision.

Mr. Seán Gorman

Not in that situation. I treated it as a case under section 6(3) of the Labour Services Act 1987.

Chairman

Is Mr. Gorman of the same view as Mr. Connolly?

Mr. Seán Gorman

Yes, the very same view.

Deputy Róisín Shortall

It is interesting to refer, on that point, to the note of the meeting that took place on 25 November from the Department of Finance which points out that if Mr. Molloy satisfied the conditions of removal from office, the 1998 letter would entitle him to a full pension. Mr. Gorman was very much aware of the 1998 guidelines at that meeting. He was talking about what Mr. Molloy would be entitled to, had he met the conditions as set down in the guidelines. Clearly then, the guidelines should apply. Even if Mr. Gorman was correct in taking the view that he could ignore Department of Finance guidelines, which I emphatically believe to be an incorrect view, he was still obliged to operate under the 1987 Act and within the terms of Mr. Molloy's contract. As he knows, there is an appendix to Mr. Molloy's contract, which is the 1998 guidelines. Either way, he is required to adhere to the guidelines.

Mr. Seán Gorman

Except in so far as we were dealing with a negotiation process and a particular set of circumstances whereby we took a pragmatic decision in the context in which it was happening. We believe that pragmatic decision was the right one and the basis on which to go forward.

Deputy Róisín Shortall

I accept entirely what Mr. Gorman is saying about an exceptional set of circumstances. We all accept that fully but the guidelines are unequivocal concerning the fact that if an exceptional package is to be agreed, Government approval is required. It seems to me extraordinary that two Secretaries General would decide to bypass that completely and not seek Government approval.

Mr. Seán Gorman

I did not consider that I was bypassing those guidelines. I did not consider that they applied precisely to those circumstances——

Deputy Róisín Shortall

Even though they were part of the contract.

Mr. Seán Gorman

——because we were dealing with a different set of circumstances.

Deputy Róisín Shortall

I will finish up because I know other members want to get in. However, I will return briefly to the issue of the car. We know that, following the meeting between the two Departments on 25 November, later on the following day Mr. Mulligan wrote a draft letter seeking Department of Finance approval for the enhanced package. This has been referred to already and I want to quote from that letter. Apart from outlining the added years and so on, the last paragraph of the letter says: "Please note, also, that the Board of FÁS has given the DG ownership of the car which he has been using as Director General." Will Mr. Mulligan please explain that sentence?

Mr. Dermot Mulligan

As I was saying earlier, first of all, the key point in relation to the car——

Deputy Róisín Shortall

Did Mr. Mulligan not write that sentence?

Mr. Dermot Mulligan

That is an unsigned draft letter, and second I would say that——

Deputy Róisín Shortall

Did Mr. Mulligan not draft the letter?

Mr. Dermot Mulligan

Yes, I drafted the letter.

Deputy Róisín Shortall

It says, "Please note, also, that the Board of FÁS has given the DG ownership of the car which he has been using as Director General", but that is not true.

Mr. Dermot Mulligan

In relation to that point, where it says the "Board of FÁS has given the [director general] ownership", that is a typographical error, because it could not have happened.

Deputy Róisín Shortall

Where is the typographical error?

Mr. Dermot Mulligan

Where it says the "Board of FÁS has given" because the board had not met on the issue.

Deputy Róisín Shortall

How should it have read?

Mr. Dermot Mulligan

It might have said: "Please note that the issue of the ownership of the car being given to the Director General is being considered."

Deputy Róisín Shortall

With all due respects, that is not a typographical error.

Mr. Dermot Mulligan

It is because in relation to the past tense——

Deputy Róisín Shortall

It is not a question of past tense. If Mr. Mulligan is saying it is in the past tense, instead of "has given", what should it have been? Should it have been "will give"? Mr. Mulligan has made a statement and repeated it a few times to the effect that this was a typographical error. Where is the typographical error?

Mr. Dermot Mulligan

In relation to the tense it was a typographical error.

Deputy Róisín Shortall

How should it have read?

Mr. Dermot Mulligan

It should have read: "It is intended to give."

Deputy Róisín Shortall

Is that: "The Board of FÁS intends to give"?

Mr. Dermot Mulligan

Yes, it was intended, because I was reflecting my awareness at the time that the issue of the retention of the car was part of the negotiations between the chairman of the FÁS board and the director general. I was reflecting that awareness here.

Deputy Róisín Shortall

Following the 17 December board meeting, a number of board members, Mr. Saul and Mr. Geraghty, who gave an impromptu press conference afterwards, pointed out that the issue of the car was not up to the board to decide because it formed part of the package. If the board were to fail to give approval to that aspect of the package, the whole deal would unwind.

Chairman

Is Deputy Shortall saying that Mr. Saul gave a press conference after the board meeting? Mr. Saul said he was not at the meeting.

Deputy Róisín Shortall

I beg the Chairman's pardon. There were two people who gave the press conference.

Mr. Niall Saul

That was not after the meeting of 17 December.

Deputy Róisín Shortall

What date was it, then?

Mr. Niall Saul

It was quite recently, actually.

Deputy Róisín Shortall

The press conference was given by Mr. Saul and Mr. Geraghty.

Mr. Niall Saul

That is correct, and we were asked for a view on that at the press conference. Our view was that what made Mr. Molloy write the letter of resignation was that his understanding of the deal was that the car was included, and that if the board had not granted that, it would have served to unravel that in the same way as a failure to provide any of the other elements of it would have done so.

Deputy Róisín Shortall

The car was the property of FÁS. The only people who could give authority to Mr. Molloy to retain the car were the board of FÁS.

Mr. Niall Saul

That is correct.

Deputy Róisín Shortall

I cannot understand, then, how Mr. Mulligan can say on 25 November that the board had given approval, when the board did not meet for almost a month.

Mr. Dermot Mulligan

Sorry, it was not exactly said because it was a draft letter. It was not an actual letter. It was an unsigned draft.

Deputy Róisín Shortall

The fact that it is unsigned is beside the point, as is the fact it is a draft letter. Mr. Mulligan stated that the board had given approval to Mr. Molloy to retain the car. Is that correct?

Mr. Dermot Mulligan

No. I drafted a letter that included those words, which I have explained contain an error. In doing that, I was reflecting an awareness that I had that the chair had said that he intended to seek board approval for the retention of the car because that was part of the negotiations with the director general in regard to his departure.

Deputy Róisín Shortall

That is not what Mr. Mulligan said and it is not a typographical error. Mr. Mulligan misled the Department of Finance in putting that in the letter because it was not true. Mr. Mulligan made a statement that clearly was not true.

Mr. Dermot Mulligan

It was a draft letter of a request for sanction. It was not a signed letter; it was not a final letter. It was a letter which was effectively saying "We are coming to a particular point in the negotiations here. How should a final draft letter look? Is it of this sort?"

Deputy Róisín Shortall

Mr. Mulligan made a statement that was not true.

Mr. Dermot Mulligan

Sorry, I did not make a statement. I drafted text which was a draft letter which contained text. I have tried to explain that this text included an error.

Chairman

What does Mr. Mulligan mean by a draft letter? Did a letter go to the Department of Finance?

Mr. Dermot Mulligan

Yes, it went as a draft letter. At the top of the document, one will see "Draft" marked on it.

Chairman

Where is the final letter, if that was a draft?

Mr. Dermot Mulligan

The final letter was sent from the Department on 26 November.

Chairman

The draft letter went to the Department of Finance. If it went to the Department, how could it just be a draft letter?

Mr. Dermot Mulligan

As I tried to explain, I was seeking clarity in regard to what the format of the request for sanction should be in this regard. The final request for sanction from the Department went to the Department of Finance on 26 November. The Department of Finance replied on the same date.

Deputy Róisín Shortall

Fine. I still make the point that a statement was made in regard to the car which was untrue and misleading.

We also know from e-mail correspondence we have seen that when this draft letter went to the Department of Finance on 26 November, advice was sought of a person called Mary Jackson. Mr. O'Toole sent an e-mail to Mary Jackson asking whether she could pronounce on the car. Is there a reply to that request, because it was not in the papers we received?

Mr. Tony Jordan

I am not sure. We will have to check if Ms Jackson responded to that. I know she has left the Department. I am not sure about that.

Deputy Róisín Shortall

Presumably, she would have replied.

Mr. Tony Jordan

I know she was departing the Department. I am not sure about the timing of that.

Deputy Róisín Shortall

Was she not there at the time? Had she left the Department on 25 or 26 November?

Mr. Tony Jordan

I am not sure if she got the e-mail or responded to it. I would have to check the records.

Deputy Róisín Shortall

Clearly, Mr. O'Toole was concerned about the car element. If this woman was not in the Department, it is strange she would be written to.

Mr. Tony Jordan

It was overtaken by events because, as was said, the car was not part of our concern. It was a matter for the board to make a call on whether that would form part of the deal.

Deputy Róisín Shortall

Yes, it was, but given that it was already stated in the draft letter that the board had agreed to it, advice was obviously sought within the Department on it.

Mr. Tony Jordan

Yes, but it is important to note we are talking about a draft letter from Mr. Mulligan. Soon after, that letter was taken off the agenda and was replaced by the definitive letter to us requesting sanction. The car was no longer an issue for the Department of Finance because it was not our concern.

Deputy Róisín Shortall

The last paragraph — the paragraph that was untrue and inaccurate — was taken off and the rest of it remained the same.

In regard to the role of Mr. O'Connell in this, because it was he who gave the final sanction from the Department, what view did he take of the advice that was provided to him by the three officers in his Department who advised that it was not in compliance with the guidelines to give this approval?

Mr. John O’Connell

As we have already explained, they were not involved in our discussions earlier on. Obviously, I read the letters, I was aware of the correspondence and I explained after the event — I cannot remember the exact timing — the position to them. They were not aware of the discussions that had taken place earlier. I was aware of them but, as we have been explaining, the background was wider than they were aware of. The letter I issued was in line with that wider background.

Deputy Róisín Shortall

Mr. Connolly approved that letter.

Mr. John O’Connell

I cannot remember exactly. We have explained the sequence of events in the note of the 16th. We certainly spoke that morning. I remember a telephone conversation which is mentioned in the note the Deputy has. We referred to the discussions we had on the day before, at the meeting with the Department of Enterprise, Trade and Employment. We reviewed the individual items that were emerging at that stage as part of the deal. We agreed then that it would be approved, and I issued the letter in light of that.

Deputy Róisín Shortall

Did Mr. O'Connell speak to the Minister for Finance about this?

Mr. John O’Connell

No.

Deputy Róisín Shortall

It was just Mr. Connolly.

Deputy Jim O’Keeffe

I wish to address this business of sending draft letters. Normally, if I am communicating with somebody, I send the person a letter or e-mail. Is the idea to send a draft letter just to see what kind of a reaction one will get before sending the final letter? What is the reason for sending draft letters?

Mr. John O’Connell

I can explain that as part of the process of negotiation. We were in a process of discussion. Information was emerging all the time. It happens a lot.

Deputy Jim O’Keeffe

Is Mr. O'Connell serious?

Mr. John O’Connell

Yes. E-mails are exchanged along the lines of "Would this letter be acceptable to you?" We might reply "No, it would not be. It does not reflect our understanding." This is just part of the normal exchanges in offices. I am sure it goes on in many other offices.

Deputy Jim O’Keeffe

Is it one Department chancing its arm to see what the reaction will be before it would actually——

Mr. John O’Connell

No, I did not mean to imply that at all. What I meant was that as part of the process of discussion that was obviously happening that morning and the day before, there was a great deal of information in the air and we were attempting to clarify the position. The discussion about the car is part of that. As part of this exercise, we exchanged e-mails about the correspondence.

Deputy Jim O’Keeffe

Is it a case of "I am thinking of sending you a letter as per attached. Let me know is it okay to send it to you." Is that the sort of——

Mr. John O’Connell

It is partly that, but it is also partly a request to ascertain "Is this your understanding of the position?" The Deputy has to understand that this all happened in the course of a day or a day and a half. There was a lot of information in the air. Clearly it was a sensible approach to agree an exchange of papers and correspondence which we have outlined here.

Chairman

There is one more question from Deputy Broughan. We will try to wrap up the section if we can. Mr. Jordan made a comment in regard to the car and said it was not his concern. Is that correct?

Mr. Tony Jordan

It was not part of our remit to approve the disposal of the car in this circumstance. The disposal of the car was being done as part of the terms and conditions of the director general. The original terms and conditions were set in 2005.

Chairman

In saying that, is Mr. Jordan aware of the letter from his own Department on 27 February 2006 when he wrote to all Departments enclosing a template of the final contract for chief executives? One of the conditions was that chief executive officers of public bodies are not allowed to retain their cars. How could Mr. Jordan say it was not his concern?

Mr. Ciarán Connolly

It was——

Chairman

No, I am asking Mr. Jordan. He made the statement.

Mr. Tony Jordan

That letter was dated 2006. The contract of the director general predated that letter.

Chairman

But there was nothing in the contract of the CEO that——

Mr. Tony Jordan

I appreciate that but the view was taken that his contract began in 2005 which predated that letter. Perhaps there was something but it was not in the contract.

Chairman

Was it a loose arrangement or a custom in practice?

Mr. Tony Jordan

It probably was.

Deputy Róisín Shortall

Did anybody come back to Mr. Jordan with advice on the car, given that the advice was sought?

Mr. Tony Jordan

I do not recall getting any advice back on it. It was irrelevant because we did not consider it part of our——

Deputy Róisín Shortall

It was relevant because Mr. Mulligan had included it in the draft letter. That is why it was relevant. That is presumably the reason Mr. O'Toole was seeking advice on it.

Mr. Tony Jordan

One of the reasons it would have been taken out of the draft letter was that it was not part of our approval process. It was not within our gift to approve it. That is one good reason it would not be in the definitive letter of request that came to us.

Chairman

I call Deputy Broughan.

Deputy Thomas P. Broughan

The Chairman asked the question. It is okay.

Chairman

I thank the Deputy. Shall we move on to the second part of the session, whether the board was being kept in the dark on issues?

Deputy Thomas P. Broughan

Yes.

Deputy Jim O’Keeffe

Excuse me, Chairman, I do not know whether the committee will be relieved or otherwise, I have committed to speaking on the Adoption Bill in the House.

Deputy Thomas P. Broughan

I was reading the note that Mr. Saul sent the committee, which is very interesting, on the difficult history of FÁS. I welcome him and the director general and the staff in both Departments to the committee. Mr. Saul identified as a key problem that the board did not have a line of sight of the type of information he needed to get from corporate affairs. He also said that there were warning zones or other areas of the organisation that perhaps should have spotted the irregularities which run throughout the advertising promotion report, prepared for us by the Comptroller and Auditor General, in particular the procurement area and finance. Is it not the case, therefore, that procurement and finance were equally at fault in not being able to eradicate these nugatory expenditure and other losses and that was a primary reason there was no line of sight for the board?

Mr. Niall Saul

I thank the Deputy. May I leave the nugatory issue aside?

Deputy Thomas P. Broughan

Yes.

Mr. Niall Saul

It is a totally separate issue and it is sub judice at present. I would rather leave it aside because that is definitely a separate issue and I do not think anybody in either purchasing or finance could have foreseen how it transpired. There is no question from the 23 audits which we are finishing now that there are situations in which transactions were entered into by the corporate affairs division that when a purchase order was to be issued, a purchase order was issued despite the fact that it would be pretty clear to anybody looking at it that the transaction had not complied with either company policy or, in some cases, EU regulations. That is drawn out in report No. 66, prepared by the Comptroller and Auditor General, drawing from information already present in INV 137 which shows that was a process that seemed to apply.

In addition, there are circumstances in which the finance function made payments on transactions which themselves were clearly in breach of the policy, for example, the policy of any item over €250,000 having to go to the board. I do not want to go into the absolute details of them for the reason I explained in the letter which is, that as we stand we are going to complete these 23 audits and bring them to the board. There is no question that issues of accountability will be raised with people in respect of that. As the committee will be aware——

Deputy Thomas P. Broughan

Was Mr. Saul shocked at any of those audits?

Mr. Niall Saul

Absolutely. From my point of view, having operated in a range of organisations, the control functions in the executive or management team aimed at ensuring that the policies and procedures are protected just seem to be a process particularly in regard to issues coming through corporate affairs that there was more of a desire to process the issues than to challenge them. There is a pattern of that right through the 23 audits.

When they come to the committee, as they will in time, the committee will see that as clearly as I have. The level is far higher than I would have seen anywhere. In any organisation, particularly one as complex as FÁS, one will see situations where there are breaches of procedures and breaches of policy. That is the reason there are internal auditors and such people. What happened was that the key control piece which was the managerial control in the normal line actually failed. There was a failure on the executive side and a failure then of those control functions. The only processes the board had to give it line of sight was its own internal audit function and subsequently the Comptroller and Auditor General. By definition, they are look-back processes at that stage.

Deputy Thomas P. Broughan

Why did the old pre-2006 board not get some whiff of irregularities that could have been stymied? Mr. Saul made the distinction——

Mr. Niall Saul

They did in 2004. The letter that was sent to the Minister, Deputy Harney, prompted them to start the investigation into INV 137. As I mentioned in my letter, the corporate affairs division only represents about 0.2% of the budget of FÁS and, therefore, in the normal programme for internal audit, and I suspect also for the Comptroller and Auditor General, it might not come up on the radar in the programme only every three years. The best analogy I can give, because I come from a HR background, is that of a particular grade of person in, say, a training centre. If the training centre manager decided to pay him or her 1.5 times what they were supposed to be paid and put that through the payroll, one would expect that the payroll function or the finance function would stop it and one would expect the HR function would get it back to regularity. They are the controls in the normal environment. My view is that those controls consistently failed. What people should have done if they could not get the originating executive to desist and stop it, was to go to a senior executive, and ultimately to the director general and that should have been raised with them and stopped there. Failing that they should have gone to the internal audit function or to the board and said there was a problem. The Comptroller and Auditor General is aware of the letter from one of the finance people where this is made clear. It was his intention to take issues beyond that point.

The other matter that is important in the context of FÁS is the frequent references to the executive board, one of which is in report No. 66. That does not refer to the board of FÁS. It refers to the top team of executives that reports to the director general.

Deputy Thomas P. Broughan

Is it a management committee?

Mr. Niall Saul

It is a management committee in effect but is called the executive board. It is a strange title. Report No. 66 refers to situations where issues were reported to the executive board but never passed on to the FÁS board. The board was denied a line of sight. Two issues arose, one of which was an overrun on the budget for some of the jobs fairs. The answer at the time was that the then Minister requested two extra job fairs to be run and that money could be taken from the capital budget to deal with this.

The second issue concerns Croke Park where a payment had been processed when it was realised that the amount exceeded the limit and that it needed board approval. One of the finance people refused to sign the second cheque and it came to the attention of the board because he refused to sign the second cheque. That is the kind of action required as a matter of course. For example, in respect of something that should have been advertised on the OJEU, someone in the purchasing division would have said that it could not be processed without the documentation showing the matter had gone on to the OJEU because it represents a breach of EU regulation to do otherwise. One sees a pattern of failure. Our duty is to compile this and present it to the board. It is likely the board will pursue issues of accountability.

Deputy Thomas P. Broughan

What is the timeframe on the 23 audits?

Mr. Niall Saul

As the Chairman mentioned, we had a meeting last Friday and went through a range of them. We plan to meet again this Friday and we hope to get to the stage of finishing them. They will be ready to go to the board for the meeting on 1 December. Some of them will be made available to the Comptroller and Auditor General and some of those already dealt with have been supplied to the Department of Enterprise, Trade and Employment as part of the investigation the Attorney General is conducting into the package mentioned earlier. Our aim is to get to the stage where the board can decide on whatever disciplinary investigations must take place. The caveat is that the mention of someone in an audit report is not in itself proof of wrongdoing. There must be a presumption of innocence and there will be a fair disciplinary investigation to follow. People will be entitled to rebut or argue against the points made.

I refer to the third step. In the year since I appeared before this committee, we have closed the corporate affairs division, we have a new procurement policy, we closed off the car option and closed off the advertising option. The recalcitrant issues have been brought into a much tighter line of control.

Deputy Thomas P. Broughan

What is the spending of the corporate affairs division this year? Is it minuscule compared with spending in the past? The striking point about this report is how FÁS had an amazing advertising budget by comparison with other agencies. I will ask the new chief executive about this point. The strategy now is for FÁS to be a training and education institution. One wonders why that function is needed.

Mr. Niall Saul

We have closed that function. There has been a ban on advertising and matters of that nature must come to the director general for approval. I refer to the last piece which goes to the centre of the line of sight issue. One can have all the procedures one likes and the procedures in FÁS are quite robust. Reports from the Comptroller and Auditor General vouch for this year after year. The problem is the line of sight. We must recommend to the board a number of stringent and exceptional steps that must be taken where people will be expected to confirm and verify that all processes have been correctly followed and to be clear in doing so in the manner of the Sarbanes-Oxley regulations.

Deputy Thomas P. Broughan

The management structure was dysfunctional. A group of executives could pursue particular policies and the broader board could not possibly know by looking at normal accounts, such as monthly financial statements presented to board members at monthly board meetings. We know the board was very different from most other boards in other agencies because of the social partnership structure. Was the managerial structure effectively the board of FÁS? Is Mr. Saul concluding that the board accountable to this committee could not have been aware of major irregularities?

Mr. Niall Saul

That line of sight was denied to the organisation and the only way we could manage to get it was by asking the internal audit function, following from INV 137, to go through the 23 audits. From what I have seen, the message is clear.

Chairman

Mr. Saul referred to systematic manipulation of the board in one of his interviews.

Mr. Niall Saul

I did not use that term. My view is that control information did not come to the board but I never implied that anyone was manipulating the board in that sense. It is not a quote from me. I think it was from someone else.

Chairman

A number of contracts, such as the step up programme and the transfer from the RDS to Croke Park, were kept from the board.

Mr. Niall Saul

The transfer from the RDS to Croke Park took place under the previous board. The decision was made in 2004.

Chairman

Is Mr. Saul sure?

Mr. Niall Saul

Absolutely. This is one of the problems. The INV 137 report, on which this committee issued a report——

Chairman

Is that the new contract?

Mr. Niall Saul

The new contract for 2008.

Chairman

Page 35 of the Comptroller and Auditor General's report shows that the contract was signed with Croke Park in 2008 to the value of €590,000.

Mr. Niall Saul

Yes.

Chairman

The contract should have gone to the board for approval.

Mr. Niall Saul

That is correct.

Chairman

What happened?

Mr. Niall Saul

That is the point I was explaining to Deputy Broughan. A deposit payment that exceeded the €250,000 limit was made and the board was not told about it. When the second cheque was to be paid, the person in finance refused to sign the cheque and wanted it to go before the board.

Chairman

The board may not have been informed informally but surely it knew there was a big move from the RDS to Croke Park.

Mr. Niall Saul

The event was already in Croke Park. This was just a new contract. The decision to move to Croke Park was taken in 2004.

Chairman

Was this contract signed without the board being told?

Mr. Niall Saul

It was a new contract but there was no change of venue. We were not advised that a new deal had been done with Croke Park.

Deputy Thomas P. Broughan

Was FÁS not concerned that the cost of Croke Park was becoming significantly higher than the RDS? Did anyone point out that the RDS cost a certain amount and that Croke Park was that much more expensive? Did Mr. Saul or his colleagues raise any concerns?

Mr. Niall Saul

We considered it on the basis of revisiting it after the director general accepted there had been breach of procedure at the time, although it had not come to the attention of the board. The problem was that the contracts were entered into. There was some concern about aspects of Croke Park and we are dealing with issues about that in some audits so I would rather leave it if I may because it is difficult for me to answer without prejudicing the situation.

Deputy Thomas P. Broughan

I thank Mr. Saul.

Chairman

Four television advertisements were made in 2006. Was that in Mr. Saul's time?

Mr. Niall Saul

Yes, if they were made in 2006.

Chairman

The contract was for €612,000. Was Mr. Saul told?

Mr. Niall Saul

No, I was not aware of it. We found them in our investigations as did the Comptroller and Auditor General. There appear to have been relatively loose discussions between the corporate affairs function and the receiving function. There seems to be a lack of clarity about who had authorisation to do what, but it never came to the attention of the board.

Chairman

Earlier, Mr. Saul spoke about the executive board.

Mr. Niall Saul

Yes.

Chairman

For clarity, will Mr. Saul name the executive board?

Mr. Niall Saul

They would normally be the assistant director generals who report directly to the director general.

Chairman

Who were they in 2006 when the contract was signed?

Mr. Niall Saul

Some of them have retired but I can supply the Chairman with a list.

Chairman

Perhaps Mr. O'Toole can answer.

Mr. Paul O’Toole

Dipping into memory, I think we provided that information to the committee. I do not have the information to hand and I apologise for that. If we have not already provided the information, we can do so.

Deputy Thomas P. Broughan

With regard to the television advertisement, it seems that there was an extraordinary failure to follow procurement procedures. There was a total cost of €612,000. We saw it last night courtesy of RTE and from what I saw it seemed to be quite an effective advertisement. Given the fundamental educational training role. I am not sure what was the rationale for such an advertisement. Will FÁS show those advertisements?

Mr. Paul O’Toole

We have not taken a decision about using them in the future. We certainly have not planned to do so in the near future. If we were considering it, we would revisit it in the circumstances of the time. I understand the advertising was developed in the context of promoting upskilling and the concept of lifelong learning which is a Government policy. At the time, the Government was funding investment in upskilling companies and FÁS was part of that. The concept was to persuade people that continuing investment in their own skills would benefit them and the economy.

Mr. Niall Saul

To be of assistance, many people refer to FÁS as being a training agency but it is an amalgam, part of which is a labour market management agency. Many people ask about advertising——

Deputy Thomas P. Broughan

Like many other citizens, I am proud to state that I am a graduate of FÁS. It is ironic in view of our earlier discussion that I was trained by FÁS under the community enterprise programme to be a company director and I learned the procedures one had to follow to be responsible for the spending of public money. That was more than 20 years ago.

Mr. Niall Saul

The point I am trying to make is that——

Deputy Thomas P. Broughan

I know exactly what FÁS is all about.

Mr. Niall Saul

——there were questions about the opportunity sessions held in Warsaw and New York. The rationale behind them was that they were serving that part of the organisation's remit. I can remember three or four years ago — we all wish we were back there — a very clear message in economic planning was that we would need 300,000 more foreign workers in the State to keep the economy going. Many employers welcomed those opportunity fairs run in Warsaw, New York and South Africa because the possibility of accessing employees in an economy that had full employment was particularly difficult. The input of FÁS into that would have been seen by many employers as of benefit.

Deputy Thomas P. Broughan

It seems mind boggling that FÁS commissioned advertisements costing more than €600,000 but did not have the funding to broadcast them and that, according to paragraph 5.17 of the report, its director of finance wrote to the director with responsibility for CDP to state that any advertising had to be financed out of the existing services for business budget. According to paragraph 5.20, this meant no budget was available to broadcast. This is a total shambles.

Mr. Niall Saul

That is the point I am making to the Deputy. The issues that happened arose in the relationship between corporate affairs and the receiving department. It was only when the finance person stepped in and asked why it was being progressed as no budget had been agreed with the board for it that it surfaced. This makes my point that these issues did not surface at board level. They were operating in a world below that and were kept below the radar of what was supposed to be reported to the board. That is the point I am making.

Chairman

Is Mr. Saul suggesting, as I mentioned earlier, that there was manipulation of the board?

Mr. Niall Saul

It depends on how one cuts the information. The advertising spend was broken down programme by programme and one does not see the total amount. Our report INV 137 and other audit material examines matters programme by programme. However, when the Comptroller and Auditor General examined it for Special Report No. 66, a different view was taken and advertising in its totality was examined. That is when the numbers came out clearly. Those numbers would never have come to the board in that format.

Chairman

I listened and saw some of Mr. Saul's interviews. He has been committed to bringing clarity to the situation. However, my interpretation of what he stated is that there was manipulation of the board. Information was being filtered through to suit the case of the board of management. What Mr. Saul is telling us bears that out. They type of reporting system——

Mr. Niall Saul

It was information that I would have expected to reach a board in the normal course of events that was not coming to the board.

Deputy Thomas P. Broughan

What about the board's sub-committees?

Chairman

What type of reporting to the board of FÁS took place? Was it a reporting of the decisions made by the board of management? If so, was that a fair way to treat the board?

Mr. Niall Saul

Generally, on a typical set of agendas there were proposals for entry into contracts for leasing buildings or whatever it may be. It was a three-hour meeting with ten or 11 items on the agenda. One part was the financial report, which was normally about the general headings. However, some expenditures on programmes extend to two or three levels and that was not included in the information that came to the board.

Chairman

Has it changed since?

Mr. Niall Saul

No, it has not. We are in the process of making changes in that and there is much more questioning about what is coming to the board. The big issue will be that we need to be able to hand the organisation over to the new board when we step aside to make room for it. We will have to have some type of Sarbanes-Oxley arrangement whereby executives with responsibility for expenditure will have to certify on a regular basis that what they are doing is in compliance with policies, procedures and EU regulations. That is the only way the board will get line of sight.

Chairman

Does Mr. Saul agree with my assertion that the board of FÁS was manipulated by information being filtered through to it on a selective basis from the board of management?

Mr. Niall Saul

I am loth to use the term "manipulated" because it is prejudicial.

Chairman

Misled?

Mr. Niall Saul

I am saying that information which from sitting on boards I would have expected to come to board level in the normal course of events did not.

Chairman

And Mr. Saul was misled as a result.

Mr. Niall Saul

We obviously lacked the clarity or line of sight.

Deputy Róisín Shortall

Any commercial organisation can be subject to that type of behaviour whereby the rules are bypassed.

Mr. Niall Saul

Yes.

Deputy Róisín Shortall

What are the standard checks and balances that are in place to ensure that individual executives do not act in this way?

Mr. Niall Saul

The standard checks and balances are as I outlined. Procurement, finance and human resource functions should be able to identify deviations from policy and challenge them directly.

Deputy Thomas P. Broughan

Did the structure of sub-committees allow board members to monitor functions with the responsible managers? Given the relatively large size of the board, was there not scope to establish sub-committees to pursue particular areas with line managers?

Mr. Saul dug a certain depth with his own experience but reached obstacles in terms of not being able to get sufficient information. Did he ever ask why he was not being given a better outline of what was happening? That is what he would have expected in his own organisation.

Mr. Niall Saul

The Deputy will recall that one of the matters we discussed when I last appeared before the committee was procurement policy. While the policy was sound enough, towards the end of 2008 we revised the policy and held a series of workshops for line managers so that they clearly understood deviation from procurement policy would result in disciplinary actions. That revised policy is now in place and there is a sense that the organisation is in better control of the situation. The last step will be the Sarbanes-Oxley arrangement whereby people have to certify that the areas under their control are compliant with policy.

Deputy Thomas P. Broughan

The pre-2006 board was not organised in such a way that members would have made it their business to track the various functions.

Mr. Niall Saul

No, there was a sub-structure. For example, I was on the advisory committee on screen training. We restructured that business after raising questions about the costs arising from its location in a separate office block. Similarly, specialist sub-committees oversee training for the employed and on the disability side. One of the issues in respect of disability training is the take-up of courses.

Deputy Thomas P. Broughan

However, it was not the practice prior to 2008 that board members would busy themselves with tracking managerial functions as they were being discharged.

Mr. Niall Saul

No, the internal audit function was used to track that.

Deputy Róisín Shortall

Mr. Saul spoke about the need for a system of vouching adherence to guidelines. This committee has regularly discussed the need for such a system across the public service. Should that be the responsibility of particular senior executives?

Mr. Niall Saul

Any executive with responsibility for procurement should be able to sign a statement every six months. Such a statement should be sent to the head of internal audit as confirmation that managers have reviewed matters in their respective departments and can certify they are in line with policy. That is the only way we are going to see it.

Deputy Róisín Shortall

That is something we might pursue as a committee. I appreciate that Mr. Saul is in a difficult position given that the audits have not yet cleared the board. We look forward to examining them in detail at some stage in the future. However, it is clear that the action taken last year in respect of an individual's resignation from the organisation is only the tip of the iceberg. Does Mr. Saul agree that such a level of disregard for policy and regulation would not be possible unless several people were involved in a culture of permissibility?

What is the Department's reaction to the findings emerging from the 23 audits? As a former and current member, respectively, of the board of FÁS, I ask Mr. Gorman and Mr. Mulligan whether these matters reflect very badly on their Department.

Mr. Niall Saul

As I explained in my letter, we have to separate the normal operations of FÁS and the particular issues connected with the corporate affairs division. More than 60% of the organisation's budget is spent on areas such as community enterprise schemes, apprenticeships, training allowances and payroll. The bulk of our work is in these areas because they involve liquid cash. Given the complexity of FÁS, I find the general level of compliance to be in line with what I would expect. The problem with the issues connected to the corporate affairs division is that the incidence of irregularities appears to have gone off the scale. It would be wrong to present this as a culture within FÁS but certainly the scope allowed to a division to act without paying care and attention to the organisation's policies and procedures was at the root of many of these problems.

In fairness to the staff of FÁS, the organisation has shown itself to be very capable of adapting to the new environment in which it finds itself and is providing a very good service. People have moved from central offices to the front line to support the changed pattern of unemployment. Operationally, that looks reasonably sound. I acknowledge that the matters arising in the corporate affairs division and how others appeared unwilling to take them on are cause for deep concern and I believe that is a cultural issue.

Deputy Róisín Shortall

Is there a problem with the structure? When FÁS was originally established, its focus was on the regions and people were on the ground providing training and employment support services. Over the years the number of directors as a proportion of the overall number increased and the focus shifted to head office, including corporate affairs. In many ways, the core business of FÁS became secondary to maintaining the organisation.

Mr. Niall Saul

That happened because of the way in which the economy developed. As unemployment had dropped so dramatically, the importance of retraining for the unemployed diminished. The organisation appears to be going back in that direction, however.

Deputy Róisín Shortall

The top heavy structure is now in place in terms of disproportionate numbers of head office directors.

Mr. Niall Saul

We need to understand the complexity of FÁS. It is involved in everything from HSE related matters to training senior managers. If one looked at the organisation coldly, one might ask whether its bailiwick is too broad. It has been said that FÁS is a Swiss army knife and that as soon as a need arises, the organisation is asked to address it. The poor take-up of training and access to employment schemes for people with disabilities is an issue which has dogged the organisation. Understandably, the biggest fear for people with disabilities is whether they will be able to retain their benefits and medical cards and there is a dissonance between these needs. Although we are duty bound to provide the service, the take-up is quite poor. There is a structural problem that must be sorted out. I suspect there will be a definite move, because of the unemployment position, towards a strengthening of those people operating on the ground. It is an issue for Mr. O'Toole and the future board.

Mr. Paul O’Toole

We need an appropriate balance between front-line operational people and policy support. It is my intention to bring forward a new structure within FÁS that will deal with that balance and also the nature of the accountability and responsibilities within the organisation. They have been confused in the past and Mr. Saul made a point about line of sight. Relevant managers and executives must have their own clear line of sight in their reporting accountabilities. That is a necessary change which I must bring forward and I intend to do so.

Deputy Thomas P. Broughan

How is the organisation surviving without corporate affairs? That is aside from all the grief and hassle.

Mr. Paul O’Toole

The use of the word "surviving" is interesting. The board took the decision this year that there was no point in expending vast sums of money in advertising and promotion given the context and the difficulties which FÁS was facing. That expenditure has been reduced by almost 90% this year. As I indicated at the last hearing, that 90% drop is too much as FÁS needs to communicate with its stakeholders to ensure they are aware of the services it offers. There is an appropriate level of investment that should be brought to bear.

A reference point by the Comptroller and Auditor General is that any expenditure in advertising and promotion should be in context and guided by a proper communications and marketing strategy. It has been requested of us to do that and it is our intention to do so. Our current corporate plan will end in 2009 and we will insert in the new version a full communications and marketing strategy, so any future advertising and promotion will be done in that context. Such promotion has its place as clients need to know how to access our services.

Deputy Róisín Shortall

May we get a response from the Department on what is emerging?

Mr. Seán Gorman

I have two comments, with the first relating to my time on the board. The description by the chairman of the internal audit committee of the type of financial reporting that came to the board would have been the case in my time. It is at a fairly high programme level. From a Department perspective, the supervision and monitoring of FÁS, and semi-States generally, is a necessity at a reasonably high level and reflects the fact that there are Department of Finance guidelines and various levels of responsibility operating within the code of governance for semi-State bodies. These include, at the level of the organisation on a statutory basis, the responsibilities of the director general and the management of being the Accounting Officer who has to report to the Committee of Public Accounts and being responsible for the daily management of the organisation.

When the moneys are decided by the Government and voted to FÁS or any similar organisations, those allocations are at broad programme levels. In the annual output statements we set out broad deliverables that are required of the organisations on the basis of the expenditure of that money. We seek assurances as required by the code of governance at key points in the year, especially at the point where annual reports of accounts are finalised. We seek from the chairs of organisations that the necessary checks and balances for best practice are in place. That is in line with Department of Finance guidelines and we have had confirmation that those checks and balances were in place. I also knew that from the board.

Without prejudice to seeing the final details, there may be an argument that the checks and balances were in place but the question was whether they were working. If they were not working, why was that? Were there systemic problems and if they existed, why were they not picked up? How can we have something else interspersed with the classic processes of checks and balances that would allow boards and us to have a better way of capturing problems which may be happening or emerging? We had all the assurances.

Deputy Róisín Shortall

That clearly did not work, apart from any accountability to the Comptroller and Auditor General or this committee. There are other responsibilities and the Department should oversee spending of very considerable sums of money. Does Mr. Gorman accept that oversight has not been adequate?

Mr. Seán Gorman

Oversight has happened in accordance with the requirements of the code of governance of semi-State bodies.

Deputy Róisín Shortall

Are there problems with those requirements?

Mr. Seán Gorman

That is what seems to be emerging in this investigation and these discussions. In that process things have gone wrong so we must consider how the Department, board and Accounting Officer address the problem and plug those gaps. That is one of the challenges.

Deputy Thomas P. Broughan

Has a mechanism been established for officials who are directors of various agencies and semi-State bodies to report to the Department? Is there a mechanism where officials can, if they think there will be a problem, flag it to the Department? I assume there is a management committee etc. but there are cases in some Departments where bodies under their remit are very large and powerful. For example, the advertising budget for FÁS is bigger than many other bodies. Has there been any review of invigilation of the director's function given that, according to Mr. Saul, the board system failed completely in FÁS?

Mr. Seán Gorman

I do not have a formal structure where in a routine way people come to me and tell me there is an issue. The culture in which we operate in the Department at the management board level and the level of the liaison sections that deal with these agencies means that board members are absolutely free to report something with which they are uncomfortable and this should be raised within the organisation at board level or with the Department through me or the Minister. That option is available to people.

Deputy Róisín Shortall

It should be required of people and not just an option.

Mr. Seán Gorman

I would expect that they would bring such matters to attention.

Deputy Róisín Shortall

They do not, which is clear.

Mr. Seán Gorman

Part of what we are looking at is the extent to which people knew of the difficulties. The challenge we will be presented with is how we can do more in interfacing or overlaying — perhaps both — in our normal checks and balances.

Chairman

There is a very serious issue arising from Mr. Saul's and Mr. Gorman's comments. We are being told that the board of FÁS was intentionally being kept in the dark about many issues, and that is why there was a failure in procedure. This puts the focus on the board of management in FÁS and its failure to report in detail to the board of FÁS on issues to which we referred earlier. I will not go back on them.

I asked for the names of people who were in situ around the time of the step up programme and other issues that may come out in the audit. The focus is on those people and how the board was kept in the dark, leading to a system failure. It seems there is a major case to be answered by those people.

Deputy Thomas P. Broughan

It is striking that Mr. Molloy came from the Department. I remember when he went to the organisation as I was my party's spokesperson on enterprise, trade and employment. Mr. Molloy had high hopes for the development of FÁS over the past decade and the role it would play.

Is it possible that within the Department there is not a sufficient culture of invigilation? Is there a "Yes, Minister" culture, except in this case the Department is not being given the key information from an organisation such as this where the board seems to have been dysfunctional?

Chairman

Does Mr. Saul wish to comment?

Mr. Niall Saul

Yes. The Chairman may remember one of the examples to come before the committee, namely, a question he asked about credit card approval. Mr. Pike said he had approved credit card expenses on behalf of a person from corporate affairs. He was asked why he had done that and, as I understand it, his answer was who was he to question a person who was a respected member of the management team. My view is that his job was to question it, not to sign it. This issue of processing matters will come through and the Comptroller and Auditor General has seen it also. Some people may have done this in good faith, processing matters instead of questioning the source. That sits at the root of some of the problems.

Deputy Róisín Shortall

Was it not a culture that encouraged that approach rather than frowned upon it? Did it not alienate people who question such matters?

Mr. Niall Saul

Absolutely, and those cultural issues are coming out.

Chairman

I have what may be an unfair question for Mr. Saul. Does he agree with my summing up of the evolving situation?

Mr. Niall Saul

The only word I am uneasy about is the reference to "manipulation". There was certainly a failure on the part of the executive to convey the kind of information the board would have needed to act on some of these issues. We only got line of sight through the internal audit function and through the involvement of the Comptroller and Auditor General. If one looks at report No. 66 in the document INV-137 one sees that a lot of the material has its roots in INV-137. The Comptroller and Auditor General is obviously freer to use some terms than we were but that is what is there.

Deputy Róisín Shortall

That only came about because of the anonymous letter so it was a chance discovery.

Mr. Niall Saul

Yes, but if the Deputy considers the matter, credit that must be given to the people in internal audit. They could have limited themselves to only the seven items mentioned in that letter but pushed on and came back to the audit committee to ask if they could keep going on things they were finding. That, to me——

Deputy Róisín Shortall

That was against a lot of resistance by senior people.

Mr. Niall Saul

It was a courageous position to adopt. It was counter-cultural in the situation.

Chairman

That is getting back again to the senior management of FÁS who seem to sit on people.

Mr. Niall Saul

I do not want to prejudice anything that may come out subsequently.

Chairman

Shall we conclude? Agreed. I thank everybody from the Departments and the agency. Mr. Saul went to great inconvenience to be present today. I thank all for their contributions and thank the members. We shall take into consideration the evidence given today when we make a report on this part of our examination.

The witnesses withdrew.

Chairman

Next Thursday we will consider Vote 32 — Transport, chapter 27, West Link buy-out, and the latest accounts of the National Roads Authority. In private session we will look at the examination of the pay review.

The committee adjourned at 1.35 p.m. until 10 a.m. on Thursday, 3 December 2009.