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.