I thank the Chairman and members for affording me the opportunity to present a technical Supplementary Estimate to the committee today in respect of my Department's Vote. The purpose of the Supplementary Estimate is to make provision for a write off of a deficit balance relating to the former EU EMPLOYMENT and ADAPT programmes, through the creation of a new subhead. There will be a technical increase in my Department's Vote of €1,000 to facilitate the creation of this new subhead - subhead M3. As I will explain to the committee, there will be no increase in my Department's net voted requirement for 2010 other than this €1,000.
The EMPLOYMENT and ADAPT initiatives were two programmes run by the European Commission during the period 1994-99 to test new and innovative ways of promoting employment, social inclusion and adaptation in the workplace. The programmes were co-financed by the European Social Fund, which provided up to 75% of the total cost of each programme.
The EMPLOYMENT programme supported 258 projects in Ireland over the period 1994-99. These projects were operated by a mix of community groups, educational institutions and State agencies. They focused on assisting marginalised groups. The ADAPT programme facilitated projects involving companies and trade unions to introduce change in the workplace to improve productivity and work processes.
My Department's role was to process payments under these two programmes, as at the time it was the national authority for the European Social Fund in Ireland. ESF moneys were received from the European Commission and paid, via my Department, by way of advance payments to projects, subject to certain conditions being met. However, the final payment to projects at the end of the programme - approximately 20% of each project's final annual allocation - was contingent on rigorous auditing and verification checks being carried out on the projects in question.
The end-of-programme verification processes took longer to complete than anyone ever envisaged. In fact, the final determination on the amounts payable under both programmes was only decided by the European Commission in 2008, some nine years after the programme had ended.
Many of the projects, particularly under the EMPLOYMENT initiative, were operated by community-based groups which did not have the cashflow available to await the release of the final funds by the Commission. To facilitate these projects, my Department sought and obtained sanction from the Department of Finance to make the payments available, pending the release of moneys by the European Commission. The payments were made from a suspense account and it was intended that the payments from this suspense account would be offset by receipts from the Commission when the programmes were eventually finished. Neither my Department nor the Department of Finance had any indication at that time that there would be a difficulty in receiving the final moneys from the Commission. After all payments were made to the projects, the suspense account had a deficit balance of €5.845 million.
As I mentioned, the final determination on the amounts payable under the EMPLOYMENT and ADAPT programmes were decided by the European Commission in 2008. The outcome of this process resulted in the Commission reducing the amount of ESF moneys it was prepared to pay Ireland in respect of the programmes by €12.7 million. The reduction was due to technical issues concerning the manner in which Ireland had presented its ESF claims, including the way in which Commission regulations had been interpreted. It is important to point out that no allegation of fraud was made by the European Commission against Ireland.
To put the reduction into context, Ireland received a total of €71 million from the European Commission in respect of the EMPLOYMENT programme, while receipts in respect of the ADAPT programme amounted to €38 million. Of the €12.7 million reduction, almost €7 million has already been absorbed by my Department through reduced appropriations-in-aid in earlier years. This shortfall in receipts from the Commission was compensated for by stronger than anticipated receipts from work permit fees and CRO receipts.
Nevertheless, my Department vigorously contested the Commission's decision to reduce ESF support to Ireland and ultimately obtained legal advice on the merits of challenging the Commission's decision in the European Court of Justice. The advice obtained was that the challenge was not likely to be successful and should not be pursued. On the basis of legal advice, it was also considered by my Department that it would not be fruitful to pursue the individual projects funded under the two programmes for the recovery of moneys disallowed by the Commission. In the first instance, there was no suggestion of any fraud or impropriety on anyone's part and due to the length of time which has elapsed since the projects were operational, the pursuit of these moneys would be likely to be statute-barred. In any event, many of the project promoters were voluntary or community bodies set up specifically to run the projects.
The Department of Finance has now sanctioned the effective writing-off of €5.845 million which has not been accounted for in any other way. In order to comply with public financial procedures, my Department is required to create a new subhead in the Vote to account for the write off. The deficit balance of €5.845 million in the suspense account will effectively be transferred to the new subhead and will be charged as expenditure to that subhead. This expenditure will, however, be offset by a comparable increase in appropriations-in-aid in the Department's Vote.
Pending the resolution of all of these matters with the European Commission and with the Department of Finance regarding the appropriate accounting procedures to be followed, the Department has held a balance of €5.845 million in other ESF receipts in a separate suspense account. These funds, which were appropriate to the Department's activities, will now be brought to account as appropriations-in-aid, thus offsetting the expenditure in the new subhead M3. There will therefore only be a nominal increase of €1,000 overall in the Department's net Vote, this being the €1,000 which is required to set up the new subhead. I ask the committee to approve the Supplementary Estimate to make provision for the new subhead in my Department's Vote for 2010.