The Vote for the Department of Tourism, Culture and Sport, which recorded a net expenditure of €446 million, received a clear audit report in 2010. However, two matters were referred to in chapters in my annual report. The first of these related to the administration of the sports capital programme. Inspections by the Department's finance unit found that while grant payments of €300,000 had issued to Basketball Ireland in 2006 to purchase equipment for basketball courts, none of the related equipment was in place by April 2009. In December 2009 the Accounting Officer asked his internal audit unit to examine the matter. Its preliminary findings were that during the period 1999 to 2006, only around 20% of equipment for which funding had been provided had been put in place. Some €1.8 million had been made available during the period in question and the remainder of the funds were used to support other basketball programmes, including a regional development programme.
Based on the preliminary internal audit findings the net issues in this case, from a public accountability perspective, were that the scheme rules were not complied with in that the bulk of the equipment had not been acquired and, because funds were diverted to other purposes, a substantial amount of capital funding was not applied for the purpose intended. This incident and some other results which surfaced on foot of the Department's inspection programme which are recorded in the chapter suggested a need to improve both the vouching of grant payments and the timeliness of follow-up in non-compliant cases. The chapter records the revised procedures the Accounting Officer has put in place.
Chapter 31 draws attention to two financial matters relating to the national sports campus. Both of those matters arose out of litigation. First, included in the costs recorded in the 2009 financial statements of the National Sports Campus Development Authority is the cost of a settlement with a firm that was unsuccessful in its bid to construct the National Aquatic Centre. The unsuccessful bidder sued on the basis of alleged non-compliance with EU procurement rules. The settlement contained a confidentiality clause. Overall, the total cost of legal and professional fees in the year in which the settlement was paid came to €2.8 million. In addition, €287,000 in costs were borne directly by the Vote of the Department.
The second matter relates to the National Sports Campus Development Authority seeking to charge VAT of €10.25 million on the capitalised value of a 30-year lease of the National Aquatic Centre to an operator, namely, Dublin Waterworld Limited. Following an appeal, the Supreme Court found that the transaction was not subject to VAT. This was because, ultimately, the capitalised value of the lease was less than the cost of acquisition and development and was, therefore, exempted from VAT.
The audit concern in this matter was that, while recognising that the issue of VAT became linked with other grounds of action in a wider litigation seeking forfeiture of the lease, ultimately, even if a successful outcome to the VAT issue had been achieved, it would not have conferred any net financial benefit on the State once the lessee was a taxable person entitled to recover his VAT input costs.
The cost of taking the case had yet to be determined at the time of reporting. More generally, the outcome of these types of litigation cases suggest that, first, in the interests of transparency, some ground rules may be desirable in the case of settlements, particularly around confidentiality clauses agreed by State agencies and, second, where financial objectives are the subject matter of proposed litigation, apart from an assessment of the prospect of success, which should obviously be done in every case, the net overall benefit to the State should also be considered at the outset.
The Accounting Officer will be in a position to update the committee on any developments since the reports were completed.
