Chapter 5 – Implementation of Financial Management Shared Services

Ms Hilary Murphy-Fagan (Chief Executive Officer, National Shared Services Office) called and examined.

Apologies have been received from Deputy Sean Sherlock.

I welcome everybody to this online meeting. Due to the current situation regarding Covid-19, only the clerk to the committee, support staff and myself are in the Seanad Chamber. Members of the committee are attending remotely from within the precincts of Leinster House. This is due to the constitutional requirement that all members must be physically present within the confines of the place in which Parliament has chosen to sit either here or the Convention Centre, to participate in public meetings. The Comptroller and Auditor General, Mr. Seamus McCarthy, is a permanent witness to the committee and he is attending remotely.

Today, we are engaging with officials from the National Shared Services Office to examine the following: the 2019 Appropriation Account for Vote 18 - National Shared Services Office; and from the Comptroller and Auditor General's 2019 Report on the Accounts of the Public Service, Chapter 5 - Implementation of Financial Management Shared Services.

We are joined remotely, from within the precincts of Leinster House, by the following officials from the National Shared Services Office, Ms Hilary Murphy-Fagan, chief executive officer, Ms Bernie Kelly, assistant secretary, and Mr. Sean Reilly, assistant secretary. We are also joined remotely from outside the precincts of Leinster House by Mr. Fergal Costello, Government accounting officer at the Department of Public Expenditure and Reform. I would like to begin by welcoming them all to the meeting. I thank them and their staff for the briefing material that they have sent on to us and prepared for the meeting.

When we begin to engage, I ask members and witnesses to mute their computers when not contributing so we do not pick up any background noise or feedback. I also ask that contributors use the button to raise their hand when they wish to contribute. As always, I remind all those in attendance to ensure their mobile telephones are on silent mode or switched off. When they finish speaking they should take down their hand signal and I ask as I know that it can be forgotten.

I wish to explain some limitations to parliamentary privilege and the practice of the Houses as regards references witnesses may make to other persons in their evidence. The evidence of witnesses physically present or who give evidence from within the parliamentary precincts is protected by absolute privilege, pursuant to both the Constitution and statute. However, one of today's witnesses is giving evidence remotely, from a place outside of the parliamentary precincts, and as such may not benefit from the same level of immunity from legal proceedings as a witness that is physically present The witness has already been advised that he or she may think it appropriate to take legal advice on this matter.

Witnesses are also reminded of the long-standing parliamentary practice that 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, or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if their statements are potentially defamatory with regard to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with any such direction.

Members are reminded of the provisions of Standing Order 218 that the committee shall refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policies. Members are also reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

To assist our broadcasting and debates services, I ask members, where possible, to direct their questions to specific witnesses. If the question has not been directed to a particular witness then I ask the witness to state his or her name before responding.

I now call on the Comptroller and Auditor General to make his opening statement.

Mr. Seamus McCarthy

The National Shared Services Office, NSSO, provides a range of administrative support functions on a shared services basis for central government Departments and for certain other public service bodies. Since 1 January 2018, the NSSO has operated as a separate Civil Service office under the aegis of the Department of Public Expenditure and Reform.

The 2019 appropriation account for Vote 18 records gross expenditure by the NSSO of €47.5 million of which 60% or €28 million was on pay. The expenditure is distributed across four programmes. Three of these represent the direct expenditure incurred in the year in providing the target services: programme B relates to human resources functions, at a cost of €10.1 million in 2019; programme C relates to payroll shared services at a cost of €12.2 million; and programme D relates to finance shared services at a cost of €539,000 in 2019. System development costs for finance shared services in 2019, totalling €11.3 million in 2019, were charged to programme A, titled the NSSO function. This was the largest of the programmes at a total cost of €24.6 million in 2019.

There was also an underspend in the year of €9.8 million or 17% relative to the gross Estimate. This was mainly due to delays in the roll-out of the financial management shared service, which I will discuss in more detail in a moment.

Members may wish to note that the outturn on the Vote does not reflect the value of the payroll payments handled by the NSSO on behalf of its client bodies. These totalled €5.3 billion in salary and pension payments in 2019. The cost of the payments was charged back to the respective Votes and other client accounts.

I issued a clear audit opinion on the appropriation account. However, I drew attention to the statement on internal financial control, which discloses that the NSSO did not comply with national procurement rules in respect of a services contract that operated in 2019. Due to a misinterpretation, the NSSO continued to draw on the contract after the estimated value had been exceeded. When the misinterpretation was clarified, use of the contract ceased.

The report before the committee looks at the implementation of the NSSO's financial management shared services project. The project is a complex one as it aims to replace 31 disparate financial reporting systems across 48 central government Departments and offices with a single financial management system. At the point we were completing the report the project was significantly behind on delivery while costs incurred were considerably in excess of what was expected.

The business case, approved by Government in 2016, projected total expenditure for the project of €47.4 million, excluding VAT. To the end of 2019, the NSSO had spent €38.4 million, excluding VAT. The NSSO expected additional expenditure of €15 million in 2020.

Roll-out of the single financial system was planned to take place in several stages. The first group of client bodies was expected to start using the new system in the middle of 2018, with other waves of client bodies to follow. By September 2020, the new system was not yet ready for use.

A key deliverable for the project was the development of an agreed chart of accounts. This documents the accounts and account codes that an organisation requires for recording financial transactions. Agreement on a chart of accounts by the potential users of the financial system proved very challenging. While the original business case envisaged that a chart of accounts would be completed in late 2016, it was not signed off until 2020.

A large proportion of the work on the project was contracted out to a systems implementation partner. Disputes over the terms of the contract continued throughout the work on the project. In addition, a review by an external consultant completed in early 2019 identified significant design issues and weaknesses in the project governance framework.

As our report was being finalised in September 2020, a Government decision approved the continued development of the single financial system over an extended timeline to 2025. Additional funding was approved, bringing the total budget for the project to €115 million, including VAT.

I thank Mr. McCarthy. I now ask Ms Murphy-Fagan for her opening statement.

Ms Hilary Murphy-Fagan

I thank the Chairman and members of the committee for inviting me here today and for the opportunity to make an opening statement. We have provided the committee with detailed briefing materials. Therefore, I will keep my statement to the matters for consideration today, which are the appropriation account 2019 for Vote 18 - National Shared Services Office and chapter 5 of the Comptroller and Auditor General's report for 2019, which is titled Implementation of financial management shared services.

I am accompanied by Ms Kelly, assistant secretary and head of finance shared service operations, currently tasked with leading the financial management shared services programme, and Mr. Reilly, assistant secretary, who is our head of corporate services. I may, with the Chairman's permission, call on my colleagues to assist with the answering of specific questions committee members may have.

With regard to the appropriation account for 2019, I welcome the clear audit opinion given by the Comptroller and Auditor General in respect of Vote 18 for shared services, which is subject to review today. Since the NSSO was first established on an administrative basis in 2014, and on a statutory basis in 2018, I and my colleagues on the management board have worked to ensure the NSSO operates effectively and efficiently as the service organisation to the Civil Service and that the use of public resources is scrutinised and optimised to ensure best value for money for the Exchequer.

The office has recorded a surplus of €9.846 million for the financial year 2019, as indicated in the appropriation account on page 7. The sum of €1 million of this underspend was carried forward for use in 2020, as provided for under section 91 of the Finance Act 2004, leaving a surplus of €8.82 million to be surrendered to the Exchequer. This surplus arises primarily with regard to new programmes of work, with existing operations tracking close to budget. These new programmes are significant, complex and transformational. Decisions around project pace and delivery must be managed by the NSSO to ensure an acceptable level of risk.

I would now like to address the Comptroller and Auditor General's report of 2019, chapter 5 - Implementation of financial management shared services. The committee will be aware that while financial management is progressing towards deployment, it has not yet been implemented, whereas the NSSO has successfully implemented and is delivering HR and pensions administration services since 2013 to 38,388 civil servants and payroll and travel and expenses services to 144,266 payees. As well as servicing civil servants, the NSSO pays the Defence Forces, members of the Garda and 60,000 pensioners. In 2020, the NSSO was responsible for the payment of more than €5.5 billion, that is, €4 billion in salaries and allowances to serving civil and public servants and €1.5 billion in pensions to retired civil and public servants.

I have provided the committee with a copy of the report of an external review of the savings achieved by HR and payroll shared services to date, which identified savings of €54.2 million during the three-year period of 2016 to 2019. This has been independently verified and equates to some €13.6 million per annum. These services have delivered, and continue to deliver, value for money for the taxpayer and Government.

Finance shared services will use greater automation to produce standard accounts and management information for the annual appropriation accounts and central finance reporting for Government, and will eliminate the significant manual effort required to meet reporting requirements. The complexity lies in bringing all payment processing, Exchequer accounting and finance and accounting administration for all Government Departments to a level of standardisation supporting international accounting standards and reporting necessary to enable financial and fiscal reforms.

The requirement for a modernised single integrated financial platform for central government and for more timely and comprehensive reporting on an accruals basis, has been referenced extensively, both internationally by the International Monetary Fund, IMF, and the OECD, and here within the Committee of Public Accounts. This programme will deliver a platform for both cash and accrual accounting with increased automation for reporting. The extensive reforms resulting from this process design and a single harmonised chart of accounts that will be delivered as part of the finance shared services programme, together with the supporting technology infrastructure, are key enablers for the enhanced reporting framework. This programme commenced in 2016 and although it is now making good progress, its implementation has taken longer than the original ambitious plan, primarily due to underestimation of the work required to bridge the gap from the current predominately cash accounting system to build a comprehensive system in compliance with international standards.

While acknowledging that it has taken longer to get to this point, changes are not unusual in these large complex enterprise projects in either the public or private sector. Indeed, the potential for a delay of up to two years was anticipated in the business case. The breadth and depth of work necessary to deploy this programme has turned out to be significantly more challenging than originally envisaged, but the programme has now remobilised under an updated timeline and budget that has been approved by the Government.

I would like to make a number of other comments regarding specific points within the chapter. Controlling costs is critically important to the NSSO. The expenditure associated with this phase of work had already been reviewed by the Comptroller and Auditor General’s office as part of its annual audit for 2019. The Comptroller and Auditor General makes reference in his report to expenditure of €10.3 million, which he states was potentially avoidable. This expenditure includes ongoing project costs. It also includes a critical and extensive review of the system design, external factors such as data protection developments and increasing cyber-risk and changes in the banking arrangements for the Paymaster General. This involved a detailed risk assessment of all aspects of the programme and the presentation of alternative solutions in early 2019. Every effort was made to minimise costs during this time.

With the help of expert advice, the programme team identified four critical issues to be addressed as follows: necessary design changes and enhancements, key design decision-making authorities, stronger technical and programme management support and agreement with the systems integration partner. The outcome of this review, which took several months to conclude, is a fully approved design agreed by the design authority comprising of finance officers and the senior user, which was the essential foundation needed for the programme to move forward. The design also incorporates extra build requirements. There are now enhanced governance structures in place across the programme. The programme risks have significantly reduced.

Following the completion of the review in the latter half of 2019, the resumption and remobilisation of the programme commenced. This was further impacted by delays in 2020 due to the pandemic, as the ways of working had to be adapted to remote working with access and additional security measures needed. The programme planning had to be adapted. This required further investment to enhance the security of the system.

A Government decision in September 2020 approved the continued deployment of the finance shared service system over an extended project timeline to 2025. It also approved additional funding based on the enhanced design, bringing the total approved budget for the project to €115 million, which includes some €20 million in VAT. A sum of €54 million, including VAT, was approved under the Government decision in 2016. At that time, the business case also considered the potential where the programme could require an additional two years. The direct programme costs, including VAT associated with that time-delayed scenario, were forecast at €72 million. The additional expenditure approved is being used to modify and enhance the technology solution delivered, manage the capability risks and take a more realistic timeline to prepare and bring Departments onto the new system based on lessons learned.

The Comptroller and Auditor General included two recommendations in his report. With regard to the first, I can confirm to the committee that a revised plan and costings for the implementation of the solution and deployment to the first wave of clients has been agreed, and a revised budget and indicative timeline for the programme has been approved by Government. The Departments and offices in the first wave include the Department of Finance, the Exchequer, the Office of the Ombudsman, the President's Establishment, the Department of Public Expenditure and Reform, my office, that is, the Office of Government Procurement and the Office of the Comptroller and Auditor General.

Detailed engagement is under way with the client Departments and offices, including the Office of the Comptroller and Auditor General, to support their preparation for changes in ways of working.

Regarding the second recommendation, the NSSO has completed an extensive design review process, during which it engaged with Departments and working group representatives. The NSSO is also engaging closely with advisers to the Department of Public Expenditure and Reform to ensure that the solution design will cater for all public sector accounting standards. Despite the many challenges encountered during the pandemic, this revised programme is well under way and has already passed a number of required planned stage gates.

Shared services are transforming and contributing to the modernisation of critical functions and services in the civil and public services. Shared services free up resources to support core Government services and priorities for front-line services. They are creating capacity to increase strategic capability in HR, payroll and finance to support the Government and the workforce and workplace of the future. By operating a single standard way of working, the NSSO is able to support Civil Service leadership in responding quickly to new and emerging fiscal and financial requirements and changes such as the formation of a new Government or accounting, pay or tax changes, for example, PAYE modernisation.

In summary, I am confident that the actions taken to manage the risks in the finance shared services programme were the correct ones and will result in an enhanced overall reporting and finance system for the State and the whole of Government. This transformation programme has certainly given us an opportunity to learn from mistakes and improve on programme and risk management. The new system will consolidate all central government accounting. It simply has to be right. It will also standardise the way we interact with our suppliers, many of them small and medium enterprises and the Government will for the first time have a single central payment solution for all suppliers.

Before I conclude, I wish to take this opportunity to acknowledge and thank my staff. Throughout the Covid-19 pandemic and despite the challenges of moving to remote working arrangements and the personal impacts of Covid, they have ensured that all essential services continued to be delivered and that this programme continued to progress. Committee members may be aware that the NSSO assisted the Department of Social Protection by providing a helpdesk service for pandemic unemployment payment customers during times of acute need in April, July and November. I also thank the members of the NSSO's advisory board, the financial management share services, FMSS, programme board and our other boards and committees for their continued support and the time they have given generously to assist the delivery of this ambitious programme of change.

That concludes my opening statement. I will answer the questions that members of the committee may have.

I thank Ms Murphy-Fagan. I will first call Deputy Hourigan, who has 15 minutes. She will be followed by Deputy McAuliffe, who will have ten minutes. Everyone else will have five minutes. I must keep members to their times because I want to ensure that everyone gets to contribute.

I thank the witnesses for their time. We just heard that the NSSO was originally projected to complete the FMSS project by June 2020 with a total expenditure of €47.4 million. The current budget, with additional approved funding, is €115 million and the completion date is 2025. Will the newly approved €115 million be the project's final cost?

Ms Hilary Murphy-Fagan

I thank the Deputy for her question. The cost of the programme in 2016 was €54 million, including VAT. The figure of €115 million also includes VAT. When the programme and business case were developed in 2015 and approved by the Government in 2016, it was considered that a delay in the programme was possible and, therefore, that the cost of the programme could be €72 million, including VAT. That delay has now-----

I accept that, but that amount is quite far from €115 million and a delay of two years is different from a delay of five years. Will €115 million be the final cost?

Ms Hilary Murphy-Fagan

I believe that that will be the case after we have done all the work on the programme.

What is the updated payback period and what will the overall cost saving of the FMSS system's implementation be for the taxpayer?

Ms Hilary Murphy-Fagan

The overall benefit to the taxpayer goes above and beyond cost savings. The original business case identified that cost savings in the range of €15 million per annum would be realised when FMSS was fully implemented. As I explained, however, the benefits go far beyond the savings to the taxpayer thanks to the significant implementation, the enhancements, the opportunities for international accounting standards, the introduction of a dual accounting system, central financial reporting and more information being available than is the case currently.

I take that point and I welcome the move to accrual accounting and an overview of all Government spending. That will be useful. I wish to ask about the disruption to the project in 2018. Will Ms Murphy-Fagan outline what that interruption was? The project is being run in partnership with a private provider. Will she outline how that partnership interacted with the 2018 interruption?

Ms Hilary Murphy-Fagan

In 2018, the programme identified that there were a number of risks. Those risks were being tracked. In mid-2018, the programme decided that they were increasing rather than decreasing. A decision was taken that, rather than to proceed with the original timeline and start the testing of the system, the project would pause, reflect and review exactly where it stood and what issues were outstanding. That work commenced-----

I am sorry, but could Ms Murphy-Fagan decode that for me? What risks were there?

Ms Hilary Murphy-Fagan

This is a complex programme and it has an industrial risk management process that flags where items are behind schedule and there are quality concerns. In a programme of this scale, these are normal risks that are managed, but in this case they were increasing rather than decreasing. A decision was taken at that stage that, rather than pushing ahead with the timeline for users to commence testing the system, we would pause, examine the system and the issues and understand better what the concerns and issues were that remained to be resolved. That work commenced at the end of 2018 and took until mid-2019. During that time, a detailed review of all the open concerns and issues in respect of the system's design was carried out with subject matter experts from many Departments. There were multiple workshops, an examination of the issues and consideration of what needed to change in the design in order to address the concerns.

It is now clear that the programme originally underestimated the level of change in standardisation that was required to move from a cash accounting system to an accrual accounting one. That was the fundamental issue. There was also another matter-----

I thank Ms Murphy-Fagan. That response was useful. She outlined a number of issues relating to system design and being behind schedule. Would she locate the disruption in her office or with the private provider?

Ms Hilary Murphy-Fagan

It was not that simple. Multiple issues arose during the review. It was not simply a matter of there being a single concern. Multiple factors arose as a result, one of which was that the original-----

Ms Murphy-Fagan is probably going to ask what my direct question is. She stated that, when the NSSO tendered for this project in 2016, the risks were underestimated. Is it that the NSSO underestimated them or that the private provider underestimated them in the tender?

Ms Hilary Murphy-Fagan

Again, it is not as simple as that. When the original tender went to market, it detailed a large list of requirements that would be sought from the technology solution, but what was not completed at that stage was the design of how meeting those requirements would be implemented. When the solution-implementing partner joined, there was some discussion around the design and a difference of views on same. This was a fixed-price, fixed-time and fixed-goal contract. It was difficult to lock down the design at that stage, but it was not a case of one versus the other.

There were also additional issues arising in relation to the design decision-making. There was no single authority available to make the decision in relation to the design. The governance structure was there. It was advisory in nature and so it allowed things to fester rather than actually close out and get locked down.

The project was tendered in 2016 with a fixed price value of €30.4 million. How much of that contract has been delivered to date and what is the anticipated value of the contract on completion in what I presume will now be 2025?

Ms Hilary Murphy-Fagan

The expenditure against that contract to date is some €22 million. With each wave that will be carried out, there will be a document that details exactly the responsibilities, activities, processes, timeline and tasks. They are all documented in great detail and that determines the activities and, therefore, the cost of each wave and phase. At the moment, we are focused solely on getting wave 1 live. The common solution we will all use will go live and we expect the technical solution will be available at the end of this year. That will allow us, for the first time, to start to on-board the clients that I have called out in the first wave.

The NSSO must have an assumed contract value now considering the delays and the increase in value.

Ms Hilary Murphy-Fagan

There is a fixed price for the work that is going on at the moment. Obviously, that is the work we are looking at to bring the common solution live at the end of this year, which is for wave 1 clients.

I do not mean to cut across Ms Murphy-Fagan but, by 2025, how much higher than the €30.4 million being paid to the private provider will we go? Does she know that?

Ms Hilary Murphy-Fagan

At this point in time, we have to look at the work required for each wave and, therefore, what the price will be for each wave. It is difficult for me to give an answer to that question at this time.

If that is the case, we cannot necessarily say that the €115 million will be the final cost.

Ms Hilary Murphy-Fagan

I believe the estimate that we have there is sufficient to cover what will be the cost. I may not be clear. As the solution that we will bring live at the end of this year is the common solution that will be used by all of us, a lot of the cost in relation to this programme is front-loaded because a lot of the technology and the solution is done upfront. Most of the cost is actually borne to bring the common solution live. What will remain there will only be customisations that are unique and required for specific Departments at that point in time. To answer the Deputy's point, we are not expecting any surprise in relation to cost later on. Most of the cost is then involved in cutting over Departments and bringing them onto our system. There are smaller amounts of customisations that will be required for Departments in later waves.

I hope that is the way it plays out. Are there any disputes ongoing with the NSSO's project partner in terms of the tender or the contract?

Ms Hilary Murphy-Fagan

There are no disputes at this time.

I am very happy to see a move to accrual accounting. Have any Departments not agreed to use the new system?

Ms Hilary Murphy-Fagan

No. It is quite the opposite. We have got extremely strong support for this move. It has been a very complex change and a very complex programme to manage but because of the longer time it has taken, the level of engagement and collaboration has been very strong. The design is now locked down fully and that is with the finance officers for many of the Departments. When we returned to the Government for approval we got the full support of Cabinet to proceed with this.

For clarity, every Department will be signed up to this system by 2025.

Ms Hilary Murphy-Fagan

That is correct.

I am not sure how much time I have but if I could move to-----

The Deputy has just over three minutes left.

I have enough time to talk about data protection. The NSSO deals with the personal information of more than 180,000 individuals within the public and Civil Service. That involves a lot of personal data such as PPS numbers. Have there been any breaches of data protection in 2019 and during the pandemic?

Ms Hilary Murphy-Fagan

Yes. Given the sensitive data that we hold in our systems and that we transact, data protection is absolutely paramount to the business of the NSSO. Every staff member in the NSSO, me included, takes data protection very seriously. We had some data breaches during 2019 and 2020 but I am pleased to inform the committee that the number of data breaches continues to reduce year on year. The numbers of data breaches reported to the Data Protection Commissioner, DPC, were 27 in 2019 and five in 2020. These are data-----

Could Ms Murphy-Fagan expand on the types of data breaches?

Ms Hilary Murphy-Fagan

Regarding the most common and most frequent type of data breaches, it is important to note that nothing has ever been released into the public. Nothing has ever been released externally. They are unintentional. For the most part, a breach occurs where a record or file is sent to the wrong Department's human resources, HR. It is internal and while we are all officials within the Civil Service, we still define that as a breach. As I said, the trend continues to improve all the time. We have a data protection team. We have data protection compliance officers. Training twice yearly is compulsory for every staff member in the NSSO.

Has the NSSO been audited by the Data Protection Commissioner?

Ms Hilary Murphy-Fagan

No. That has not occurred. Initially, when shared services was an administrative office within the Department of Public Expenditure and Reform the Data Protection Commissioner did work with the administrative unit at that stage but since the NSSO was established in 2018, we have had no requirement to have any audit carried out.

Ms Murphy-Fagan has referenced remote working. I believe home working will stay with us for some time after the pandemic. Does it pose a challenge to the NSSO and how is it dealing with that? What measures is it putting in place for that?

Ms Hilary Murphy-Fagan

Like everybody, at the moment over 90% of our staff are working remotely. Those who are in the office are there because we have processes that cannot be carried out at home. It does pose a challenge for people but I have to say the response of the staff has been absolutely fantastic. We have had fantastic commitment from all of our staff around the country to continue to provide the services. Initially, when it happened-----

As it relates to data protection.

Ms Hilary Murphy-Fagan

Certainly. We have actually seen a decrease during 2020. As I said, we have had fewer data breaches in 2020 than we had in 2019. From a data protection point of view, the system access that staff have in their own homes is as if they are in the office. The network is protected regardless of whether they are working in the office or working at home and we use special IT equipment to ensure that happens. We also have a data protection compliance officer and a data protection team that are constantly monitoring and checking. In the event that we have a data breach, we have very strict procedures that it is reported immediately to whichever Department owns the data because the NSSO is the data processor. It is not the data controller so any time there is a data breach we always inform and fully comply with all the requirements.

Annoyingly, Deputy Hourigan covered almost all of the questions I had intended to ask. I apologise if I come back to some of her questions, although I might come at them from a different angle. I want to first accept the ambition of this project across many different Departments, touching not just on technology but also on work practices. I have no doubt it is a significant undertaking. Equally, from the perspective of the Committee of Public Accounts, members of the public look to the committee to explain significant deviations from budget and timeline. Ms Murphy-Fagan would accept that the cost increase from €47 million to €115 million and the extension in the timeline from 2020 to 2025 are significant deviations on both grounds. I accept part of the explanation she has given but Deputy Hourigan asked if it was a failure by the NSSO to identify the complexity in tendering or a failure on the part of the supplier in its tendering process. I will come back to that question because I believe it is the crux in terms of the difference.

Ms Hilary Murphy-Fagan

I thank the Deputy. It is important for the committee to understand that the scope of what is now going to be delivered is significantly different from what was originally envisaged. It is important to understand also that things have changed substantially since the original business case and Government approval for this programme in 2016.

That relates to the move to a dual accounting system and the formal approval by Government to adopt international accounting standards and the central financial reporting reform, which it is now embracing and is required to roll out following the OECD and IMF review.

What was originally tendered for, in terms of the scope and level of ambition in 2016 compared with where we are now and what the integrated solution will provide, is significantly enhanced. Therefore, the scope of what we are looking at is very different. That is what has created the additional cost.

It is not necessarily the delay in the delivery of product A. In fact, it is perhaps product B with greater enhancements.

Ms Hilary Murphy-Fagan

There are enhancements. Obviously, time is cost in the context of a programme like this and the Civil Service costs for my staff working on the project have increased because the programme has taken longer. We always envisaged that would be the case.

Does Ms Murphy-Fagan believe that the identification of the chart of accounts was part of the process of identifying how complex this was and how the response needed to be broader and, therefore, more expensive?

Ms Hilary Murphy-Fagan

Absolutely. The chart of accounts was pivotal to this. I will try to describe it. It is like starting to build a house with two bedrooms, wanting to extend it to include new rooms upstairs and downstairs and then discovering that the steel support system for the house is not in place. We had to make sure that the foundations were really solid before we took things forward. I took external advice on this. A number of experts gave us their views because, clearly, the options we were considering involved value for money and what were the most economically advantageous for the public service. We considered this, but the options were limited. We could have continued on against the timeline and let the system go live, but all of the best advice I received since stated that would have been the wrong thing to do because we would have been trying to, in effect, fix an aeroplane in flight.

I accept that may have been the better decision, but it does not explain the deviation from the initial budget and timeline. I accept Ms Murphy-Fagan's statement that she took external advice. When that advice was given to her and the fixed price contract was agreed, surely the level of complexity had been explored and understood? Across all of the organisations she spoke about, it was almost inevitable that the chart of accounts would become such a complicated web.

Ms Hilary Murphy-Fagan

It was understood that there was a level of complexity, but we are talking about 48 different Departments and offices that do not currently have a single chart of accounts. They do not operate on the same standard chart of accounts. That was one aspect of complexity, but the other aspect we underestimated was the move to introduce accrual accounting. We designed a chart of accounts, but it was not designed sufficiently to allow us to bring accrual accounting live. That decision was taken by Government in 2019, so it followed the decision in 2016 when we started this programme.

The Deputy asked where else the costs arose. Additional requirements emerged. For example, legislation relating to the GDPR was enacted in 2018. While it was on the horizon, we did not fully understand the complexity of operating a master supply or database and making sure that supplier data from each Department and office was protected. There was an awful lot more complexity than was originally envisaged which I do not believe anybody could have anticipated at that point in time.

On cybersecurity, I am sure the Deputy and the committee are aware that it is an area that is constantly changing and evolving. We always have to respond to and be ahead of that. We also had to invest significantly more in cyberspace than we would have originally understood and could have anticipated in 2015 and 2016 when the original Government decision was taken.

Was it the case that the person implementing the programme - or perhaps the NSSO - was too compliant with the requests of the organisational Departments? Were the demands for customisation and re-categorisation part of the issue? Could the NSSO have been more rigid and, as a result, reduced the level of complexity involved?

Ms Hilary Murphy-Fagan

Departments and offices are coming at this from the vantage point on the basis of which they currently operate. We are sitting in the middle, looking at what is required for the future and not just today. We are trying to find and build a single standard solution that everybody can use. From an NSSO point of view, one of the weaknesses we identified was in our governance structures. We had a design advisory group and asked for its advice, but we did not have the final decision-making authority in place. That is now in place in the form of the senior user from the Department of Public Expenditure and Reform, where Government accounting sits. In order to get that design fully locked down and signed up to the chart of accounts, there were very intensive workshops during which the head of Government accounting, the NSSO, the finance officers from the Departments and an external chair spent three days locked in to look at the design and finally agreeing to the full single design.

Does Ms Murphy-Fagan reject the accusation that there was project creep?

Ms Hilary Murphy-Fagan

I would, because what we have is still a modern integrated financial management system. Obviously, the landscape, challenges and requirements have changed and we have to respond to them now.

I have a final question which is a little bit out of left field. In the shared salary service provided by the NSSO, one of the Departments involved is the Department of Education. This committee has heard that more than €2 million was spent on posting payslips to 130,000 civil servants. We have been given very vague timelines on when it will be possible to change that. Can Ms Murphy-Fagan confirm that her organisation operates that system on behalf of the Department of Education? If it does not, that is fine. Is removal of the postage requirement on the horizon?

Ms Hilary Murphy-Fagan

We provide services to the Department of Education, but we do not provide services for all of the teachers around the country. That work is carried out within the education sector.

Is there a reason the NSSO does not do it?

Ms Hilary Murphy-Fagan

No, except that the scale, scope and requirements as they relate to terms and conditions would not necessarily allow us to do what we do, which is already at a scale of 145,000. Taking on all of the teachers does not make sense. There would be a consolidation of risk. The Department of Education runs and manages the payroll for all of the teachers in the country. My office manages all of the payroll, time and travelling expenses, overtime and allowances for the Civil Service, retired civil servants, the Defence Forces and the Garda. We actually have scope around the various sectors.

The cost to the NSSO for postage during 2019 was €32,000 and the cost to the Department of Justice was €160,000. That relates to the current Garda payroll. The cost exists because it is sitting on a database that needs to be upgraded. We have plans for upgrading it later this year. That will allow it, for the first time, to have the facility to use online payslips. It will eliminate the need for postage.

It is important that the committee notes-----

I will let the Deputy back in. I have to try to bring in the rest of the speakers.

It is worth the committee noting that one sector of Government has 130,000 employees and incurs about €200,000 in postage while another arm of Government employs 130,000 public servants and spends €2 million on postage. That is worth reflecting on in the context of our conversation with the Department of Education. I thank the NSSO for its contribution today.

I thank the NSSO for its presentation. How many of the 31 legacy systems are still in place? What is the up to date situation regarding their closure? Do we have to wait until 2025 until everything is under the one system?

Ms Hilary Murphy-Fagan

All 31 systems are currently in place because each of the Departments and offices currently carries out finance accounting on those systems.

When our system goes live at the end of the year, we will start to bring tranches of Departments onto our system in groups or clusters. When their systems cut over to ours - we convert and transfer their data onto ours - and we start to provide the services, the systems that exist today will effectively be retired. They may be retained for a short period to access historical data, but effectively they will no longer be used.

All 31 systems are still in place.

Ms Hilary Murphy-Fagan

They are all still in place because the NSSO is not yet providing finance shared services and work is going on to get us into a place where, at the end of this year or the start of next year, we can start to provide such services to Departments.

Ms Murphy-Fagan referred to 60,000 pensioners. Is it possible to fast-track the process by taking the pensioners out of each area and bringing them all into the new system or does it have to be gone through Department by Department?

Ms Hilary Murphy-Fagan

The pensioners are not really affected by the finance shared service programme. We already provide payroll services to pensioners within our office as it is. To a large extent, it will be seamless to our pensioners and they will not see any difference. We currently pay our 60,000 pensioners. They have access to online payslips which they can access remotely from their homes or even if they are overseas. We write to them once or twice a year if there are any changes in relation to their payroll. The finance and accounting system is effectively the payment system to suppliers for goods and services to the Government and it also provides the Exchequer accounts and effectively the statement of the Exchequer. Our system will provide that in the future.

Ms Murphy-Fagan said there would be a saving of €54.2 million. Do we have a breakdown of that saving?

Ms Hilary Murphy-Fagan

We do. We commissioned an external review of that. When I was before the Committee of Public Accounts a number of years ago, I gave an estimate of the savings and at that stage, the committee asked me to have that externally validated. That report was issued in the brief to the committee before today. The breakdown of that is between HR and payroll shared services to date. Both have delivered significant savings and value, as was forecast. The benefits go beyond the cost savings to the taxpayer. There are significant additional savings in the fact we now provide a single HR and payroll shared service. We are on single standard policies. The application of those policies is done in a single way. The access to information and data analytics for Departments for decision-making is all now available. We have a digital presence in all those Departments.

In relation to the healthcare service sector, we brought forward modernisation and computerisation. We are now already at the stage we expected to be at in 2025 because of Covid. Is it possible to fast-track some of this work and bring it forward a year or two in view of the fact that it has been achieved in the healthcare sector?

Ms Hilary Murphy-Fagan

The good news is that HR and payroll shared services is working effectively. It is live and as our staff can access services remotely, they already can go online to carry out various requirements, such as booking annual leave or booking a travel pass, if they were travelling. Of course, they are cancelling those at the moment. If they want to take maternity leave or parental leave, all of that can be done online. We implemented that for HR in 2016 and we completed it for payroll in 2017. Thankfully, all of that is already in place. We are just upgrading those systems but the users all have access to those services currently.

It is about fast-tracking it. Is it possible to fast-track it?

Ms Hilary Murphy-Fagan

As it relates to HR and payroll, we have quite ambitious timelines for upgrading the existing systems, which will improve the quality of service to our customer base of 145,000 payees and 38,000 recipients of HR services.

As it relates to finance shared services, which is in a separate system of finance and accounting services, I believe we have quite an aggressive and ambitious timeline based on the work going on currently and I do not believe it would be prudent for us to fast-track it any more than we are doing. We are on a path of work that takes 13 months to complete and that will complete by the end of this year. That will allow us to start onboarding the Departments and allowing them to shut down their systems.

I return to the issue of the financial management shared services platform, which is really important. The NSSO came out of the Department of Public Expenditure and Reform. As that Department is charged with ensuring value for money and efficiencies within the public service, a situation where a project within that Department has ballooned in cost from €47.4 million to an estimated outrun of €115 million gives cause for concern. The NSSO was under the Department of Public Expenditure and Reform but, from my reading of it, was given its own Vote because of the spiralling costs involved. The purpose was clearly to try to achieve cost savings for the taxpayer by pooling administrative costs. One of the issues highlighted in vindicating the need for this was that the budget of €47.4 million would be recouped in savings over all Departments within 9.1 years. We now have a budget of €115 million. What is the estimated time for that figure to be recouped in savings?

Ms Hilary Murphy-Fagan

As the timeline has been pushed out, the timeline for payback is longer than originally envisaged. My understanding is it is probably 11 or 12 years rather than the original estimate. It is important to point out again that the benefits and savings from HR and payroll shared services are clear and evident and we expect the same when it comes to finance shared services.

Can Ms Murphy-Fagan not give a specific timeline? It was fairly specific in terms of the opening vindication of 9.1 years but there is no correlating figure now for the €115 million costs.

Ms Hilary Murphy-Fagan

There is but at this precise moment I cannot think of it. I will come back and confirm that to the Deputy.

Okay. Ms Murphy-Fagan answered Deputy Hourigan to the effect that all Government Departments will be under the remit. Will that include the Department of Agriculture, Food and the Marine?

Ms Hilary Murphy-Fagan

The Department of Agriculture, Food and the Marine is in scope but the complexity is that that Department's EU Common Agricultural Policy, CAP, programme has very complex rules. Were they to be replicated on our system, we would have to ask the question of the value for money in that. The solution will be different for that Department than all other Departments. We will consolidate their accounts on our system but we have not worked out the technical solution to that at this point.

I have no idea what that response means. The Department of Agriculture, Food and the Marine accounts for 75% of the customisations in existing platforms so one would think it has the greatest potential to yield savings through the NSSO. How will that work in practice? The estimated savings, if the NSSO is not rolling out the financial management services from the Department of Agriculture, Food and the Marine, will again be impacted.

Ms Hilary Murphy-Fagan

The Department of Agriculture, Food and the Marine currently runs such a complex system that a decision was taken regarding the strategic value of it migrating everything onto the NSSO. We have decided to consider what is the best way for that Department to get value and for us to deliver value.

If the Deputy were to ask me that question as we move along the waves and progress the transition, I may be able to give him a more specific answer on the technical solution but it will clearly be in scope.

Perhaps we can ask for a written detail of what the current vision is for this. Concerns were raised at various points of the initial stages by the Office of the Government Chief Information Officer, the Office of the Chief State Solicitor and the Office of Government Procurement. All of these concerns appear to have been either dismissed or ignored. Does Ms Murphy-Fagan accept now, considering that we are looking at such inflated costs, from less than €50 million to €115 million, that it might have been prudent for some of these concerns to have been taken more seriously at the time?

The time is up so I ask Mr Murphy-Fagan to keep her answer brief and to the point.

Ms Hilary Murphy-Fagan

If we were implementing the system that was envisaged back in 2016, I would accept that the cost had changed but, again, I have to say that the solution we are implementing now is significantly different, significantly enhanced and will have far more functionality and automation than was ever considered originally, as well as being a dual accounting system. I do not believe we are comparing apples with apples.

I welcome Ms Murphy-Fagan and her colleagues and Mr. Costello from the Department of Public Expenditure and Reform. In terms of the number of overruns over the years, on which some of the questions have already been asked, I note the National Shared Services Office was established in 2014 after a Government decision in 2012, it officially commenced in 2018 and this project was given a green light in January 2016. Colleagues have asked about the new target date nine years after the original indication that this financial management shared service would be established. It is a considerable delay, Covid or no Covid. I accept what Ms Murphy-Fagan has said in her responses thus far. I note it is a mammoth task to amalgamate the 31 different systems. How old and varied are those systems that the office is trying to amalgamate? I note what Ms Murphy-Fagan said earlier in response to another question about the staff who are already working in the various Departments. What are the old systems on which they are operating?

Ms Hilary Murphy-Fagan

I thank the Deputy. As I have called out and as is in the chapter, there are 31 different financial management systems. They range in age and functionality. Many of them are legacy systems. The external independent view of these systems is that if they were all to be upgraded to continue in a stand-alone way without a single common chart of accounts, which is essential to deliver financial reporting reform and introduce accrual accounting, the cost to the Exchequer would probably be somewhere in the region of €40 million to €80 million. There is quite a significant range of technology upgrade and this was never factored into the original business case but it is-----

It was not factored in.

Ms Hilary Murphy-Fagan

No, it was not. That sum was not included. However, things have moved on since then. To the Deputy's point, the programme is being managed in a very robust way but given the complexity, it has to be taken in a stage by stage way. When it was started, a feasibility study was carried out. This indicated that there was a case for considering moving to shared services.

I accept that. I am sorry but I have limited time. Will Ms Murphy-Fagan give us an indication on the number of years? She might come back to the committee with the years to which those older systems date back. That would be important. I want to pick up on something. Ms Murphy-Fagan mentioned the external reviews. I note there were several of them, in May 2018 and in February and May 2019. Does Ms Murphy-Fagan have the costs for each of these?

Ms Hilary Murphy-Fagan

Different pieces of work were carried out. One was to look at what the design issues were. Another piece looked at how the governance structures were working.

Does Ms Murphy-Fagan just have the cost of each of these reports?

Ms Hilary Murphy-Fagan

A range of work was carried out so it was not about a single piece of work. A number of pieces of work were carried out during that year.

I accept that. Again, Ms Murphy-Fagan might come back to us with the cost. It seems that today is all about costs. I accept the system is complex and that deadlines are moved but the sheer volume of costs we are speaking about is phenomenal. Ms Murphy-Fagan might come back to the committee on this.

I want to turn to fraud. Internal fraud of €30,500 was detected in 2019. It took place in 2018 and 2019. Has that money been recouped yet?

There is one minute left.

Ms Hilary Murphy-Fagan

That particular case is the subject of legal proceedings at present. The money has been secured but I would rather not comment any further on it.

That is no problem.

If I can, in the last minute of my time, I will ask a question of the Comptroller and Auditor General and the Department of Public Expenditure and Reform. I understand improved internal controls have been put in place in the NSSO and I note the Comptroller and Auditor General meets the NSSO's audit and risk committee once a year. Perhaps the Department and the Comptroller and Auditor General might inform us as to whether the internal controls have improved from their perspective.

Mr. Seamus McCarthy

We understand the controls have been put in place and we will look at their operation again in 2020. My expectation is that the problem has been dealt with.

Mr. Fergal Costello

The Department of Public Expenditure and Reform understands the matter has been addressed within the NSSO. We have our own separate governance arrangements with the NSSO and we are putting in place a service level agreement that will give us an opportunity to check in and engage with it on issues arising and make sure it addresses any issues that cause concern.

I thank Ms Murphy-Fagan for attending today's meeting and for her contribution so far. Earlier, she spoke with Deputy Carthy about the various systems and how they have evolved over time, and said that to compare the two really was not to compare apples with apples. I do not have a background in accountancy or accrual accountancy. Will Ms Murphy-Fagan explain to me the new system and its practical benefits and functionality? How has it been enhanced over time? What can users expect to get from it in a practical way?

Ms Hilary Murphy-Fagan

The policy sits within the Department of Public Expenditure and Reform so the NSSO is implementing the decision of that policy taken by the Minister. From a simple point of view, our current system of accounting is cash accounting. It records cash in and cash out. It is a very simple way of recording transactions. When we introduce the second system, which is the accrual accounting system, effectively it will record a cost as it arises and not necessarily record it when it is paid. This is quite a different system from the one we currently operate. While we have had some level of accrual accounting to date, we do not have it as a dual accounting system. What it will mean for the Government primarily, and for the State, is that it will give us a bigger view of commitments that are falling due. It is a little bit like the opposite of prepayments. It will look at what payments will fall due but have not yet been paid, as well as giving the Government a better understanding of the assets and liabilities from a balance sheet point of view. Does that help?

It does and I thank Ms Murphy-Fagan. Is there anything Ms Murphy-Fagan wants to expand on? She said comparing the systems as they evolved really does not compare apples with apples. Is there anything on which she wants to elaborate or is she happy?

Ms Hilary Murphy-Fagan

Yes. Accrual basis accounting requires a very different structure in the chart of accounts, which I explained earlier. Effectively, this is the whole structure and foundation of how all finance data are mapped and recorded. This was the fundamental difference. We did not understand or anticipate the significant change to it that would be required. We do now and this is the work that was carried out at the end of 2018 and 2019. It is now being implemented. I believe it has been fully addressed. I believe that what we are implementing is an integrated financial management solution that will serve the State for generations to come.

We are moving from a very outdated legacy cash accounting system, that was introduced, I believe, sometime in 1866. It is quite a simple way of accounting. The new system will give us far better information and a better understanding of where we are at.

Will that system provision the answers to questions if someone wants to conduct a real-time analysis of the exact number of full-time equivalent or part-time positions? Will it be possible to track that from this system as well? I recall an incident in 2011 in the Department of Health that blew my mind. It related to trying to track people in the HSE. What happened has always stuck with me. Is this something that will provide a read on personnel as much as the financial obligations of the State?

Ms Hilary Murphy-Fagan

Certainly, that data will be available as it relates to the pay bill that is uploaded into the ledger - the accounts for Government. That information is already available from the NSSO because of the services we currently provide. We provide services to more than 38,000 civil servants and we have 145,000 payees. We have that information already.

I will ask just two further questions.

The Deputy has one minute left.

I was going to ask about cybersecurity but I might leave that for the moment.

In terms of the staff blend, in 2019 Ms Murphy-Fagan had 750 staff. When this work is completed, how will the staff in her office transition? What will be the new arrangements, will their roles change or how will it work over time?

Ms Hilary Murphy-Fagan

First, we will need more staff. When finance shared services is fully up and running, we will have to recruit more staff to carry out that work on behalf of Departments. Within the NSSO, we currently have three divisions. We have employees' shared services, which is responsible for all HR and payroll services. We have our corporate service division in the centre. When finance shared services commences operations, it will be the third pillar. What this means for the NSSO and the work it does is that, effectively, what we will have to do will be to integrate all of the systems behind the scenes. As data flows from the HR system through the payroll system and into the finance system, we will have to connect all those systems together. To date, those big clunky legacy systems have not been connected. They have not needed to be connected but they will now all be automated and connected.

The second thing it will mean is that we will have, for the first time, a single payment source of information because all of the suppliers that are paid by Government will be on our systems going forward. This is a significant automation and enhancement of procurement information. At present, it requires a large manual effort to gather information such as, for example, that which the Deputy inquired about in the context of full-time equivalents. One can imagine the significant benefits of having all of the suppliers on one system because we will make those payments on behalf of Departments and offices.

I thank everybody for coming in. I am mightily impressed. I am sure it will be one heck of a system. I have a question, however. In November of 2019, when addressing the Dáil, the Minister, Deputy Donohoe, quoted a figure of somewhere between €47.4 million and €62.5 million as a final estimate for the cost of the implementation. How did we get to €115 million in 14 months?

Ms Hilary Murphy-Fagan

First, we just want to compare the same data. The €115 million figure includes VAT. Straight away, if one excludes VAT, one is talking about €95 million - roughly there or thereabouts - for that estimate. That is an important comparator.

Second, the original business case was clear in that it anticipated, if the programme was delayed, because these programmes are difficult to implement, what the cost would be and that was the range that the Minister gave, I believe, in his response to the House at the time. That delay has now been realised. We are clearly at the point where the costs for the programme, for example, this pay bill for the staff working on the project, will be greater because they have been working on the project longer. There are some costs that are just overhead costs which, by virtue of the timeline involved, will increase.

The Minister also was asked for a breakdown of what had been received by the two advisory firms, which were EY and Deloitte. Combined, they had received €5.2 million. Are they still advisers? Is that ongoing?

Ms Hilary Murphy-Fagan

We have no advisers.

Did the NSSO take this model from a template, for instance, from another EU country or from another country outside the EU? Was there a model that the NSSO was working from?

Ms Hilary Murphy-Fagan

Finance shared services and having a single integrated financial platform exists in many other governments in other countries around the world. Ireland is not the first. We are not the first movers. In fact, the OECD report called out the fact that Ireland lagged in some aspects of its accounting in adopting those standards.

I appreciate that but the question is whether the NSSO based it on a template from another country.

Ms Hilary Murphy-Fagan

We certainly looked to reference the experiences of other countries as it related to implementing shared services.

What countries?

Ms Hilary Murphy-Fagan

There were many countries with which we consulted.

How does it relate from an efficiency perspective?

Ms Hilary Murphy-Fagan

Our finance system is not yet live but, I suppose, if the Deputy is asking me the question in terms of the programme itself, those countries that are more advanced in time than us would all say of their experiences that there were many challenges along the way and many lessons learned, but that there were also many advantages to doing it. That is clearly the message that we hear back from them.

I appreciate that, particularly because it seems that all Departments have a huge problem with IT. That has never been seen clearer than in what we are experiencing as a result of Brexit.

At the time, the Minister stated that he expected the savings would be €15.4 million per annum when this is up and running. Is that still the projected saving?

Ms Hilary Murphy-Fagan

We believe so. As each Department comes onto our system, we will validate the benefits with it. We will look at and quantify that benefit when Departments come over. We will be able to track the benefits and we will be able to report on that going forward.

Ms Murphy-Fagan stated that the Department of Education has continued its pay structure in respect of teachers. Did I hear her correctly?

Ms Hilary Murphy-Fagan

We will carry out the finance and accounting procedures for the Department of Education when it comes across to us. So as not to confuse matters in the context of payroll, the actual administration and payment of salaries will remain with the Department. Administration and payment of salaries is done by the Department for all primary and secondary schools. That is done in Athlone and that is where all salaries for teachers are administered. The NSSO is not including that in its scope. The accounting for that-----

Did it ever include it?

Time up.

Ms Hilary Murphy-Fagan

No, it did not.

Was it supposed to?

Ms Hilary Murphy-Fagan

No, and it would not make sense to do so. The experience in other countries would suggest that there are certain sectors which need to be left as entities in themselves rather than it being a case of us trying to put our arms around everything. At some point, it does not make sense.

I thank Ms Murphy-Fagan. The time is up.

I thank the Chairman.

I welcome the witnesses. Is it possible to get some information on the feasibility studies that were completed in respect of design issues and governance structures?

Ms Hilary Murphy-Fagan

The governance structures that we had in place were the right structures but the terms of reference were mainly advisory rather than decision-making in nature. As a result, there was a lack of authority in the context of making decisions. This allowed issues relating to design and standardisation to remain open rather than be closed off. We did not recognise that issue early on but once it was identified, we quickly moved to address it. As a result, we have appointed a senior user - the head of Government accounting - and that individual is the person tasked. Although we now have a design that is locked down so that this matter does not arise anymore, if we were to have another consideration on an element of design that needed to be standardised across all Departments, the senior user, the finance officers and ourselves would come together and a single decision would be taken.

We would not allow it to continue to churn, which was part of the problem. That is why the governance structures were quite important.

At what stage of the project was this issue identified? This project originated back in 2016. Does Ms Murphy-Fagan see this as being the root cause of the issues of delay and the subsequent additional costs?

Ms Hilary Murphy-Fagan

Certainly, it was a factor. There is no one single element, but it was certainly a contributory factor. Not having a design locked down agreed to was, without doubt, the most fundamental issue in the programme that contributed to the cost. However, the decision on design was taken and agreed in July 2019. That has allowed the programme to move forward. That was the foundational change that has allowed the programme to move forward. I have confidence in it now.

Related to that, an external consultancy firm was used to identify the gaps and the issues arising from the implementation of this system due to the new requirements coming from the OECD and the IMF. At what stage was a cost put together on that, with a view to trying to expedite the timeline and also to identify the scope change in the design? It did not come before the Government until 2020.

Ms Hilary Murphy-Fagan

That is correct. Obviously, a new Government was formed and the pandemic began in 2020. However, the primary work was carried out in 2019. Towards the end of 2019 and early in 2020, we worked through a detailed assessment of what was required to take the programme live, the changes required in design and the enhancements and new requirements that had emerged from data protection, cyber and central government reporting that had not been there when we started out on the programme. All of those were costed and formed part of the programme that we took back to the Government to advise it on what was required. That was the decision taken by the Government in September 2020.

In respect of the original tender that was costed by the implementation partner, did the office seek legal advice on re-tendering for the new, revised design? Second, have there been any disputes with the partner on the new design elements, and has mediation been required on any elements in respect of this?

Ms Hilary Murphy-Fagan

We did take legal advice throughout the course of the project. We were mindful of the options, legal considerations and value for money under the public expending code. They were all central to the decisions that were taken along the way. On the relationship with the solution implementation partner now, I would say that it is a most constructive one. There continues to be tension but, frankly, that is a healthy thing. I would never want it to be any different. The relationship is very constructive and we are working in what I would describe as a most collaborative and professional way going forward.

In the first instance, I would like to say that the idea of national shared services is a very good one. I do not have an issue with that. I will focus on costs, the timeframe, value and learnings. On the scope of the work, are there any additional Departments or entities included now over and above what was part of the original scope?

Ms Hilary Murphy-Fagan

The scope is more or less the same as it was when we started out.

That is fine. I really just want short answers. As there are no additional Departments or entities, the issue is the nature of the work.

In respect of the fixed-price contract, obviously, the business case was made for it, and the fixed-price contract was to provide a degree of certainty, from a budgeting perspective, as to what had been done. Was a consultancy firm used to identify the scope of the project, or was that done in house?

Ms Hilary Murphy-Fagan

There was a combination of both. It was a fixed-price, fixed-scope, fixed-time contract. The contract itself was very ambitious in terms of the timeline and the complexity that we now know to be involved.

Was a consultancy firm used?

Ms Hilary Murphy-Fagan

I believe that some external advice was sought and given at the time, in addition to that of our own internal team, as it relates to the scope of requirement for the contract.

The fixed-price contract provided a degree of comfort from a budgeting perspective in respect of the cost. Lessons must be learned from that because there are other projects that are of a similar nature, for example, the payroll system in the Department of Education.

The implementation partner is Accenture. An article was published last October in the Irish edition of The Times. I will read a paragraph from the article.

This is a reference to Accenture, a management consultancy hired to implement the project. A review of the project by EY, released last year under freedom of information legislation, found "the relationship with Accenture was not on a good footing from the beginning". This led to "delays" and "cost overruns".

What were the delays and cost overruns caused by the relationship? Is Accenture still the implementation partner?

Ms Hilary Murphy-Fagan

Yes, Accenture is still the implementation partner and we are working to that fixed-price contract. To explain, some of the difficulty in the relationship was caused by the fact that the original requirements were not refined enough for delivery. That allowed for debate between what we understood we required and was to be delivered, and what Accenture are building as the solution. It is not acting in a consultancy role; it is building the technology solution for us. That is where the tension arose. Because the contract was fixed-price, fixed-scope and fixed-time, there was a lot of scope for tension because everybody was trying to keep the project on track. That is obviously where the difficulty arose but again-----

There is a short amount of time allotted for this meeting. It is difficult for all of us, including the witnesses. I acknowledge that.

In respect of learning some lessons from this, if it was going to be a genuinely fixed-time contract, the scope of it would have to be future-proofed and research would have to be done to identify the differences in the entities that Ms Murphy-Fagan has identified in her contributions. Does she accept that right from the beginning, this project was not on a firm footing, despite the fact that the scope of it did change?

Ms Hilary Murphy-Fagan

Elements of it have changed. For example, all of the hardware infrastructure and licensing that we have procured still apply. Those have not been wasted. There has been no loss there at all. It is important to point out that there has been no loss. It is the medium to long-term requirements that have actually changed. Where we started, and what we are now going to deliver, is significantly enhanced. That is the difference that we are looking at now.

What is the expected value of the contract when it is completed? What has been paid to date? What percentage of the contract has been delivered to date?

Ms Hilary Murphy-Fagan

I think I answered that question earlier. The fixed-price contract is valued at €30 million.

In addition, the contract allows for modifications that will arise in any programme of this scale. To date, the payment, which includes technology hardware, software and licensing-----

Your microphone seems to be on mute.

Ms Hilary Murphy-Fagan

Apologies. I do not know how that happened. The cost is front-loaded for a programme of this scale rather than back-ended so one expects most of the cost is taken upfront.

Could we have the figure for the value of the contract?

Ms Hilary Murphy-Fagan

The original contract value is €30 million. In addition to the €30 million, the contract allows for modifications for either extra services or supplies. That contract includes the cost for hardware and software, licensing and support and maintenance. It is not just about a build contract and there is more complexity in it.

Apologies have been received from Deputy MacSharry.

Am I correct in saying the shared services office human resources and payroll strands have been live and functioning for some time?

Ms Hilary Murphy-Fagan

That is correct.

It is fair to say they have had issues. Earlier Ms Murphy-Fagan gave figures for data breaches for 2019 and 2020. Does she have figures for data breaches in 2016 to 2018, inclusive?

Ms Hilary Murphy-Fagan

I do not have them for 2016 and 2017 but I have data for 2018. I am seeing a downward trend year on year.

The witness said that. What is the figure for 2018?

Ms Hilary Murphy-Fagan

I had it a moment ago. I believe 25 data breaches were reported to the Data Protection Commissioner and they are risk-assessed.

Was any person the subject of a data breach notified of it?

Ms Hilary Murphy-Fagan

They are always notified. If there is any data breach at all, there is a very strict procedure that is followed in all cases.

Okay. They get notification.

Ms Hilary Murphy-Fagan

Absolutely.

There are significant issues with the payroll system relating to overpayments. What is the total in overpayments to date?

Ms Hilary Murphy-Fagan

We look at overpayments on a year-on-year basis as they are rolled into each individual appropriation account. As with the data breaches, we are seeing a significant reduction in overpayments year on year.

What is the total to date?

Ms Hilary Murphy-Fagan

From 2018 to 2020 there has been a reduction in overpayments by 38%. For 2019, the total value of overpayments collected was €4.3 million.

Ms Hilary Murphy-Fagan

Correct.

What about from 2019 to date?

Ms Hilary Murphy-Fagan

Those accounts are still in draft at this point but I can see that during 2020 we collected more money for overpayment cases that were older, along with the new cases arising. Fewer cases arose in 2020-----

There is no total for the overpayments. The witness has given a figure for 2019 but there is no overall total.

Ms Hilary Murphy-Fagan

I do not have it. We look at it on a year-on-year basis. The percentage of overpayments is 0.17% of the total pay bill. It is a very small proportion of the total pay bill.

Is there a particular reason the witness does not have the total in overpayments for us today?

Ms Hilary Murphy-Fagan

No. It is a moving target. When an overpayment arises, which happens in every payroll in every organisation, we have a standard procedure to recover that money. Sometimes the recovery of the money can be very fast if it is straightforward. If it is not straightforward it can take longer to recover the money. We look at it every year.

It is disappointing that the witnesses do not have those totals. Is it safe to assume the office is currently overpaying?

Ms Hilary Murphy-Fagan

The money has been collected. I do not want the Deputy to think that when an overpayment occurs, the money is not collected. That is not the case.

No. I am wondering if it is safe to assume the office is currently overpaying.

Ms Hilary Murphy-Fagan

There will always be an element of overpayment in any payroll system, whether it is in the public or private sector.

Ms Hilary Murphy-Fagan

It arises because of late notification and payroll has already run and gone to the bank when it needs to be stopped.

The likelihood is it is still happening.

Ms Hilary Murphy-Fagan

There will always be an element of it. It is important to note that 99.8% of the pay bill is accurately administered. It is a very small proportion of the total pay bill that we are talking about.

The briefing furnished to the committee listed a people-first process focused on technology, innovation and service excellence as key performance indicators.

Ms Hilary Murphy-Fagan

That is correct.

The Comptroller and Auditor General's chapter cites the benefits of the National Shared Services Office as including salary cost savings, enhanced financial control and increased fiscal transparency, and there is a reference to data security and procurement management. Does the witness accept the dramatic overspend on the project represents a failure in procurement?

Ms Hilary Murphy-Fagan

It is not that simple.

Would she accept the argument?

Ms Hilary Murphy-Fagan

It is more complex than a single item. There are a number of factors from which we have learned lessons and we have addressed them. We now have the programme on a very solid footing. There is no single item. That is very simplistic.

What about overpayments and data breaches?

The Deputy is over her time.

The overpayments and data breaches would not be representative of a people-first or service excellence approach. The witness agrees on that, I am sure.

Ms Hilary Murphy-Fagan

I agree it is not our ambition to have data breaches. We aim for zero and we have a zero-tolerance approach. We do everything in our power to try to prevent any data breach. It is important to note, nonetheless, the transaction volumes that go through our systems. We are talking about millions of transactions.

I know what the witness is saying but the key performance indicators reference "people first" and "service excellence". The service is nonetheless still dealing with overpayments and data breaches.

Ms Hilary Murphy-Fagan

Again, overpayments arise outside the NSSO. If we in the NSSO are not notified of an absence in time, the office may have already run the payroll. It is not our ambition to have overpayments and we continue to work with all Departments and offices to try to minimise it. Our values are very important to us and our service and commitment to excellence is absolutely critical to who we are. My staff in my office are absolutely key. Their commitment is absolutely phenomenal and they work very hard to try to prevent overpayment occurring. It is impossible to have zero overpayments, given the volume and scale of the transactions on which we work.

I thank the CEO for her replies. I have some questions on the figures. This project started at €47.4 million and, as has been established, we have now reached a cost of €115 million. I ask the CEO to keep her replies concise, although it is difficult because we have to work with technology. Is it envisaged that figure will increase?

Ms Hilary Murphy-Fagan

The answer is "No". That is the budget and estimate for what is required.

What is the annual service cost for the system and is there a contract for it?

It has extended to 2025 before it will be in place. That is nine years from when it started. Is there an annual service cost and, if so, how much is it?

Ms Hilary Murphy-Fagan

There is an annual service cost. There are support and maintenance costs for all our systems. The system went live in 2018. We have been incurring a support and maintenance cost for the finance system.

How much is the annual service cost now?

Ms Hilary Murphy-Fagan

I will come back to the Chairman with the specific amount but it is approximately €1 million per annum.

It is heading for nearly three times the cost of what it started out as. We can look at the State's previous experiences, and especially the Department of Public Expenditure and Reform. Take the examples of voting machines, which were a different system but it relates to IT, that ran to €100 million and did not work - the machines were in storage and are now discarded - and the personnel, payroll and related systems, PPARS, in the HSE that ran to €150 million which was similarly unsatisfactory and did not work. Did the NSSO investigate or examine those systems and what went wrong or what lessons were learned from those before starting on this path?

Ms Hilary Murphy-Fagan

The answer is "yes" to both questions. We certainly reviewed it. I suggest that had we not taken the actions we have taken, we may have had a different result and we may have had something different to tell the committee. The programme is actually on a very solid footing and I am very confident that we will have a finance system that will deliver a common solution for all Government Departments; it will be available to us to start to migrate Departments onto at the end of this year.

My next question is for Mr. Costello from the Department of Public Expenditure and Reform. In view of the experience in the two cases I mentioned, where the e-voting machines cost in excess of €100 million and in excess of €150 million for PPARS, now the cost of this is accelerating, is the Department concerned? Does it see these continuing runaway costs as just something that happens? It seems extraordinary. While I accept that prices can increase and things can change, and the CEO has outlined that some changes were made to the design of what was required, the costs on these projects seem to run away the whole time.

Mr. Fergal Costello

We would be very concerned about increasing costs on projects of this scale. One of the important things is that when the project did get into some issues, as Ms Murphy-Fagan mentioned, there was a pause and so on; considerable work was done at that stage to identify the issues and prepare a revised memo for Government to be clear on what the issues were, how they were being addressed and the overall continued value for money of the project, as to whether it was still worthwhile proceeding or whether it should stop. Given the benefits that were outlined - future savings, better efficiency, support or reform in terms of accounting and so on - the project is still very important and will offer significant value and benefits if it is brought through.

The Department has also been considering the wider issue of big projects such as this, and those that are bigger again, in particular. We reformed the public spending code, particularly the capital side, to introduce more layers and gateways to assess costs and, more important, to assess risk to try to provide better understanding of the issues that will arise and to ensure that Government is fully informed when making those decisions. While these things cannot guarantee that costs overruns will never happen again, we are constantly looking for ways to try to identify those issues upfront and to take steps to try to minimise and mitigate those risks.

My next question is for the CEO on data breaches. She has confirmed that there is an ongoing issue with data breaches. There were 350 in the first two years of the operation of the NSSO. She highlighted that there were some in 2019 and 2020. How many data breaches occurred in 2020?

Ms Hilary Murphy-Fagan

There were five reported to the Data Protection Commissioner in 2020. I want to be clear, these are where information is provided to the wrong HR department. There has been no intentional breach or deliberate release of any personal or sensitive data from my office to the public at all.

There is a concern with people working from home. I know that public servants are very diligent. It is good to hear that the figure is low.

Will there be any redundancies as a result of this process? Has it led to any cases coming before the Workplace Relations Commission?

Ms Hilary Murphy-Fagan

No. The benefit arising from the work we do that creates the efficiency and the greater effectiveness is that staff who may have done that work previously in Departments can be reassigned to other work and other more important front-line service work. We are trying to improve the overall quality of information and the quality of service, while freeing up staff in other Departments to do different work instead. The position for redundancy does not arise in the case of the NSSO.

I thank Ms Murphy-Fagan. We have a little time left if any of the members wishes to ask a question.

Learning from this is really important. None of us doubts there is value in this. Were the NSSO to give advice to the Department of Education which hopefully will be embarking on implementing a payroll system - and I know the this is more than a payroll system - what would Ms Murphy-Fagan advise it against doing? How would the office caution the Department based on its experience?

Ms Hilary Murphy-Fagan

The really important lesson from this is that the requirements are translated into a single design that is fully agreed and standardised and signed off before going to the market. One would chunk up the work differently, examine governance structures and ensure that the decision making authority in the governance structures is absolutely clear. One would also ask if the right technical abilities were on the pitch. Some of the skills that are required for a programme of this scale are really deep technical skills that are difficult to access in the marketplace across technology solution providers themselves, let alone retain them in the Civil Service. We must be realistic about what this type of programme requires. Without underestimating the complexity of payroll, which we provide to 145,000 people, it is somewhat less complex than trying to design and drive the major transformation that this programme will bring about. Finance shared services will undoubtedly bring significant benefit to the State, but it is far more complex than the transformation that was required with payroll.

I wish to raise two elements which I do not believe have been touched on. According to the reports, in 2019, the NSSO had 750 staff. How many are on secondment from other Departments or organisations?

Ms Hilary Murphy-Fagan

There are a small number. The figure is in the appropriation account. It think it is 14 but I can come back to the Deputy with the exact number.

It is quite small.

There are other elements on which Ms Murphy-Fagan might come back to me, which we discussed earlier, namely the age of the various systems the organisation is amalgamating with the new system and the cost of those external reviews.

The National Shared Services Office, NSSO, is a stand-alone organisation. It has offices in Dublin, Kerry, Galway and Offaly. Are they leased, owned or shared with other organisations? Can Ms Murphy-Fagan give a breakdown on that?

Ms Hilary Murphy-Fagan

Yes. The properties are all with the OPW. They are either leased or owned. Most of the properties are leased and some are owned. The NSSO is the lead tenant in some of the buildings but, for example, we share our building in Galway with the Department of Defence. In the case of our offices in Killarney, we share the building with another Government Department, the office with responsibility for culture and the arts. I have detail in front of me. Our building in Clonskeagh, where most of our staff, 380, are based, is leased. The Trinity Point building is leased; the Mahon Street building is leased; the Tullamore building is leased; and the Galway building is owned by the OPW. Our building in Killarney is owned by the OPW and the second building in Killarney is also owned. Four buildings are leased and three buildings are owned.

I presume those leases are from third parties.

Ms Hilary Murphy-Fagan

All those leases are managed by the OPW. We are simply the tenant in that building.

Ms Murphy-Fagan might come back to the committee on some of those costs. The conversation today has been on costs associated with the NSSO and the financial management shared services. It would be interesting to delve into that area also. I thank Ms Murphy-Fagan and her colleagues for giving of their time today.

I have a final question for Mr. Costello. At any point was Department of Finance and Public Expenditure advised not to go ahead with the project, to re-examine it or to re-examine its design?

Mr. Fergal Costello

I do not think we were advised at any point not to go ahead with it. We considered it ourselves in terms of the data coming in, the costs arising and the benefits. One of the principles in our spending code is that any project should be subject to the question of where it is time to stop or to cancel. We considered the cost benefits as part of the treatment of the memo. We would have been aware of the issues that were arising. As I said, it was important the NSSO went through the process of looking at the issues and identifying potential solutions that could be put in place, so again we could come back to Government and say this is where we are now, these are the proposals for going forward and the Government has an opportunity to consider it. That is the position, as far as I can see it.

Okay. Thank you. That wraps up the questions.

I thank the witnesses for joining us today and for the information they provided. As always, I thank the Comptroller and Auditor General for attending and assisting us, and thank his staff for assisting the committee for today. Is it agreed we will request the clerk to the committee to seek any follow-up information and carry out any agreed actions arising from the meeting? Agreed. Is it also agreed that we note and publish the opening statements and briefings provided for today's meeting? Agreed. The committee will meet on Thursday, 18 February 2021 in private session. Our next public engagement, which we have been trying to firm up and on which the clerk to the committee has done good work, will be with Horse Racing Ireland at 10 a.m. on Tuesday, 23 February 2021.

The committee adjourned at 5.54 p.m. until 10 a.m. on Tuesday, 23 February 2021.