Item 1 is the minutes of our meeting on 23 October 2014. Are they agreed? Agreed. Are there any matters arising from the minutes? At the last meeting the Comptroller and Auditor General agreed to provide the committee with a note on the timelines of audited financial statements of public bodies. This was circulated to members yesterday. Are there any comments?
Business of Committee
Mr. Seamus McCarthy
I think I tried to be as comprehensive as possible in the note. It arose from queries by Deputy Ross about how many sets of financial statements do not meet the requirement of submission within six months of the end of the financial year. We have gone through the requirements in regard to all sets of financial statements that we audit. That includes the appropriation accounts which have a completion date of the end of September. On departmental funds, there are a variety of legal requirements and none, in some cases. There are practical reasons they have to be done together with an appropriation account, and therefore they move in lockstep.
There are 229 State bodies which are subject to the six-month rule specified in the code of practice. As I said at the last meeting, we prioritise the ones with the larger turnover values. At the end of June we had completed the audit of 71 of those bodies.
Out of 229?
Mr. Seamus McCarthy
Yes.
Does that mean all the others are behind?
Mr. Seamus McCarthy
They did not meet the six-month criterion. There is a provision in the code of practice that if it is not practically possible to complete them by the end of June an extension of time can be given by the Ministry. That is more honoured in the breach than the observance. Formal deadlines would not be extended. In general, a Department should know if it has not received financial statements by the end of June that-----
Would it be fair to say that a third of the required bodies have delivered their statements on time?
Mr. Seamus McCarthy
It is between delivering the statements and the audit being completed. There are steps and stages in the process.
They are supposed to deliver. What is the timescale? Are they typically supposed to be delivered in December?
Mr. Seamus McCarthy
There are four requirements. The first is that the content must be balanced, true and understandable. The second is that they produce draft unaudited financial statements-----
Within six months.
Mr. Seamus McCarthy
-----prepared on a GAAP basis and supplied to the Department by the end of February-----
Two months.
Mr. Seamus McCarthy
At that stage one would expect they would be ready for us to audit. In practice, we do not necessarily get them at the two month stage. It can be at any stage.
When are you required to get them?
Mr. Seamus McCarthy
We are not. There is no requirement in the code. The body is required to publish audited annual financial statements within a month of completion of the audit or within six months, whichever is the later. That is what is specified in the code.
The six months after the end of the year means the bodies are required to publish audited statements by 30 June.
Mr. Seamus McCarthy
Yes.
How many of those bodies currently publish their statements by 30 June?
Mr. Seamus McCarthy
The audit is completed and generally what will happen is that they will be published with the annual report. The financial statements will generally go to the Department on 30 June. It may be July when they publish the annual report. We have had that situation with the NTMA, NAMA and so on. The smaller bodies tend to complete audits and present financial statements later.
Strictly speaking, they should be doing it within six months.
Mr. Seamus McCarthy
Or getting an extension.
How many of them are meeting the requirement? Did Mr. McCarthy say 71?
Mr. Seamus McCarthy
71 were completed.
That is 30%. That means 70% of bodies in the main do not provide their audited statements-----
Mr. Seamus McCarthy
Of bodies within the scope of the code of practice.
----to the Comptroller and Auditor General.
Mr. Seamus McCarthy
There is not a formal requirement in the code for them to submit financial statements to us by any particular date.
To whom are they to give them by 30 June?
Mr. Seamus McCarthy
To the Department.
That means that 70% of bodies are not presenting audited statements to individual Ministries at the current time.
Mr. Seamus McCarthy
That was the situation.
This is completely unsatisfactory, is it not? We are just living with it. It has been going on for a long time, some bodies are a year behind and they do not give two hoots because they are indulged. Last week I came across another case concerning the National Transport Authority.
Mr. Seamus McCarthy
That would have been later.
It is late as well. Bodies in the private sector and publically quoted companies have to have them within three months. That is it, or they are struck off.
Mr. Seamus McCarthy
There is a practical constraint in our office to carrying out the audit.
With due respect, I came from the private sector. There are constraints in many private companies in terms of meeting deadlines. The Chairman will be well aware of this. There are small companies which cannot meet their filing requirements within nine months and run the risk of being struck off. Suddenly, there is a situation where taxpayers' money is tied up in various bodies. I am not being personal, but one has to make the observation that it is patently unfair. Proper corporate governance procedures are not in operation. As a committee we need to make a firm statement that deadline dates have to be complied with.
Deputy O'Donnell is absolutely right. If they were publically quoted they would lose their quotation for behaving like this. They would not be allowed to have a quotation on the market. These State agencies produce statements late, willy-nilly, and everybody indulges them. It does not matter. We get them every week and sometimes they are a year late.
Six years.
They should all be in by six months and available for the public to see. We are, as a result, quite often examining accounts which are 18 months out of date. It is ridiculous, to be quite honest. It is utterly and totally absurd. It is useless information. Deputy O'Donnell is correct. We should require that these particular stipulations of corporate governance are complied with and the information is available in all cases within six months.
How do we achieve that?
Mr. Seamus McCarthy
It is really a resourcing problem.
I know.
Mr. Seamus McCarthy
On the analogy with a quoted company, the larger clients we have, the appropriation accounts and finance accounts, the NTMA, the Central Bank and the Revenue Commissioners accounts-----
They are different.
Mr. Seamus McCarthy
They are the equivalent of quoted companies. Typically a quoted company would be a larger company.
With due respect, when we see things being filed late, invariably they are VECs and various different bodies. They have reasonable budgets and I have no doubt the bulk of them have in-house accountants. This is basic corporate governance and meeting deadlines. The worry is the same application of deadlines which are applied by the State to private companies is not being applied in the same measure to public companies which are funded, in many cases, by taxes paid by private concerns. As a committee we have to have consistency. It is incumbent upon us as a committee to find out why this is happened, if it is, as Mr. McCarthy said, a resource issue and whether are there other issues.
We can talk about getting value-for-money and whatever, but in a lot of cases one needs to do the simple things well. One of those is to have proper deadlines, accountability and figures delivered on time so that we are not examining figures which, in some cases, are six and seven years old. As a committee, we have to send the message out that what applies in the private sector must apply in the public sector. If there are issues we need to address to make sure that happens, let us address them. At the moment we are operating in a vacuum. Every week we come in here and invariably see accounts which are one, two or three years old. That is just not good enough.
The Comptroller and Auditor General has said that it is a resource issue. What is happening here is that we are dealing with the bigger entities.
Mr. Seamus McCarthy
Yes.
Where is the resource pinch? What is required? Is it within the Comptroller and Auditor General's office that extra resources are needed or is it on the other end, that is, for those who are providing the accounts? Where is the resource needed?
Mr. Seamus McCarthy
I would actually say that it is both. There is a definite capacity issue in some organisations. The audit of the financial statements does not just focus on the true and fair opinion. There is also the regularity and propriety work that we do, as well as the statement of internal financial control. The difficulty can arise if there is an accounting problem and there may not be the capacity on the other side to deal with it. That can slow down the work. In other situations, if we raise an issue around travel and subsistence or the use of credit cards, for example, it can be quite time consuming to get an explanation. We are not in a position to close off the financial statements until such time as we have that explanation. Those would be contributory factors.
In the fishery harbours, there was undoubtedly a problem that should have been dealt with quicker but there was a capacity and resource problem. It is an endemic problem. I would absolutely agree with the point the Chairman made about the submission of timely financial statements. It is something that we are trying to encourage. I also agree with the point that the Chairman made at a previous meeting that there should be an annual report and annual discussion on this. I would like to build on this note that I have prepared and present it on a regular basis to the committee to allow it to be monitored so that its policy and resource implications can be addressed.
Can Mr. McCarthy tell us about the resources issues within his own office? What is the problem there, if there is one?
Mr. Seamus McCarthy
The problem is the peaking of the work on the financial audits.
Is it that it all happens at once?
Mr. Seamus McCarthy
Yes. Practically everything, except for the education sector, where there is a very particular problem, has a year end at the end of December. Therefore, we are looking to carry out all of the work in the first six months of the year and that physically cannot be done. There would be an opportunity to take everybody from the reporting side and put them into the process but then that leaves us with no reporting work being done and that area is already under strain. To be quite honest, it is the reporting work that is generally more of a focus for the committee, rather than the financial statements. We try to do as much work during the year of account as we can in the bigger entities, where it is efficient to do so, on an interim basis and to finish the audits of the financial statements of the bigger entities with higher turnovers and more critical issues in the first half of the year. We also contract out work. The field work is done by contractors on our behalf but we still have to review that work when it comes in and review the findings. Ultimately, I issue the audit opinion, not the contractors. We contract in staff so as to boost the numbers available during the first half of the year. We also have a general prohibition on staff taking leave in the first half of the year. We are doing everything we can to maximise the resource that is available for the audit in the first half of the year but inevitably, then, it is the second half of the year, at management level, before we can turn to reviewing the financial statements of the smaller entities.
Is this because there has been a mushrooming of quangos? Has the workload of Mr. McCarthy's office increased because of that? This situation is getting worse, is it not? It is not getting better, this build up of semi-State agencies-----
Mr. Seamus McCarthy
No, I do not think that is getting worse, particularly. There is a graphic on page three of the note which shows the number of audits completed in a particular year and the number uncompleted at the end of that same year. That could include work that has been ongoing for two years or more, in some cases. It is a constant struggle to try to ensure that at least within 12 months everything is cleared. We always have cases that persist and carry on into the following year.
The difference is that if a private sector company does not meet its audit filing deadlines there are consequences but it would appear that for public bodies in a similar situation, there are very few, if any, consequences. If persistent problems arise every year with audits, they need to be highlighted. It is incumbent on us as a committee to ensure that this happens.
The budget is drawn up every year and has an impact on ordinary peoples' lives. If accounts are filed on time, we will know exactly what is happening in particular sectors and decisions can be taken quickly which could end up saving money for the taxpayer and consequently, making more money available for the delivery of services on the ground. This is not rocket science but on the face of it, if around 70% of accounts are not audited or provided on time-----
Mr. Seamus McCarthy
In semi-State organisations, yes.
There is a major issue there that must be highlighted. Our remit is very simple. We are charged with ensuring proper accountability vis-à-vis the public purse and taxpayers' money. When I talk about taxpayers I include unemployed people who pay VAT, for example. I refer to every person who is walking the streets and is spending money. We must get to the root of this problem. It is boring and is not up in stars but it is a bread and butter issue that affects real peoples' lives.
I note that the graph to which Mr. McCarthy referred starts at 2008. Is there any way he could give us the figures for a period before 2008? I ask because I suspect, although I may be wrong, that the number of bodies to be audited increased enormously during that period and if one goes back further, the number was much smaller.
Mr. Seamus McCarthy
I can try to dig out that data ---
Just a few rough figures will suffice. I do not want Mr. McCarthy to ---
Mr. Seamus McCarthy
Certainly in the period from 2000 there was a build up in the number of entities that we audit. We are up at approximately 375 entities and there had been a build up from 2000 in that regard. Ironically, one of the issues that is causing a difficulty now is the amalgamation of bodies because that makes it trickier to close out the financial statements and so on. When a new entity is created we must decide on the appropriate format for the accounts and that can also contribute to delays. I do not particularly want to make excuses for the situation. I am not happy with it either. I agree absolutely with Deputy O'Donnell's remarks. We see it as a priority to increase the timeliness of the presentation of audited financial statements.
Does Mr. McCarthy think that penalties should be introduced for those who are late?
Mr. Seamus McCarthy
I think that is a policy matter but certainly I agree with the point the Deputy made about an increased focus on it and increased attention being given to it. There is a capacity problem in organisations to produce financial statements or to produce complete explanations and that is something which has deteriorated in the last few years.
Why is that?
Mr. Seamus McCarthy
I think that it is probably a function of the retirement of people who were in organisations long term and who had dealt with the financial issues. What has also increased the difficulty for organisations is the emphasis we have put, since 2009, on propriety and regularity issues. We are looking at more things than would normally be looked at in the course of a financial audit.
That has put a demand on the resource of our audit teams, but it also puts a resource onus on the entity to provide explanations of a type that is not necessarily amenable to analytic work. Not only must documents be read, they must be interpreted. Committee members have seen here how difficult it can be sometimes to get a clear explanation from an Accounting Officer and how difficult it can be for him or her to find the information to give to the committee.
To add to or bring this together, there is a resource issue within the Office of the Comptroller and Auditor General. There is also an issue in terms of the different agencies throughout the State in regard to how they account or how seriously they take their job as members of audit committees and so on. I am concerned by a number of examples of this. Tipperary Hostel was reported on here, but nothing constructive has come back from the Department of the Environment, Community and Local Government, or any of the other Departments involved, in regard to that project. We do our work. We highlight the issues and in that case forwarded a note to the line Minister and the Department but got no real response in the letters we received.
We also have the example of the Waterford Institute of Technology, which was in the news again recently. There has been no clear cut ending to that examination. This lack of a conclusion creates significant doubt around the organisations concerned and their ability to deliver as they should. We received a report from Cork Institute of Technology and we constantly receive letters from the VEC, all complaining about the loose spending of taxpayers' money or governance issues. However, we have not received a reply from the Department yet, even though it is some months since the report was made available to it. We have had no response whatsoever. Again, this is a question of how serious the Departments are about taking on board the issues raised at this committee and doing something to stop them arising again.
The issue of time is also of significant concern, both to me and other committee members. Last week, we dealt with the harbours accounts. These date back over years and one of the buildings mentioned was going through a sale process for 21 years. Surely somebody on the audit committee or involved in that process should have brought that issue to the attention of someone more senior. In the context of new legislation etc., it appears that agencies do not acknowledge or do not step up to the plate in terms of their responsibilities. As a result, we see a massive loss of taxpayers' money to the State and an undermining of the sector in terms of how it is viewed within and without the Department.
We are all aware of the issues with the HSE. All of these issues were highlighted and brought to the attention of the Minister for Health and the Minister for Public Expenditure and Reform, but nothing has been done about them. There is little correction in the system. I believe the time has come for an audit of the various agencies, with a particular emphasis on their governance, how they view it and what steps they have taken, in line with the new legislation, to ensure they are at the edge of best practice. That is not happening currently. For as long as that does not happen and for as long as there are no consequences for these agencies, the system just trundles on and the Committee of Public Accounts will remain in business and be as busy as ever for the foreseeable future. That should not be the case.
I suggest there is a need for a special report into governance issues for every organisation responsible to the Comptroller and Auditor General or for every organisation that presents its books to his office for audit. Following that audit, the Department of Public Expenditure and Reform and the political leadership within Departments can be informed of the position. Somebody must take a stand on this issue, because there is a massive loss of public moneys. It seems to me that everybody is quite happy for us to do our job here on a Thursday morning and then to turn a blind eye to the issues and walk away. With respect, the ball is in the court of the Comptroller and Auditor General as much as it is in ours. If it is a question of resources, this must be explained clearly to the Departments. Someone must cry "stop", say that this will not happen again and point out the consequences. This must be a policy issue, so that it is then for us to say - I am saying it now - there should be a consequence for every organisation that does not comply with the rules, just as happens in the private sector. Until this policy is part of the system, we will not change the culture of the Comptroller and Auditor General reporting here on a Thursday morning and then going back to his desk and treating everything as if nothing ever happened.
Of all the audits not certified by 31 October, the Comptroller and Auditor General said two thirds of them were with senior management. He indicated that in the first six months of the year he contracts some consultancy staff to help with the field work and contracts out some of the work to other companies. The bottleneck appears to be at senior manager review level. This begs the question whether the Comptroller and Auditor General has contracted people in or out at that level. He says he has contracted out work at field work level, but the area requiring greater concentration is that of the manager review, after the field work is done.
Following on what the Chairman has said, this discussion is pointless unless we raise this again at the Estimates meeting for the Vote for Office of the Comptroller and Auditor General, which will arise as part of the Estimates discussion for 2015. Most people would assume this Vote comes under the Department of Public Expenditure and Reform, but it does not. It comes under the Department of Finance. The reason for that is that it concerns an audit of expenditure. Therefore, it would not be right that a Minister responsible for public expenditure would be responsible for allocating the Estimate to the Office of the Comptroller and Auditor General for the year.
We should make a point of raising this issue when the group of Estimates for the Department of Finance, which includes the Vote for the Office of the Comptroller and Auditor General, arises. I suspect the Minister for Finance would like the issue to be dealt with. Unless the Oireachtas takes some action, we are just talking away here and blowing smoke. There is an opportunity to raise this matter now and I give a commitment that I will be at the meeting when the Estimate debate takes place.
We will pass on the transcript of this meeting.
Mr. Seamus McCarthy
May I respond to the comments?
It must be remembered that the Department concerned is the Department of Finance. The clerk will understand what I am saying.
Mr. Seamus McCarthy
We made an application in the Estimate for 2015 for an increase in resources, specifically to increase staffing at the senior management level. Last year and this year, we asked a retired deputy director to come back to help clear some of the backed-up accounts. We got agreement from the Department of Public Expenditure and Reform to increase our resources, but not as much as we wanted. We are having discussions with the Department officials tomorrow in regard to how we may apply those resources, because while we get the resources, we must also get permission to use them the way we want. That discussion takes place tomorrow. We continue to work and push on this issue and will welcome any support we get.
Mr. McCarthy should tell them he is under pressure from the Committee of Public Accounts.
Mr. Seamus McCarthy
They know.
We should put on the pressure and make this clear, because what gets audited gets done. If we get the issues sorted and if the Comptroller and Auditor General gets his work sorted, that means we will have greater scrutiny of the expenditure of public moneys.
We have witnesses waiting and do not wish to delay further, but I will point out one issue. The Comptroller and Auditor General commented on the difficulty of getting information. A letter we have here from a Secretary General raises a number of questions for us, but I will just give a headline regarding the information sought - the amount spent on design team fees. Not a single figure is mentioned. It is beyond me how a paragraph or two on that issue can be created without mentioning fees or figures. Another headline question regards the ongoing rental cost, but no figure is mentioned in the response. There is no mention of a figure either in regard to the need for a school building.
It is all just text and that is not what we want. We want a factual response with figures so we can do our jobs. We will come back to this next week and I will ask the clerk to draft a letter, including a transcript of this meeting, to the different agencies and Departments.
Mr. Seamus McCarthy
I remind the committee that we produced a report on the operation of audit committees in State bodies. I understand the Chairman's request that every body be examined but it would be a huge undertaking. The report on audit committees was an effort to provide them with a template to allow them assess their own performances. In this context they are key allies of ours in ensuring a more timely presentation of financial statements. I envisage that we will have a conference day with interested chairpersons and members of audit committees to discuss how they can better perform their functions, and we will express the Chairman's interest in ensuring that things are done on a timely basis.
The witnesses are waiting so I suggest we leave the other items on the agenda until the end of the meeting.