COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 1 Dec 2011

Business of Committee.

Chairman

Are the minutes of the meeting of 24 November 2011 agreed? Agreed. If there are no matters arising, I will move on.

The next item is correspondence received since our previous meeting. Correspondence was received on Thursday, 24 November 2011, from Mr. Paul O'Toole, director general of FÁS, regarding a briefing paper on FÁS's annual report and financial statements for 2010. This is to be noted and published.

Correspondence dated 24 November 2011 was received from Ms Brigid McManus, Secretary General at the Department of Education and Skills, providing a note on correspondence previously forwarded by the committee from Ms Ruth McNally, town clerk of Tullamore Town Council, regarding the amalgamation of the Laois and Offaly vocational education committees. This is to be noted and published. A copy of all correspondence will be issued to the original complainant by Ms McNally.

Correspondence dated 23 November 2011 was received from Mr. Robert Watt, Secretary General at the Department of Public Expenditure and Reform, forwarding the minute of the Minister for Public Expenditure and Reform in response to the Committee of Public Accounts' third interim report on the procurement of legal services by public bodies. The Minister has accepted the majority of the recommendations in the third interim report.

Correspondence dated 23 November 2011 was received from Mr. Brendan McDonagh, chief executive of the National Asset Management Agency, NAMA, providing further information requested by the committee at its meeting on 26 October 2011.

Deputy Eoghan Murphy

I wish to comment on that matter. It is unfortunate that Mr. McDonagh is not present. I welcome the fact that we have received this correspondence from NAMA. One of the issues on which we asked the agency to comment is that relating to debtors who are in receipt of incomes of €200,000. The latter are developers whose interests are being administered by NAMA but who are being paid to assist the agency in managing their portfolios. When the committee examined NAMA's accounts, it emerged that two developers are being paid more than €200,000 each. This is an important matter and it received a great deal of attention in the media. Many members inquired as to why these individuals were each being paid €200,000 per year.

I wish to read into the record a portion of the transcript from the meeting at which we examined NAMA's accounts. I asked Mr. McDonagh if the two developers who are participating in managing the assets involved are resident in the State for tax purposes and he said, "My understanding is that both are resident in the State." We then had an exchange which went as follows:

Could we get confirmation of that? When Mr. McDonagh says it is his understanding, does that mean they are both resident in the State for tax purposes?

They have interests in both Irish and UK properties. That is where the majority of their loans would be. I understand that they are resident in the State for tax purposes but I can check it for the Deputy.

Mr. McDonagh checked the position and it transpires that one of the two NAMA debtors is both resident and tax resident in the Republic of Ireland, while the other is an Irish citizen whose principal business interests and assets are located in the UK and who is not currently tax resident in this country.

When one considers the transcript to which I refer, it is clear that Mr. McDonagh was obfuscating and that he took me on a trip around the houses to some degree. I did not appreciate that at the time, which is why I posed certain questions. Mr. McDonagh has since communicated with the committee and informed it that one of the two developers in question is not resident in the State for tax purposes. People were genuinely upset when they discovered that two of the individuals they consider to be responsible for the financial position in which we find ourselves are being paid by the State to assist NAMA in administering their portfolios. We questioned the representatives from NAMA as to why it has employed the services of these two developers and I do not believe they provided decent answers in respect of that matter. The fact that one of those to whom I refer is not tax resident in this State and does not pay tax here is scandalous. The people will not stand for that and the committee should not stand for it either. This matter must be followed up immediately. The Committee of Public Accounts represents the Oireachtas and it cannot allow what is happening in respect of this matter to continue.

Chairman

I tend to agree with the Deputy. Given that he questioned the relevant witness and that he is in possession of the information - confirmed by NAMA in its correspondence - that one of the developers in question is not resident here, does the Deputy wish to make a proposal?

Deputy Eoghan Murphy

We cannot direct policy on this matter. I do not know whether the Minister can compel NAMA to require that the developer to whom I refer should transfer his tax liabilities into this State. I am curious with regard to what we can do in respect of the information with which we have been provided. There are two aspects to this matter, namely, the fact that the person in question is not tax resident in the State and that Mr. McDonagh was probably not as forthcoming as he might have been with regard to the information he may have had to hand when I questioned him. The latter is certainly not acceptable.

Chairman

A number of issues arise. The first is that he was not forthcoming with the relevant information and that the Deputy had to go all around the houses with him in order to try to obtain it. The second issue is that the information provided was incorrect.

Deputy Eoghan Murphy

The information was incorrect. It may be the case that the information provided in the subsequent correspondence should have been given to the committee at the time. After all, only two individuals are in receipt of the money to which I refer. NAMA should have a deep understanding of what these individuals are doing with their assets on behalf of the agency and of what is their tax status.

Chairman

The third point is that an issue arises in the context of the Revenue Commissioners.

Deputy Eoghan Murphy

Yes. If a person is being paid by the State to assist it in getting out of a position for which he - as a result of managing his portfolio badly - was partly responsible for putting it in, then he, like everyone else, should pay taxes and make a contribution.

Chairman

The first step we must take is to contact NAMA in respect of the information provided at the meeting and that which has now emerged. We should express our dissatisfaction that the relevant information was not made known to us from the outset and that the Deputy was obliged to pose detailed questions in order to establish the real facts relating to this case. The fact that the individual to whom Deputy Eoghan Murphy refers is not tax resident in Ireland, that his assets are located in the UK and that he is being paid by NAMA is a matter for the Revenue Commissioners.

Deputy Derek Nolan

It should be pointed out that someone who is not tax resident in the State is taxed on all of his or her Irish-earned income in any event. That does not mean that the individual in question is not being taxed on the money he is receiving from NAMA. The question that arises is whether the current legislation on tax collection is being applied to him.

Chairman

NAMA is not actually paying him.

Deputy Eoghan Murphy

If he is not tax resident in Ireland, to what extent are we aware of what are his actual liabilities and assets in the context of his payment of tax elsewhere? He is not making a contribution to the State and NAMA is paying him to help manage his portfolio. Is that not correct?

Chairman

These people are being paid salaries of €200,000 by their businesses. If one of these individual's assets are located in the UK, then he is being paid from that jurisdiction.

Deputy Eoghan Murphy

Is the Chairman stating that the salaries of €200,000 of which these people are in receipt are actually-----

Chairman

The position is not as clear as the Deputy has outlined. It is not as if NAMA is paying the men in question €200,000 each and that they are not resident here. Their businesses are allowed to pay them €200,000 and one of them is resident abroad.

Deputy Eoghan Murphy

Is tax paid to the State out of the money they are allowed to be paid by their businesses?

Chairman

It depends on their businesses. If one of them is being paid by his business abroad, then the relevant transactions are taking place outside of this jurisdiction.

Deputy Eoghan Murphy

Yes. However, let us return to Deputy Nolan's point. One of them is being paid €200,000 per annum by his business but nothing from that is coming back to the State. This is despite the fact that he is being paid to help manage his portfolio on behalf of NAMA.

Chairman

Presuming that is the case.

Deputy Eoghan Murphy

According to the note with which the committee has been provided, money should be coming back to the Revenue Commissioners in the form of tax. The individuals are being permitted to be paid by their businesses on behalf of NAMA.

Chairman

It depends on where the businesses are located. If an individual's business is located in the UK and if he is being paid by it, then there would be no money coming back to the Revenue Commissioners.

Deputy Eoghan Murphy

I could be wrong but the way this matter was explained to me would appear to indicate that there is a tax liability owing to the State.

Chairman

Not in respect of a transaction such as the one to which I refer because it would not take place in the State. We can clarify the position.

Deputy Eoghan Murphy

It would be great if we could do so. I do not want to infer something that is not correct. I was not satisfied with how Mr. McDonagh circumvented my questions on the day. I accept that he is not present to defend himself. However, as the matter was explained to me, the State should be receiving some tax revenue from the person in question. The fact that this individual is not tax resident in Ireland means that he is avoiding a tax liability.

Chairman

They are not. They are paying to the UK authorities. If they are resident there and not resident here, their businesses are there, not here. They are paying their taxes, or should be paying their taxes, to the revenue authorities in that country and, therefore, there would not be a liability for them in the context of this State.

Deputy Eoghan Murphy

I beg the Chairman's pardon. It was explained differently to me. Possibly, I have got poor advice.

Chairman

We can clarify it.

Deputy Eoghan Murphy

If we could, I would appreciate it.

Chairman

That is the clarification. To get more detail, we will look back on the proceedings of the previous meeting and give Deputy Murphy some clarification on it.

Deputy Eoghan Murphy

I thank the Chairman.

Deputy Sean Fleming

On the same document, I am not satisfied with the response I received from Mr. Brendan McDonagh, chief executive officer of NAMA, in connection with the specific question I asked on the issue of interest being charged on the various loans.

I asked a question, question No. 6, in the document. I asked for a note providing details of the number of loans where interest is being rolled over or zero interest is being charged, and the value of such loans. The response he gave states: "Interest continues to be accrued on all outstanding loans in accordance with the contractual terms of the loan whether performing or non-performing". He gave no answer whatever - he did not even attempt to answer - to the question of the number of loans and the value of loans where interest has been rolled up or no interest is being charged. He only states that interest is being charged in accordance with the contractual agreements. That is a disgraceful answer for him to send to us. He made no effort. I am not accepting this letter. It should be returned to him forthwith telling him to answer the question.

The second question I asked that the day was also about interest. We had a short discussion that day about it, and the members will be interested in this. I asked are the loans in the NAMA accounts accruing interest based on the original value of the loan or on what NAMA paid for the loans. As the committee will appreciate, there is a huge difference. Mr. McDonagh has not answered the question in a straight way. I will quote his letter because the committee can work out what the answer is to some extent. He states:

While the debtor continues to be liable for interest on the original loan value ... accounting standards do not allow NAMA to use this as the basis to recognise income on its loan portfolio for the purposes of financial reporting.

What Mr. McDonagh, because of accounting standards, is saying is the NAMA accounts do not include an interest charge on the total value of the loan which it took; they only include interest in respect of the effective interest rate methodology which deals with the future cashflow of the expected loan, which is, the discounted value.

The NAMA accounts do not include the interest based on the original contract to which the debtor signed up. Mr. McDonagh is saying that the debtors are legally responsible for it and NAMA can continue to charge it, but NAMA will not include it in its accounts because of financial standards.

Mr. McDonagh needs to give the committee a financial breakdown of the difference of interest that is chargeable based on the contracts that those persons signed with the relevant banks in accordance with the contractual terms of the loan, which he refers to in question No. 6. What is the interest on those original loans that NAMA took over? Following that I want him to give us the figure he includes in the NAMA accounts in respect of the same loans. There is a dramatic difference. Mr. McDonagh has made no effort whatever to deal with the question, and only gave us a reference to a financial standard. In addition, he has not given us any information whatever on what I asked.

Mr. McDonagh gave us no information on the number of loans where zero interest is being charged or interest has been rolled up. That is a relevant question for the public. On the loans in NAMA, is NAMA continuing the same old practice of rolling up the loans? We asked that question and we asked for a note.

We received a letter in response only within the past week. It arose at the committee a few weeks earlier, on 26 October last. Mr. McDonagh took a full month to provide us with no answer. I respectfully suggest that the Chairman take this letter, return it forthwith to Mr. McDonagh and tell him to answer the questions that he was asked to answer. I will not tolerate officials from any public body coming in here in future, giving us information in public session, stating it will provide us with the balance of the information in written format when they are gone out the door and a month later getting a letter which in no way even attempts to answer the questions we asked here. I want that letter sent back to Mr. McDonagh telling him to answer the questions within seven days.

Chairman

In response to Deputies Fleming and Eoghan Murphy, who make the point, in the case of either Secretaries General or Accounting Officers of one kind or another coming before us, about the need for prompt responses to the committee's queries, particularly ones that are being answered from the day that they were before the committee, it does not show great efficiency that the committee must wait from 26 October until now to receive the letter which Deputy Fleming correctly describes as a non-answer. Deputy Fleming made the point well. I suggest that we return the letter, as Deputy Fleming proposed, and that we send with it the transcript of this meeting so that NAMA gets the clear message from both Deputies on queries they have raised and their request for a response. We should suggest that the response should be sent to us within a week, rather than a month because that is not the way to do business.

Deputy Sean Fleming

I thank the Chairman.

Chairman

That was the correspondence from Mr. Brendan McDonagh. We have agreed to deal with that in the way suggested.

Item 3.5 is correspondence from Mr. Brian Flanagan, Blackrock, County Dublin re the National Asset Management Agency. The correspondence is to be forwarded to the Department of Finance and NAMA for a note on the issues raised.

Item 3.6 is correspondence, dated 21 November 2011, from Mr. D. Foley, secretary, Bleach Lough Water Retention Committee re Kildimo and Pallaskenry, Bleach Lough Water Retention Committee. This is not a matter for the Committee of Public Accounts. The correspondence is being forwarded to the Joint Committee on the Environment, Transport, Culture and the Gaeltacht for an appropriate follow up. Presumably, when that is followed up, we will be given copies of that correspondence.

Item 3.7 is correspondence, dated 21 November 2011, is from Mr. John J. MacLoone, Glenties, County Donegal re Irish Examiner article of 12 September 2011. This correspondence is to be forwarded to the Accounting Officer of the HSE for a note on the issues raised.

Items 3.8 and 3.9 are correspondence received on 24 November 2011. It is forwarding correspondence originally sent to Mr. Charlie Bird and Deputy Burton, the Minister for Social Protection, on Dún Laoghaire Golf Club. We will take items 3.8 and 3.9 together as they refer to the same issue. They are to be noted. The correspondence is to be forwarded to the Office of the Revenue Commissioners for appropriate follow up.

Item 3.10 is anonymous correspondence dated 21 November 2011 re proposed merging of the Irish Sports Council and the National Sports Campus Development Authority. The correspondence to be forwarded to the Accounting Officer of the Department of Transport, Tourism and Sport for a note on the issues raised and the Department of Public Expenditure and Reform for information.

Item 3.11 is correspondence, dated 22 November 2011, from Mr. Francis Rochford, principal officer, Department of Jobs, Enterprise and Innovation, re correspondence previously forwarded from Mr. Frank Delaney, Manlift Hire Limited, to be noted and published. There was considerable correspondence from Manlift Hire and it is an issue that needs to be raised in the context of the Department coming before the committee in the future.

Item 3.12 is correspondence, dated 28 November 2011, from Ms Brigid McManus, Secretary General, Department of Education and Skills re updating the committee on matters relating to unauthorised allowances to university staff, as examined at the committee meetings of 23 September 2010 and 20 January 2011, to be noted and published.

Item 3.13 is correspondence, received on 29 November 2011, from Mr. Paul O'Toole, Director General, FÁS. It is his opening statement, to be noted and published.

Item 3.14 is correspondence, received on 29 November 2011, from Mr. Dermot Quigley, chief executive and Commissioner of Valuation (Acting), Valuation Office, providing information requested by the committee arising from its examination of Chapter 31 of the 2010 Annual Report of the Comptroller and Auditor General – National Sports Campus - at the meeting of 10 November 2011. This is to be noted and published.

Item 3.15 is correspondence, dated 30 November 2011, from Ms Josephine Feehily, Chairman, Office of the Revenue Commissioners, providing information requested by the committee arising from its examination of the Pensions Board Annual Report and Accounts 2010 at the meeting of 17 November 2011, is to be noted and published.

Item 3.16 is correspondence, dated 29 November 2011, from Deputy Howlin, Minister for Public Expenditure and Reform, re the work of the Committee of Public Accounts. This is to be noted and published. The Minister will appear before the committee at next week's meeting and any issues from this correspondence can be raised then. The Minister's attendance at the meeting is a unique opportunity to have a discussion with him on the public sector reform package, on the comprehensive spending review and on the role this committee will play in helping the Minister achieve the savings and reform necessary. It is very unusual for a Minister to attend a meeting of the Committee of Public Accounts and is almost unprecedented.

At next week's meeting we will have had the budget, which will include the expenditure cuts to be announced next Monday. The role of the Committee of Public Accounts is not to question policy but to look at how the comprehensive spending review can be worked into our agenda. Members will have an opportunity to ask questions of the Minister. However, as we cannot rehearse the budget or discuss policy, it will be an opportunity for Members to discuss the role of this committee, the work of the Minister and his reform proposals. It should be useful information for the committee as it deals with each and every Department and Accounting Officer.

Reports, statements and accounts received since our meeting on 24 November range from Nos. 4.1 to 4.15. I do not intend to go through each of them but I ask Members to note them. Members will note that we have received the 2010 accounts of the Dublin Docklands Development Authority, which was brought under the remit of this committee. The work programme has been amended and the committee will examine this issue on 1 March 2012, or earlier. Is that agreed? Agreed.

I ask Members to note the work programme which is on their screen. Have Members any other matters they wish to raise or item on the work programme that needs to be discussed?

Can we agree the agenda for Thursday, 8 December 2011? At 10 a.m. we will discuss the Public Expenditure Reform Plan with the Minster for Public Expenditure and Reform, Deputy Brendan Howlin, to attend. At 11 a.m. we will discuss the 2010 Annual Report of the Comptroller and Auditor General and Appropriation Accounts: Vote 7: Superannuation and retired allowances; Chapter 10 PMDS; Chapter 18: Central Government accounting; and Comprehensive Expenditure Review. Is that agreed? Agreed. We will now call the witnesses.