Comptroller and Auditor General Special Report 100: Public Sector Financial Reporting for 2016

Mr. Robert Watt (Secretary General, Department of Public Expenditure and Reform) called and examined.

In our morning session we will be dealing with the 2016 and 2017 appropriation accounts for the Vote of the Minister for Public Expenditure and Reform; superannuation and retired allowances; and the Office of Government Procurement. We will also be dealing with the Comptroller and Auditor General's 2017 report, specifically chapter 2, collection of pension contributions due to the Exchequer; chapter 3, control of funding for voted public services; and chapter 5, vote accounting and budget management. We will also be dealing with the Comptroller and Auditor General's 2016 report, specifically chapter 6, on budget management, and his special reports 95, 99 and 100 on financial reporting in the public service for the years 2014 to 2016. We have been dealing with these reports on an ongoing basis and there is nothing particularly new in them but we have not formally discussed them with the Department. On that point, the Committee of Public Accounts, as a result of those earlier reports, decided towards the end of last year to write individually to each of the 300 or so organisations that are audited by the Comptroller and Auditor General to ask them to meet their timelines. We have brought representatives of the education sector before the committee at length. Of the 17 ETBs, only one was meeting reasonable timelines for producing financial statements, whereas on this occasion every single one of the 17 has done so, so there has been a significant improvement in the preparation of accounts by public bodies over the past year or two with the help of the Department of Public Expenditure and Reform, the Comptroller and Auditor General and ourselves. Perhaps we will ask Mr. Watt to give a short overview at the end of his comments on the issue that while it is fine getting the accounts to the Comptroller and Auditor General and getting them audited, there is then regularly what would appear to be another delay before they are laid before the Oireachtas. I think they have to go to Ministers and so on. The next thing we will want is a mechanism to see whether that end of the process can be speeded up. It is the next chapter, but Mr. Watt understands the question I am raising.

As today's schedule is very busy, dealing with all these accounts, and there is so much to be covered, the opening statement will understandably be that little bit longer than normal. We are joined by Mr. Robert Watt, Secretary General and Accounting Officer of the Department of Public Expenditure and Reform, Mr. David Feeney, chief operations officer, Mr. John Pender of the pubic service pay and pensions division and Ms Helen Codd of the corporate support unit.

I remind members, witnesses and all those in the Public Gallery to turn all mobile phones to airplane mode as merely putting them on silent is not adequate and can interfere with the recording system. I advise witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable. Members of the committee are reminded of Standing Order 186, which provides that the committee shall refrain from inquiring into the merits of a policy or policies of a Government or a Minister of the Government or the merits of the objectives of such policies. We expect witnesses to answer questions put by the committee clearly and with candour. Witnesses can and should expect to be treated fairly and with respect and consideration at all times, in accordance with the witness protocol.

We will now take the opening statement from the Comptroller and Auditor General.

Mr. Seamus McCarthy

The 2017 appropriation account for Vote 11, Office of the Minister for Public Expenditure and Reform, records gross expenditure of almost €53 million. This was an increase of €9.8 million, or 23%, on the prior year, due in large part to additional spending of €7.4 million by the Office of the Government Chief Information Officer. At the end of 2017, the Department had underspent by €2 million relative to its budget. Unspent capital funding of €685,000 was carried forward to 2018. The remaining €1.3 million was liable for surrender back to the Exchequer. The surrender at the end of 2016 was €2.5 million. I issued clear audit opinions on both the 2017 and 2016 appropriation accounts for Vote 11.

Vote 12, superannuation and retired allowances, is used to pay pensions to civil servants and prison officers.

Pension payments for other public servants are charged, directly or indirectly, to other Votes, including those for education, health, An Garda Síochána and Army pensions. The gross spend on Vote 12 in 2017 amounted to €535.5 million. This represented an increase of 7% from 2016. Appropriations-in-aid, mainly comprising employee pension contributions, amounted to €202.5 million in 2017, which was up 28% from 2016. The increase was mainly due to increased employee contributions in respect of the single public service pension scheme. The net result was a surrender at the year end of €33.5 million in respect of 2017, and of €50.8 million in respect of 2016. I issued clear audit opinions in relation to the 2017 and 2016 appropriation accounts for Vote 12.

Chapter 2 of my annual report deals with the collection of pension contributions due to the Exchequer. The Department of Public Expenditure and Reform issued a circular in December 2016 requiring certain State bodies to make employer pension contributions to the Exchequer in respect of public sector employees pensionable under the single public service pension scheme, which commenced on 1 January 2013. As of 14 September 2018, only 14 bodies had made employer contributions, totalling €4.35 million. The Department had not yet completed the work required to identify all the bodies that will be required to make contributions. Because the contributions are payable with effect from 1 January 2013, at least five years’ contributions will become payable. This may impact on the cash flow of each entity concerned and on charges for the services they provide.

Members will be aware that the Constitution and legislation set out the framework underpinning the manner in which funds are appropriated for voted public services. The appropriation system in Ireland differs from that in other jurisdictions in that the passing of appropriation legislation is generally taken very late in the year, usually in December. As a result, an unexpected dissolution of Dáil Éireann later in the year could have two serious outcomes, unless agreement can be reached on the emergency passing of an Appropriation Bill. First, appropriations in the financial year would not legally be in accordance with the provisions of the Constitution. Second, spending on supply services in the following year could not proceed, creating a risk to the continuity of voted services. In my function as controller of issues of funding from the Central Fund, I want formally to draw the attention of the Oireachtas to this risk.

Vote accounting and budget management is a standard report that consolidates and summarises expenditure across all of the Votes. It highlights key variances relative to estimates and demonstrates medium to long-term trends in key Vote issues. The 2017 chapter also outlines the limited guidance provided by the current financial reporting framework regarding the accounting for capital assets in the appropriation accounts. These weaknesses are expected to be addressed in the comprehensive review of the accounting framework being undertaken in the context of developing the financial shared services model for Departments and offices.

I refer to the special reports on financial reporting in the public sector. As members are aware, timely preparation and presentation of audited financial statements is a key element of public accountability and in providing effective oversight. The three special reports before the committee today reflect a strategic focus by my office to drive greater timeliness of public sector financial reporting. I will focus my opening remarks on the most recent report, special report No. 100, which deals primarily with financial statements for periods ending in 2016. For that year of account, I had responsibility for the audit of the financial statements of 287 bodies and funds with an aggregate turnover of €218 billion.

Most public bodies should be able to prepare financial statements for audit within two to three months of the end of the relevant accounting period. All Government Departments and offices produce their appropriation accounts by the end of March, as required by law. Half of the other public bodies produced their 2016 financial statements within three months of the year end. This represents a progressive improvement since the 2014 year of account. Significant progress has been made in completing audits early. My office gives priority to higher value accounts and this is reflected in the graphic provided, which shows that 97% of the turnover subject to audit had been completed by the end of September 2017. This represents two thirds of the number of 2016 financial statements. Government Departments are generally required to present the audited financial statements of the public sector bodies for which they are responsible to the Oireachtas within three months of audit certification. Of the 2016 financial statements that had been certified and were due for presentation as of April 2018, some 80% had been presented on time. Arising from a recommendation in special report No. 95, Government Departments are now required to report in their appropriation accounts on the presentation to the Oireachtas of audited financial statements of the bodies and funds for which they are responsible. An example of this can be seen at the back of Vote 11 for 2017. This should increase the monitoring by Government Departments of the production of audited financial statements by the bodies under their aegis.

At the end of 2017, there were 13 sets of financial statements that had not yet been certified, representing a significant improvement since the end of 2015 when there were 25 sets of financial statements in arrears. All but two of the 13 arrears at the end of 2017 have now been certified. The university sector, which previously had a high incidence of arrears, has shown significant improvements in timeliness of financial reporting. The significant organisational change that the education and training board, ETB, sector underwent from July 2013 was a contributory factor to delays in the presentation of audited financial statements. However, as the Chairman has mentioned, much progress has been made in relation to the timely presentation of ETB accounts for audit, and achieving earlier completion of audits of ETBs.

Mr. McCarthy has given us the figure for 2016 and I will not ask exactly what has happened since but has there been an improvement in 2018 versus the 2017 financial statements?

Mr. Seamus McCarthy

In the presentation?

Mr. Seamus McCarthy

Yes there has been an improvement.

Give us your observations quickly. I know that you may not have the figures to hand.

Mr. Seamus McCarthy

It is still not 100%.

Has there been an improvement from the 2016 financial statements?

Mr. Seamus McCarthy

Yes there has been with the 2017 statements.

The 2017 statements have been an improvement again.

Mr. Seamus McCarthy

Absolutely yes.

Those figures are currently being audited but has there been an improvement again this year?

Mr. Seamus McCarthy

Absolutely yes.

We are getting there.

Mr. Seamus McCarthy

It has been progressive. There has been an improvement across the board every year.

I ask Mr. Watt to make his opening statement.

Mr. Robert Watt

I thank the Chairman and the members of the committee for affording me the opportunity to make a statement. As the Comptroller and Auditor General has outlined, the agenda covers a number of chapters from various reports for 2016 and 2017; the appropriation accounts 2016 and 2017 for Votes 11 and 12; and special reports Nos. 95, 99 and 100. In the interests of time I will take the opening part of my statement as read because it basically says how brilliant the Department is and I know the committee shares that view anyway.

Mr. Robert Watt

I will skip ahead to the section that specifically deals with reports which is from page 6 of the written statement.

I will give a brief overview of some items on the agenda and the first relates to chapter 6 of the Comptroller and Auditor General's report and chapter 5 of the 2017 report on Vote accounting and budget management. In respect of 2016, gross voted current expenditure amounted to €51.8 billion. This was €100 million, or 0.2%, under profile and €900 million, or 1.8%, up on the 2015 figure. Gross voted capital expenditure was €4.2 billion and this was €200 million, or 6.2%, ahead of profile and €500 million, or 12.9%, up on the 2015 figure. The higher level of capital expenditure - the outturn figure for that year - was signalled in the mid-year expenditure report and related mainly to road repairs in response to the 2016 floods which members will remember and faster than expected progress on the schools building programme, so those related to conscious Government decisions to increase spending during the year.

In respect of 2017, gross voted expenditure was €58.5 billion. This was €480 million, or 0.8%, higher than the gross expenditure allocation set out in the 2017 revised estimates volume. This increase was expected as it was accommodated within the further Revised Estimates and Supplementary Estimates agreed by the Oireachtas in December.

The additional expenditure arose mainly from policy decisions relating to the provision of domestic water services.

The Revised Estimates for 2018 provided for total gross voted expenditure of €61.8 billion, a further increase of 5.5% on the 2017 outturn. On budget day last week, the Minister for Finance, Deputy Donohoe, announced additional allocations for 2018 mainly relating to health, housing, education and justice. If we take these adjustments into account, along with the provision of a 100% Christmas bonus for social welfare recipients, the revised allocation for 2018 amounts to €62.8 billion. Of this, some €56.9 billion relates to current expenditure and the balance of €5.9 billion relates to capital expenditure.

We can see the progress this year. Total gross voted expenditure at end-September is €44.9 billion. Of this, €41.6 billion relates to current expenditure. This is ahead of profile by €265 million and is up €2.5 billion or 6.3% on the same period in 2017. Capital expenditure to the end of the third quarter amounts to €3.3 billion, which is €253 million or 7.2% below profile and €756 million or 30% above the same period in 2017. This reflects the significant increase in the allocations for capital spending in 2018, a trend we have seen since 2015.

The second item on the agenda concerns Vote 11 relating to the Office of the Minister for Public Expenditure and Reform in 2016. I will address the Department's 2017 Vote as well. The Estimate for 2016 was €43.7 million, a 7.7% increase on 2015. As has been mentioned already, this was driven mainly by the need for additional resources for the Office of the Government Chief Information Officer, Structural Funds technical support and assistance for regional assemblies and the Special EU Programmes Body. The increase was also due to the creation of new subheads for the funding of pensions of bodies under the aegis of the Department, Civil Service learning and development and support for the implementation of the Protected Disclosures Act. There has been an increase in spending above average under Vote 11 reflecting the consolidation of functions that were previously undertaken by other Departments and that are now undertaken centrally. This reflects Civil Service renewal and public sector reform in the area of information technology. The Comptroller and Auditor General mentioned the significant resources that are going to the Office of the Government Chief Information Officer. One of those projects is SharePoint, which involves the implementation of a suite of electronic systems, including electronic parliamentary questions, e-submissions and e-records. This will apply by the end of next year to 36,000 civil servants across all the Departments and bodies. In effect it is being delivered centrally by the office. It involves considerable developmental software work that previously would have been undertaken by Departments but has now been consolidated centrally. It reflects our view that it is better to have the expertise and capacity centrally based. It is more effective, in particular in respect of smaller offices and Departments that would not have well-developed information technology systems. One theme in the Vote over the years has been this consolidation. The same argument applies to learning and development. More and more learning and development is being done centrally though shared services because of the belief that we get better value for money and better quality services if we do it centrally. The audited surplus to surrender for 2016 was €2.5 million and arose for a number of reasons, as set out in the briefing supplied.

The Estimate for 2017 was €53.1 million. This increase was driven mainly by the need for additional resources for the Office of the Government Chief Information Officer and administrative pay. The increase was also due to the creation of new subheads for the Public Service Pay Commission, the Irish Government Economic and Evaluation Service and the Single Public Service Pension Scheme. The work of the Irish Government Economic and Evaluation Service involves the recruitment of economists at different levels who come to the service but who spend an initial period with our Department and are subject to a specific training programme. The paybill and training costs during the earlier period of their careers is drawn from the Vote of our Department. Then, people within the service are sent out to other Departments to do their work across the system. Again, that explains a large element of the increase in spending. The audited surplus to surrender in respect of 2017 was €1.3 million and arose for a number of reasons, as set out in the briefing supplied.

Vote 12 relates to superannuation and retired allowances. The net outturn for 2016 was €341.1 million, compared to an estimate of €391.9 million. This gives a surplus to surrender of €50.8 million. This arose mainly because of underspending on established lump sums and greater-than-expected receipts from the Single Public Service Pension Scheme. As we have debated at this committee previously, estimating the lump sums for any given year is difficult and problematic. It fluctuates significantly and thus is a challenge for us to estimate. The large variability in the Vote relates to the lump sum element. Hopefully, we will have a better handle in respect of the receipts in future.

In 2017, the net outturn was €332.9 million, compared to an estimate of €366.4 million. This gives a surplus to surrender to the Exchequer of €33 .5 million, which arose for similar reasons to those I outlined for 2016.

Chapter 2 of the Comptroller and Auditor General's 2017 report deals with the collection of pension contributions due to the Exchequer. The 2012 legislation underpinning the new Single Public Service Pension Scheme provides that certain self-financing public bodies may be required to make employer contributions for their staff members who are in the single scheme. A review and engagement with the bodies to which this is likely to apply is ongoing in my Department and will be completed by the end of this year. On foot of the review I expect that 25 to 30 mainly self-financing bodies will be deemed eligible for employer contributions. Since the Comptroller and Auditor General completed the analysis set out in this chapter, two additional bodies have remitted employer contributions. The current position is that 16 bodies are submitting employer contributions, with €5. 7 million remitted to date. Any back-money or money that is owing will be remitted to the Exchequer in due course when we establish the exact position. Any bodies that did not make the full remittance in time will make good to the Exchequer in due course.

Chapter 3 of the 2017 report deals with the control of funding for voted public services. Given that the legal appropriation of funds for supply services generally occurs late in the year, the chapter highlights the potential risks to the approval of the estimates arising from a failure to enact the appropriations legislation by year end. In considering this matter, it is important to note the constitutional requirement that legislation to give effect to the financial resolutions of Dáil Éireann must be enacted within the same year. The Constitution also requires that the Appropriation Bill schedule is based on the timing of approval by the Dáil of Supplementary Estimates for the year, thus ensuring that all Estimates voted by Dáil Éireann are reflected in the relevant Appropriation Bill. Mindful of the risk, as identified, relating to the enactment of Appropriation Bill at the end of the year, officials in my Department ensure that there is clear and constant communication with the Whip's Office on the timeline for publication of the Bill. They provide all relevant briefing in a timely manner, including for the Business Committee. This is a risk we are very much aware of. It has never happened that we did not enact the Appropriation Bill, and for good reason because we would not then be in a position to spend any money from 1 January, including the salaries and so on of everyone who has to vote on the Bill. We know that when it comes to it, Dáil Éireann always finds the time. In effect, the State would fail to function because we would not be able to invoke the 80% rule.

That is a new point and I have seen it raised recently. I take it you have a Bill on your desk ready to go, if anything happens.

Mr. Robert Watt

Yes. You may recall-----

It could be passed by the Dáil in five minutes. Is that the case?

Mr. Robert Watt

Yes. It happened in 2010. Committee members may recall that period when an election was pending. The budget was introduced by the then Minister, Mr. Brian Lenihan. A majority in the Dáil decided to support the enactment of the Finance Bill and the Social Welfare Bill quickly to clear the decks so that the budget could be implemented in advance of the election. During that time the Appropriation Bill was taken quickly in the Houses and enacted. Supplementary Estimates were taken and the Bill was voted upon and enacted quickly. Again, there was a situation whereby if the Dáil had been dissolved before the Bill was enacted, we would not have been in a position to invoke the 80% rule for 2011.

Can you explain the 80% rule?

Mr. Robert Watt

The Appropriation Bill for this year is one example. I hope we will pass it in the next four to six weeks. That means, before the individual Votes for 2019 are voted upon by the committee, we can invoke the 80% rule. The Comptroller and Auditor General can sanction the Minister for Finance giving credit to the Central Bank to issue, through the supply accounts, the requisite accounts to keep the Votes funded and to keep the State in business.

Let us suppose a particular Vote was a relatively new Vote. It happened one year when the census was coming up and the 80% rule was relevant. The CSO did not get the census up and running early in the year. There had to be an emergency Estimate.

Mr. Robert Watt

So what happens then is that we would bring-----

Excuse me, the only reason we are saying this is that the public watching might not be aware of it. It is important that they are aware of it and it is interesting. Some people watch this closely.

Mr. Robert Watt

A Vote may involve large amounts of expenditure, as in the case of the CSO that year with the census. The rule would be relevant if the CSO exceeded 80% of the previous year before the Vote was taken by the relevant committee.

At that time, with the agreement of the Whips and so forth, the House agreed to take the Vote earlier to ensure the CSO had the legal authority to spend the money------

Notwithstanding that a new Government had not been formed, the Whips agreed to pass it.

Mr. Robert Watt

It was agreed by the Dáil. The CSO and the census are generally non-contentious spending so the Dáil approved the Vote, which gave the authority to spend up to the limit that was set out in the Estimate.

It is good to clarify that.

What do they know that we do not?

The Comptroller and Auditor General highlighted it in his report-----

Mr. Seamus McCarthy

I flagged it.

The mechanism is in place and the Appropriation Bill------

The same thing happens every year.

The Appropriation Bill is passed before the end of the year but in the event of an election being called very close to the end of the year, you might be ready within an hour's notice for the Dáil to pass a motion to allow it happen if required.

Mr. Robert Watt

The reason it happened at the end of the year-----

He stated in 2010 it did happen in practice.

Mr. Robert Watt

The reason it happens at the end of the year is because the Supplementary Estimates must be approved in order to have the Appropriation Bill reflect-----

An accurate figure.

Mr. Robert Watt

Yes. To have the appropriated amount for the year.

Like good boy scouts, they are always ready.

Mr. Robert Watt

Bí ullamh.

Bí ullamh.

Mr. Robert Watt

I hope we are in regard to this matter. I refer to special reports 95, 99 and 100 of the Comptroller and Auditor General on financial statements for the years ending 2014, 2015 and 2016. The reports review the timeliness of public sector financial reporting for those years, identify bodies where delays occurred and summarise the issues brought to attention in the audit reports. The general trend in the timeliness of the financial reports for audit has been positive, as has been stated. For 2016, all appropriation accounts were produced by the required deadline of three months. For other accounts, 50% of bodies submitted their 2016 financial statements for audit within three months of the end of their accounting period, compared with 40% of bodies in 2015 and only one third of public sector bodies in 2014. There has been a significant improvement in the timeliness of presentation of audited financial statements to the Oireachtas. Over 80% of 2016 financial statements were presented on time, compared with 70% for 2015 and less than 60% for 2014. As Mr. McCarthy mentioned, we hope there will be an improvement this year. Furthermore, the number of accounts in arrears, which are accounts not certified by the end of the year following the year of account, at the end of 2017 was almost halved compared with the end of 2015.

Special Report 95 recommends that my Department consider requiring Departments to include an annexe in their appropriation accounts reporting on the presentation of audited financial statements to the Oireachtas by bodies under their aegis. I informed the committee last year that I accepted this recommendation, and it was included as a requirement for the 2017 appropriation accounts. That requirement, along with the issue being highlighted by the Comptroller and Auditor General, the committee and the Department following on from the recommendations has led to some improvement. However, as always with this type of issue, we must remain vigilant. It does not apply to Departments, which produce their accounts after quarter 1 and are audited appropriately and so forth. Rather, it relates to bodies outside of central government and that is where the issues have arisen in the past. We must be vigilant to ensure that Accounting Officers understand their responsibilities and continue to deliver. The key issue for us is to keep the pressure on and keep reminding those responsible that they have obligations relating to accounts being prepared, audited and presented in a timely fashion.

Certain issues relating to the presentation of accounts should be considered. Some accounts have to be approved by a Minister or go to the Government and we should consider whether that is necessary. That is something at which we must look because sometimes it is not an issue for the Government, which just notes the annual report and the accounts, but there may be a backlog in terms of Government business. We should seek to streamline that to ensure that the percentage gets above the 80% for which we are aiming.

I wish to highlight some key recent outputs that testify to the impact and breadth of the Department's activities some of which I have mentioned. Since we established the Irish Government Economic and Evaluation Service, which is a key part of the work of the Department, we have published over 200 papers in order to better inform Government decision making on how public money is spent. Since its launch in September 2017 the new learning and development centre, OneLearning, has had over 10,500 attendances at training courses across 44 Civil Service organisations and 23 counties. Over 500 candidates have completed the graduate development programme since 2015 and an additional 200 candidates recently commenced the current programme. Since March 2017, almost 13,000 Civil Service managers have attended the managing people and performance training programmes. Over 2.75 million elements of data were collected from 21,000 civil servants during the 2017 employee engagement survey, the results of which were published by the Department last March. The high-speed government cloud network has been rolled out to almost 500 locations nationwide. Seventeen Departments and seven agencies are now connected to OGCIO's build to share applications platform which I mentioned and 35,000 staff have access to the platform. Over 8,200 high-quality data sets are now available via Ireland's open data portal. We are among the top administrations in Europe in terms of the availability of open data. I set out these highlights to try to put in context the amount of money spent within the Vote because sometimes we do not focus enough on the outputs. Ultimately, we provide services across the large Civil Service system , encompassing many Departments and offices.

I wish to pay tribute to the staff of the Department for their hard work and the contribution they have made to what we have achieved. Delivering on the wide remit of our mission requires our employees to have a broad range of skills and perspectives. I am personally invested in ensuring that our people are equipped with the necessary aptitude and expertise to meet the Department's objectives and to fulfil their own career potential. In this regard, I am pleased to say that earlier this year the Department won best learning and development organisation in the medium category at the Irish Institute of Training and Development's 2018 awards. I thank the Chairman and members for their time.

I thank Mr. Watt. Speakers have indicated in the following sequence: Deputy MacSharry, Deputy Connolly, Deputy Catherine Murphy and Deputy Cullinane. We are starting with a 20-minute slot, then 15, then ten. As we are to complete our work with the Department of Public Expenditure and Reform before weekly divisions in the Dáil, I will be very strict on time. If there is time for somebody to get in on a second occasion, well and good. We will be meeting on higher education this afternoon. I call Deputy MacSharry.

The Secretary General concluded by paying tribute to the team in the Department. Exchanges at the committee are often robust and adversarial, particularly when I am involved, but I wish to say that Mr. Watt and his team do a very good job. That is probably not stated often enough by me or the committee.

On the accounts generally, Mr. Watt alluded to the fact that it looks good that the Department returns money every year. For the benefit of those watching, is the Department budgeting incorrectly or is it particularly efficient and producing surpluses which it is able to return? The amounts of money in question are not huge, namely, €4 million, €2.5 million and approximately €1 million over the past three years.

Mr. Robert Watt

Any organisation that returns money to the Exchequer on behalf of the taxpayer is not necessarily particularly efficient. In our case, we had planned to expand a number of programmes but were not able to do so as quickly as hoped. As the Deputy is aware because we have discussed this many times, there are difficulties in recruiting the right staff and trying to meet deadlines, particularly relating to new projects, especially on the IT side. Many of the underspends relate to IT. We have ramped up the spend and that involves the recruitment of people and the use of expertise in order to deliver on the build to share programme. However, we were not able to get people on board as quickly as we had hoped, particularly in regard to the OGCIO and the learning and development shared services project which I mentioned. We may have been overly optimistic in regard to delivery of these programmes. It is a budgeting challenge rather than an indicator of particular efficiency on our part.

When the Department is expanding a programme and decides it needs particular expertise, does it write the job specs? Is that Mr. Watt's responsibility?

Mr. Robert Watt

It depends on the job. I am not an IT specialist. Mr. Barry Lowry, who is a technologist, is head of the------

If the Department were recruiting for Mr. Lowry's position, would Mr. Watt write the job spec or, because he is not an IT specialist, would he get someone to assist him with it?

Mr. Robert Watt

Mr. Lowry has been with the Department for a few years. It is a role we were evolving and defining. I certainly take advice on such issues because I am not a technology expert. Some of the staff of the OGCIO are leaders in the sector and amongst the best in the country when it comes to------

What is the OGCIO?

Mr. Robert Watt

The Office of the Government Chief Information Officer.

Those people would be able to------

Mr. Robert Watt

They are the people who provide the infrastructure and shared services. They deal with the-------

When the Department is seeking job candidates, it goes to the Public Appointments Service.

Mr. Robert Watt

Mr. Lowry was appointed through the Public Appointments Service.

That is fine. It is a theme to which I will later return.

Mr. Robert Watt

As the Deputy is aware, there is a wider issue about capacity and the State's ability to attract people with such skills, which have a very high premium.

Of course. There was a doubling of the budget for the chief information officer. It is that role, is it not?

Mr. Robert Watt

Yes, it is.

In order that people will not be confused, this has nothing to do with the Government Information Service. It concerns ICT and the provision of the technical expertise we require to modernise the office.

Mr. Robert Watt

If one considers the Government services that are provided throughout the country, there is a backbone and a very sophisticated network in place. More and more services are in the cloud which Mr. Lowry and his team support. They provide the service on behalf of the entire public service. The one development that always springs to mind is the "build to share" application, the application of the common e-platforms across the Civil Service. These are massive IT transformation projects. In the past - colleagues on this side of the table will certainly recall this - we could have had 50,000 to 60,000 parliamentary questions in a year. People used to run around carrying pink folders and changes to replies to parliamentary questions would have been made on the hard copy. For instance, the administrative officer would have written a draft reply which would have been changed by the assistant principal officer and then the principal officer. It would eventually have reached the Minister. It is now all done in an e-system, where changes can be tracked. It is done efficiently and quickly. Replies are emailed to the Minister's office and copied to me. That is one example where we use e-submissions and e-records systems. In effect, the amount of paper kept within Departments is collapsing as more and more things are being filed electronically, apart from legal documents, deeds and so forth. It will lead to significant improvement in retrieval costs. When there is an inquiry, an investigation or a review, when the retrieval of documents is always an issue and a challenge, particularly where there are manual systems, the process will be greatly facilitated when, by the end of next year, the vast majority of Departments have this e-records system. Mr. Lowry's team is involved in the roll-out of these big software and development changes.

That is great and we are still not spending all of the money, which is even better.

Mr. Robert Watt

We are starting to see very significant changes in efficiency and one of the things it facilitates is greater mobility within the Civil Service. If someone is working as an officer in Department "X" and using these systems and moves to a new Department, he or she will have familiarity with all of these ICT suites. From day one he or she will be effective and able to deal with them.

That is very good.

Mr. Robert Watt

At some future date - I am aware that the committee has a very busy agenda - it would be very interesting to ask the team to make a five-minute presentation on what it actually looks like.

That is a very good idea.

Mr. Robert Watt

It really is transformative in terms of how staff are working within Departments where the applications are applied.

Where is it actually taking place?

Mr. Robert Watt

It is being lead and rolled out from from Mr. Lowry's office. Most Departments now use the e-PQ system and the e-submissions system. We are rolling-out the e-correspondence system. It was introduced this week in our Department. The old correspondence system was based on Lotus Notes. The new system will be based on Word SharePoint which is more efficient. We could at some future date make a five or ten-minute presentation. Members might be interested in seeing how this important system works.

Well done. To move on to one of the other matters, there is mention of a legal case which the Department won but in which it will have to pay the legal costs. I am sure the public is wondering how that arose.

Mr. Robert Watt

It concerned a challenge to the sick leave changes and changes to entitlements which we introduced a number of years ago. It was a significant reform. Previously, those on sick leave were on full pay for six months and half pay for six months. That has been changed to three months and three months. There is also a critical illness protocol, whereby those suffering from various critical illnesses are treated in a different category. On behalf of gardaí, the GRA challenged this reform. It went through various iterations of the courts' system. We ultimately won the case, but there were issues about the way in which it had been handled and so forth. We were not awarded costs and were disappointed with that outcome. I do not believe we have yet received the final adjudication on costs yet. The matter it is still outstanding.

The judge took the view that while the Department had won the case, it should divvy up its own costs because-----

Mr. Robert Watt

They are between €200,00 and €250,000 in total. We were not happy with the outcome, but that is the nature of it. We were happy that we had won the case as it was a very important principle that we were establishing on the nature of the sick leave scheme, but it looks as if we will have to pay our own costs. It is worth mentioning to the Deputy that the level of absenteeism within the Civil Service was a significant issue and that this change has brought about significant savings, of multiples of the cost of the legal case.

What was the percentage and what is it now?

Mr. Robert Watt

Cumulatively since 2014, we have saved €140 million to €150 million in the cost of sick leave in the Civil Service and the public service, but it is still too high and a problem. However, the cost has come down.

What is the percentage?

Mr. Robert Watt

From memory, the percentage was around 4.4%. It is now 3.94%.

Does it spike on a Thursday after Manchester United has played on a Wednesday night? Is there any analysis available in that regard?

Mr. Robert Watt

Yes, there has been a lot of analysis. There are people with repeat absences on a Monday. If we see a pattern, it is investigated by HR. There is always a balance to be struck with persons who are genuinely ill. Like all good employers, we want to be compassionate. Where someone is genuinely ill, he or she receives all of the support possible to help him or her to get back on his or her feet and return to work. When it come to persons, for whom there is a pattern of repeat absences because they just do not fancy working on a particular day, it is something we do not tolerate. There were times when a blind eye would have been turned to this, when HR was not sufficiently well developed to work with managers, but now we are pressing ahead with a much more interventionist and activist approach when it comes to repeat absences. It is an issue.

About €140 million has been saved across the Civil Service.

Mr. Robert Watt

We are saving money. Within the Civil Service we have saved €24.5 million. The rate was 4.4% in 2017. It varies by Department and grade. Therefore, there is a very different picture across the system.

It is good news.

Mr. Robert Watt

I would not say we are happy, but it is better than it was.

Mr. Watt obviously has information which he might send to the committee in order that we can look at the analysis.

Mr. Robert Watt

As the Chairman is aware, we have a lot of data.

Would there have been a corresponding reduction in the cost of social protection payments if persons were out on sick leave and not being paid.

Mr. Robert Watt

There is such an element.

Did the Department incorporate it into its figure?

Mr. Robert Watt

Yes, we did.

I thank Mr. Watt.

Mr. Robert Watt

We will send the committee a note. It will be interesting to see the trend.

I want to move on as I am half way towards a number of issues. Is there any protected disclosure before the Department?

Mr. Robert Watt

I do not believe so.

That is good. Will the Department check and if there is, it might let the committee know. I have some general questions to put to Mr. Watt on the matter. This is totally hypothetical, but let us say a protected disclosure is made to an individual in the Department - let us say, to Mr. Watt as Secretary General - and it concerns that individual, should that individual be compelled to hand it on to an independent person to deal with it?

Mr. Robert Watt

The guidelines are very clear. If somebody was to make an allegation against me, I would have no role, act or involvement in its investigation or review. It would be-----

It might not involve Mr. Watt. I am sorry; I should not use him as an example. Let us say it involves me, as it is easier to put it like that. If the disclosure is made to me and 20 others are part of it. Would it be reasonable for me to have any hand, act or part in carrying out the procedure outlined in the guidelines?

Mr. Robert Watt

No. If an allegation was to be made against the Deputy, he would have no role whatsoever in-----

Even if the disclosure was only partly against me or just implicated me.

Mr. Robert Watt

The decision would be made to have a review - I believe it is more properly called an investigation - at which point the Deputy would be informed that an allegation had been made against him. As part of the investigation the person would be given the opportunity to give his or her side of the story, depending on the nature of the disclosure made. In the actual management, conduct and operation of the investigation, if the Deputy was the subject of the complaint, he would not be involved. I know that he is aware of the guidelines which he has mentioned previously to me.

We are very conscious that people in the Department have confidence, if it is a review within the Department, that we have a panel of individuals who are respected, trusted and trained, and who would do a thorough independent job when it comes to investigating any-----

If a disclosure comes in to me and I am implicated in it, am I compelled to share it with others?

Mr. Robert Watt

If the disclosure is about the Deputy, it will be made-----

It could be about 50 people, including me.

Mr. Robert Watt

It would be made to HR within our Department. HR then, based on the guidelines, would decide whether it warranted an investigation. As the person making the disclosure the Deputy has various choices here. He could ask for an independent review or he could go outside to an external person. Under the legislation, if he went for an internal review in order to get the protection of the legislation, it has to be reasonably believable, whereas if he goes outside the Department, the allegation has to be substantially true, which is a higher test. The system is set up in a way that provides-----

Is it fair to say that none of the 50 people implicated would have any role in deciding what was reasonably believable?

Mr. Robert Watt

No, they cannot. If it came to a situation where - I do not know how it would arise - let us say there was an issue about Vote management in the Department and all the principal officers or all the assistant principals involved in Vote management were in some way implicated, if it were such a broad issue, that could not be reviewed within the Department because it would be just so broad that we would not be able to find somebody who-----

What would happen then?

Mr. Robert Watt

Then we would have to go to an external review, an external investigation.

If there was evidence of best practice not being followed, what would then happen on the one hand for the discloser and on the other hand for the organisation?

Mr. Robert Watt

If one is saying to somebody, "That's shoddy work or not as good as it should be", that would not be a protected disclosure because there should be no circumstances where somebody should not be able to put their hand up and say, "We can do better there." So it should be much more serious than that. If it was a serious allegation about misappropriation of funds, breach of ethics, or some harassment or bullying situation, if it involved lots of people within the Department, then it would have to go outside the Department. Generally we find these are situations that are confined to one individual with particular circumstances.

If it did not go outside the Department, what recourse would the discloser have?

Mr. Robert Watt

First of all, we have to find a person who is independent on the panel, who was independent of the person, section or division within the Department, who can be seen to be genuinely independent. If it involves lots of people, then we would have an immediate practical challenge to find somebody who is seen as genuinely independent. Within the corporate service unit for example, Mr. David Feeney is not going to look at something that might happen in another part of his area. It has to be somebody who is in a different part of the Department.

Who would the onus be on?

Mr. Robert Watt

The onus is on us as a Department to investigate the complaint.

Or every other Department.

Mr. Robert Watt

Yes, rigorously-----

What if it was an agency under the remit of the Department of Public Expenditure and Reform?

Mr. Robert Watt

It would be the responsibility of the agency.

Could the Department trump the agency by stating it is aware there has been a disclosure and it is not appropriate?

Mr. Robert Watt

It would not be brought to my attention.

What if it was? I know this is very hypothetical, but it will assist me in something else.

Mr. Robert Watt

If it was brought to my attention, I would ask our HR people to talk to the relevant people in that agency to set out very clearly what the guidance says in respect of how to treat protected disclosures. I would not get involved.

Is the guidance on that clear enough?

Mr. Robert Watt

I think we debated this the last time. I certainly read transcripts about a conversation. We have done a review. The legislation was enacted a few years ago and we have done a review. The Government has asked a group to look at the implementation of it. We are not suggesting, at this stage, any legislative changes, but we are looking at the guidelines because there is a question about whether they are being implemented uniformly. Do people understand what their obligations are? Do we have enough trained people? A lot of it has to do with having trained people. Through the Office of Government Procurement, we have a programme where we are actually investing to make sure people have it. When it comes to allegations that are made, it is complex and there are different stories. People have to be trained, have to be professional and diligent about it, and go through it in a professional and thorough way. When it comes to disclosures, it is that question about whether Departments or offices know exactly what their responsibilities are and if they have the people with the capacity to follow the legislation.

That is grand. I will leave that one now.

Mr. Watt mentioned the Irish Government Economic and Evaluation Service. In recent weeks we have examined the OPW over a mistake that was made in the calculation of measurement versus the agreed amount on Miesian Plaza and it is costing the State effectively €344,000 a year for 25 years. The Secretary General, or commissioner as we would more commonly refer to him, felt that was absolutely not a matter for disciplinary action or any disciplinary process within the Department. He said the OPW would feel partly responsible but not completely responsible. The absence of tangible sanction is something that has come up in the two years I have been a member of this committee. Last week I made the comparison with such a mistake being made in the private sector. I used Jones Lang LaSalle, picking a name out of the sky. I think Mr. Watt would agree that someone might last the rest of the day but would be unlikely to last the rest the week. Has the Irish Government Economic and Evaluation Service done any papers on the need to introduce sanctions?

Mr. Robert Watt

The Irish Government Economic Evaluation Service has not done a review looking at sanctions, but we have looked at this in other papers in the Department previously. In relation to Jones Lang LaSalle or any other company, my experience is not quite as straightforward as that. People are allowed to make a few mistakes in the private sector too - these companies accept the world of uncertainty too. People are not necessarily fired. A contract-----

I did not suggest being fired.

Mr. Robert Watt

Generally a contract would be that someone would have a few opportunities to fail before being chucked out. It is not after the first or the second mistake. Maybe the third time someone says, "This isn't working out for you". Of course, in the private sector, like in our system, one has to give people warnings. If someone makes a mistake, the company says, "Look, that failure-----

I am not looking for anybody's head. I asked about a disciplinary process.

Mr. Robert Watt

There is a disciplinary-----

A verbal warning is part of a process, but-----

Mr. Robert Watt

There is within the Civil Service-----

-----we are not even looking at a process. If a €10 million mistake over 25 years is within the bounds of acceptability, that is a bad benchmark. Would Mr. Watt agree?

Mr. Robert Watt

I do not know the details of it.

They were all over the newspapers.

Mr. Robert Watt

I heard about the Miesian issue, but I do not know the exact details.

We were told it was very complex. Unfortunately, I have some experience of the area and it is not complex at all. It is kind of banana maths.

Mr. Robert Watt

Mistakes happen. There was a court case recently.

The Irish Government Economic and Evaluation Service might consider doing a paper on the need for sanction.

Mr. Robert Watt

I do not think it is an economic question. It is a question of having a very clear culture and having-----

I do not think it is about culture; it is about individual performance. We hide behind terms like culture and systemic failure on a regular basis. In the private sector that is less likely to happen because people know there is a process that is very clearly identified that engages at a particular point in time when there is wrongdoing or poor performance. It is much more obscure in the public sector.

Mr. Robert Watt

The process is not dissimilar between the public and private sector, but there is a greater reluctance in our system to have it out with people. I do not think it is a process issue. I think it really comes down to whether there is a willingness there to have those difficult conversations.

Willingness by whom?

Mr. Robert Watt

It has to do with the managers, leaders, heads of organisations and so on.

As one of the supreme leaders, would Mr. Watt not think this is something that we should-----

Mr. Robert Watt

I am not going to comment on the OPW case because-----

I was giving that as an example. The Department of Public Expenditure and Reform helps to advise government on how to save money and how to avoid repetition of mistakes.

Mr. Robert Watt

I agree. If one has somebody who is involved in discharging a function and that person makes a number of mistakes, they can no longer stay in that role because they are not able to do their job for which they are being paid.

One of Mr. Watt's closing remarks-----

The Deputy should ask his last question.

I am out of time and I have a supplementary to this question. I appeal to the Chairman.

Briefly.

Mr. Watt was at pains to point out - I admire him for it and the proof is in the pudding with the exceptional performance of his Department - that he was totally personally committed to the appropriate expertise of his team. I am not sure others are. We established last week that none of the commissioners in the OPW has a property qualification, for example. I will leave that and go on to another-----

Mr. Robert Watt

Could I give a comment on that?

Let me roll up the next question because I do not want to annoy the Chairman. Mr. Watt can certainly answer that.

On property-related matters, I am interested in hearing Mr. Watt's view on the sale and acquisition of the former Harold's Cross greyhound stadium, which was the subject of a Committee of Public Accounts meeting in May last. At that time, my crude valuation was probably within a couple of million of the valuation done by Savills, the existence of which we were informed of at that meeting, yet the State paid €23 million for the site. I described that at the time as "kiting", which is paying one overdraft off with another. If it was a bailout of a State agency so be it, but we need to tell the people this rather than try to dress up as value for money the purchase of a property for €23 million which was worth only €12 million.

Mr. Robert Watt

On the professionalisation of the Civil Service, the Department of Public Expenditure and Reform was established in 2011. Since 2012, when we commenced the development of the Civil Service renewal programme, a significant focus has been on professionalisation of the Civil Service. It is a fair critique of the service that over the previous 15 or 20 years it has moved from a professional service to a generalist service. We need generalist civil servants because they have a professional capacity as administrators but alongside this we need professionals in the area of accountancy, economics, auditing, tax and actuaries. There are many staff in the Department with specialised capacity but we need to continue to build up this expertise.

On human resources, professional HR is critical. I find astounding the notion that one could run an organisation of scale that involves people without people with professional qualifications in human resources. The same applies in regard to audit, accountancy and financial and economic services. If one wants to build a bridge one employs an engineer to do it because an engineer would do the best job. This philosophy needs to be within our system. We are professionalising very significantly. Increasingly, the recruitment we do is for specific tasks and activities. Any agency, particularly agencies that are involved in delivering for citizens, for example, IT projects or buildings, must have the expertise because it is a specific function.

On the Harold's Cross site - I am aware that the Secretary General of the Department of Education and Skills will be before the committee this afternoon - it would not be acceptable for any transaction to be organised in a way to bail out another body. The valuation should be the valuation. What the Department of Education and Skills pays has to be based on a valuation that is provided by the relevant body or authority. It cannot be that one part of the State - I am sure the Secretary General will confirm this - decides to buy a site, the implication of which is to reduce the debts of another.

From Mr. Watt's perspective, what is the relevant authority in respect of that valuation?

Mr. Robert Watt

The Valuation Office would have provided the valuation to the Department and the Department would have-----

Could that office be asked to retro-engineer a valuation to facilitate?

Mr. Robert Watt

No. The Valuation Office would be given a mandate and remit. The valuation of a piece of land depends on its current use and prospective use based on the rezoning of the land. It is never clear-cut. If one has a field that is worth €10,000 per acre but if one has it rezoned, it becomes worth a lot more. There is a broader issue in regard to land which is arising given what we do in terms of the Land Development Agency, namely, the State buying land at development prices which are artificially inflated by the fact that we have an approach to servicing rezoning land, which artificially increases the price. There is a wider issue here which we are grappling with in the context of the Land Development Agency.

We are in trouble if land is being inflated by one Department for the benefit of another.

Mr. Robert Watt

There are other issues involved.

I call Deputy Catherine Connolly.

I am glad we have gender representation correct. If the ratio is three men to one woman, it is a measure of the woman. It is a flippant remark.

Mr. Robert Watt

No, it is not a flippant remark. I am very happy to engage with the Deputy on gender within the Department.

I disagree with my colleague, Deputy MacSharry, regarding the private sector. I have not seen any more accountability in the private sector. We could start with the banks and what they have cost the country.

I was speaking about the public sector.

We are still paying for it. On contingent liabilities and the case mentioned, in respect of which the same explanation is given in the appropriation accounts for 2016 and 2017, has any progress been made? In the 2016 accounts it is stated that the Department has received a judgment in respect of the ongoing legal case and costs have been awarded. This is repeated in the 2017 accounts.

Mr. Robert Watt

As I understand it, Deputy, the Taxing Master-----

When was the judgment given?

Mr. Robert Watt

It was given in 2015 or 2016.

Perhaps Mr. Watt will come back to me on precisely when it was given.

Mr. Robert Watt

This matter has been in dispute and it is now with the Taxing Master.

The judgment was given in 2015.

Mr. Robert Watt

It was given in 2015 or 2016. I will get the precise year for the Deputy.

As I said, the same sentence is used in both accounts. A judgment had to be given at a particular time.

Mr. Robert Watt

I think-----

No. I ask Mr. Watt to come back to me with a particular timeframe.

Mr. Robert Watt

The reason we recorded it as a contingent liability is because we want to be upfront. It is not something that has matured or that we have paid over but it is a liability that we know we will have to face at some time.

I am glad it is included. I am not questioning that. Rather, I am questioning the use of the same sentence in both accounts and asking what progress has been made. The amount has yet to be determined.

Mr. Robert Watt

Yes.

If Mr. Watt does not have the information to hand, I ask that he forward a note on when the judgment was given and the reason for the delay.

Mr. Robert Watt

The issue is with the Taxing Master.

When was it taken up by the Taxing Master?

Mr. Robert Watt

I will check for the Deputy.

Rather than run-out my time I ask that Mr. Watt come back with a note on the matter.

Mr. Robert Watt

The case went through the various levels of the courts. The final judgment was issued in February of this year.

I do not understand. It is recorded in the 2016 accounts that the judgment had been received.

Mr. Robert Watt

That was in regard to the High Court. We then went to the Court of Appeal and we have now run out of roads.

From my reading of the 2016 accounts, I would not realise that the case had not finished. The accounts state that the Department had received a judgment in respect of the ongoing legal case. It does not say the Department was appealing the case.

Mr. Robert Watt

At that stage, we decided that it would be transparent to admit that there is likely a liability on the Vote and that we would set it out there.

I ask Mr. Watt to provide a note to the committee on the matter. From my reading of the 2015 and 2016 accounts, I got the impression that the judgment was finished and the only outstanding matter was the one of costs. The 2016 account references that the Department had accepted liability in another legal case and that costs were to be agreed by the State Claims Agency. There is no update in this regard in the 2017 accounts. I ask Mr. Watt to also clarify this case in the note.

Mr. Robert Watt

We paid the legal costs in that year. As we do not have a liability for subsequent years, it falls off the accounts.

The accounts state that costs were to be agreed by the States Claims Agency. What were the costs?

Mr. Robert Watt

I think €30,000 was the cost but I cannot recall exactly in regard to what matter.

All I can do is highlight the matter and ask for clarification on it.

Mr. Robert Watt

We will come back to the Deputy on the matter.

I will move on to Chapter 2 of the Comptroller and Auditor General's 2017 report - collection of pension contributions due to the Exchequer - to which a paragraph is dedicated in Mr. Watt's opening statement. I understand the legislation came into force in 2013.

Mr. Robert Watt

Yes.

A circular was then issued in 2016. The Comptroller and Auditor General's report references 14 bodies. This was updated today by Mr. Watt to 16 bodies. Again, I would have liked Mr. Watt to set out in his opening statement an explanation for the delay in this regard. On page 9 of his opening statement there are three paragraphs on the single public service pension scheme. As I said, the legislation came into force in 2013 and a circular was issued in 2016, yet we are only being told today that the number of bodies is 16 rather than the 14 mentioned in the chapter. I would like Mr. Watt to set out the reason for that delay and if many more bodies are expected to come into the scheme. What has the Department done since 2013?

Mr. Robert Watt

We identified this as an issue when we realised there were relevant authorities where employer contributions would have applied. These are bodies that are self-financing and do not necessarily receive a-----

I understand all of that. I have read the report. I am asking Mr. Watt for an explanation for the delay from 2013 until now. Was it the Comptroller and Auditor General's chapter that spurred a response?

Mr. Robert Watt

No. It was a realisation that there were some relevant authorities that should have been making employer contributions.

When did that realisation occur?

Mr. Robert Watt

I think in 2014 or 2015. As the Deputy will be aware, the legislation is incredibly complex. It is the most complex legislation in which the Department has ever been involved. It introduces fundamental change in the approach to pensions. We have moved away from the defined benefit system.

We now have a system which involves career averaging and units being accrued. We identified that there was a gap and that there were relevant authorities that might not have been making their contributions.

Is there a special team or group working on this issue?

Mr. Robert Watt

We would like to have a special team, but a few people are working on it.

Is there an estimate of the number of bodies which will come under the scheme?

Mr. Robert Watt

We believe there will be somewhere between 25 and 30 bodies.

Between 25 and 30 in total.

Mr. Robert Watt

Yes, from a total of 400 relevant authorities. These are small bodies.

When does Mr. Watt expect this work to be completed?

Mr. Robert Watt

We will have completed the review by the end of the year.

All of the bodies will have been identified by the end of the year. A back payment will then have to be made.

Mr. Robert Watt

We will pursue bodies for back payments which may be due.

That will also have implications for those bodies.

Mr. Robert Watt

It may. We will have to consider what it will mean. We do not envisage it creating big financial issues for them, but if it does, we will manage the recoupment over a period of time and speak to them if it creates cashflow issues.

Mr. Watt has referred to 200 published papers. What is the title of-----

Mr. Robert Watt

The Government Evaluation Service.

Is the spending review the subject of one of the papers?

Mr. Robert Watt

It is. I cannot see it, but it is a certain colour.

That is very interesting. If Mr. Watt goes to the end and looks at the recommendations-----

Mr. Robert Watt

To what paper is the Deputy referring? What is it called?

It is the analysis of Office of Public Works spending on State rents. Mr. Watt answered Deputy Marc MacSharry by referring to what he had read in the paper about the Miesian Plaza. His Department had to give permission for that lease.

Mr. Robert Watt

In relation to-----

Did the Department have to give permission for the lease?

Mr. Robert Watt

We were supportive of it. In effect, staff of the Department of Health in Hawkins House, a building which is no longer suitable-----

I am sorry, but we are being kept on a tight leash today. Mr. Watt has answered my question. His Department had to give permission for the lease.

Mr. Robert Watt

We sanctioned the taking over of the building by-----

I understood the Department of Health had to write to or contact the Department of Public Expenditure and Reform by other means to ask for permission to enter into the lease arrangement. Is that correct?

Mr. Robert Watt

Yes.

Was it just a formality or did the Department actually look at the lease?

Mr. Robert Watt

We would have had line of sight to the overall cost of the lease, the size of the building and the number of civil servants to be housed in it. The Department had to produce a business case and set out the rationale.

Did Mr. Watt look at the business case?

Mr. Robert Watt

Yes, colleagues in the Department would have looked at it.

Mr. Watt has seen the report of the Comptroller and Auditor General which highlights the inadequacies of the case.

Mr. Robert Watt

I have not read the report.

Perhaps Mr. Watt should read it. It is from the Department of Public Expenditure and Reform and refers to value for money.

Mr. Robert Watt

I will get to it. When was the report from the Comptroller and Auditor General issued? It was issued three weeks ago at the end of September.

The factors involved have been highly publicised. I have the greatest of respect for civil servants and the public sector and I am asking questions within that framework. When we looked at this issue, it jumped out that the Department of Public Expenditure and Reform had to give permission for the lease. It seems it was a formality, but there are guidelines, or even stronger language, in circular about the making of a robust business case that looks at all of the options. It seems to the members of the committee that all of the options were not looked at, including purchase or others. Perhaps the Department of Public Expenditure and Reform should look at how it gave the thumbs up to a lease that involved incurring extra expenditure without the making of a robust business case.

Mr. Robert Watt

The circular states Departments or offices - in this case, the OPW - have to produce a business case and outline the rationale for-----

I understand that. It did.

Mr. Robert Watt

I am not going to comment on it because-----

I am asking the Department of Public Expenditure and Reform to comment on why it gave the thumbs up to a lease which led to a greater burden on the taxpayer as a result of a miscalculation when other options were not looked at.

Mr. Robert Watt

I do not know whether other options were looked at. If the Deputy is asking me whether the option to purchase was looked at-----

I am asking how the Department of Public Expenditure and Reform gave the thumbs up to the lease without looking at the details. Perhaps that should not be a role it should have, but the Department of Health asked the Department of Public Expenditure and Reform if it was okay and it stated it was.

Mr. Robert Watt

Yes, that is what happened.

I have a difficulty with that. On achieving value for money and tendering, it is very often the case that our energy is focused on non-compliance in procurement. An issue in the education and training boards has been drawn to my attention. I still call them vocational education committees. The framework from the Office of Government Procurement includes the rules that apply in seeking tenders from trainers to provide courses for the various VECs. How does Mr. Watt judge the value for money achieved in that instance? How was it assessed?

Mr. Robert Watt

The background is that the Office of Government Procurement provides a contract framework which allows several bodies, including many of the education and training boards, to access expertise, rather than individually having to procure such services. Without knowing the details, I presume that if one is procuring a trainer to provide a particular course or module, experience and previous references, including about capacity and so on, are investigated, and that the cost per day is considered.

As I understand Mr. Watt is speaking in a vacuum, I am not particularising. I am looking specifically at procuring trainers to provide various courses in a situation where there is a framework in place. I am being told that it is costing much more and that people on the ground with experience have seen costs go up by 100% in some cases as a result of the new framework. There is less competition and fewer courses, but prices have gone up. How does the Department of Public Expenditure and Reform assess value for money when such a framework is introduced and people on the ground are saying it is now much more expensive.

Mr. Robert Watt

I would certainly be interested in receiving the data available. Our colleagues in the Office of Government Procurement would also be interested in receiving them because they operate procurement contracts to achieve the best possible value for the taxpayer. If it looks as if the framework is not delivering, we will be happy to look at the matter. As I do not know the details, I cannot comment on it.

I do not expect Mr. Watt to know the details, but I welcome what he said. If a framework is brought forward based on an presumption that it will provide for better value, what structures are in place to check that is the case?

Mr. Robert Watt

We look at the previous cost of the service, the value of the service, the level of satisfaction with the service and the results of the competition and what is achieved when we run it, including the number of providers and the cost of tenders. A key aspect is-----

I am glad to hear that the previous cost and the cost under the new framework are compared. When and how is it done? Who does it?

Mr. Robert Watt

It is done by the Office of Government Procurement which is a division of the Department of Public Expenditure and Reform.

Is there a random selection of certain services which have been procured, or how is it done?

Mr. Robert Watt

It depends on the nature of the service provided. For some services, there is a very clear matrix. Other services are more heterogenous and it is very hard to have comparators across different areas or between different time periods. The Office of Government Procure tries to establish benchmarks and a matrix. It then considers whether we are getting value for money. It was established to consolidate and professionalise the procurement process because of concerns raised repeatedly by successive Comptrollers and Auditors General.

I understand that. As I said, most of our time is taken up examining non-compliance. This is different. I am asking about the achievement of value for money where a new framework obliges services to be procured in a particular manner. The feedback is that it is much more expensive.

Mr. Robert Watt

We would be very happy to look at that feedback and reflect it. If the Deputy could make it available to us, we would be happy to do that.

Good. My final question relates back to this lovely document, which is very helpful in the context of the information it provides regarding value for money and renting buildings as opposed to purchasing or constructing them. The document in question is one of the Department's 200 papers. It states that there are a number of areas worthy of further research and refers to "an assessment of the balance between capital and current expenditure (long term value for money of construction/acquisition ... versus leased options)". This is crucial in the context of the astronomical rents people are paying and the fact that the Government is i lár an aonaigh. It is in the middle of the fair, actively increasing the prices in conjunction with the policy. I do not expect Mr. Watt to comment on policy - that is my comment on it. Is there not an urgency to look at getting value for money in terms of leasing, purchasing or building?

Mr. Robert Watt

There is. It is always a decision as to whether one leases or purchase. It is sometimes a judgment call. There are benefits to leasing. The maintenance costs, the life-cycle costs and so on-----

I understand that.

Mr. Robert Watt

-----are for others to consider.

I am beyond that just for the moment. As I understand it, the business case for Foras na Gaeilge recommended not leasing. The business case in respect of the Miesian Plaza was not sufficiently robust. When will the Department conduct the further research? Has such research been commissioned? Given the expenditure involved, is it value for money to continue renting at astronomical prices? The NTMA stated that its accommodation costs more than €1 million per floor. When will the research start, when it will be completed and who will carry it out?

Mr. Robert Watt

I am not sure where the work programme stands in the context of the follow-up to that report. I will check. I am not sure where we are with it.

Mr. Watt will come back on it.

Mr. Robert Watt

We will come back to the committee. However, the purchase price of a building is also a reflection of the rent, as the Deputy will know. If the rent is high, the purchase price will also be high because it is based on a certain rate of return that is expected.

It is construction prices.

Mr. Robert Watt

They are not decoupled from each other. It not as simple as saying that if renting a building costs €1 million, then buying it is a function of the rent.

I do not think it is simple but I would like evidence that it is better value for money to rent, for example, the NTMA building, at more than €1 million per floor. We at least need evidence that this is good value for money as opposed to construction and getting a building on a long-term basis.

I call Deputy Catherine Murphy. Deputy Cullinane is next.

I want to ask a number of questions. I will try and keep them short and I would appreciate short replies.

On financial reporting for audit, the Department gave different figures for different years in terms of time compliance. It has been improving but there is no reason it should not be 100%. How did the Department bring about the improvements? Are there sanctions? Is a carrot-and-stick approach being employed? What approach is the Department taking to those that fall outside the time limits with which they should comply? Is it the same organisations that are repeat offenders or is there a mixture? What is the profile in that regard?

Mr. Robert Watt

In recent years, the bodies have mainly been ETBs and various higher education bodies, for example, universities. A variety of issues in this regard are listed in various reports of the Comptroller and Auditor General. There was a change of structure, from VECs to ETBs. The Deputy will be aware of all that history. That impacted upon their ability to prepare their accounts on time. As for how convinced one is of those arguments, I will leave it there.

The issue is that compliance has improved because it has been highlighted by the Comptroller and Auditor General and this committee, and we followed it up through various actions and circulars. We published Circular 25/2017: Requirements for Appropriation Accounts 2017, which puts an onus on Departments to set out why particular bodies may not have complied with timeframes. The purpose of this is to throw a light on the matter. In most cases, there is an element of inertia. If one highlights that, one can address the problem and put pressure on boards and CEOs to ensure they are complying.

Just to say, and speaking privately here, this would not be tolerated-----

We are in public session. I say that just in case Mr. Watt thinks we are in private session.

Mr. Robert Watt

-----by a Department. If a Department did not have its accounts ready by Easter, the Comptroller and Auditor General might give the Deputy a view as to what would happen. He would make a phone call. Whether it was a case of me phoning him or him phoning me, we just would not tolerate it. In any event, I just do not quite understand why they cannot be prepared.

The reality is that we have got the number up in terms of the completion. By the end of 2017, 99.6% of the total turnover had been audited. There is an issue about the presentation, which the Chair mentioned earlier and which we need to work on. It is difficult to get 100% compliance in any area.

I understand that.

Mr. Robert Watt

That is as good as we are going to get.

I will be only a split second, and I am not taking it off Deputy Catherine Murphy's time.

Mr. Watt can come back to me on that.

The HSE has got it to 100% in respect of section 38 organisations because it threatened to slow down the funding to those organisations next year.

Mr. Robert Watt

We had some encouragement with those sanctions.

Yes, the stick and carrot.

Mr. Robert Watt

That is right.

Does the Department have oversight of public bodies that do not come not under the remit of the Comptroller and Auditor General such as, for example, Irish Water, which was established as a semi-State company? What, if anything, does the Department do in respect of Irish Water? Are the other organisations similar to Irish Water over which it has oversight?

Mr. Robert Watt

These are bodies that are not commercial semi-State companies. An organisation is not a commercial semi-State because it is in receipt of Exchequer funding. The bodies in question are not audited by the Comptroller and Auditor General.

Mr. Robert Watt

There is a gap but they are audited independently.

There is no oversight.

Mr. Robert Watt

The allocation of Exchequer funding to the body in question is the responsibility of the Accounting Officer for the Department of Housing, Planning and Local Government, that is, the Secretary General, Mr. John McCarthy, who must account to this committee for the voted spending, some of which will end up in Irish Water. John McCarthy is accountable for that spending. There have been discussions about whether the Comptroller and Auditor General would have a more formal role regarding Irish Water. I have an open mind on the best way to ensure that these bodies are accountable.

They spend a significant amount of money. We do not know if there is value for money because we cannot drill down into the figures and because the Comptroller and Auditor General does not have a function here. Is that a unique situation?

Mr. Robert Watt

The board of the commercial semi-State company is accountable. It has responsibility for ensuring that the company adheres to the code of practice. These companies are obliged to meet a variety of obligations in terms of how they account for public money and how they audit it. They are responsible. As for whether there should be a formal role for the Comptroller and Auditor General and this committee, I do not know if that would work or if people feel that would improve the basis of our accountability.

The nature of the organisation changed from when it was initially set up but it does not seem that the arrangements have changed accordingly. That is the point I would make. I will leave it at that.

Returning to the point on property assets, it is proposed to amend the financial reporting framework to address some shortcomings and to provide guidance and certainty for Departments for some classes of buildings and replacement costs. I presume this includes matters such as depreciation. What shortcomings does the Department see there?

Mr. Robert Watt

Is this in the management of assets?

Mr. Seamus McCarthy

In accounting for property assets, the key problem is that there is not consistency across Departments and offices in how they value and account for capital assets. I am drawing attention to the fact that it is inconsistent.

What we would be looking to see in a restructuring of the framework for accounting is more consistency in how assets are valued and accounted for.

Are there wide variations?

Mr. Seamus McCarthy

There are quite significant variations. Let me give an example from the Office of Public Works, which came before the committee last week to discuss its Vote. The OPW has four different bases of accounting for land and buildings. There is valuation, there is a question of revaluation, there is carrying them at historic cost and so on. Wherever an organisation has capital assets, in particular buildings, on its statement of financial position, it is left to each Accounting Officer to determine how the building will be valued. There is no single view by the Department of Public Expenditure and Reform on this matter. It probably reflects historical developments and the very considerable diversity in the nature of the assets, such as courthouses, schools, prisons, office buildings, heritage properties and so on. It is complicated and it will take a piece of work to get an acceptable and consistent framework.

Is there work being done on that?

Mr. Robert Watt

Yes, there is. It is related to the move to accrual accounting. In effect, at present we have a cash-based approach. There is a budget.

When will we see that work come to fruition?

Mr. Robert Watt

At present the accounts are presented on a cash basis and a part-accrual basis and one can see various statements where partial balance sheets are provided. If we move to a fully integrated balance sheet, that is, a full accrual system, it would be particularly important that we would have very clear rules in terms of valuations of assets and the depreciation of those assets because the depreciation item will become a significant issue. This comes back to the question that Deputy Connolly asked about capital versus leases. The cost of a lease is very clear and transparent on our accounts because the cash goes out, but the capital asset, the value and treatment of the asset and who pays for the asset is treated differently because it is cash. That is the reason there is a challenge within public accounting, which has not moved fully to accrual accounting, when it comes to how we manage assets.

I wish to ask questions on the cost of buying a building as opposed to renting it and the relationship of both of those. There was a sizeable public landbank, but I do not know whether this land was located in suitable locations. Location would have an impact in that building on it would probably be cheaper than buying it, given that the price of land would have had an impact on the cost. Has the Department given consideration in detail to that issue? It seems that we are spending an absolute fortune on leases. Last week we discussed the lease of a building for the Department of Health, which was a case in point.

Mr. Robert Watt

I am not privy to the debate on leasing that the Committee of Public Accounts had because I have not read the report of the Comptroller and Auditor General. We had the budget last week.

Is Mr. Watt on the board of NAMA?

Mr. Robert Watt

I am on the board of the NTMA, not NAMA.

Did the NTMA decide recently to release the building it is occupying?

Mr. Robert Watt

The NTMA is moving from the Treasury Building, so the lease is finished.

Where is the NTMA going to locate?

Mr. Robert Watt

The NTMA is moving to a new building beside the Central Bank of Ireland.

Is that on a lease basis?

Mr. Robert Watt

Yes, on a lease basis.

Mr. Watt is a Secretary General and Accounting Officer. He is on the board of the NTMA, which is in the process of moving. The NTMA was before the Committee of Public Accounts and was a party to the discussion on the issue of leasing buildings as opposed to purchasing them. Mr. Watt must be familiar with the broader debate on this matter.

Mr. Robert Watt

Yes, I am familiar with the broader issue.

We are getting the impression that there is a view emanating from quarters such as Mr. Watt's - not Mr. Watt personally but board members, the Department of Finance and the Department of Public Expenditure and Reform – that there is a preference to lease rather than purchase property. Expenditure ceilings and other such issues were raised. We are receiving the view that officials are moving towards long-term renting rather than purchase.

Mr. Robert Watt

The Chairman has expressed an interesting view but I have not heard it. One can argue that the accounting rules would militate against upfront purchase, because of our cash based approach to budgeting and the rules that if we incur the capital cost this year, the full capital cost goes on the balance sheet, whereas renting is different. It depends-----

There is validity in the point, and it is part of the thinking.

Mr. Robert Watt

It depends on the nature of the lease. In some leases, all of that spending could be accrued for general Government purposes in the year in which the lease is signed. It is analogous to purchase for Government accounting reasons. It depends on the nature of the lease, because one is entering into a contract. It depends on the nature of risk transfer. The Chairman may recall the conversation on public private partnerships, which one could argue is in the same place.

That is Miesian Plaza, a contract for €300 million over 25 years. What went on the State balance sheet for that?

Mr. Robert Watt

What goes on to the State balance sheet is the lease cost each year, that is, the rental cost each year that goes out of the OPW.

Is that on a year-by-year basis?

Mr. Robert Watt

Yes, on a year-by-year basis.

However, Mr. Watt had mentioned that in some cases-----

Mr. Robert Watt

There is a broader policy question, and it is a significant question.

Will Mr. Watt give an example where the full lease for the 20 years went upfront onto the State balance sheet in year one?

Mr. Robert Watt

There are examples, but it depends on the nature of the risk transfer, for example, if we took over more of the maintenance of the building as well as the leasing of it. I will come back to the Chairman on that point.

I ask Mr. Watt to bear with me. He introduced the matter that all of the cost could be brought onto the balance sheet in year one, depending on the nature of the lease. I have now asked him for a single example but he cannot give me one. He cannot make statements without giving an example of what he is talking about.

Mr. Robert Watt

Let me row back for a second. If the Chairman is saying that the fiscal rules might be encouraging people to lease rather than upfront-----

I am saying that is what Mr. Watt is saying.

Mr. Robert Watt

The Chairman said to me that people were telling him that the Department of Public Expenditure and Reform and the Department of Finance-----

Yes, that the Department of Public Expenditure and Reform and the Department of Finance are pushing this.

Mr. Robert Watt

I am not privy to the Chairman's conversations. He is telling me now, so I am trying to be helpful. If the Chairman is telling me that bodies are telling him that they would prefer to purchase a building but are discouraged and prefer to lease because of the fiscal rules, that is something we will have to look at to see if that is the case. If it is accounted for, it is all general Government spending in year one as opposed to being spread over 20 years. The suggestion I was making is that this does not apply in all cases. I will go back and check.

Will Mr. Watt provide the committee with a full note?

Mr. Robert Watt

If the balance sheet treatment could be affected so that one could purchase but the balance sheet treatment would be different, then it would have implications for how public bodies would make the decision between different options.

This is a matter that has come up when we had the NTMA, the OPW and others before us. It has come up a few times. We are asking Mr. Watt to give a detailed note from his perspective.

It seems the State has an aversion to building. Given that we have a landbank-----

Mr. Robert Watt

Next year there will be an increase of 25% in the capital spend. We will be spending €7.5 billion on buildings.

From a very low base.

Mr. Robert Watt

I understand the point the Deputy is making.

I will await the note and I am sure we will take it up at that point. I will now deal with the open data portal. We are into a new regime with freedom of information, FOI, requests and such things that will be heavily used. I use it myself. If one gets a whole throughput of things on a particular data set, does that influence what is put on the open data portal?

Mr. Robert Watt

We naively assumed that when we had put all the data on the open data, and we have more than 8,000 data sets now, that would reduce the volume of FOI requests because people would access the data from the portal. In fact, the number of FOI requests has increased since we amended the Act. It has led to an increase of more than 40% in the number of FOI requests and last year we had 37,000 FOI requests, so it has not reduced the number. Part of the motivation for us is to be more out there when it comes to the availability of data and putting them on websites.

We put nearly everything up on our website. We just put it up there. We hoped that would reduce the volume of freedom of information requests but it has not. The philosophy since 2012 is to be much more open and transparent around publication. We now publish pretty much everything. There are a whole variety of administrative data which are available for the first time and we have an enormous level of activity on the site with people downloading the data sets. It is an important innovation. It was guided by the wish to reduce the volume of FOI requests, which are administratively time-consuming, and for people to go to the website to access the data themselves.

Is the 37,000 figure for all Departments?

Mr. Robert Watt

Yes.

That is all of the Government Departments.

Mr. Robert Watt

Civil Service Departments, yes.

Is that an annual figure?

Mr. Robert Watt

I think those numbers are for 2017. I have a recollection of reading that yesterday. It is 37,000.

Obviously, it is very welcome that the IT systems have been-----

Mr. Robert Watt

I apologise; it was 34,000.

It is very welcome that there is an information officer and improvements and ongoing investment in IT systems. I wonder about the historical records as there are different generations of IT and a potential to lose records. What is happening in that regard? Is that happening on an ongoing basis given the potential to lose information. While the Department can mind the data that are being put up now, how is the system kept up to date? What ongoing investment is required?

Mr. Robert Watt

We work with the National Archives as we have a responsibility as a public body under the National Archives Act to maintain proper public records and to make them available to the archivist under the various rules. An issue has arisen as we move from a purely paper-based system to one which is paper-based and electronic and then on to a system which will ultimately be almost entirely electronic. We are between the latter two stages now. More and more records are electronic rather than on paper. The position in the past was that if one got an electronic record, one printed it off and put it on a file which would go to the archives. In future, everything will be recorded electronically. Any physical copy will be scanned to become an electronic record and the physical copy will be destroyed, unless it is a legal document such as a deed. We are working with the archivist on this and we have a very significant project linked to the build-to-share matter I spoke about earlier where all record-keeping will be electronic record-keeping. We will no longer have paper records in Government Departments. However, there is a danger. We are very conscious in moving from paper records now of the need to ensure the electronic records are kept for future generations. There is a danger there, which other countries are also facing. As such, we are working with the National Archives on this.

What about early generation IT systems and the things that were generated then? Is that paper-based as well?

Mr. Robert Watt

I am not that technical but what happens is that most documents are in PDF, which is a general readable format as I understand it. If one had an earlier version of Word which one cannot now access, those documents would have been transferred to PDF, which is a readable format.

Do we have any idea how big this project is?

Mr. Robert Watt

It is enormous.

Mr. Robert Watt

Is there a section in the Department dealing with it?

Mr. Robert Watt

Yes.

Is there a cost on that?

Mr. Robert Watt

The OGCIO is rolling out the electronic records system and we have it in the Department now. In effect, it is an electronic filing system whereas in the past one would have had a paper file. One now has an electronic filing system so that rather than being printed off, photocopied and put in a file, electronic files are dragged across. If the Deputy and I were corresponding about a leasing issue, for example, there would previously have been a folder containing that correspondence whereas it is now an electronic record and all emails and letters are dragged across into the file which is kept. If people look at the issue in future, the archivist will provide them with a memory stick rather than having us hand over volumes of paper. That is how it will work. The savings are enormous and it will be a good deal easier for future historians looking at our deliberations to search files and track what went on in however many years' time.

Mr. Robert Watt

Yes.

My final question is on the review under way on the local property tax. The review is due later this year and the Department has been involved in it. Is the review looking at the valuations or is it also looking at the baselines?

Mr. Robert Watt

The Minister has announced it and I think the rate struck is a function of the base of properties. I do not think one can look at it without looking at the totality of the-----

What about the problem with the baselines?

Mr. Robert Watt

All aspects are being looked at. I am not involved personally in the review which is being led by the Department of Finance. We will have a role when the Minister is presented with the conclusions. It is looking at the overall funding of the local property tax element and how that funds the local government system.

I thank Mr. Watt.

I welcome Mr. Watt and his team to the committee. It is fair to say that it is a good job all around as far as I can see. There was not a huge amount I could have picked from the Comptroller and Auditor General's special report for this Department, which is obviously good. However, there are a number of questions I want to put, along with making a number of observations. Some of these may have been asked. I was doing some media interviews and was not here for all of the contributions. If there is any repetition, Mr. Watt might say so.

My first point is a bit repetitious but I wanted to make an observation as well as to put a question. In his summary in the report, the Comptroller and Auditor General said two thirds of bodies produced their audited accounts and that those accounts covered 97% of the value of the turnover audited. Obviously, 97% is high on the face of it and is very good. The difficulty is when one looks at the amount of money. My calculation is that 100% would be €218 billion. If 3% is not audited, that is €6 billion which is not audited as it should be. Does Mr. Watt accept that it is a great deal of money? While he said 97% may be as good as we are going to get it, I do not think he intended it in that way.

Mr. Robert Watt

I did not say that. To clarify, the number I referred to was 99.6% by the end of 2017. The Comptroller and Auditor General's report says that 99.6% of the total turnover was audited within 12 months of the end of the year. It is a lot of numbers.

Mr. Seamus McCarthy

The 97% of value was by the end of September.

So it has increased again.

Mr. Seamus McCarthy

It does by the end of the year.

Mr. Robert Watt

In the last quarter, the last few percent come through. What I was saying was that 99.6% of the amount was audited by the end of the year, which is not a bad result. However, 100% of it should be done within the next few months. My point was that it is very hard to get 100% within 12 months given the vastness of the system. However, the Deputy is right to say that every cent should be audited.

I just wanted to make the point that 99.6% is obviously a very high figure. I accept that and am not being churlish about it. I accept that it is very good. Looking at some of the sectors, the HSE, for example, is an area the committee has put a spotlight on in the past. The previous incarnation of the committee did the same. It has resulted in improvements.

To interrupt for a split second, I suspect that after we break, we will resume at 2 p.m. with the Higher Education Authority and the Department of Health. For general information, we will resume at 2 p.m.

The areas in which further improvement is needed can be seen from page 17 of the Comptroller and Auditor General's report, which sets out the audit completion table. I know Mr. Watt has discussed the third level education bodies and education and training boards. We have focused on that area ourselves and the HEA and the Department will be here today. Why are they slower or simply slow to present accounts? Does Mr. Watt have a view as to why that is the case?

Mr. Robert Watt

We spoke about this earlier. Their performance was not acceptable and it has improved considerably, in fairness to them, since the position was first outlined in the 2014 report. There was an issue around the change in status of ETBs from VEC boards with a resulting change in structure. At least, that was the explanation and reason put forward. Whether it is valid, it is history now. The point is that the situation has improved.

I accept that it has improved, but why did it take an effort by the Office of the Comptroller and Auditor General, which reports every year to us, and then scrutiny from the committee where we put Accounting Officers through their paces? In fact, I think we sent some of them out of the room at one point earlier this year or last year for not having their accounts up to date.

Why was there a problem? The situation has improved but it is still well below the level reached by other areas.

Mr. Robert Watt

I mentioned-----

Why do third level institutions behave differently from all of the other bodies that have obviously improved?

Mr. Robert Watt

First of all, I think everybody is in-----

Mr. Seamus McCarthy

Everybody has improved.

Mr. Robert Watt

There was an issue and they have, in fairness, improved. There was, obviously, a problem in the past. I think the problem arises, and we see this in other areas, from the fact that third level institutions are not entirely funded from the Exchequer. They have, obviously, scholarship money, or they have got research funding, or they have got students' fees, so they are not as dependent on the Exchequer. Some of the bodies would have 40% or 50% of their funding coming from the Exchequer. It is very different from a public body like ours that is 100% funded from the Exchequer.

I do not know if the Deputy was here when I was asked about this, but it would be inconceivable that a Department would not have its accounts prepared for the Comptroller and Auditor General by the end of March, going into Easter. I could not imagine a situation where that would arise. I guess a different culture arose or different practices arose which are not acceptable. The Comptroller and Auditor General and the Committee of Public Accounts were spot on to identify it, and we supported it. We have been pushing it as well and we have been saying to people-----

I take on board the fact that the Office of the Comptroller and Auditor General has put on the record several times, when we have been asking questions, that there have been improvements. When we discover issues and when we see improvements, we must acknowledge the improvements that have been made, and we have acknowledged those. There has been a huge improvement in the health area, which is good. While we have seen improvements in the education sector, it has not been what we want, perhaps, which is in the presentation of accounts.

An area where we still see recurring problems, and it is in almost in half of the audit on subsets of health, HSE and education spending, is in adherence to procurement rules and non-compliance in terms of procurement. We spoke about a carrot and stick approach in terms of the presentation of accounts. There does not seem to be much stick, as far as I can see, in cases of non-compliance with procurement rules by any public bodies. Does Mr. Watt think that it is acceptable for us, almost year in and year out, when we get the audited opinion from the Comptroller and Auditor General, to get a lack of adherence to and non-compliance with procurement rules? The matter is raised repeatedly and the Comptroller and Auditor General raises it, yet there has been no real improvement of any substance, as far as I can see. Perhaps there has been an improvement in some areas but the problem continues to arise. Does Mr. Watt see that as acceptable behaviour? If not, given that the matter is under his remit, what focus has he put on this area?

Mr. Robert Watt

There can be occasions where there are valid reasons for non-compliance with procurement rules. Departments have to comply with the Circular 40/02 requirement, where if the process is not gone through, it must be explained. Since 2012, we have established the Office of Government Procurement, OGP, whose job it is to professionalise this function and ensure greater compliance. In areas for which the OGP has responsibility, and it works with Departments and offices, there is 100% compliance with the rules.

If services are routinely procured without a competitive process, that is unacceptable. If a service is provided by company X to a public body for ten years and it has not gone through a competitive process, that is not acceptable. There needs to be a competitive process. We have been arguing consistently about the need for people to co-operate with the OGP and to work with it.

I must stop Mr. Watt. That is one element. I do not want to go through any of the individual instances because the Office of the Comptroller and Auditor General furnished this committee with a full list of every single organisation that is audited and a list of the areas where there was non-compliance, which is quite substantial. Some of it is due to insufficient competition, which is a problem. Some of it is due to insufficient planning and not enough time being set aside, for example, An Garda Síochána's computer or IT system. Those in An Garda Síochána did not give themselves enough time and the contracts had to be rolled over. That happens as well. It is the culture and planning.

As Mr. Watt will know, we had instances where conflicts of interest in procurement were not managed. Some of those cases now involve criminal proceedings so we cannot talk about them. There are a multitude of reasons. There might be a valid reason for non-compliance but we can adjudicate on that. The reasons are not always valid.

Mr. Robert Watt

I agree. There are very specific provisions which allow for exclusion from the procurement rules, but they are very specific. In general, non-compliance outside of those exclusion provisions is not acceptable.

I saw it with the Comptroller and Auditor General a number of years ago and we debated at this committee, but the last report, which I am not quite sure whether it was for Civil Service bodies or what part of the public service, showed a very, very high compliance with procurement. I am trying to remember but it was a number of years ago, and I think it was €124 million of procurement was non-compliant, which was about 0.2% or 0.3% of the total subset that the Comptroller and Auditor General looked at. I do not know whether he can remember the details. We had a discussion about it at this stage in terms of materiality and whether that material was lost. The conclusion of that report was, ultimately, that it was material and it was very clear in terms of compliance.

What Deputy Cullinane is saying is that, since then, he has encountered, and I kind of disagree with him-----

Perhaps Mr. McCarthy can illuminate some of this for me, which might help Mr. Watt to answer my question. My point, which we have discussed at this committee several times, is that this comes up repeatedly. There are a multitude of reasons for it happening. We ask the Comptroller and Auditor General about it and he tells us this is the reason. Some of it is due to practical reasons. It is not right but it can be said that there is a practical reason. Some of it is not, however, and is either a disregard for the rules, a lack of planning or the board did not have sufficient controls in place. Will the Comptroller and Auditor General give us a flavour of what I see as a problem by outlining where it happens the most and in what areas does it repeatedly happen?

Mr. Seamus McCarthy

I have said on a number of occasions that the problem is most specifically evident in the health sector and the HSE. There is a systemic problem in the HSE around procurement. We have reported on that. Every year the HSE accepts that it has a problem. There are very specific reasons for it and it is not making as much progress as either it or we would like to see.

In other organisations, we report where we identify procurement in excess of €500,000 that is not compliant with the relevant procurement rules. Certainly, there is a way of looking at it and saying that it is not particularly material in the overall scale of an organisation of, let us say, the size of a university, an institute of technology or whatever. That is the level that we are reporting at because there is no other way of drawing the line on materiality. If non-compliant procurement was more than 2%, let us say, that could be a huge sum of money that could have huge implications-----

Mr. Seamus McCarthy

-----for small and medium enterprises that would like to get some of that. We have approached it from an absolute value perspective.

There are many reasons there may be non-competitive procurement. The Secretary General has outlined some of those. Some of them make sense but there are still strategies that need to be applied. For instance, if one is tied into a particular supplier, one needs to ensure when doing a business case for procuring that kind of service that one takes a whole-of-life view. The Department of Public Expenditure and Reform would certainly agree with that kind of approach. We need to see the evidence of that to be satisfied that it is a proper approach. There are other reasons and they may be individual reasons that arise from time to time. It may even be personnel problems in an organisation. We would need to look at getting a statistic for the Deputy.

I accept the Comptroller and Auditor General's analysis that there is a systemic problem in the HSE because that is the one area that we keep focusing on.

Mr. Seamus McCarthy

Consistently, yes.

Not enough progress has been made, that is for sure. What sanctions are in place?

Aside from the Comptroller and Auditor General noting it in his accounts, and the committee asking questions of him or the Accounting Officer when he or she comes before the committee, what sanctions are available in the event that the strategies the Comptroller and Auditor General stated are needed to correct failures are not applied?

Mr. Seamus McCarthy

I am not aware of sanctions in relation to it. One reason I keep referring to it is that there are remedies in the procurement rules which an organisation may expose itself to if it does not comply. That is the reason.

I am not out to punish organisations unnecessarily. However, if there is no sanction applied or the only sanction is a slap on the wrist, a note in the Comptroller and Auditor General's audit opinion or a question asked of the organisation in question when it appears before the Committee of Public Accounts, does Mr. Watt think that is sufficient? Could improvements be made in how we sanction the worst offenders?

Mr. Robert Watt

The issue with the HSE is that it needs to engage with the Office of Government Procurement, OGP. This issue has been raised with the HSE many times by the OGP. It needs to engage properly and the committee might raise its engagement with the OGP the next time HSE officials are here. We are not satisfied with the procurement practices and we have made it clear to the HSE. Systemic non-compliance with procurement rules in an organisation is a major governance failure and should not be tolerated.

Is Mr. McCarthy hopeful that next year, when we have this discussion again, we will have seen improvements in the health area?

Mr. Seamus McCarthy

No, I do not think that I could give that assurance.

Mr. Robert Watt

I would not be confident about that.

If Mr. Watt is the Accounting Officer and Mr. McCarthy is the Comptroller and Auditor General, who is responsible, apart from the head of the Department or the director general of the HSE? Does the Department of Public Expenditure and Reform have a role in ensuring that the HSE is compliant and does improve?

Mr. Robert Watt

The OGP has been engaging with the HSE for a significant amount of time.

Does Mr. Watt personally, as an Accounting Officer, have any responsibility to ensure the HSE is more compliant?

Mr. Robert Watt

No. We have put in place a professional service which will enable the HSE to procure. We have repeatedly highlighted our concerns about procurement practice in the HSE. However, there should not be any need for sanctions. People should be doing the right thing with public money in the absence of any sanctions.

We could say that about anything. People should not steal from shops either but unfortunately they do. Sanctions are provided in order that people know a penalty will be paid when they do certain things.

Mr. Robert Watt

We are talking about people working in Government offices providing services. The fact that they are operating with public money and there are rules in place should be sufficient.

It is not, however.

Mr. Robert Watt

The key point, and I reiterate this, is that the HSE needs to engage with the OGP. I will give the numbers in terms of non-compliance under Circular 40/2002. This relates to non-competitive procurement. I have figures from the OGP. For 2016, excluding the HSE, the total amount of non-compliance was €94 million. Several of these relate to defence. I do not have the full details but one case involved the purchase of a ship and the extension of a contract. Another related to an armoured cars upgrade and was probably because there was only one supplier in a position to do the upgrade. It amounted to €55 million. Another involved the replacement of an aircraft, which I presume was replaced by the same kind of aircraft. There was then an issue in relation to RTÉ providing a service to do with the commemorations in 2016. The most significant cases are clear.

I accept that it is an issue in the HSE. I would love to see more evidence. Maybe the Comptroller and Auditor General could update the work his office has done previously. I am not discounting any concerns about any individual case for one moment, but I do not think that there is a general non-compliance problem, with the caveat I just gave. That is my sense. The last review that the Comptroller and Auditor General did was not material, in my view. When one examines the reasons for non-competitive procurement and strips out the genuine reasons, there was a very small number of cases where there was a problem. I do not disagree with what the Deputy said in relation to the HSE.

I will conclude with two questions on the same theme.

The Deputy has two minutes left. He should put the two questions together.

Mr. Watt mentioned the Public Service Pay Commission. I met Mr. Watt on this issue in a previous role. What is the current position regarding pay equalisation for public servants recruited since 2011? Where will they be at the end of the time period for resolving this issue?

A number of pay restoration increases have been made to public servants as a consequence of pay agreements. They range depending on income. Does Mr. Watt have to hand a breakdown of these increases, for example, for someone on a salary of €150,000 compared with someone on a salary of €50,000? What would someone have received who was earning €150,000 at the beginning of pay restoration compared to someone on an average income of €40,000 to €50,000? It would be great if Mr. Watt had those figures and if he could walk us through the plan to deal with those affected by the additional reduction in public service pay in 2011.

Mr. Robert Watt

Under the terms of this agreement, 90% of public servants will have their pay restored by the end of 2020. All those paid up to €70,000 will have their pay restored to above what they were paid. People earning above €70,000 - and the group the Deputy mentioned who are earning €150,000 - are a long way from having their pay restored.

However, under the terms of the current agreements, how much will they have got back in monetary terms under pay restoration?

Mr. Robert Watt

I do not have the numbers to hand. The increase in percentage terms in this agreement are between 6.2% and 7.3% over three years. There would have been increases under the previous agreement. I can send the figures to the Deputy.

I ask Mr. Watt to send us the schedule.

Is that separate from pension related deductions?

Mr. Robert Watt

We must account for the pension because the pension related deduction is an additional pension contribution.

I will tell Mr. Watt what would be helpful. I do not want to hold anyone else up.

Mr. Robert Watt

We will send the details.

I am seeking a breakdown in tabular form and by income band, for example, up to €25,000, between €25,000 and €50,000, between €50,000 and €75,000 and so forth. It should also show how much was taken from these salary bands under the unilateral pay cuts, how much was restored and how much it is planned to restore, year on year, since pay restoration began. That would give us a good picture. There is also the issue of new entrants' pay.

I ask Mr. Watt to send us a detailed note and we will study it.

I have some questions for Mr. Watt. His opening statement noted that in the current year, 2018, voted expenditure was €61.8 billion. It states that, as a result of adjustments and the Christmas bonus and social welfare increases, the revised allocation is €62.8 billion, which is an increase of €1 billion.

Mr. Robert Watt

Yes.

If the Exchequer had not received an additional €1 billion in corporation tax, would this have happened? I am asking Mr. Watt because he included this figure. Where did the Department of Expenditure and Reform get that extra €1 billion to give it out on budget day?

Mr. Robert Watt

The Dáil will appropriate the money in due course so it will not be our Department getting it. The Dáil will decide to approve the spending or not. The increases are due to a variety of reasons and will be covered from the Exchequer by a combination of taxes or borrowings in the normal way.

Would the Department have had a difficulty if it did not have that extra money? Could it have held off some of the revised allocation?

Mr. Robert Watt

This year revenue has increased by more than was budgeted for by the Department of Finance. That is being used to fund spending, which is above what was allocated, and to close the deficit. The deficit this year is a little lower as a consequence.

The Department of Public Expenditure and Reform is covered in Vote 11 and Appendix A sets out the accounts of bodies and funds under the aegis of the Department. This is a new appendix, which has been inserted in all appropriation accounts, and it lists the body, the Department and the date of the audit report. Will Mr. Watt take me down through Appendix A. Who is the Accounting Officer for the various bodies? I will start with the Economic and Social Research Institute?

Mr. Robert Watt

I am the Accounting Officer for the allocations of these moneys from Vote 11 to the various bodies.

Who is the Accounting Officer for the ESRI?

Mr. Robert Watt

I am the Accounting Officer. I am responsible for the allocations and that the money is going to the ESRI as a grant-in-aid and that the ESRI is spending it for purposes consistent with the ambit of the Vote.

I understand that. The date of audit of the 2016 accounts was 2017.

Mr. Robert Watt

I understand the point the Chairman is making.

Given that the ESRI took almost a year to get its 2016 accounts ready for audit - there may be a typing error there - who is the Accounting Officer? Who is the head, the boss?

Mr. Robert Watt

Alan Barrett is the director of the ESRI.

That is all I want to know.

The 16 accounts of the Institute of Public Administration, IPA, came in May. Who is the Accounting Officer?

Mr. Robert Watt

The CEO of the IPA.

What about the Ireland-United States education fund?

Mr. Robert Watt

There is nothing in that.

Who is the Accounting Officer?

Mr. Robert Watt

I am.

That is the reason I am asking.

Mr. Robert Watt

There is no activity on that fund.

The Department should have had that in on 7 January, a week after the year end. Why did it take 11 months-----

Mr. Robert Watt

There is no activity in that fund.

If there is so little activity, it should be done at the beginning of the year, rather than hanging around for 11 months. That is all I am asking.

Why did the regulator of the national lottery take almost a year to get its accounts in? These are under the Department's-----

Mr. Seamus McCarthy

To be clear, this is after the audit has been completed. This is the date that is on my report. We had the Financial Statements, carried out the audit and followed up any queries by that date.

That is the date of the audit.

Mr. Seamus McCarthy

That is the date of audit completion. A number of these would have been available much earlier.

They would have been in the system of the Comptroller and Auditor General.

Mr. Seamus McCarthy

They would have been in the system but I would not have a team ready to go through all 287 audits at the same time.

Inevitably, there is a backlog in the Comptroller and Auditor General's office.

Mr. Seamus McCarthy

Yes, and particularly for the very small ones.

We are making an appeal for further funds for the Office of the Comptroller and Auditor General for next year to make sure-----

Mr. Seamus McCarthy

The Government has given us extra resources this year.

-----all these accounts that are arriving very quickly get audited very quickly and that the office has the resources to match the increased rate.

The next issue is Vote 12. On the 2016 accounts, I find it unusual that if a retiring civil servant owes overdue tax, it can be repaid over 20 years. That is inappropriate. I know it is paid to the Revenue by the relevant body, but it is inappropriate that a civil servant, or anybody else, should have 20 years to pay.

Mr. Robert Watt

I understand that is the excess charge. If there is a fund threshold of €2 million and if the Revenue calculates that, on retirement, one's notional pension pot is above that threshold, one's personal fund threshold is above the standard fund threshold, then, according to the legislation, one pays back the excess charge over 20 years. It is not income tax. I presume it relates to the excess charge on pension pots. It is related to the standard fund threshold.

What is the standard fund threshold at which that kicks in?

Mr. Robert Watt

The fund threshold is €2 million.

What salary does that apply to if somebody has done 40 years' service?

Mr. Robert Watt

It depends on how many years' service.

Take somebody who has done 40 years.

Mr. Robert Watt

If one has done 40 years, it depends. For service accrued up to 2014, there is a certain multiplier factor related to one's income up to that time. After that, there is a higher factor applied to service accrued after 2014.

Roughly what kind of retirement salary are we talking about here?

Mr. Robert Watt

It would be people at the very top, senior levels.

A salary of €100,000?

Mr. Robert Watt

And the rest.

Above €100,000? In that case, this does not apply to many people.

Mr. Robert Watt

No. In the future, given the current rules, it will involve many people. It will affect people above €120,000, €130,000 or €140,000, depending on how many years' service they have.

The excess on the fund must be paid to Revenue from the superannuation and retired allowances within three months.

Mr. Robert Watt

I think it can be paid in a lump sum or over 20 years. In effect, the gross pension is then reduced further by the excess charge. It relates to the fact that the person would have received notional tax relief on the pension contributions. The benefit of that tax relief is capped at €2 million. If one's pension fund is above that, one must pay an excess charge to the Revenue Commissioners. It is related to the Finance Act.

That is paid to the Revenue from the superannuation and retired allowances within three months. However, it could take 20 years to recoup that payment from the individual.

Mr. Robert Watt

Yes, 20 years.

That is a long time.

Mr. Robert Watt

That is what the Finance Act states. It will raise an issue for the Department and how it accounts for this over time, if it becomes significant. It will raise an issue. The Department has not thought about it. It will raise an issue if it becomes significant but it is not significant now.

Mr. Watt and I probably both get it, but many people are confused. People hear mention of pensions of €2 million and 20 years to pay excess tax. I can see people jumping up and down and I would like the matter clarified with a detailed information note about the categories of people to whom it applies and the salaries they earn. I do not need to know who the people are or anything like that. The 20-year repayment period is what caught my eye this morning and it needs to be explained to the public. The best way to do that is through a note that the committee can put on the record for public information.

Mr. Robert Watt

The Chairman will recall that one could previously have a pension pot of up to €5 million or €6 million.

I recall that.

Mr. Robert Watt

The fact that this has been brought down means there will be many people involved.

That is all the more reason to give a detailed note on how this is operating.

What happens to the money if an individual dies?

It will come off their estate.

Mr. Robert Watt

It will come off their estate.

They will not get clearance from whomever and it will come off their estate. People would like to know if there is a potential claim against their estate. Does Mr. Watt get where I am coming from?

Mr. Robert Watt

Yes.

A little public information on this would be helpful.

I have two questions about Chapter 2 of this year's report. This is about the collection of pension contributions due to the Exchequer. It is extraordinary that, a couple of years on, we do not know who is in and who is out of the system. What was intended when the legislation was being drafted? There must have been a probable or an exact list of those who should be in the system. What happened? The legislation must have been drafted with some intent?

Mr. Robert Watt

The Chairman and I have spoken about this before. The Act was enormous because the pension system is incredibly complex. We consolidated and rationalised and we now have 65,000 people who are part of the pension scheme. It is amazing how the numbers have increased so dramatically. It was not the most immediate priority in terms of implementation of the Act. That is the reality. This is an element of housekeeping for the Department. It is something that should have been done earlier.

The chart of those who are in the system already includes the Institute of Technology, Tralee and the National University of Ireland, Galway. Does that imply that all the institutes of technology and universities will be included? Why would some be included? Mr. Watt said there are 14 bodies in the system and there are only a few left to be included?

Mr. Robert Watt

In relation to elements that are funded themselves, to take Galway, if there is a research entity which is funded independently-----

It might not be the full organisation?

Mr. Robert Watt

That is right. It is just a small element of it.

I ask Mr. Watt for a note on that.

Mr. Robert Watt

Reading that, one could think it applies to hundreds or thousands of people. It does not.

Anyone giving a cursory glance at this list of organisations will presume it refers each organisation in its entirety. I ask Mr. Watt give the committee a note on this.

Mr. Robert Watt

The amount is €4.35 million.

It is very small.

Mr. Robert Watt

Yes. The Department accepts that and it will have a report for the end of the year which sets out-----

We will mark it down for the end of the year and get it from Mr. Watt in the new year.

Mr. Robert Watt

Let us say that Galway-Mayo Institute of Technology did not have an institute in 2013 that was self-financing and it has one now. I am being hypothetical. The situation with these bodies is subject to change.

Mr. Seamus McCarthy

In the cases of third level institutions, it would apply where the research they are undertaking is commercially funded. It is not that one can say that class all fits in to the thing. There must be a process of analysing their financial statements and identifying that.

Where are the employees' contributions held after collection? Are they passed on?

Mr. Robert Watt

That is remitted to the Department. It is netted off in this Vote.

The Department has a bit of work to do. That could change, from year to year, depending on the activity of different organisations.

Mr. Robert Watt

Depending on the nature of the activity, yes.

The work they carry out. The Department needs an ongoing review system.

Mr. Robert Watt

We need to ensure that the relevant authorities understand the matter. The team are following up to ensure that people understand their responsibilities exactly. There is a wider issue relating to the scale of receipts from the single scheme and how they are accounted for. Those receipts are netted off. They are contributions being made to pensions from which people will benefit in the future. For accounting purposes, we are netting off the pay-as-you-go bills. We are considering whether that is appropriate or whether it should be-----

One of the reasons for the surplus is that the Department had more income. It is unusual to have these-----

Mr. Robert Watt

Recruitment has proceeded much faster than was anticipated. All new recruits are members of the single pension scheme.

Under the new single pension scheme, the contributions being made by people and which they will be entitled to draw down are being used by the Department to pay today's pensioners.

Mr. Robert Watt

We are netting off the pay-as-you-go bills.

This is wrong in every respect.

Mr. Robert Watt

We are examining the options. Pension contributions used to go to a fund that was managed by the National Pensions Reserve Fund, the predecessor of the Ireland Strategic Investment Fund. Provision was made------

Why are those contributions not going to a fund such as that?

Mr. Robert Watt

Ultimately, it is guaranteed by the State, so------

It defeats the whole purpose of people contributing to that fund.

Mr. Robert Watt

The staff are making a contribution towards their pensions. I acknowledge that a big policy issue for us is the extent to which those funds should be ring-fenced.

They should be.

Mr. Robert Watt

We are examining the accounting treatment of the contributions.

New recruits to the Civil Service are members of the single pension fund and are making contributions to the pensions they will receive in 40 years, but the money they are contributing is being used to fund current pension payments. Mr. Watt is stating that the State will eventually cover that gap. That is not good enough. It is defeating the whole concept of-----

Mr. Robert Watt

Even with the enhanced contributions under the single scheme and on foot of the recent pay agreement, it is not a fully funded system.

We know that.

Mr. Robert Watt

The State will have to stand behind it. If a fund is set up, the implication might be that it will fully fund future pensions when that is not the case. Rather, it will partially fund them. There is an issue about how we invest-----

The previous fund never fully funded the pension but it was, at least, a dedicated managed fund.

Mr. Robert Watt

It was a dedicated fund until it was needed for other purposes.

The Department is using the pension contributions which people are making to pensions that they expect to draw down in the future. That is not what we thought this scheme was about. This issue should be revisited in the new year. I was a Member of the Oireachtas when the single scheme was brought in. The understanding of Members was that the contributions would be going into a fund. Mr. Watt understands my point.

Mr. Robert Watt

Yes.

The Department is robbing Peter to pay Paul. It is using contributions by new recruits to pay the pensioners who have left the Civil Service. That should not be happening.

Mr. Robert Watt

It is a pay-as-you-go system. That is how the contributions have always been managed. I am not saying it is the correct way to do it.

This was one of the biggest pieces of legislation in recent years and its intention was clear. However, it does not seem to me that the intention is being followed through. The pensions of new recruits will be calculated based on career average salary rather than final salary. They are contributing under a different regime. The money they have paid since joining has gone elsewhere and the Government will make it up to them at some time. They were entitled to believe those contributions were going into a managed fund. Mr. Watt knows that.

Mr. Robert Watt

They have accrued the right to a pension.

We know that the State will stand behind those pensions. On chapter 3, I ask Mr. Watt to refer to table 3.7. The Budget Statement is announced before 15 October every year in accordance with EU rules but it takes six months for the Estimates to be dealt with. The Estimates are considered by the relevant committees in March or close thereto and voted upon by the Dáil in April. As Accounting Officer and Chairman of the Committee of Public Accounts, I wish to state that that is no way to do business. Most draft Estimates for next year have been published. Six months are being lost. The budget used to be in December but was brought forward to October under EU guidelines. That gave the Oireachtas the opportunity to pass the Estimates for 2019 before the end of 2018. I do not know of any organisation worth its salt that approves its budget four or five months into the year. Such a company would go bust. No business should be run in that way. The fact that this concerns Departments is not a reason to say the State guarantees everything and it does not matter anyway. It is bad practice. As budget day has been brought forward by two months, the approval of the Estimates should be brought forward by at least the same period. At one stage, Estimates were coming through just before the summer recess. During committee discussion of an Estimate, members were told that two thirds of the allocation had been spent. Four twelfths of the Estimates will have been spent by April in any event. Mr. Watt, as the Accounting Officer for the Department of Public Expenditure and Reform, which oversees this side of the budgetary process, should be making an effort to get those Estimates through the Oireachtas by Christmas. That would be the correct time for it to be done. It would be better to have them completed in January than maintain the current situation but it would still be too late. It should be done by Christmas.

Mr. Robert Watt

We will do it next week.

Please do.

Mr. Robert Watt

I am not responsible for how the House does its business.

The matter is being raised by the committee.

Mr. Robert Watt

I do not disagree with the point made by the Chair.

We are debating an issue that needs to be discussed.

Mr. Robert Watt

That was one of the intentions behind moving to the calendar year.

I am backing up Mr. Watt. He should state that the Committee of Public Accounts is putting pressure on him in this regard.

Mr. Robert Watt

More allies for us.

We are in agreement that it would be far more desirable for the Estimates to be dealt with in a more timely fashion.

Mr. Robert Watt

Absolutely.

On chapter 5, figure 5.5 is a chart depicting the Votes with Supplementary Estimates for 2012 to 2017, inclusive. We know about 2018 as well. The Department of Health required a Supplementary Estimate every year. It is systemic. That is how it does its business. The chart also shows that a Supplementary Estimate was required every year for Army pensions.

Mr. Robert Watt

Yes.

Surely it is possible to estimate the required provision for Army pensions but it has been miscalculated for six years in a row. Whoever is responsible should be better at counting. It is a fairly straightforward issue which does not involve tens of thousands of people.

On the Garda Síochána, Mr. Watt will tell me that the Supplementary Estimate is to provide for Garda overtime. However, there will be overtime next year and that should be budgeted for in the Estimates rather than there being a shock announcement by the Commissioner stating that there will be no Garda overtime for three months. There does not seem to be an effort to get the Estimates right at step one. Mr. Watt knows them inside out and is probably sick of looking at them. Neither he nor the Minister should be seeking Supplementary Estimates year in, year out. It is systemic. The only answer is to try to do it right in the future.

Mr. Robert Watt

We have addressed the issue of Army pensions.

The Department got it right this year. Well done.

Mr. Robert Watt

The other matters are systemic issues which do not relate to-----

They are foreseeable.

Mr. Robert Watt

It relates to management of-----

We were told that under the new fiscal rules there would be expenditure ceilings for each Department that the Departments would not be allowed to breach. Two years ago we were told that there would be no more Supplementary Estimates as they would not be allowed under the rules. What about the multiple statements by various Ministers a few years ago that it was going to be the last year of the Supplementary Estimates and there would be expenditure ceilings under the fiscal rules? Is the imposition of those rules movable from year to year like everything else?

Mr. Robert Watt

The fiscal rules provide a framework within which decisions can be taken. Every year we must comply with structural balance in line with the overall medium-term objective, MTO, and keep increases in gross spending below the estimated trend in potential output in the economy. The MTO targets a structural deficit of 0.5% of GDP. There is discretion for this Parliament or that of any other member state to increase spending if it is compliant with the rules. There was a view that unexpected revenues would not necessarily be spent, which is true if such spending would not be consistent with the rules. However, if consistent with the rules, unexpected revenues can be used to fund unexpected spending. Our preference is to stick within the rules such that revenues are used to improve the balance if those revenues are a function of an improved economy and improving cyclical position. Ultimately, the fiscal rules are a matter of interpretation.

So we can carry on.

Mr. Robert Watt

No. We cannot carry on.

Okay. I will ask a question that relates to the Estimates which were published by the Minister last week as part of the Budget Statement. To what extent is there headroom in those Estimates for extra expenditure by the end of 2019 without breaking the rules?

Mr. Robert Watt

We do not believe there is any extra headroom.

The Department probably said that last year, and then an extra €1 billion was found.

Mr. Robert Watt

We are saying we do not believe there is any extra headroom.

Was there headroom last year?

Mr. Robert Watt

No, there was not.

Nevertheless, an extra €1 billion was spent this year.

Mr. Robert Watt

That happened after an assessment of where the economy moved, the fiscal position and the revenue changes. In recent years, we have been fortunate to have been in a growth phase.

Mr. Robert Watt

Revenue has been keeping-----

Lucky with corporation tax.

Mr. Robert Watt

There has been a very strong cyclical recovery. We know that will come to an end. As we get to full employment, there is less headroom in the economy so the future will be different. Irrespective of that, bearing in mind that the vast majority of the Votes stayed within profile, we are not happy with the fact that-----

Mr. Robert Watt

I am not criticising anybody for producing this table. It is a snapshot. Another table that shows all the Votes would give a different impression.

Mr. Robert Watt

There are issues in the areas that have been mentioned. We all know what those issues are.

Okay. The position today is that there is no headroom for next year. If we get a windfall again next year, there will be plenty of headroom to be absorbed.

Mr. Robert Watt

Well-----

That is kind of-----

Mr. Robert Watt

People like me-----

What if corporation tax receipts-----

Mr. Robert Watt

-----would advise the Minister-----

We know.

Mr. Robert Watt

-----or a future Minister and give a clear view on what should happen with such unexpected revenues.

The advice would be to use them, just as they were used the previous year.

Mr. Robert Watt

The Chair can guess what advice would be given by the Department of Public Expenditure and Reform and the Department of Finance.

Yes. I know what the Departments would say. On the headroom issue, Mr. Watt has said that a €500 million shortfall in corporation tax would change the profile of what happens.

Mr. Robert Watt

Yes.

Would the rules require us to reduce expenditure during the course of the year?

Mr. Robert Watt

They might, depending on the assessment. If we have-----

Has that ever happened?

Mr. Robert Watt

We do not know.

Has that ever happened in an EU country that is not in the phase Ireland is in? This is a European rule.

Mr. Robert Watt

There is a debate taking place at present in the context of the Italian budget which is not dissimilar. The Italian authorities are increasing their deficit beyond what they had previously committed to. This is partly due to revenue shortfalls, but it is also due to spending additional money above what the previous Government in Italy was committed to doing. That will be discussed at Council level.

The Italian authorities can ultimately get European Commission approval.

Mr. Robert Watt

We shall see what happens.

That can happen.

Mr. Robert Watt

We shall see what happens in that case.

Okay. Mr. Watt can understand my question.

Mr. Robert Watt

Yes.

I see this as systemic. We were all fed the line a few years that Supplementary Estimates were gone, but they are not really gone. It is all based on headroom and growth. Mr. Watt is telling me that there is plenty of wriggle room.

Mr. Robert Watt

No, I am not saying there is plenty of wriggle room. I am saying it is possible.

We are in the same corner on this one, believe it or not. I would be agreeing with holding the line.

Mr. Robert Watt

Yes, so-----

If we agree an Estimate, we should stick with it.

Mr. Robert Watt

I think-----

It does not happen.

Mr. Robert Watt

We shall see in the future how the rules interact with how the economy and the budget evolve. We will face situations in the future where we will not meet our revenue forecasts. When revenues fall, a decision will have to be made on whether that fall is due to a cyclical issue or to an underestimate of growth in the economy. That assessment will determine whether the Government of the day will take corrective action or whether we allow the deficit or the surplus to disimprove.

Okay. I call Deputy Connolly.

There are four things that I would like to mention quickly. Out of interest, paragraph 5.2 in the appropriation accounts for 2017 refers to pensioners and paragraph 8.3 refers to ex gratia pensions for widows and children. Will Mr. Watt clarify the nature of the ex gratia payments to widows and children of civil servants, members of the Judiciary and court officers? Was there no cover there?

Mr. Robert Watt

The payments in question were made under the widows and orphans scheme, of which civil servants are part. I presume these payments are made to spouses in respect of people who die in service.

There are payments-----

Mr. Robert Watt

I am informed that these payments are made in respect of people who die in retirement and whose widows and orphans still have an entitlement under the widows and orphans scheme.

Why are they called ex gratia payments?

Mr. Robert Watt

Yes, it is not the best expression for them.

These people are entitled to the payments.

Mr. Robert Watt

Yes.

Okay. I also have a question under chapter 5 about accounting for property assets. I am not sure if this question has been answered. The Department responded by saying that it acknowledges the limitations of the current financial framework and by talking about a review. Has the review started? Is there a timeframe for the review? Who is carrying it out?

Mr. Robert Watt

There is an issue with how we value assets under the current rules.

I understand all of that. My question relates to the review. Has the review started?

Mr. Robert Watt

Yes. In recent weeks, officials from the OECD were in with us to talk about practices in other countries.

Mr. Robert Watt

The question of budget accounting for capital assets is a function of how far we move to accrual accounting in the future. It depends on the financial management and shared services scheme, which we hope to introduce at the beginning of next year. It is a question of the capacity of our system to modernise the accounting system so we can move to full accrual of balance sheet accounts. As the Deputy can see with the account, the current system presents the accounts on a cash basis and then there is a part-accrual. The review we are talking about relates to the reviews being undertaken by the OECD. We hope to have a report by the end of this year.

Has the review started?

Mr. Robert Watt

Yes.

Okay. Who is undertaking that review?

Mr. Robert Watt

The OECD is doing the review.

The OECD is doing it for the Department.

Mr. Robert Watt

Yes.

Okay. It will be completed at the end of this year.

Mr. Robert Watt

Yes, at the end of 2018.

Mr. Seamus McCarthy

As the Deputy may recall, the Chairman informed the committee that he has attended a meeting with the OECD group which is carrying out this undertaking.

Mr. Seamus McCarthy

Officials from my office have met the group as well.

Great. Lovely. Okay. I have two more questions. I have asked about value for money in the provision of services. Mr. Watt kindly said that if this is brought to his attention, he will look at it. I would like to go back. How does the Department pick this up? I forget what Mr. Watt said when he answered that question. I am talking specifically about the framework that was brought in for the provision of services. How does the Department judge whether it is more effective in value for money terms? What analysis does it do?

Mr. Robert Watt

We would look at the cost of the service and the value of the service. It depends on the nature of what we are procuring. Some services are more amenable to easier matrix. Other services are more heterogenous, so it is very hard to make comparisons between different service providers or between different periods of time.

If I were to follow up on this with Mr. Watt, I would say that they have no choice but to implement this framework.

Mr. Robert Watt

Yes.

That framework was introduced in 2016 or 2017. Where can I see that the Department has evaluated whether the framework is producing better value for money than the previous one? Does Mr. Watt understand the specific point I am making?

Mr. Robert Watt

Yes.

Where can I follow that up? Where can I see that the Department has evaluated this?

Mr. Robert Watt

We spoke earlier about issues of non-compliance with procurement processes. As a result of such issues, the Office of Government Procurement has frameworks in place and bodies can access those frameworks. That is the whole-----

The consequence of the framework that is in place is that they procure the services in this manner. I am being told on the ground that this manner is not cost-effective. I want to be clear because I was not clear the last time. It was my fault. I am being informed that the framework is leading to a process which is not saving money but is actually costing more money. What does the Department do about that? Does it just leave the framework in place and say it is more cost-effective?

Mr. Robert Watt

The framework is in place for a period, usually of three years.

Three years, okay.

Mr. Robert Watt

We review it after that period.

During that three-year period, is there any way for people to come forward and say this is not working and is costing more?

Mr. Robert Watt

If it is not working, we can pause the framework and say we are no longer using it to procure services. As I mentioned, we are happy to talk to the Deputy in more detail about a particular case.

I understand that, but this is not so much about me as it is about the people who are seeing this happening on the ground.

Mr. Robert Watt

Yes.

What is in place for such people? Ultimately, this is about accountability and the processes that are in place. Many people on the ground are afraid to put their heads above the parapet for various reasons. If they are seeing things happening, is there a process that enables them to say that a particular framework is much more expensive? That is what I am trying to get-----

Mr. Robert Watt

There is a process. The Office of Government Procurement has various groups that link in with small and medium-sized enterprises and various industry bodies and associations to hear their views on how the frameworks are working and how we are engaging with the sector. There are various bodies in place.

If we take the board of Galway and Roscommon Education and Training Board, GRETB, as an example, is there a mechanism in place to look at this framework after it has been in place for two years?

Mr. Robert Watt

I do not know the details.

Mr. Watt does not know. Okay.

Mr. Robert Watt

I will be happy for the team to get in contact with the Deputy on this.

My final question relates to the Department's study on rents.

These studies are welcome but if they are done, the follow-up is essential. This paper clearly recommends a follow-up analysis of value for money as between renting and purchasing or whatever else. Tied with this is the Miesian Plaza, and the Comptroller and Auditor General's report on that outlined in very clear terms at paragraph 6.10:

It was noted that

- There was no evidence of detailed consideration of other options - Miesian Plaza was identified as ‘virtually the only option’.

- No cost-effectiveness analysis or other economic appraisal was carried out - in particular, there was no consideration of lease, buy or build options.

- There was no evidence that the full costs of leasing Miesian Plaza were identified

It goes on. The witnesses come into this as that lease was approved. I put it to them at the beginning when I came in that they approved that lease.

Mr. Robert Watt

We did.

There is no evidence they looked at other options.

Mr. Robert Watt

I have not read the Comptroller and Auditor General's report on this. It is not one of the reports I am here to speak about today. I am very happy to look at it.

No, I am trying to make a general point. That is one example. There is apparently another example in Galway with a building for the Revenue Commissioners and an example involving Foras na Gaeilge, which we have raised many times here. In that example, the business case identified a different solution and Foras na Gaeilge is renting a building. There is also the National Treasury Management Agency, where the witness is on the board, and the National Asset Management Agency. There is a huge amount of money going out in rent. If this is an example of the options appraisal, are we not in serious trouble in a sense? There does not seem to be any proper options appraisal being done with alternatives.

Mr. Robert Watt

I cannot be asked to comment on reports I have not had a chance to read.

No, I am asking the witness to comment on value. Just to be clear, I am talking about renting buildings and actively being in the market where rents were not sustainable. Government bodies are doing that. That is what I am asking about.

Mr. Robert Watt

It could be worse to buy a building in an unsustainable market than rent it in an unsustainable market. At least with a break clause, the party could get out.

The witness does not know that and I can only say-----

Mr. Robert Watt

I do.

More research is being sought in this paper.

Mr. Robert Watt

I know that if a building is bought in an unsustainable market, it is worse than leasing it in an unsustainable market.

We can be glib or we can-----

Mr. Robert Watt

I am not being glib. I am very happy to come back on these issues, as the Chairman asked me to.

The topic has come up a few times.

Mr. Robert Watt

I am not stonewalling. Between the publication of the Comptroller and Auditor General's report and now, we had a budget to do for two weeks, which took all my time.

I understand that.

Mr. Robert Watt

Since the budget I have been doing other things and preparing for today so I have not had the chance to read the entire report.

This was July 2018.

Mr. Robert Watt

I know the report.

It has nothing to do with the Comptroller and Auditor General's report. It is a more general point and it zones in on the absence of data, the need for further research and the need to compare and contrast. That type of research must inform policy. When will it be done and when will this paper see follow-up in specific recommendations?

Mr. Robert Watt

The report was published in July and I will check with colleagues to see where we are going-----

Mr. Watt can come back to us.

Mr. Robert Watt

-----and come back to the committee.

I am sorry I was late. I did not want to ask questions that were probably asked already. Mr. Watt spoke of the new single public service pension scheme established in 2012 under the Public Service Pensions (Single Scheme and Other Provisions) Act 2012. The Comptroller and Auditor General report indicates that, as a result of the work completed to date, 14 bodies were making employer contributions and at 14 September 2018 these bodies had made contributions totalling €4.35 million. However, the report later states that, as of September 2018, "the Department has yet to finalise the list of all State bodies that will be required to make employer pension contributions in respect of Single Scheme employees." Will Mr. Watt explain that statement? I know the Chairman touched on it.

Mr. Robert Watt

There are some bodies liable to make employer contributions in respect of part of their activities. There was uncertainty about how this is applied and we issued a circular in 2016 setting out what we believe is the interpretation of the Act. In effect, this is something we have been chasing up.

Why did it take four years? The Act was introduced in 2012 and it was being interpreted in 2016.

Mr. Robert Watt

A number of the bodies were making employer contributions and it came to our attention that there could be other relevant authorities not making the contributions. We are chasing that up and clarifying the matter. The Deputy can be assured, as I mentioned earlier, that any funds outstanding and owed to the Exchequer from these bodies will be recouped.

Does it make any difference to employees from either before or after 2012?

Mr. Robert Watt

The employees have been making their contributions and they have been remitted to the Exchequer. The contributions made by people first employed either before or after 2012 are different.

The €4.35 million is being spent on current expenditure to pay the pensioners that we now have. The Chairman asked about that. No pot is being created.

Mr. Robert Watt

No.

That is despite the contributions being made by these employees. The taxpayer will have to carry the cost at a later stage. Is that the way it is going? Is that proper management of a pension fund?

Mr. Robert Watt

State pension funds are pay-as-you-go funds. This year over €3.2 billion is to be paid out on behalf of previous accrued liability of public servants now retiring. It is paid for out of current receipts.

Does the money coming in cover that?

Mr. Robert Watt

Yes, in effect the money coming in covers it. Receipts of the State cover this, whether they are appropriations-in-aid or taxation. It is a valid point that was outlined by the Chairman. I agree that we must look at the accounting treatment of this and the extent to which we will, over time, allocate receipts into funds that will part-fund future pensions.

It would lower the burden on the future taxpayers when compared with the current scheme. The taxpayers of the future will have to pay for it.

Mr. Robert Watt

Yes. From 2014 the terms of the scheme have been less burdensome on the taxpayer than the previous scheme.

Will it ever come to a point where contributions will be put into a reserve fund?

Mr. Robert Watt

That is what we are debating.

When is it envisaged that will happen?

Mr. Robert Watt

We have not gone to the Minister or the Government about it but Mr. Pender and I have been discussing this with colleagues on the pensions side. It is something we did before, although it is not exactly analogous, with the National Pensions Reserve Fund, when we used money from the sale of Eircom and contributions each year to build a fund. A third of this was to fund public service pensions and two thirds of it was for social welfare. We had pre-funding in the past and we would certainly like to move to a more funded scheme for public pensions. It would not be entirely funded but it could be partly funded.

Is the new scheme a better guarantee to an employee than the old scheme, or is it much the same?

Mr. Robert Watt

The guarantee is the guarantee. If one believes in the sovereignty and solvency of the State, the pensions are guaranteed. It is as strong as it was in the past.

Would recessions affect pensions or are they guaranteed no matter what happens?

Mr. Robert Watt

They are guaranteed.

I thank Deputy Aylward. We have concluded our discussion relating to a number of Votes, chapters and Comptroller and Auditor General special reports. We have done quite a bit this morning, although some of this has been before us, off and on, previously. Before concluding I thank witnesses from the Department of Public Expenditure for their attendance and the material they will send to us shortly.

Witnesses will be aware that the committee will examine procurement across the board and the topic will be before us all the time. We have said we will consider public private partnerships as part of our work programme for this year. We have been getting some information but we have not yet considered how good it is. It is an ongoing topic on our agenda. Recently, we were sent the official minutes of the response to our earlier periodic report. We have not yet had the opportunity to examine those. Depending on the content of those reports, we may have to respond on some matters. We will deal with those matters as they arise. I am alerting the witnesses that some matters cutting across their Department will be discussed in the time ahead. I thank all the witnesses for their attendance. In the afternoon we will meet representatives of the Department of Education and Skills and the Higher Education Authority.

The witnesses withdrew.
Sitting suspended at 1 p.m. and resumed at 2 p.m.