The committee is now in public session. Are the minutes of 11 June, 2015, agreed? Agreed. Are there matters arising from the minutes?
Business of Committee
Chairman can I ask for an update on the question I asked on the position of Mr. Matt Merrigan and Mr. Jack Kelly appearing before the committee again? I believe the clerk may have something to add to that.
It was referred to the Garda authorities for investigation. While that investigation was ongoing it was better that we would not continue in our investigation. The committee requested the clerk to contact An Garda Síochána to find out the state of play in relation to that investigation. We will ask the Garda for an update so we can determine whether we can continue our work or not.
Thank you.
In regard to the Docklands report, when will the committee receive the report?
It is not ready yet.
Are we likely to have it?
It will not be ready for a number of weeks yet, it will probably even be after the summer.
It will probably be the autumn before we see it.
Yes.
Clerk to the Committee
The purchase of the Docklands site is the big issue there - the purchase of the Glass Bottle site. There are a lot of meetings.
There are a lot of meetings that cover it and lot of information to put into that report so it will be next week. The other issue raised was the reports that are completed. The committee discussed that these may be launched Tuesday, 23 June 2015 or Wednesday, 24 June 2015. Wednesday might be more suitable. So those two reports may be published on Wednesday, 24 June.
In regard to issues arising from the minutes, last week I asked about the Comptroller and Auditor General's staff complement he had embedded in NAMA, on an ongoing basis since the NAMA Act and since NAMA was set up.
The expression "embedded" is not one I would use.
Yes, I am sorry, it is not the US Marine Corps. Claims have been made recently in the media regarding fire-sales of NAMA assets. I am a member of the Committee of Public Accounts for four years and, since NAMA came in to this committee, the sale of assets and the timeliness of the sale of assets has been a point of debate. At the first meeting I made the case that, given the projections for an improved commercial and residential market, some caution should be applied and we should wait until the markets improved before disposal of assets. As time has gone on, it was my understanding that, in some cases, NAMA was being criticised for not selling certain assets as quickly as some people would have liked. NAMA was caught between a rock and a hard place - on the one hand having to bring money in to the Exchequer and on the other hand, noting the improvements in the housing and commercial market, holding onto serious assets that would improve in value as time went on. For the people who work out of the Comptroller and Auditor General's office, within NAMA, that is part of their review, part of what they do when it comes to the correct time to sell assets. Does the Comptroller and Auditor General have a view on what Deputy Wallace has said recently or is it something that the Comptroller and Auditor General's office is engaged in on a regular basis?
Mr. Seamus McCarthy
I would say that I do not have a view on Deputy Wallace's comments. I have not followed the debate in the Chamber. Reference was made to embedded staff. That is not a term I would use.
That was my term, I apologise.
Mr. Seamus McCarthy
It is an expression that has been used and it implies a certain compromise of independence. The audit team there is focused on the correctness of the financial statements. That is what they are working on at any stage. We have reported separately in a number of special reports which go more to the question of what is the correct strategy and the correct timing of disposals. In the financial statements one just tries to capture what is happening, not why it happens or whether it is the best approach. We produced the tri-annual review for the period 2010 to 2012. The second tri-annual review, provided for in law, is for the years 2013 to 2015. We are just starting the work in relation to that. I would expect that to deal with questions around the rate of return on disposals made, or assets that were held and invested in. Ultimately the issue, and strategy being adopted, is a matter for the board of NAMA and it is a policy matter. To a certain extent I cannot get involved in the pros and cons of what is the correct strategy.
That is fine, but the Comptroller and Auditor General does look at the rate of return?
Mr. Seamus McCarthy
When NAMA was at this committee last, I recommended that it adopted target rates of return for the overall portfolio and for individual projects. NAMA disagreed with that recommendation so it is an issue that I will return to in the next review, but the committee had a discussion with NAMA about the merits of having a rate of return. NAMA does have financial return measures but I believe they are too broad and do not really go into the project economics of any individual investment or divestment.
The question then arises, from what the Comptroller and Auditor General has said, if he has a policy disagreement with NAMA, regarding the rate of return and how broad or narrow it should be - and he made that clear at the last meeting. In the special reports that have been completed, has he found any evidence of a fire-sale as such - maybe put the term fire-sale aside - has he found any evidence of assets being sold at a lower rate, a rate that he believes was too low?
Mr. Seamus McCarthy
No. That is not a judgment that would be made in relation to any individual assets. We have drawn attention to the fact that the disposal is at a faster pace than was originally expected by NAMA itself. The reasons put forward as to why it doesn't want to set rates of return was that it could compromise NAMA's ability to be flexible in decision making and to take what it perceives to be commercial opportunities. I do not particularly see the conflict in having a target and in the ability to respond to commercial opportunities as they arise, within the rates of return targets one wants to achieve.
Has the Comptroller and Auditor General found, in the special reports, evidence of any particular, singular assets being sold at a rate that, in his opinion, would be too low? Can he confirm that he does have a difference of opinion with regard to NAMA's flexibility and that he believes NAMA could preserve that flexibility within the rates of return parameters which he suggested?
Mr. Seamus McCarthy
On the second point, yes, definitely. On the first point I believe our focus in the past has been on whether or not NAMA was selling assets at the best estimate of market rates. We did find cases where it had not engaged in a public competition for disposal of certain assets, but there were particular circumstances in some cases.
Is the Comptroller and Auditor General recommending that all the sales be held by public auction?
Mr. Seamus McCarthy
Certainly by a competitive process and if we do not see a competitive process we would question what were the circumstances around that sale.
How many instances of those have occurred?
Mr. Seamus McCarthy
There were a relatively small number, but I think there was one case and we mention it in the triennial report. I am just speaking from memory now. It is obviously a while since I looked at it. There was one disposal where the original competition fell apart and I think a second bidder came in and made an offer, and the deal was done on that basis.
I think there were other circumstances - very often I think where there was a public body or maybe a charity involved - where there was not actually a market at the time and where they would have sought a valuation and said, "Our estimate of the market value of this property at the moment is X and if you match X, we'll sell it to you". So in lieu of a competition there was a market testing of the value of the property.
I am sorry for delaying the meeting, but I thought it was important.
We discussed this when Department of Finance officials appeared before the committee a few weeks ago. I extended the discussion from IBRC to NAMA because of the possibility of the linkage there. Given that NAMA was established in 2010 with a ten-year remit, we are now 50% of the way through. As no market existed at the time and NAMA was seeking to bring about a market and therefore obviously prices were very low compared with that they might be later, I asked whether it would now be appropriate to have a review of the NAMA remit from 2010 to 2020.
The Secretary General went into considerable detail as to how the Department was in two minds as to whether this would be an appropriate way to move forward. The officials indicated that NAMA was now engaged in more strategic developments, such as the docklands SDZ development which will be over a seven to 15-year period. Some of the NAMA developments are no longer individual activities, but are strategic funds involving investment over a period of time.
They had an open mind as to how NAMA should go forward. It might be no harm for the committee to ask them - and NAMA - to give us a written response. NAMA has indicated that it intends to push ahead with disposing of the impaired assets so that it would have completed its work by 2018 rather than 2020. From the point of view of this committee looking at the best interests of taxpayers' money, is it a good thing that NAMA should move ahead rapidly to dispose of the impaired assets? There is now a considerable market, both domestic and international, and there is huge demand for Irish impaired assets. Huge profits are being made, as we saw with the recent Clerys debacle where 100% profit was made in the space of three years. While that was not a NAMA building per se, it happened in the context of the collapse of the property market.
Perhaps we should ask both NAMA and the Department of Finance to give their views as we are now at the mid-term of the NAMA period for dealing with what the Taoiseach referred to as the largest disposal of assets in the western world.
I will deal with that shortly. I call Deputy Dowds on the same issue.
I agree with Deputy Costello that it would be good to get a written response from NAMA. Is the Comptroller and Auditor General aware that assets put on the market are open to competition in a way that might not have been possible earlier in the process when nobody wanted to bid for anything?
Mr. Seamus McCarthy
I am certainly aware of reports of that. As to evidence, no. I think I would reserve judgment on that until I have carried out the triennial review. I think we will go to market to look for somebody to assist us with, basically, project economics and disposal of bank assets. I think that is something that would be useful for us to have for that examination.
I would envisage that we would take a sample of assets, both loans and-or property that was disposed of by NAMA and look at the decision-making process to dispose in those cases, as well as looking at a sample of those cases where NAMA has held assets and agreed to invest in them and to look at what kind of return it is expecting to yield from those.
Is there a mechanism to allow Members of the Oireachtas, who are not members of the Committee of Public Accounts, to bring concerns to the attention of the Office of the Comptroller and Auditor General? Has the Comptroller and Auditor General received any expressions of concern from Members of the Oireachtas that something untoward might have happened in NAMA?
Mr. Seamus McCarthy
Not explicitly.
Is there a mechanism to receive that?
Mr. Seamus McCarthy
They should send a letter.
I asked last week about inviting former NAMA employees to appear before the committee to hear their stories. Is there progress on that?
In answer to some of the questions that have been raised by previous speakers, the NAMA annual report was issued and we noted the NAMA annual accounts last week along with other different accounts that were submitted. We will probably have a meeting in September and prior to that meeting we might look at the names the Deputy has suggested and others to see if we can learn anything from those who have been through that NAMA process to inform us for the meeting with NAMA. That will be the same process as we used for the SIU.
When does the Comptroller and Auditor General intend finalising his report?
Mr. Seamus McCarthy
It will be next year.
Is there a way of engaging in some kind of sampling in the meantime when it comes to some of the assets being disposed of? The one thing I took from what the Comptroller and Auditor General said, was that he had a difference of opinion when it comes to the rate of disposal.
Mr. Seamus McCarthy
No, my disagreement with it is that it does not have a rate at all. I am not trying to tell it what the rate should be.
I should have said the speed of the disposal.
Mr. Seamus McCarthy
The two things are related. The decision on disposing early or late, or holding or disposing is a matter for NAMA and not for me.
I understand.
Mr. Seamus McCarthy
It would be better to have standard industry measures such as rates of return in relation to a divestment decision or an investment decision so that it can explain publicly at the Committee of Public Accounts and elsewhere what its strategy is and what it means in economic terms.
I understand.
Mr. Seamus McCarthy
I will not tell it that it should be 10%, 15% or 5%.
Between now and finalising the report can the Comptroller and Auditor General engage in some kind of sampling with regard to the ongoing disposal of some of these assets?
Mr. Seamus McCarthy
In the autumn I am hoping to begin the sampling with, for example disposals in 2013 and 2014. Obviously we will only be able to do the 2015 sampling when 2015 is finished. I would be reluctant to produce results without going through the full process. There will be a process of engagement with NAMA. If it disputes what we find-----
When it comes to the sale of property, everybody is an expert after the fact.
Mr. Seamus McCarthy
That is very true.
Hindsight is 20/20 vision and more so in the disposal of property assets than in any other area. However, it might be worth considering that sampling on an ongoing basis. The Comptroller and Auditor General has answered the question. He intends starting that.
Mr. Seamus McCarthy
Yes. I do not anticipate second-guessing the decision NAMA has made. So it will not be looking back on it with the benefit of hindsight and suggesting what it should have done because that is not the situation they are in.
For example, what I will be trying to do is to look at, "You made a decision on, 1 March, what was the process that led you to that decision. How do you set it in your overall strategy? I am not going to be trying to second guess whether you should have sold that property or you should not."
Is there within the remit of NAMA a requirement that they break even or make a profit on their impaired assets? When it appeared here before us, its delegation stated that it intended to make a profit of roughly €1 billion. Surely that is the rate of return that they are talking about and so long as they make a profit they have fulfilled the remit for which NAMA was established. It considers it is doing its job. However, the real question in my view should be whether at this point in time when we are halfway through that period whether that is the way we should be looking at it and whether the Government should be looking at something different than what was envisaged in 2010.
Mr. Seamus McCarthy
I do not think it is expressed in quite that way - I am talking from memory - but I think the term is that they are required to achieve the best financial return for the State that is possible, taking account of other objectives. One way it can be benchmarked is if they pay €34 billion and their costs are €4 billion over ten years and they make €39 billion then there is a surplus and that is a financial return. The question is whether it is the best financial return. It is left to NAMA and for this committee in debate with NAMA, to set the objectives and to set the framework and for the committee to decide whether it is satisfied that the way they are measuring the financial return is the best financial return for the State, not for NAMA itself. It is quite a complex process and the committee has had this debate with them.
We will finish on that. Our target date is some time in September for both issues raised by Deputy Collins and the other issues about NAMA raised generally. On the same issue I draw the attention of the members of the committee to correspondence received last week. While we are do not and are not supposed to deal with individual cases, it is difficult to avoid them when they raise the issues that all the members have raised this morning. Even on the recent sale of property which a Dublin sporting organisation was interested in, it is difficult to explain how the social dividend is supposed to operate. Second, relative to the correspondence before us today, I draw the attention of members to the public document from Patrick and Pauline Coughlan who say that at this stage NAMA owes them €1.7 million while everyone else has been paid. They raise that issue. They also point out that, "It is basically bully-boy tactics by doing what they want. 'There is nothing you can do about it and don't be bothering us any more'". Essentially that is their description of what happened to them in NAMA. The final sentence refers to the loss to the taxpayer. When one reads correspondence like that I believe there is an onus on NAMA to explain the circumstances relative to this individual case or any other case or their general approach to these things that would give rise to people believing that they are owed €1.7 million and believing that they are being bullied into a position, the taxpayer is not getting money and that for some reason the State is using its vast resources to deal with a citizen or with a small business by use of a sledgehammer. I do not think that is what NAMA was intended for. In my opinion it is reasonable for the committee to ask in general terms all of what has been asked by the Deputy and for a response to the accusations contained in that letter dated 5 June 2015. We will deal with these matters in September.
Turning to matters arising from last week's meeting, we dealt with correspondence from Jim Breslin, Secretary General of the Department of Health regarding allegations of abuse of children with intellectual disabilities in a foster home in the south east. That matter is being dealt with in a letter dated 5 June 2015 in which they say a senior counsel is to conduct an independent examination of the process used by the HSE in commissioning the Devine and Resilience Ireland reviews and the adequacy and approach taken to the conduct of the two exercises. I am not quite sure whether that is just in relation to the procurement process itself or if it will go beyond that but at least a senior counsel has been approved. Next week we will deal with a short report on procurement relative to the HSE and we will publish that on Wednesday presumably, with the other reports.
I refer to correspondence deferred from last week from Mr. Tom Boland, CEO of the Higher Education Authority. This relates to a matter raised by Deputy Connaughton about the €436,000. Does Deputy Connaughton wish to comment?
The HEA is due to appear before the committee on 9 July. I want to ensure that the HEA will receive the correspondence and that people will be able to attend the meeting who have a knowledge of that case in order to explain it. There remain many questions as to how the cost was arrived at, why there was no strict terms of reference and the issues arising from that letter. Will someone from the HEA who knows the situation inside out be here on 9 July?
On that issue, the letter raises more questions than it answers. On 9 July we are dealing first with the Cork VEC report and subsequently with the HEA and the third level sector. I suggest that along with those officials that we should have someone from the colleges in this instance because of the €436,000. Certainly we should examine the agenda for that day in case someone else is required from a specific college. Is that agreed? Agreed.
Correspondence received since our meeting of 11 June 2015 includes correspondence from Mr. Robert Watt, Secretary General of the Department of Public Expenditure and Reform re submission of accounts and laying of reports. This is a letter reminding the various accounting officers of the timeframes. No. 3 A.2 is correspondence dated 3 June 2015, from the Minister for Public Expenditure and Reform, Deputy Brendan Howlin re the draft governance standard for central Government departments, to be noted and published. No. 3A.3 is correspondence dated 12 June 2015, from Mr. John McCarthy, Secretary General of the Department of the Environment, Community and Local Government re follow-up on the housing project in Dromahair, Co. Leitrim, the Tipperary hostel project and Dún Laoghaire-Rathdown County Council leisure centres, to be noted and published. No. 3A.4 is correspondence dated 15 June 2015, from Mr. Derek Moran, Secretary General of the Department of Finance, re follow-up from PAC meeting of 14 June 2015, to be noted and published. The Department has supplied all the FOI documents released relating to Siteserv. At this stage most of these documents are in the public domain and the substantive matters are matters for the O’Keeffe commission.
No. 3B is individual correspondence from Mr. Peter Wallis, Dalkey, County Dublin, re issues in Dún Laoghaire harbour, to be noted and published. This is a matter for the local authority which is outside the remit of the committee. Do we forward it to the Department with responsibility for local government for comment?
Clerk to the Committee
We can do that. It is a policy issue on planning.
No. 3B.2 is correspondence dated 12 June 2015, from Mr. Noel Waters, acting Secretary General of the Department of Justice and Equality, regarding Thornton Hall. Deputy Costello raised this matter.
I will come back to it at the next meeting.
It will be noted and published. We will return to it at our next meeting. No. 3B.3 is correspondence dated 5 June 2015, from Mr. Patrick Coughlan, Mullingar, County Westmeath. We dealt with this matter earlier which relates to the investors in Castlemartyr resort. I ask that the letter be forwarded to NAMA for its comments, in particular in view of the three main contentions of Mr. Coughlan and that group, to ask NAMA about its general approach to issues such as this. This correspondence to be noted and published. No.3B.4 is correspondence dated 12 June 2015, from Mr. Noel O’Connell, director of audit, Local Government Audit Service re response Dún Laoghaire-Rathdown County Council leisure centre, to be noted and published. No.3C.1 is the opening statement for today’s meeting, to be noted and published.
Perhaps the Comptroller and Auditor General would comment on the ones that have a note opposite them.
Mr. Seamus McCarthy
The Bord na gCon financial statements relate to 2013. They were certified by me at the end of December 2014. I draw attention to, essentially, the board's reasoning behind the preparation of financial statements on the going-concern basis and they are satisfied that remains appropriate.
Also, the statement on internal financial control outlines measures taken by Bord na gCon to improve its procurement functions. I have reported previously on a fairly systemic practice within Bord na gCon not to have competitive procurement but they are putting steps in place to rectify that.
County Louth VEC was there as well for the 2013 financial statements.
No. 4.3 is the Health Service Executive 2014 annual report and financial statements certified on 19 May. There is a clear audit opinion but attention is drawn to disclosures in the financial statements. The first one relates to an ongoing problem with compliance with procurement guidelines and regulations, which they disclose in the statement of internal financial control. There was also a case, which they report on, of non-compliance by the Health Service Executive with the tax code, and they have made a settlement which is provided for in the 2014 financial statements. At the time, they had not actually made a final agreement with Revenue in relation to that.
What is the figure on that?
Mr. Seamus McCarthy
They have not disclosed that figure in the financial statements and it would probably be more appropriate if the Chairman were to ask them that question. They may be in a position now to disclose the figure having made a settlement.
Then the final point drawn attention to there is that we identified in the course of the audit that the HSE had not fully complied with legislation in respect of late payment of invoices - there was a change in the legislation in 2013 which they did not implement properly - they have charged an additional €9 million was charged to the income and expenditure account to recognise the expected cost of compensation due to suppliers.
How was that compensation calculated?
Mr. Seamus McCarthy
It is compensation that if there is a late payment, a public sector purchaser is required to pay compensation. It is specified in law. One does not have a choice in relation to the matter, if the payment is more than 30 days after the receipt of the invoice and the matter is not disputed. There was originally a provision to pay interest on moneys that had not been paid to suppliers but, in addition, since 2013 there has been a further requirement to pay a compensation figure, and they did not implement that. By the end of 2014, the total compensation that had not been paid to suppliers amounted to €9 million.
Is that something that a supplier would have to apply for?
Mr. Seamus McCarthy
No.
They are automatically obliged.
Mr. Seamus McCarthy
They are automatically. Essentially, if one is making the payment late, one pays interest on the period for which the payment is late and one pays a compensation. My recollection is that it is a flat rate.
Does that €9 million cover a period, 2013-2014?
Mr. Seamus McCarthy
It does, from about May 2013 to the end of 2014.
That is €9 million.
Mr. Seamus McCarthy
Yes, €9 million.
It is extraordinary that the legislation would by and large be ignored and that, as the clock was ticking, it was running up a cost of €9 million and nobody felt it necessary to cry stop and pay the suppliers. It beggars belief as to the state of the management within the HSE. They are called into serious question over it. It is a matter that we can deal with when the HSE is before us again. It is shocking.
On the work programme, we have the Department of the Environment, Community and Local Government next week, then we have Revenue and then, as we discussed earlier, the Department of Education and Skills. Are there any matters arising from the work programme? Is it agreed?
Mr. Seamus McCarthy
Presumably, the committee will be expanding the focus of the meeting on 9 July because the HEA would not be involved in the vocational education committee.
Clerk to the Committee
Yes.
That is arising from the request this morning. Therefore, that will be expanded. Is there any other business?
Is that our last meeting?
The Dáil will go into summer recess soon after that but if Deputy Costello has any issues with or suggestions on the work programme, he can always contact the clerk to the committee. As there is no other business, we will list the agenda for Thursday, 25 June, as the 2013 Appropriation Accounts: Vote 25 - Environment, Community and Local Government, Chapter 5 - Central Government Funding of Local Authorities, and the Comptroller and Auditor General's Special Report 84: Trans-shipment of Waste. Today we will example Vote 30 - Agriculture, Food and the Marine. We will invite in the witnesses now.