COMMITTEE of PUBLIC ACCOUNTS díospóireacht -
Thursday, 11 Jan 2001

Vol. 3 No. 1

1999 Annual Report of the Comptroller and Auditor General and Appropriation Accounts.

Vote 36 - Department of Defence.

Vote 37 - Army Pensions.

Mr. D. O'Callaghan (Secretary General, Department of Defence) called and examined.

Chairman

The relevant documentation has been circulated. Two items of correspondence, dated 2 October 2000 and 24 October 2000 from the Department of Finance enclosing details of information promised to Deputies at the meeting of 29 June 2000, have also been circulated.

I draw the attention of witnesses to the fact that they do not enjoy absolute privilege and should be advised as follows: as and from 2 August 1998 section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act, 1997, grants certain rights to the persons who are identified in the course of the committee's proceedings. These rights are generally only exercised with the consent of the committee.

I welcome the Secretary General of the Department of Defence, Mr. David O'Callaghan. Will he introduce his officials?

Mr. O’Callaghan

I am accompanied by Mr. Pat Hogan, head of corporate services, including the finance branch, and Mr. Robbie Lyons, principal officer, finance branch, Galway.

Chairman

I also welcome Mr. Stephen O'Neill and Mr. Paddy Howard from the Department of Finance.

Paragraph 34 of the report of the Comptroller and Auditor General reads:

34. Defence Forces' Consumable Stocks

Background

The Department of Defence budget for 1999 was £510m of which about £31m was for the replenishment of consumable stocks. The estimated value of the stocks at 31 December 1999 was £74m, which were held in 92 stores in 19 locations throughout the country.

The stocks have increased in value from an estimated £42m in 1995 to £74m in 1999 but this is attributed by the Department to being due to more accurate estimation of stock values rather than to an increase in the volume of stocks held.

Responsibility for the control of stores, including nearly all of the purchasing, rests with the Deputy Chief of Staff (Support) but the Secretary General of the Department of Defence is the Accounting Officer for the entire Defence Vote, which includes expenditure on and control of Defence Forces stocks.

Since 1996 the Department's Appropriation Account contains a note regarding the non-adherence to public accounting procedures regarding the valuation and recording of these stocks.

The following is an analysis of the Department's estimate of the value of the stocks as at 31 December 1999.

	£
Air Corps	20,000,000
Naval Service	12,986,351
Clothing	10,155,850
Weapons & Ammunition Spares	7,533,009
Cavalry	5,859,011
Communications & Information Service	4,758,148
Barracks Services	3,989,767
Engineers	3,814,969
Transport Spares	3,650,263
Medical Supplies	914,312
Other	382,217
Total	74,043,897

Objectives and Extent of Audit

The objectives of the audit were to ascertain and evaluate:

* The controls in place to ensure that adequate security was being maintained over the stocks.

* The procedures in place to ensure that stocks were maintained at an appropriate level taking account of the costs of holding stocks on the one hand and ensuring security of supply on the other and that they were fairly and correctly valued.

* The efficiency with which the stores function was being operated.

* The policy and procedures being employed in relation to obsolete and surplus stocks.

During the course of the audit, four locations containing six stores were visited: Baldonnel - Air Corps; Haulbowline - Naval Stores; Clancy Barracks - Clothing and Transport; Curragh Camp - Cavalry and Engineers.

Discussions also took place with Department of Defence and Defence Forces personnel.

Audit Findings

Security of Stocks

The stocks are held in military locations and the buildings containing the stocks are patrolled on a 24 hour basis by military personnel, as is the case for all buildings in the locations.

The management of military stores is governed by Army Regulations in particular Army Order 2/87 and Defence Force Regulation S2. They provide for management supervision and accountancy procedures for all technical stores and workshops. The procedures were well documented and contained sufficient instruction for the safeguarding and management of stocks. They set out clearly the stores procedures in relation to management and accounting, purchasing, receipt and issue of goods, disposal of surplus items and stocktaking. The audit indicated that the procedures were being followed, except in relation to the disposal of surplus and obsolete items.

The stores area is subject to ongoing audit by the Department's Internal Audit team and regular physical checks on stocks are also carried out. My audit confirmed that discrepancies found on these checks are relatively minor and appropriate follow up action is taken by way of investigation and adjustment of book balances.

In relation to stores records, while detailed records are maintained in relation to goods received, issued and in stock, no stock control accounts, showing totals of goods received and issued, and overall balances which could be reconciled to the detailed listing of stores balances, are maintained. Such accounts would provide assurance on the accuracy of the detailed stock records. Furthermore, the total value of goods booked into stock is not agreed to the total amounts expended on stock items, which would provide assurance on the correctness of the amounts paid for stock items and the amounts booked into stock.

Stock Values

The Department's policy is to value all stocks at their most recent purchase price.

Surplus and obsolete stocks were therefore overvalued in the books relative to their true worth resulting in an overstatement of stock values in the Appropriation Accounts. This was most noticeable in the Air Corps and Naval Service stocks.

The Air Corps stock was valued at £20m as at 31 December 1999 and included some 21,000 item types of stock. In 1999 the Air Corps identified about 8,300 item types, which had not moved in the previous 5 years and which have been certified as being surplus to requirements. They have been segregated and are awaiting a decision on disposal. (No value was available for these items many of which were between ten and 20 years old).

The Naval Service stocks were valued at £13m as at 31 December 1999. Tests carried out during the audit identified about 10,000 item types, showing a value estimated at £3.1m, which had not moved in the last 7 years. As a result of the audit findings, the stores personnel have commenced an exercise to ascertain the items which are surplus to requirements.

In the case of Air Corps stocks it was acknowledged by the military authorities that the stock value of £20m as at 31 December 1999 was not computed on the basis of quantities held at the most recent purchase price, but was their best estimate because of pricing inaccuracies and anomalies found on the system.

Audit tests carried out on Naval Service stocks revealed stock overvaluations estimated to be in the order of £2.2m. These overvaluations centred on the incorrect treatment of foreign currency conversion, notwithstanding the fact that the stock system had a facility to automatically convert such amounts.

Stock Levels

The principal reason the Department of Defence holds stocks is to avoid shortages which might make it impossible to carry out functions critical to the success of military missions. Other reasons relate to:

* Holding insurance spares for equipment or machinery which are no longer being manufactured.

* Gaining quantity discounts from buying in bulk.

* Reducing administration costs by reducing the number of orders placed.

It was noted that the ratio of stocks held to annual throughput was quite high. The ratio overall for 1999 was 2.3 which varied from 0.05 for provisions to 12.72 for engineering stocks. The figures indicate that for some categories, the level of stocks is higher than is appropriate taking into account the costs associated with carrying excess stocks such as storage and financial costs as well as the likelihood of stocks becoming obsolete or redundant.

The audit indicated that the high level of stocks was due to a build up of stocks in past years arising from a policy of buying on the basis of predetermined budgets and in large quantities so as to maximise quantity discounts, rather than on the basis of need. However, the Defence Forces have in recent years moved to a policy of buying on the basis of previous year's usage and where feasible on a "just in time" basis, which should in time lead to lower and more appropriate stock levels being maintained when the surplus stocks have been disposed of.

Operational Costs

A report by the Efficiency Audit Group in 1993 recommended that a rationalisation of the stores area was needed with the ultimate goal of having one multi-purpose store per location. The Department stated that the number of stores has been significantly reduced since 1993 and that it is not feasible to reduce the number of stores very much further in the short-term due to the high capital costs involved in providing new multi-purpose stores or adapting the existing ones.

At December 1999 there were 101 civilian staff employed on full time stores duties. The gross annual salary cost for these employees was about £1.5m which represents about 5% of the annual stores budget. A further 120 Defence Forces personnel were also employed on stores duties on a part time basis.

Inventory Management

The efficient management of the stores function is dependent on quality and timely management information.

Since the early 1990s the Military Information Technology section in conjunction with the Department has been developing an in-house software computer stock system known as the Inventory Management System (IMS), with the objective of supplying accurate and timely information on stock levels, turnover, usage, status of deliveries and purchase orders and cumulative expenditure relative to budgets.

Although this system has been operational since 1992 in some stores and is potentially available to all stores, only 61 out of a total of 92 stores were availing of it at the end of 1999. The remaining stores were using either manual ledgers, kardex systems or locally developed computer spread-sheets, with the exception of the Air Corps, which has purchased a computerised Aircraft Maintenance Management System. This system is capable of providing an inventory management system combined with an aircraft maintenance costing system, but is not linked to IMS and is not regarded as providing reliable values for stocks.

Obsolete and Surplus Stocks

There would appear to be significant surplus and obsolete stocks in respect of Air Corps and Naval stores.

The following are examples of items identified on audit which would appear to be either surplus to requirements or obsolete:

* Stocks of Land Rover spare parts, some of which were purchased up to 20 years ago and cost in the region of £100,000. The particular Land Rover jeeps have been scrapped some years ago and replaced by Nissan vehicles.

* The value of stocks of army clothing, footwear and raw cloth for the manufacture of military uniforms has been in the region of £10m since 1995, while purchases and usage in each of the years 1998 and 1999 were in the region of £3m to £4m. Much of this stock would appear to be surplus to requirements, because, recently, new ready to wear combat uniforms were purchased for army personnel where previously uniforms had been made from pre-purchased cloth. It has been decided that the old uniforms will be issued to the FCA and the remaining cloth will be offered for sale.

* Substantial quantities of barbed wire having a value of some £60,000, as well as some timber and felt stocks having a value of £4,200, were noticed during an inspection of the stocks held in the central engineering store, much of which would appear to be surplus to requirements or obsolete.

Conclusions

* The management, supervision and accounting procedures were well documented and were adequate to ensure that stocks are properly safeguarded and accounted for in relation to quantities. However, the failure to maintain stock control accounts which would provide assurance on the correctness of the detailed stores balances and the failure to reconcile payments for stores items as charged in the Appropriation Account to the values of items booked into stock is an accounting weakness which should be addressed.

* The recorded stock values did not represent their true worth in so far as apparently high quantities of surplus or obsolete items were being carried at full value. Furthermore, pricing errors and inaccuracies discovered in the course of the audit raise questions as to the reliability of the recorded values for some stocks.

* The failure to install IMS in all stores over a period of some eight years raises questions as to the commitment given to the project. The absence of the management information which this system would provide, if fully implemented in all stores, militates significantly against the effective and efficient management of the stores operation.

* While stock levels would appear to be higher than could be justified when financial and economic factors are taken into account, the change in buying policy indicates that the matter is being addressed. However, it would appear that a more systematic and coherent policy needs to be developed on stock levels and purchasing policies for the different categories of stock, which can only be achieved following the installation of IMS in all stores.

* The evidence would suggest that surplus and obsolete stocks are being retained, which seems to be due to a failure in the past to address and deal with this question. Recent exercises carried out on Air Corps and Naval Service stocks indicate that a process of review is in train with the object of reducing stocks to appropriate levels.

The Accounting Officer of the Department of Defence made the following comments in relation to the report:

* He accepted that surplus and obsolete stocks had been allowed to build up in the past and that the issue needed to be addressed. The existence of surplus and obsolete stocks had been identified by the Department prior to the audit taking place and measures had been put in place which should significantly reduce stock levels. Work had commenced in the Naval Service and Air Corps and all other corps would be required to commence reviews immediately. These measures coupled with the full implementation of IMS in all stores accounts, would further enhance stores management in the Defence Forces.

The issue of surplus and obsolete stores had been highlighted in recent annual reports of the Department's Internal Audit Unit and had also been discussed by the Internal Audit Committee. The present Board of Survey procedures were cumbersome and militated against the review of stock on a regular basis and the Internal Audit Unit had made proposals in relation to a more streamlined procedure for dealing with the disposal of surplus and obsolete items. The efficient use of the Board of Survey system, in conjunction with the use, whenever possible, of "just in time" purchasing techniques, should significantly reduce stock levels.

* He accepted that the pace of development and implementation of IMS had not been satisfactory, due in the main to:

* the loss of experienced Defence Forces' IT personnel to the private sector

* the extensive re-organisation of the logistics function in the Defence Forces over the past few years

* the need to concentrate the available IT resources on year 2000 issues in 1998/99

* The absence of a fully computerised stores system had made it impractical to operate stock control accounts because of the complexity of the military stores system and the huge number of transactions undertaken each year. However, control accounts would be maintained when the IMS had been fully implemented and the requirement would also be included in the planning for the introduction of the Generic Model Financial Management System which is currently in train throughout the Civil Service.

* The need to expedite the roll-out of the IMS to all stores was now being actively addressed and substantial progress was expected to be made over the next 12 months.

Mr. Purcell

In my annual report I set out the results of an audit of the Defence Forces consumable stocks which had an estimated value of £74 million at the end of 1999. The stocks are held in 92 stores in 19 locations throughout the country. In 1999 alone some £31 million was expended on the replenishment of these stocks.

While physical controls over the stocks were good there were some areas where the system of stores management was not what one would expect in an organisation handling such a high volume of stock. At the time of audit only 61 of the 92 stores had the in-house developed computerised stock system in place seven or eight years after it had first become operational. In such a situation it is unlikely that an organisation would be able to operate a proper stores management system in relation to optimum stock levels, timely purchasing, stockholding costs, valuation of stocks and the like.

The audit brought to light evidence of the inevitable consequences of the shortcomings in this area. Two of the examples referred to in the report are illustrative. Some £100,000 worth of spare parts for Land Rovers which were scrapped some years ago were still in stock. A substantial amount of cloth for the manufacture of uniforms was surplus to requirements because ready-to-wear uniforms are now issued to Army personnel.

It is also worth noting that since the date of my report an initial list of surplus and obsolete stocks in the Air Corps with a book value of £5 million has been finalised with a view to disposal by sale. It is indicated in the paragraph that the Accounting Officer accepted that the pace of development and implementation of the stores computer system had not been satisfactory but expects substantial progress to be made during 2001. He was also introducing a more streamlined procedure for dealing with the disposal of surplus and obsolete items. This, coupled with the use of "just in time" ordering in appropriate circumstances and the full implementation of the stores computer system, should result in a significant reduction in stock levels and overall better management of stores.

Chairman

Would Mr. O'Callaghan like to make a brief opening statement?

Mr. O’Callaghan

Perhaps I should comment on the inventory management system we have introduced and the points raised by the Comptroller and Auditor General. We have a large stock component with a £74 million valuation. There is a huge turnover of approximately £31 million per annum. As the Comptroller and Auditor General said these stocks are securely held. There are reasonably good records and any discrepancies found were of a relatively minor nature. They are regularly audited by our own internal audit unit and rarely, if ever, are there discrepancies.

Notwithstanding this fact, we realised some years ago that we needed a modern financial inventory management system. I admit progress has been slow in this regard but at the moment 80% of our stores are put through the new IMS system. Twelve of our 13 large stores and 60 of the 90 medium stores are on the new system. There are many small unit level stores in FCA units which are not on it. However we will be putting 50 new accounts on the system in the first quarter of this year and the majority of the remaining accounts will be on it before the end of the year.

Inevitably in a military situation there will be a build up from time to time of stocks for contingency purposes. The £100,000 worth of Land Rover parts was mentioned by the Comptroller and Auditor General. We had Land Rovers up to 1998, which have now been sold. Notwithstanding this, we were not happy with the manner in which we were dealing with surplus stores and this has now been tightened up. Progress has been made on the Naval Service and Air Corps sides.

On the uniforms issue, a new uniform was introduced for the Army approximately 18 months ago. We were left with surplus cloth for the previously made up combat uniforms. These will be given to the FCA. There are some surplus stocks of cloth which will be sold and which has a book value of £1 million.

In summary, we are aware of the problem. It is a priority and progress will be made in the next six to 12 months.

Deputy McCormack

Apart from the £74 million worth of stocks at the end of 1999 is there a replenishment of stocks to the tune of £31 million every year or was it only in that year that £31 million was added to the stocks?

Mr. O’Callaghan

The figure of £31 million related to 1999 but the figure would be in that region every year.

Deputy McCormack

To what would £31 million worth of stock every year relate?

Mr. O’Callaghan

It would relate mainly to purchases of defensive equipment, ammunition, hardware, armaments, spare parts for ships, aircraft and armoured personnel carriers and so on.

Deputy McCormack

How is it that equipment to the value of £31 million, including spare parts and ammunition, has to be replaced? In other words, almost half of the stock has to be replaced every year.

Mr. O’Callaghan

Obviously some of our equipment is quite old. For instance, the majority of the ships are 20 to 25 years old and many are in need of constant refit and replenishment. Military parts are very expensive.

Deputy McCormack

The report states that appropriate follow-up action was taken by way of investigation and adjustment of balances. What follow-up action was taken to deal with what are referred to as discrepancies?

Mr. O’Callaghan

We have set up what are known in military terms as boards of survey which examine stocks, identify the items which are obsolete, put a valuation on them and decide to either dispose of them or sell them on the open market. In the context of the Air Corps, boards of survey discovered that there were 5,000 items which could be sold and got rid of.

Deputy McCormack

Five thousand what?

Mr. O’Callaghan

Five thousand obsolete items in the Air Corps. They found 5,000 stock lines with a book value of approximately £5 million which were submitted for disposal by sale.

Deputy McCormack

Can you give me a rough idea of what makes up the bulk of the 5,000 obsolete items found in stock to the value of £5 million?

Mr. O’Callaghan

Old aircraft spare parts.

Deputy McCormack

How were they disposed of?

Mr. O’Callaghan

They have yet to be disposed of. Most will probably be scrapped. Their book value is the price at which we bought them. Therefore the figure of £5 million is a totally inflated valuation.

Deputy McCormack

Are you telling me that the bulk or all of the 5,000 items were never and can never be used?

Mr. O’Callaghan

Spares of that type were used but the ones in question were never and obviously can never be used because the aircraft for which they were bought are obsolete or no longer in use.

Deputy McCormack

Who was responsible for the purchase of those 5,000 items worth £5 million?

Mr. O’Callaghan

The Air Corps down through the years.

Deputy McCormack

You said that 80% of stocks are now going through the new system. How does the new system improve the situation in anaylsing stocks?

Mr. O’Callaghan

It gives us more up-to-date information on our computers on what is in stock, its valuation and the flow of spare parts through the system. It will highlight, for instance, what we have been discussing, the stocks which are not being used and the matter can be tackled in a more speedy fashion.

Deputy McCormack

For how long would the 5,000 obsolete items have been in stock?

Mr. O’Callaghan

Anything from 20 to 30 years.

Deputy C. Lenihan

There are 92 stores at 19 locations. Is it the intention to rationalise to reduce the number of stores with significant inventories?

Mr. O’Callaghan

It is the policy to rationalise the stores as much as possible. We have done enormous work. We had a lot more than 92 stores. The number has been reduced enormously. Obviously their location depends on the number of barracks. We have stores in all our barracks. The position has been helped of course by the closure of six barracks.

Deputy C. Lenihan

What is the target reduction in the number of stores? I am aware that it is barracks driven to a certain extent but is it intended to house general stores at all command structures?

Mr. O’Callaghan

While there are major and medium stores there are also unit stores in the smaller units throughout the country, including FCA units.

Deputy C. Lenihan

There is no over-arching plan therefore to have what I would call regional stores and feed it out on the just-in-time principle.

Mr. O’Callaghan

No.

Deputy C. Lenihan

If one looks at large logistical operations that seems to be the way it is going in industry.

Mr. O’Callaghan

We do not yet have - we are very nearly there - a modern system for managing our stores. As the Comptroller and Auditor General said we do have stores which are very well controlled and secure. While few, if any, discrepancies have been found in any of the audits I repeat that we do need a modern stores management system. In a military environment where they have to prepare and think strategically in terms of contingencies they would always carry more stores. The just-in-time principle will not do. While £60,000 worth of barbed wire may sound like a lot lying in a store it will be used. We do not know when. Let me give a recent example. We had a very large consignment of sandbags. We now have none because of the recent flooding in places like Clonmel. We were glad we had them. We are not running a commercial store. The Army has to think strategically in terms of contingencies.

Deputy C. Lenihan

There was £74 million worth of stock at the end of 1999. How does that break down in percentage terms as between what you described as the strategic requirement - sandbags and barbed wire in cases of civil disturbance - and the operational requirement?

Mr. O’Callaghan

I would not have that.

Deputy C. Lenihan

That would obviously be an important indicator. If one is to invoke a strategic argument it is important to know what level or percentage of stock is accounted for by the strategic requirement.

Mr. O’Callaghan

I imagine that for the majority of items such as armaments, defensive equipment, ammunition and fuel we would possibly carry more stocks. In the event of an emergency we could not rely on the just-in-time principle.

Deputy C. Lenihan

Of course we accept that.

Mr. O’Callaghan

That would also apply to certain essential aircraft equipment although I do know that in Baldonnel for some aircraft spare parts - probably non-priority spare parts - they operate a just-in-time system.

Deputy C. Lenihan

I do not know if this would be possible but it would be helpful for the next meeting to receive a note outlining a rough percentage for the operational requirement. I do not want to make a false distinction. What I mean by bona fide strategic purposes is an inventory which must be carried because of potential emergency or contingency planning. For operational reasons, everybody accepts that one must have stores of bullets and so on. That is an ongoing requirement but it is not strategic. We hope they will never be used. I am seeking a clear definition. What percentage of stock is accounted for by the strategic requirement?

Mr. O’Callaghan

There is an analysis in the Comptroller and Auditor General's report of stocks as at 31 December 1999 but it does not give the breakdown that you are looking for. It does not state, for instance, how much of the £20 million worth of Air Corps spare parts is accounted for by the strategic requirement and how much is accounted for by the operational requirement.

Deputy C. Lenihan

Obviously we do not want to delve into the detail because of the security requirement but it would be useful to know from a management point of view the percentage that might be captured at any one time by the strategic as opposed to the operational requirement. On the IMS system that you are putting in place for managing the inventories, what is the roll-out target?

Mr. O’Callaghan

We hope to have it completed by the end of the year; 80% is in place. We are doing another 50 stores this quarter. It is being developed in-house. It is an in-house system which has not been helped of course by the loss of IT personnel for the usual reasons and the concentration on other matters such as Y2K compliance programmes.

Deputy C. Lenihan

You are replenishing £31 million in any year. Is it the case that the replenishment factor would cover strategic and operational?

Mr. O’Callaghan

It would.

Deputy C. Lenihan

The percentage of what is strategic makes it easier to analyse what it is about. You mention a target of 80%. How many stores are we going to get down to?

Mr. O’Callaghan

We will have all our stores on the system. I do not know how we can reduce it any further. We are always trying to reduce the number of accounts, the number of stores. However, there are no plans to close any further barracks in the foreseeable future. A review is being carried out on the reorganisation of the reserve. That may enable us to close some accounts and some stores locally, but that remains to be seen.

Deputy C. Lenihan

You talk about the FCA not being included in this system.

Mr. O’Callaghan

That is right. It would have very small stores.

Deputy C. Lenihan

Does the FCA hold its own stores?

Mr. O’Callaghan

It has very small quantities of arms.

Deputy C. Lenihan

Is it intended to integrate it? I know the reorganisation of the Defence Forces puts more emphasis on the reserve and FCA. Is it intended to integrate them within the system?

Mr. O’Callaghan

Yes. The plan is to integrate an element of the reserve into the Permanent Defence Forces and that there will be a second cadre of reserves who would not be as highly trained who could be called upon in an emergency.

Deputy C. Lenihan

That is all the questions I have, Chairman.

Deputy Dennehy

A reading of the analysis gave me the impression that it was a bit disorganised and not run in the same way as an ordinary business would be in terms of controls on purchases and so on. The reason for that will obviously be the nature of the Defence Forces and strategic reasons. What stands out is that stocks have increased in value from an estimated £42 million in 1995 to £74 million in 1999 and that this is due to revaluing the stock. It sounds different from normal procedure. How does it arise that a revaluation would add 70% or 80% to the value of the stock?

Mr. O’Callaghan

I do not think it is all due to revaluation. It also due to increases in stock and the acquisition of more equipment. We are in the throes of re-equipping at the moment. Some of the stock would have been revalued. However, I do not think we were out by 100% in our valuations.

Deputy Dennehy

The background note on the Comptroller and Auditor General's report states the direct opposite. It states that it is due to a more accurate estimation than to an increase in the volume of stocks held.

Mr. O’Callaghan

Yes. That would have been a large factor. However, it is not the entire story.

Deputy Dennehy

It seems an extraordinary figure, but the note states that it is not due to an increase in the volume of stocks held.

Mr. O’Callaghan

On rereading it, I agree that you are quite right.

Deputy Dennehy

I find that extraordinary in the space of a relatively short time. It does show that there were obvious weaknesses. I think you accept that.

Mr. O’Callaghan

There is no question about it.

Deputy Dennehy

Your own Department was looking at the situation prior to this. The overall ratio of replacement parts, for instance, in some engineering stocks is 12.7. I appreciate that there are items such as nuts and bolts and so on. However, that seems an extremely high replacement ratio even for engineering works, and some were held in engineering stocks.

Mr. O’Callaghan

I would not know what the industry norm would be.

Deputy Dennehy

From my own expertise, one would be talking about a fairly rapid turnover. The reasons given for the excessive stock, somewhat outside the strategic reasons you mention, relate to quantity discounts from buying in bulk and reducing the administration costs by reducing the number of orders placed. Again, they do not seem to be very practical reasons for over-purchasing. Was there a central purchasing system in place for all of the stores?

Mr. O’Callaghan

Yes.

Deputy Dennehy

So you were getting full discount. Obviously a new system was badly needed. There is no point going over old ground. It is imperative that it be brought in as quickly as possible.

In terms of policy, there is always a tradition of reluctance or difficulty in getting rid of surplus stock in the Defence Forces because much of it consists of ammunition. Apart from that, however, is it difficult to get rid of surplus and obsolete items?

Mr. O’Callaghan

It is. For instance, we got about £5,000 for Land Rover parts which have a book value of £100,000. They were bought over the past 20 years. We had Land Rovers until 1998. I am told that one of the reasons for that is that the British Army got rid of their Land Rovers and millions of pounds worth of spare parts at the same time with the result that Land Rover parts could not be sold for love or money in recent times.

Deputy Dennehy

I had the experience of sharing Haulbowline Island with the Navy for 25 years in a previous life. My perception of Army, Navy and, probably, the Air Force was that the maintenance and holding of stocks was endemic within the service. There is reference here to a board of survey systems. Who are they? Are they a group who look at surpluses?

Mr. O’Callaghan

It is laid down in Army regulations that a board of survey would examine stocks to see which were obsolete. It would then give a decision as to what was to be done with them, whether they were to be disposed of, destroyed or sold on the open market. It has become more active now.

Deputy Dennehy

Is it an efficient system?

Mr. O’Callaghan

We have been assured by the military authorities that it is an efficient system.

Deputy Dennehy

You then have the right to put your own book figure on stocks. Do you have the right to scrap stuff if you wish?

Mr. O’Callaghan

Yes.

Deputy Dennehy

The greatest problem seems to have been a reluctance to do that. On the question of raw materials for Army clothing, it is suggested that the Army makes its own clothing, uniforms and so on.

Mr. O’Callaghan

We held the cloth and if an officer wanted a uniform, he would withdraw the cloth and go to a tailor selected from a list of tailors that we supply.

Deputy Dennehy

Has there been a change in that there is now ready-to-wear combat clothing?

Mr. O’Callaghan

The new combat uniforms that one sees Army personnel wearing now were brought in about two years ago. Consequently, we were left with a supply of the old material on hand. We intend to use much of that for the FCA.

Deputy Dennehy

I had not been aware of that aspect of it. I am aware that there was a furore about protective clothing. Many workshops and rehabilitation units and so on used to supply much of the protective clothing. Is that now sourced abroad?

Mr. O’Callaghan

Our contracts are subject to the Government contracts procedures and the Government Contracts Committee. We must, therefore, advertise.

Deputy Dennehy

Are you aware of any change in the sourcing of protective clothing?

Mr. O’Callaghan

If we are looking for protective clothing, we go into the open market. I am not aware——

Deputy Dennehy

I was just wondering whether materials were in any way involved. I thought that, given that the existence of surplus stores is a major cause of the problems, other people could take materials that will never again be used. Not everybody is aware of it.

Mr. O’Callaghan

You have put your finger on the problem. It is endemic in the Department. One holds on to materials because one never knows when one will use them, particularly in the case of very ancient equipment. In the context of more modern equipment, the use of "just-in-time" systems on a wider scale might be considered.

Deputy Dennehy

There is an anecdote told that when one review was carried out about the numbers in a group firing some particular gun, they found after 40 years that the extra man was for holding the horse.

Mr. O’Callaghan

That is right.

Deputy Dennehy

I do not know if that is correct. I presume an analysis of the stores is done in the same way. There is a difficulty with engineering stores. Is there any restriction from the Comptroller and Auditor General side if one is found to be selling off materials for which one would be responsible and getting back a certain amount of the cost of the material? Is there any such restriction?

Mr. O’Callaghan

No. We have a good contracts branch and it gets the best value for money. We are involved in recycling, fitting second hand parts, we sell used tyres and get money back for them and the casements for shells are gathered and sold. It is a huge and complex organisation and is unique for the reasons explained. There is no doubt about it, we can make improvements particularly in the areas you mentioned. We need a modern inventory management system. There is no question about it and it is a priority.

Deputy Ardagh

On page 91, I note that the issue of surplus and obsolete stores has been highlighted in recent annual reports of the Department's internal audit unit and discussed by the internal audit committee. What is the level of authority and responsibility of the internal audit unit? To whom does it report? Are the reports of the internal audit unit taken seriously and action taken as a result of those reports?

Mr. O’Callaghan

The internal audit unit is taken seriously. It reports directly to me, the Secretary General, and has the clout of the Secretary General. The reports are taken seriously. The reports highlighted areas that needed attention. The board of survey procedures were examined, tightened up and strengthened and took a more robust approach to examining the stores than heretofore.

Deputy Ardagh

It said "recent annual reports" so obviously it was more than one annual report. Sometimes one gets reports on an annual basis and the same item is carried forward year after year, with possibly a difference in figures, without any action being taken. From this one would surmise that a report is being put forward and it is something that was brought up on a yearly basis without any serious action being taken on the matter.

Mr. O’Callaghan

Yes, the internal audit unit would have gone around to different stores in the different barracks. It is not that it was talking about the stores system in the round, it was talking about specific barracks in Clonmel or wherever. It would say there was a need to tighten up on the stores management system in a particular barracks and one of the auditors would have produced a report to that effect. We were aware of the overall problem that we did not have a modern stores management system. We have been working on it slowly, I admit, for a number of years for various reasons. It was our own in-house initiative. We are building this system ourselves. It is not something we have bought from an outside firm.

Deputy Ardagh

Yes. Getting back to the internal audit report, was the 1997 internal audit report received and examined by yourself and put on a shelf or was it looked at and a comment made that we have got to make remedies? Was it ever reviewed later to see whether remedies had been instituted or if new procedures been instituted to ensure the weaknesses brought up in the internal audit report were addressed?

Mr. O’Callaghan

Yes. It would have been.

Deputy Ardagh

Why then are there apparent problems——

Mr. O’Callaghan

I suppose for a couple of reasons. In its annual report the internal audit unit would have reported on numerous aspects of our operations.

Deputy Ardagh

Right.

Mr. O’Callaghan

It would have been a matter of priorities. The internal audit committee, which includes the Deputy Chief of Staff of the Army and our own finance officer, is chaired by me, would have met and reviewed the internal audit report. We would have considered what action was to be taken and would have discussed it throughout the year and looked for a progress report.

Deputy Ardagh

How would that have been dealt with, Mr. O'Callaghan? You say the internal audit committee which is made up of very responsible people examined the report and throughout the year it examined what progress it made on it. How was that documented? How did you——

Mr. O’Callaghan

There would be a formal minute of the meeting of the internal audit committee. I would meet the head of the internal audit branch since he reports to me. I would have met him on at least a half dozen occasions throughout the year to see how matters were progressing.

Deputy Ardagh

What would those matters be? What I am asking is if specific procedures were put in place whereby the internal audit unit made a report, if there were procedures in place to see if the recommendations and the weaknesses documented by the internal audit unit were examined and followed up to see that those weaknesses were cleared, and if the procedures that should have been put in place were put in place. Was there a follow-up?

Mr. O’Callaghan

Yes, there was. To implement this system for such a large complex organisation as the Defence Forces would take time. Inevitably, a couple of annual audit reports would comment on the fact that it still has not been done or is not yet fully implemented. There is no way we could have implemented this in one year unless we dropped everything else. We are talking about management information here. There is no evidence that we have lost any stores or that we are losing any stores. The amounts of money are very small——

Deputy Ardagh

That is obvious from what you say.

Mr. O’Callaghan

——in connection with what we are talking about. Very detailed records are kept.

Deputy Ardagh

Of everything.

Mr. O’Callaghan

They are probably overly elaborate records.

Deputy Ardagh

Certainly it looks like that from the report.

Mr. O’Callaghan

The examples given for an organisation the size of the Defence Forces are not major issues as such.

Deputy Ardagh

How many did you issue as such? Is the internal audit unit——

Mr. O’Callaghan

Maybe issues is the wrong word. Even the £100,000 worth of Leyland parts as a percentage of our total fleet——

Chairman

Carry on.

Deputy Ardagh

Is there a separate internal audit unit for the Air Corps and the Navy?

Mr. O’Callaghan

It is the same one.

Deputy Ardagh

With regard to size, how many people are employed full-time?

Mr. O’Callaghan

There are 16 full-time staff.

Deputy Ardagh

What is the total number of serving member in the Air Corps?

Mr. O’Callaghan

About 900.

Deputy Ardagh

And in the Navy?

Mr. O’Callaghan

There are 1,000 to 1,100.

Deputy Ardagh

And in the Army?

Mr. O’ Callaghan

10,800.

Deputy Ardagh

Certainly the Army is very elaborate. A number of private concerns would employ the same or even more than the size of the Navy and the Air Corps. Neither the Air Corps nor the Navy is so big that it should not be manageable.

Mr. O’Callaghan

I am not saying they are not manageable or that we should not manage them. We must have a proper inventory management system. I am not arguing against that. We decided that ourselves. It is the pace at which we are implementing it that I am unhappy with. There is no question about that. We find it hard to defend that.

Deputy Ardagh

Mr. O'Callaghan said that he would expect to have more stock because of strategic reasons. In the same way as an inventory management system is needed for the ordinary operational items, surely there is some logic behind the level of strategic stockholding as well. It is not just a case of saying if there is too much stock, that is just strategic. I do not know whether that £60,000 worth of barbed wire was rusty or not. I cannot understand why it would not be used in the future unlessthere was something about it that made it unusable.

Mr. O’Callaghan

I do not think there is any suggestion that it is unusable. It is £60,000 worth of barbed wire.

Deputy Ardagh

Which would be surplus to requirements or obsolete. Perhaps the Comptroller and Auditor General can tell us how he made out that figure. It seems very small but it is the principle of it. Why did he come up with £60,000 worth of barbed wire? Was it simply because it was unusable? I am saying that on the basis of this question of strategic stocks and non-strategic stocks. I am wondering about the system of management of strategic stocks which may be separate from the operational stocks. Is there a system or are you developing a system in relation to strategic stocks so that that can be managed as well as the operational stocks?

Mr. O’Callaghan

It will be the same system. We will be putting all our stocks on this new system.

Deputy Ardagh

How will you differentiate between the strategic and operational levels of stock? What I am getting at is——

Mr. O’Callaghan

I know what the Deputy is saying. I understand the Army is drawing up stock levels for every item in the Defence Forces and I can assume, fairly confidently, that in respect of the strategic aspect it will have a strategic stock level designated for those items.

Deputy Ardagh

I can understand them being brought together from an operational point of view. It would be more efficient and effective in that way because it might use some of the strategic stock to reduce the operational stock but I would like to know that strategic stocks were not just the catch all for everything that was left over——

Mr. O’Callaghan

I understand, yes.

Deputy Ardagh

——like the clothing material. Many systems are coming into play now. There is the inventory management system, the generic model financial management system being planned for the future and all of this comes back to their uses without the people to implement these systems. I am just looking at the total salary for stock controllers. A total of 101 civilian staff were employed at an annual salary cost of £1.5 million. If PRSI is taken out of that figure, it averages at about £13,000 per employee. Can Mr. O'Callaghan ensure, particularly in the current economic circumstances, that there will be trained, competent, able stores personnel who will effectively manage and implement these particular systems? I have seen many systems put into places where a bundle of information remains to be put into the system because they do not have time, they are not able to put it in or it is put in improperly. What is the position with regard to stores personnel? Is there a problem in that regard?

Mr. O’Callaghan

We do not have a problem at the moment. One of the reasons for the delay in implementing the system is that the Army has been reorganised, as the Deputy is aware, over the past number of years. We had a voluntary early retirement scheme and we lost quite a few of our storekeepers and experienced military personnel in charge of stores. We do not have that type of manpower problem at that level. Where we have had problems in recent years is loss of IT people for the usual reasons; they are better paid in the private sector than they would be in the public sector. That has been a bit of a problem but we hope to overcome that. We are still confident that we will have the system up and running 100% in the near future.

Deputy Ardagh

In relation to the actual management of the inventory, I accept fully that nothing goes missing and that the integrity of the system is not questioned but the inventory management system will only work if the people who are working it are competent.

Mr. O’Callaghan

I appreciate that.

Deputy Ardagh

A different type of person will be required for the operation of this inventory management system than the person who is effectively guarding the stores.

Mr. O’Callaghan

There have been numerous meetings and discussions about the implementation but that has never been mentioned to me as a problem by the military authorities - that we will not have the proper type of trained personnel at the end of the PCs in the stores with this new management system. That has not been mentioned to me as a problem.

Chairman

What depresses me about all of this is that it has been going on for years. I am looking at the 1991 Report of the Comptroller and Auditor General and there seems to be no change. I am not going to take assurances that we get every year by way of a sop to the Committee when nothing is done about it. I want you to come back here in six months, Secretary General, with these questions answered and changed. We want you to come back in the first week of July with a proper control and accounting system in place so that the Comptroller and Auditor General has no cause to have notes to your accounts or to raise issues of concern.

From my own anecdotal experience, I would not be happy that nothing walks out of Army barracks. I have known of cases in the past where Army officers were having their cars serviced at State expense in a particular barracks. I raised that issue with the Department and I got it stopped in the past 18 months or two years. We should not be sanguine and take assurances that things are all right when we have no reason to believe that is the case.

The report of the Comptroller and Auditor General shows that there are items unmoved for seven, nine or ten years. Despite all the modernisation of the Defence Forces, which is extremely welcome, there still seems to be stores still in place from Dad's Army's time, going back many years. One only has to look at the notes of the Comptroller and Auditor General. In relation to the Naval Service, it states that tests carried out during the audit identified about 10,000 item types showing a value estimated at £3.1 million which had not moved in the past seven years. In relation to the Air Corps, it states that in 1999, the Air Corps identified about 8,300 item types which had not moved in the previous five years. Items are simply lying there for years.

There is also the question of the disposal of these stocks and the safeguards that exist in relation to their disposal. Do we dispose of them in other countries, for instance, or other organisations and, if so, which organisations? Are there any protocols about that in relation to the types of equipment? There is a lot of work to be done here but we are not going to wait for next year's report of the Comptroller and Audit General to tell us what he has been telling us since 1991.

One aspect which has depressed me is the public debate going on between the officers of the Army and the Department of Defence. To be honest, it is more a one sided debate. I have never seen, except in recent years, what seems to be a civil war going on between the high command in the Army and the Department of Defence. I have never seen such public criticism of the Department. That is not to say it is justified. I have not noted any comments by the Department in response to these criticisms but there is a danger almost of insubordination of the Defence Forces to the civil power.

In those circumstances, how can the Secretary General of the Department of Defence exercise his authority as Accounting Officer in controlling these stores when they are effectively under military command and at the disposal of the military? Are you satisfied, as Accounting Officer, that you have effective control and that you can adequately account to this committee?

Mr. O’Callaghan

That is a very important question and I would like to reassure you that I have. I have the utmost cordial relations with the senior military management; there is a businesslike and professional approach with them. As I mentioned earlier, the deputy Chief of Staff is on the internal audit committee with me and I have no fears in that regard. I could not possibly use that as an excuse for not ensuring the stores are adequately managed.

Chairman

Has any concern been expressed within the Department about some of the media reports on the reported feelings of senior Army officers in relation to the Department of Defence?

Mr. O’Callaghan

There are obvious concerns. There is no question about that. These emanate mainly from representative associations who would have a specific agenda in this area. In the past five years the Defence Forces have gone through an enormous reorganisation. I have served in other Departments and have been in the Department of Defence for seven years. I am not aware of any organisation in the country that has gone through the reorganisation and downsizing the Defence Forces has gone through in recent times.

They had about 13,000 personnel five or six years ago. They were reviewed by Price Waterhouse, there have been White Papers, barracks have been closed, there have been voluntary retirement schemes, there was huge turnover of staff where nearly 2,500 new recruits joined and new missions all over the world from East Timor to western Sahara. It is a huge and complex organisation going through a huge process of change and, by and large, that change has been implemented successfully. We are now beginning to see the fruits of it and over the coming years we will see equipment, infrastructure and accommodation better than they have ever been in the history of the State. They are continuing to improve.

I wish to reassure you that the relationships with the military management are excellent, professional and businesslike. They agree with me that this inventory management system is a priority and I will be relying on them. I know they will and are taking it seriously and that they will co-operate with me in implementing it. In case I gave the wrong impression that we have never had any misappropriation of items of military equipment down through the years, we have. I was only quoting what the Comptroller and Auditor General said that they are generally secure, records are being kept and any discrepancies are relatively minor. That is in the Comptroller and Auditor General's report.

The examples that are given represent a significant but at the same time minor fraction of our total inventory. Obviously, we have got to manage our stores correctly. There are costs associated with keeping obsolete stores in stores around the country and, as Accounting Officer, I have to ensure we do something about that.

Chairman

The Comptroller and Auditor General wants to come in on that point.

Mr. Purcell

I might be particularly touchy this morning but there is a suggestion that these were the only examples of the overholding of stores, surplus stores and obsolete stores. There were others. That was borne out by later work by the Department in relation to the Air Corps with regard to aircraft parts and so on where we are talking about stores with a book value of £5 million to be disposed of. We are also talking about Naval Service stocks worth £3 million where there are items which have not been moved for the last seven years. All of this is not academic. The Department of Finance calculated some time ago - I do not know if the Department would care to comment on this - that there are holding costs of 25% of the value of stocks incurred every year. This is a significant amount of money.

To clarify something for Deputy Ardagh so we do not get tangled up in any rusty barbed wire, the barbed wire was stored outside, it was not housed. This barbed wire had come from some of the barracks which were closed down. It was not stored in an organised manner and was not housed. At the time we inspected it, the people involved did not know how much was there. That might suggest that it was not being managed.

On that point, the Accounting Officer is right to refer to stores being required for contingency and security reasons. That is true. However, our report in 1991, which was published with the appropriation accounts for that year, said: "test checks across a number of stores indicated that up to four years supply of stocks were held in some cases. While a requirement for certain emergency stock is recognised, due to the security related roles of the organisations, such as the Department of Defence, the question must arise as to whether stock levels where such considerations do not validly apply are excessive and are capable of reduction with consequent savings". I just want to put this into perspective and I thank the Chairman for the opportunity to do so.

Chairman

Does Mr. O'Callaghan wish to continue or to respond?

Mr. O’Callaghan

We are not trying to defend the indefensible here. We realise there is a shortcoming in our procedures. I accept that it is in the Comptroller and Auditor General's report that surplus and obsolete stocks have been allowed to build up in the past and the issue needs to be addressed. This has been recognised by our internal audit group, that the boards of survey were cumbersome and something needs to be done about it. We are addressing all of this.

Chairman

The Comptroller and Auditor General quoted from the 1991 report. We are now dealing with the 1999 report in early 2001.

Mr. O’Callaghan

I was not there in 1991 or in 1992 but I assume the introduction of the IMS system was a response to that report. What we are talking about now is an undeniable delay in implementing it.

Chairman

Over the past year I have been appalled at what I have read of Army and military authorities saying or being quoted as saying, usually unattributed, or former Chiefs of Staff writing, as if they were speaking for the Army, in a way that suggests the Department of Defence is interfering in the Defence Forces as if it did not have a right to do it. This is of grave concern to me in relation to the control of expenditure by the Defence Forces. If there is lack of effective control by the Department of Defence, it is of concern to this committee. I have said it to many Army officers I have met during the year that it is appalling that the Government of the day has to negotiate with the national Army.

Mr. O’Callaghan

I welcome what you say, Chairman. I am glad you have put it on the record and I could not agree with you more. However, I assure you and the committee that with the current organisation, I do not have a problem that impedes my duties as Accounting Officer. I could not use that as an excuse for the implementation of the IMS system or any other system or any other control. To reassure the committee, the internal audit unit has access to every store and account in the military without notice. They get the utmost co-operation.

Deputy Dennehy

I was inclined to ask the representatives of the Department of Finance earlier about the revaluation of stock from £42 million to £74 million over four years. It was stated that this was due to a more accurate estimation of stock value. In a similar vein, does the Department of Finance have a view on the issue of the cost of holding obsolete stock as opposed to writing it off or selling it as scrap? Does it have any concerns about that happening?

Mr. O’Neill

There was a reference to some study by the Department of Finance and neither Mr. Howard nor myself have knowledge of it. However, we will certainly look into it when we go back to the Department and see which section did it and what it said. After that, we are reduced to generalisations to some extent - of course, one should not hold on to more stocks than one needs in some measurable time in the future, and this will vary. It seems from the report that, due to whatever reasons - some were given by the Secretary General - the clearing out of old stock was not done at the time when it might have been done, but this is being addressed at present. The short answer to Deputy Dennehy's question is that I will look for the study which was referred to and see what it says. I will communicate with the committee on the outcome of that. This is the best answer I can give.

Chairman

We will return to this subject in the first week in July, in six months time. We want the Secretary General to discuss with the Comptroller and Auditor General what appropriate steps should be taken and to ensure that something is done and new processes are put in place. We would not wish that necessary stocks or emergency items the Defence Forces need are not provided. However, we need a proper control and reporting mechanism. This is the point.

Deputy Dennehy

The reason I put that question is that the Department of Finance is the permanent watchdog. If one questioned items, the Department of Finance would not be happy. Are there any guidelines about the writing off of materials? Mr. O'Callaghan said he did not have a problem but I wonder if the Department of Finance had any difficulty on that issue. This is the information I was seeking.

Mr. O’Neill

We meddle as little as possible with the Department of Defence. There may have been some general study that took place in some branch of the Department and I will check that.

Mr. O’Callaghan

My understanding is that we have full delegated authority to write off as we see fit. Again, that is not an excuse for us——

Deputy Dennehy

I have often heard it quoted that perhaps the Department would not be happy. Are there any guidelines? Some of the materials the Department has are beginning to look even worse. In many cases, a bad system leads to material being left aside. It is audited every year during a stock check and it is ticked off although it may not be useful any longer. Equipment such as bearings and shell cases are kept regardless of whether the guns are still in existence. Is there any impediment to the Department functioning in an efficient manner in that regard?

Mr. O’Callaghan

No.

Chairman

Regarding the Army deafness claims, what is the up-to-date position? Has the number of claims stopped growing? Is the issue under control?

Mr. O’Callaghan

Perhaps I could give the committee some up-to-date statistics in terms of where we stand at present. The number of claims registered to date is 15,486. We have finalised 7,346 and the total outstanding is 8,140. From that, the members can see that we are at the half way stage. The average settlement per case is down from the high of £35,000 to approximately £7,800 at present. New cases are still coming in at the rate of about 15 per week. If current trends continue, we expect that the total bill will be approximately £250 million and it will take us perhaps two years to clear that backlog.

Chairman

Are you satisfied that there will never be a repeat of this and that all the health and safety regulations are in place and they are being implemented effectively?

Mr. O’Callaghan

Yes, I am. The Minister directed the military recently to do a further health and safety review of the entire organisation, the last one having been done in 1994.

Chairman

Is Defence Force recruitment a problem?

Mr. O’Callaghan

It is a problem. Like every other employer in the country, we are finding it difficult to get people. We had a very ambitious recruitment plan this year - 750 general recruits. At the end of the day, we got 569 Army recruits and 59 for the Naval Service. We got about 620 of our target of 750. I gather another 100, or slightly over that number, will be taking up duty this month.

Chairman

So you have nearly reached your target.

Mr. O’Callaghan

We have nearly reached our target.

Chairman

That is looking good. Regarding Army property, what happened to Clancy barracks? Was it to be sold and used for housing purposes?

Mr. O’Callaghan

It was to be sold at the beginning of this year.

Chairman

Why has it not been sold?

Mr. O’Callaghan

The accommodation for the soldiers and personnel there is not yet available. It will be available in October, but that will not stop us putting it up for sale in the coming weeks.

Chairman

Is there any other property that is surplus to requirements now?

Mr. O’Callaghan

There are 22 acres in Naas. We have accepted an offer from Naas UDC of £7 million for 14 acres of it. One acre has been sold to Kildare County Council for £300,000 and seven acres will be ceded free of charge to Naas Urban District Council. There are 48 acres at Magee barracks in Kildare. Some 200 asylum seekers have been there since March 2000. The barracks has been used for Kosovo refugees since May 1999. We have supplied a temporary halting site for 20 people there for one year. We have not been able to sellthat premises yet. Castleblayney barrackshas been sold to the Eastern Health Board for £600,000.

Chairman

How many acres?

Mr. O’Callaghan

Ten acres. At Fitzgerald camp, Fermoy, 19 acres has been sold to Cork County Council for £767,000 for a strategic industrial site in conjunction with the IDA. There are 138 acres in Ballincollig. An integrated action plan has been submitted to Cork County Council and we are hoping that will be integrated into the county development plan and it will be put up for sale early this year. As I said, 13 acres at Clancy barracks will be vacated by October this year and the property will be put on the market in the first quarter of this year.

Chairman

Mr. O'Callaghan mentioned the integrated action plan for Ballincollig. That assumes that planning permission will begranted and accordingly that there will be added value.

Mr. O’Callaghan

Yes.

Chairman

Has planning permission been sought in respect of Clancy Barracks?

Mr. O’Callaghan

We have not drawn up an integrated action plan for it but we gather it is zoned for housing which makes it very valuable. The Valuation Office put the——

Chairman

Of course. It is a great location but the Department should surely take steps, if necessary, to ensure when the planning process takes its course the additional value will accrue to the State rather than——

Mr. O’Callaghan

I think it has planning permission.

Chairman

That is fine.

Deputy McCormack

With regard to the 14 acres in Naas, did Mr. O'Callaghan state that it is valued at £7 million?

Mr. O’Callaghan

Yes.

Chairman

And they were also given seven free acres.

Mr. O’Callaghan

We gave them seven free acres. One acre was sold to Kildare County Council for £300,000.

Chairman

So there were 30 acres in all.

Mr. O’Callaghan

There were 22 acres.

Deputy McCormack

Do I understand that the 14 acres were valued at £500,000 per acre?

Mr. O’Callaghan

Yes.

Deputy McCormack

In what way was that land zoned?

Mr. O’Callaghan

It is zoned for housing; it was an open tender competition in which obviously Naas Urban District Council had an interest.

Deputy McCormack

That is fine.

Chairman

So, of the 22 acres you have sold——

Mr. O’Callaghan

We sold 14 and another one.

Chairman

And you gave them seven.

Mr. O’Callaghan

We gave them seven. One was sold to Kildare County Council.

Chairman

In other words, for the 22 acres the Department received £7.3 million.

Mr. O’Callaghan

Yes. We hope to at least make the £50 million we have estimated from the sale of the six barracks. There is a policy to sell off as much property as possible because we have an agreement with the Department of Finance that we will receive 100% of the money which we can reinvest in the re-equipping programme.

Chairman

That is very wise.

Deputy McCormack

I wish to ask a final question in respect of the position in Galway. Some time ago the Department was to offer by tender land surplus to its requirements at Renmore. What is the current position in that regard?

Mr. O’Callaghan

Is the Deputy referring to the Arranmore firing range?

Deputy McCormack

No, I am referring to part of the barrack lands at Mellowes Field.

Mr. O’Callaghan

There are 10.25 acres there. Four possible sites have been zoned as institutional amenity and two as recreation and amenity. These sites were given various valuations. For example, 2.8 acres were valued at £650,000, five acres at £650,000 and 2.2 acres at £350,000. The question of planning permission for housing is proving somewhat difficult having regard to the location. We are in discussions on this matter with Galway Corporation and Liam Mellowes GAA club.

Deputy McCormack

Yes, but is it not possible to dispose of the 2.8 acres zoned as amenity and open space because its value cannot now increase?

Mr. O’Callaghan

The short answer is yes, it should be. I will investigate the matter when I return to the Department and communicate further with the Deputy on it.

Deputy McCormack

Will Mr. O'Callaghan inform me of the result of his investigation?

Mr. O’Callaghan

Yes.

Deputy Dennehy

Is there a timeframe for completion of discussions with Cork County Council on Ballincollig and the implementation of the strategic plan? Has there been a legal challenge regarding the title to the land or any part thereof?

Mr. O’Callaghan

The answer to the first question is that we are anxious that as soon as the county council has adopted the integrated action plan into its county plan we can get down to business.

Deputy Dennehy

Am I not correct in stating that the council is not due to draw up its county development plant until next year?

Mr. O’Callaghan

I was led to believe it is fairly imminent.

Deputy Dennehy

It might be, I would not argue the point.

Chairman

It sounds like a good way of proceeding.

Deputy Dennehy

Yes, the correct procedure has been adopted. On the second question, has a legal challenge been made?

Mr. O’Callaghan

I am not aware of any. I know there was a question about whether there was a 99 or 999 year lease but there was no legal challenge to our right to sell.

Deputy Dennehy

There were a number of rumours about challenges being made. Is Mr. O'Callaghan aware that none has been made?

Mr. O’Callaghan

None has been made.

Chairman

Is the Department acquiring any new land or properties?

Mr. O’Callaghan

No, unless we had to buy the odd strip of land for convenience purposes. However we are not buying any new——

Chairman

It is not moving operations to the further outskirts of cities or towns.

Mr. O’Callaghan

No.

Chairman

Does Deputy Lenihan wish to ask any questions?

Deputy C. Lenihan

The Secretary General referred to the purchase of lands. Is it intended to purchase land - even small parcels of it - in the western suburbs of Dublin with a view to establishing FCA units in those areas? Most people in Dublin seem to think there is only the northside and the southside and they forget the westside. I understand the FCA is being reorganised.

Mr. O’Callaghan

We are reorganising the FCA.

Deputy C. Lenihan

My question relates to areas such as Tallaght and Clondalkin in particular. If new units were established would they operate out of Baldonnel?

Mr. O’Callaghan

We are reorganising the FCA. A series of meetings, seminars and conferences started just before Christmas, the purpose of which is to address representatives of the FCA throughout the country. A plan is being developed which will lead to the reorganisation of the FCA in the next four to five years, part of which will look at the geographic spread of the FCA which will be known as the new Army reserve. There is a possibility that we may amalgamate units in small areas. There are definitely areas of high population density where we do not have FCA premises at present and it would seem fairly obvious that we should open FCA training areas in the parts of Dublin which you mention as an example. However we have not yet sourced our plans nor are we yet looking for property in that particular area. Baldonnel would be a possibility or an option if we did.

Deputy C. Lenihan

In terms of the general west Dublin conurbation is it correct that there are no FCA units in Tallaght, Clondalkin, Lucan or Blanchardstown?

Mr. O’Callaghan

They normally would train in McKee or Cathal Brugha Barracks.

Deputy C. Lenihan

Therefore four of the major areas in the west Dublin conurbation have no units. On the last occasion Mr. O'Callaghan came before us he stated that the Department of Defence was quite keen on the idea of converting Baldonnel Aerodrome for civil use. Is that still the position?

Mr. O’Callaghan

I think that may probably still be our position. We have no objection to it being used as a civil and military airport. There is a Bill going through the Oireachtas, as you are probably aware.

Deputy C. Lenihan

Yes

Mr. O’Callaghan

That matter is going to be considered because we will need legislation.

Chairman

So there is enabling legislation in the process of passing through the Houses.

Mr. O’Callaghan

There is but I am not quite sure whether it will survive in its present form. You do need a change in the legislation to allow the military aerodrome or airport to be used for civil purposes.

Deputy C. Lenihan

Section 46 is the relevant——

Mr. O’Callaghan

Section 46 of the Bill. I am not sure whether it is going to survive. It is not our——

Deputy C. Lenihan

However the Department supports the enabling legislation.

Mr. O’Callaghan

We have always said that the facility has probably been under-utilised to some degree and we will certainly make it available for smaller air traffic to use.

Chairman

Small aircraft. In other words, general aviation.

Mr. O’Callaghan

Small, maybe executive-type aircraft.

Deputy C. Lenihan

Executive jets.

Chairman

What about commercial flights?

Mr. O’Callaghan

That is really a matter for Government. It has that potential.

Chairman

What about the transport infrastructure and connections? Is that not——

Mr. O’Callaghan

That would be a problem, there is no doubt about it.

Chairman

Have discussions taken place with any other statutory authorities regarding those questions?

Mr. O’Callaghan

Over the last couple of years we certainly have had discussions with the Department of Public Enterprise about it. That Department is getting the arguments from the various groups about whether we need a second airport. There are counter-arguments which state that Dublin Airport has the capacity and will have it for the foreseeable future. There is a good road link, the M50, between the west side of the city and Swords and the airport.

Deputy C. Lenihan

The last time you said that in terms of development of the runway and the infrastructure at Baldonnel, there would be significant savings even from a limited civil usage from it in terms of the cost of——

Mr. O’Callaghan

Significant investment would be required initially - I think a figure of £5 million would be required to do the runway at Baldonnel.

Deputy C. Lenihan

On a totally different note, what is the situation in relation to Eircom stadium? Your Department has been through the planning process in south Dublin with, I presume, some reasoned objections to the height, etc., and the scale of the project. What is the status at the moment?

Mr. O’Callaghan

We raised an objection with An Bord Pleanála by the required date which, I think, was 13 October and An Bord Pleanála is considering that at the moment.

Deputy C. Lenihan

What is the substance of that? Is the height the substance of your objection?

Mr. O’Callaghan

It is air safety basically. We have had technical advice on air safety and compliance with international civil aviation guidelines.

Deputy C. Lenihan

In terms of our participation in the rapid reaction force, we have been talking about inventory and stock management and, of course, the wider issue of purchasing for the Army. Is there any potential savings for us as a country by having linkages through the European defence structures such as our participation allows? In other words, is it potentially possible that in the purchasing of equipment and other items of that kind significant savings could be achieved by some element of pan-European purchasing or partnering with other countries with similar views to ours in relation to participation in European defence structures? Presumably this country's role is very small in the overall over-arching purchasing or procurement scene in relation to military equipment, etc. Are there any potential benefits to our participation in wider European structures at that very practical level?

Mr. O’Callaghan

It is possibly too early to say but we do not think there will be. Each country will be expected to be more or less self-contained. There is not a lot of common ground between equipment generally. For instance, no two countries might have the same radio equipment or small arms. Maybe a couple would, but certainly the whole lot would not. There may be possibilities there at which we can look. By and large, the Irish soldier's equipment is second to none and is as modern as any you can get. We get it at good prices and at good value.

Deputy C. Lenihan

If we are in this rapid reaction force, we are going to harmonise some element of the equipment. Would it make more sense to make us generally——

Mr. O’Callaghan

A lot of the countries in Europe would have their own internal arms industry. I am not quite sure whether we are going to link up with them. It is something at which we can look and on which we can have an open mind.

Chairman

Has any further consideration been given to the Army compensation board?

Mr. O’Callaghan

Is this the claims agency?

Chairman

Yes. If you had another deafness issue, for instance, there would be a proper compensation scheme laid down with proper mechanisms and controls.

Mr. O’Callaghan

A claims agency has been announced by the Government and it will come under the aegis of the National Treasury Management Agency.

Chairman

The Defence Forces will be covered for that.

Mr. O’Callaghan

Yes.

Chairman

We will adjourn the Votes until the first week of July when we will return to the question. I will write to you, Secretary General, setting out what precisely we need and expect by that date. We will deal only with the question of inventory control and related matters. We will discharge the witnesses from the Department of Defence.

Mr. O’Callaghan

Thank you very much.

The witnesses withdrew.

Vote 30 - Marine and Natural Resources.

Mr. T. Carroll (Secretary General, Department of the Marine and Natural Resources) called and examined.

Chairman

We now to turn Vote 30 - Marine and Natural Resources. I welcome Mr. Thomas Carroll, Secretary General of the Department of the Marine and Natural Resources. Perhaps you will introduce your accompanying officials.

Mr. Carroll

Thank you, Chairman. I am accompanied by Sara White, Assistant Secretary in charge of the fisheries area in the Department of the Marine and Natural Resources, Joe Ryan, principal officer in charge of the sea fisheries administration division and Brendan Buckley, HEO in our finance division. Another official, Brendan Hogan, is en route and he is assistant principal in the finance division.

Chairman

You are all very welcome. We are joined by Mr. Tony Gallagher and Mr. Niall McSweeney from the Department of Finance.

Paragraph 28 of the Report of the Comptroller and Auditor General reads:

VOTE 30

MARINE AND NATURAL RESOURCES

28. Fishery Harbour Centres - Collection of Debts

The Department of the Marine and Natural Resources is responsible for the control and management of Fishery Harbour Centres. The day-to-day management of each Centre is carried out by a Harbour Master. The Centres are located at Killybegs, Castletownbere, Rossaveel, Howth and Dunmore East. A Fishery Harbour Centres Fund is maintained to record all moneys received and expenditure incurred in respect of these harbours. .

Revenue to manage the five harbours is raised locally through the charging of harbour dues for the use of facilities, through rentals received for leased properties and by way of an annual grant paid by the Department.

During the audit of the Fishery Harbour Centres Accounts for the year ended 31 December 1998, it was noted that total debtors had increased from £414,601 at December 1996 to £693,450 at December 1998. The average time period for which debts were outstanding had increased from 149 days to 289 days.

It was also noted that outstanding harbour dues constituted 75% of the total debtors and that there was a poor and varying performance between the different Centres in relation to the collection of these dues. At 31 December 1998 the average period for which harbour dues were outstanding varied from 130 days in Howth and Rossaveel to 573 days in Dunmore East.

Financial details on the overall level of debtors and income for the years 1996, 1997 and 1998 plus the level of harbour dues outstanding and income for each Centre for 1998 are as follows:

Table 17

Level of Debtors relative to Income 1996 to 1998

Year	Debtors at 31 December	Income for Year	Average Collection Period
	£	£
1996	414,601	1,012,680	149 Days
1997	466,799	903,829	188 Days
1998	693,450	876,814	289 Days

Table 18

Harbour Dues for 1998 by Centre

Centre	Harbour Dues Uncollected at 31 December 1998	Harbour Dues Income for Year	Average Collection Period
	£	£	Days
Castletownbere	82,750	91,848	329
Killybegs	340,264	285,326	435
Dunmore East	58,669	37,371	573
Howth	24,996	70,157	130
Rossaveel	12,305	34,596	130
Total	518,984	519,298	365

In response to my inquires concerning the high level of debts outstanding the Accounting Officer stated that the extent of harbour dues outstanding between 1996 and 1998 was attributable largely to a campaign of withholding dues organised by the Killybegs Fishermen's Organisation at Killybegs Harbour Centre. Payment of the withheld dues was pursued by the Department and £291,215 was paid over by the organisation in August 1999. The effect of this payment was to reduce from £518,984 at the end of 1998 to £388,568 at the end of 1999 the amount outstanding in respect of harbour dues as outlined in the following table:

Table 19

Harbour Dues Outstanding at 31 December 1999

Centre	Harbour Dues Uncollected at 31 December 1999	Average Collection Period
	£	Days
Castletownbere	104,421	438
Killybegs	161,263	224
Dunmore East	71,943	853
Howth	34,134	148
Rossaveel	16,807	169
Total	388,568	283

There was scope for improvement in the overall position in relation to collection of harbour dues and the position at certain harbours required particular attention. The current standard procedures for dues collection were being reviewed with a view to effecting improvements in efficiency. In addition, clerical support has been or is being provided for the Harbour Masters at Killybegs and Castletownbere. Consideration was being given to the provision of similar support for the Harbour Masters at the three other Fishery Harbour Centres. Arrangements were in train also for the recruitment of a temporary Assistant Harbour Master for Dunmore East.

Harbour dues constituted the bulk of the Fishery Harbour Centres' income. Their income was, therefore, substantially determined by the levels of harbour usage and the dues accruing in respect of such usage and the efficiency of dues collection. Steps to improve the collection of dues would ensure that available income was maximised and would be accompanied by continued rigorous control of expenditure to ensure the viability of the Fishery Harbour Centres going forward.

The position in relation to debt collection generally in this area was under review and any further action identified as necessary to effect the necessary improvements in the position would be taken.

Mr. Purcell

There is just one paragraph on Vote 30 - Marine and Natural Resources. There are five fishery harbour centres operated by the Department - Killybegs, Castletownbere, Rossaveel, Howth and Dunmore East. During the course of the audit of the accounts of these centres I noted that there was a gradual deterioration in the collection of outstanding debts. At the end of 1998, nearly £700,000 was uncollected and over £500,000 of that related to outstanding harbour dues with Killybegs posing a particular problem. The position in Castletownbere and Dunmore East, although lesser in scale, was also unsatisfactory. The situation in Killybegs improved in 1999 as a consequence of a pay over by the fishermen's organisation of withheld harbour dues but the outstanding amounts in the other centres have increased by the year end.

The Accounting Officer agreed that there was scope for improvement in the collection of harbour dues and outlined some measures being undertaken to maximise the collection of some outstanding debts at the centres generally. I do not know the extent to which these have been successful but I have no doubt the Accounting Officer will be able to up date the Committee in this regard.

Chairman

Mr. Carroll, would you like to make a brief opening statement in response to the Comptroller and Auditor General?

Mr. Carroll

I certainly would, Chairman. There are system and resource problems of an ongoing nature in the management of fishery harbour centres but there are also fundamental underlying problems and I think we have to address those two issues. At the moment the fisheries harbour centres are managed as an integral part of a central Civil Service Department. They have a commercial function in many respects and the organisation is fragmented at present. We have a local harbourmaster in most cases without any clerical backup. They used to have clerical backup up to the mid-1980s when staff ran out and they lost their clerical support. We are reviewing that in some cases and have made some changes there.

We have an accounts branch located in Castlebar. It is separate from the fishery harbour centres and the Department. The fishermen are billed locally by the harbourmaster. Invoices are sent out from our accounts branch which bills the fishermen. If, after a certain period of time, they are not paid, they are sent to our central fishery harbour administration division which would then try to get the fishermen to pay. If they do not, it goes to the Office of the Chief State Solicitor which, ultimately, will bring proceedings. There is scope with some changes in internal procedures which we are making to reduce the length of time it takes to collect bills. My own assessment is that this may improve collection by maybe a couple of months at the most but it will not fundamentally address the central issue. There is political agreement on this issue that the whole management of the fishery harbour centres has to be taken out of the Civil Service framework; it has to be replaced by a commercially focused streamlined organisation which will be able to handle these things much more professionally. That will require changes in the law, in management structures and probably the setting up of a new organisation.

At the moment the fact is that under the law as it stands if a fisherman does not pay, it would take possibly 18 months to go through our systems, including the legal system, to actually get that person, perhaps with a small invite, to the stage of being taken to court. That is the only remedy that is open at the moment under the legislation. We do not have the power to refuse entry to a port. We do not have the power to impose any penalties, such as interest penalties for non-payment on time, etc.

To address the underlying issue here, we have to make fundamental changes and these will require policy changes. The Minister has over the past few months been actively engaged with the Department and the fishing industry organisations and users' groups in the fishery harbour centres with a view to recommending a new structure for the management of fishery harbour centres.

There is consensus that the organisation should be fundamentally transformed and relocated outside the Civil Service framework and be moved towards a commercial operation but the precise form of that, whether it should be tied on to a existing organisation such as, say, Bord Íascaigh Mhara, whether there should be individual harbour companies for each port or whether there should be one harbour company to manage the five harbours, has yet to be resolved. We will, and can, make improvements within the existing system but in reality they will be only marginal improvements. The ultimate solution lies in fundamental change of the structures.

Deputy McCormack

Why are those five harbours the fishery harbours? What is their background and history compared with those of all the other harbours throughout the State?

Mr. Carroll

The background there is that in the early 1960s, as part of the first programme for economic development, a study was carried out of the Department of Fisheries and the requirements for the development of fisheries in Ireland. At that time most fishery harbours were either unmanaged or just landing places with no particular management. All were run by harbour authorities in the same way as other harbour authorities - the Deputy will be aware that there are still some harbour authorities around the country for commercial operations. There was a lack of investment and a lack of focus. It was felt that, to facilitate the development of the fishing industry in Ireland, a number of key centres should be picked and prioritised. At that time the decision was taken to give them priority, to take them under control at national level. At that stage it was the Office of Public Works which was to run them, put in investment and fuel them to create a critical mass and a scale for the development of fisheries rather than having a fragmented approach and small harbours all over the place where one would never get the scale necessary to underpin a long-term drive in the industry. This strategy has worked to an extraordinary degree in places like Killybegs, in particular, where there are the most landings of any fishing port in Europe. Therefore in some respects it has worked. Other harbours have been less successful. Killybegs has developed because of the development of the new pelagic fisheries - mackerel and herring.

Chairman

Pelagic?

Mr. Carroll

The oily fish - mackerel, herring, horse-mackerel. They are high volume, low value species. Other harbours have developed quite well. Rossaveal, for example, is now scheduled for a major investment to regenerate and develop the fishing effort on that particular zone. Castletownbere is a fine fishery harbour.

I should mention that it has been decided in principle that in the new structure Dingle harbour will be included as a priority harbour within the new management structures and treated on the same level as Killybegs, Castletownbere, Rossaveel and Dunmore East.

Deputy McCormack

The revenue from the five boards is made up of various things - harbour dues, the use of facilities, rental of property, etc., and by an annual grant paid by the Department. Is that annual grant payable for the day-to-day running costs or is it for capital investment?

Mr. Carroll

All capital investments in fishery harbour centres which are owned by central government are funded by the Exchequer - 100%. By way of clarification, there are other harbours such as Kilmore Quay and, at present, Dingle where capital investment would be financed ultimately by the Exchequer but it is done using 75% from the Exchequer and 25% from the local authority.

In the fishery harbour centres the objective is to break even on operational costs. There is a subsidy of £75,000 per annum towards operational costs.

Deputy McCormack

Is that £75,000 for each?

Mr. Carroll

No. The finance of the harbours is managed through one fund, the solidarity fund, and the £75,000 is not attributed to any particular harbour; it goes to defray any deficit or to increase any surplus within the fishery harbours fund.

Deputy Dennehy

I was looking for this in the Defence budget but I could not find it, but it is ironic that the Department was penalised under the prompt payment legislation. It is ironic that the State must be the suckers. Nobody will pay the State but the State must pay everybody.

There are various prices here for the value of a hectare of mature timber. In 1991, one of Mr. Carroll's predecessors stated that the book value of State owned timber was about three or four times its actual value. I think the logic behind the statement was that it was more or less inaccessible and we had been planting on the worst land in places where nothing else would grow, etc. For commercial reasons, it could not be harvested. Does that statement still apply or has there been a change of policy since then?

Mr. Carroll

This is an entirely separate issue from the one we are discussing. Do you want to take this now, Chairman?

Deputy Dennehy

I apologise. I thought I could ask general questions.

Chairman

I will allow the question.

Mr. Carroll

The question has been raised here before by Deputy Ardagh. The question of the valuation of woodlands is extremely complex because due to the life of timber - it is 40 years for conifers and 80 or 90 years for broadleaf trees - one must make assumptions about future prices, depreciation and losses. It is very complex and, as I understand it, there are multiple ways of doing it.

All State forestry is effectively vested in Coillte. Coillte produces commercial accounts. In the notes to those accounts, Coillte will explain its valuation methods. No doubt there is room for argument about this and one could get different sets of valuation methods which would give different perspectives but I doubt if there would be any grounds for a statement that the book value on the estates would be seriously at odds with the real value, however one would measure that. The Deputy has raised a very big issue and it deserves a study in its own right. There is no easy answer to it. The long-term price of timber is a very complex issue.

Deputy Dennehy

Besides those issues, which are moveable feasts, I was concerned at the time at the value which was based on the acreage we had planted and the type of tree and so on. However, the point Mr. Carroll's predecessor made was that the legislation at the time provided only for land which could not be used for agricultural and a variety of other purposes and also accessibility. We have moved a long way from that but much of that forestry is maturing now.

Mr. Carroll

I do not know the specific answer to the question to what extent is the cost of extraction from varying terrain and whether that is factored into the valuation method. I will have a look at the data and I will send the Committee a note on it. I would only mislead the Deputy if I gave him any other answer.

Deputy Dennehy

I presume that the Department of Finance has figures which outline how much timber the State owns.

Mr. Carroll

Coillte produces annual corporate accounts.

Deputy Dennehy

I am interested in how accurate is Coillte.

Chairman

I refer to the certificates we have for our millennium trees. I am trying to get my family to visits ours. If it is cut down in 20 or 30 years, will we get the paid? Is the certificate the title deed?

Mr. Carroll

I do not have direct responsibility and do not have great knowledge of this particular scheme which is run by the millennium committee quite independently of the Department of the Marine and Natural Resources. I followed the debate in the newspapers. I am not quite sure what will happen.

Chairman

You will recall a famous by-election when temporary trees were planted.

Deputy Dennehy

I refer to the question of sea trout which concerned all of us a number of years ago. I am reading the useful chart and figures which have been provided. Has there been a major improvement? We were informed sea trout would be wiped out. The question of sea licences remains and there is a difficulty in that regard. There is an improved broad catch in all six rivers in the south-west. What is the general picture? Is it improving?

Mr. Carroll

The general picture shows an improvement but it is a mixed picture. There are some areas where evidence of recovery, particularly in the west in the Connemara area, is disappointing. We have discussed this issue at the Committee on a number of occasions. It is a complex issue. We have an ongoing rehabilitation programme covering restocking, rehabilitation and management. Approximately £1.3 million per year is being spent on monitoring and management programmes. These programmes have been in place for the past five or six years and there is major stocktaking going on at the moment on the impact of those programmes. We are working towards, in the next six months or so, developing on the basis of the stocktaking a whole new sea trout recovery programme. That is in the pipeline. It is not a totally good picture and there are still serious concerns.

Deputy Dennehy

Mr. Carroll mentioned the northern area. Is there any significance in the fact that no returns for rod fishing are available for five rivers? Is there an ongoing row there?

Mr. Carroll

This leads to another issue. The rest of the information systems and the information necessary to feed those management information systems for the monitoring of salmon and sea trout stocks, catch and effort up to now have been very basic. We have counters in 22 rivers around the country but there is not a scientific method of doing it in many places which has led to the adoption of a whole new management information system which is being introduced as we speak and which is not uncontroversial in its own right, that is the tagging of all wild salmon and sea trout caught by drift net, draft net or by rod. If that system works it will generate——

Deputy Dennehy

Sea trout are almost comparable with salmon. Will sea trout also be tagged?

Mr. Carroll

Yes, these systems are working very successfully in North America. It is costly and complex to do it when one thinks about it, tagging individual salmon and whenever one is caught bringing the information together hoping it is reliable. It will be difficult but it should be infinitely better than the existing system which can be intermittent and anecdotal. That system, hopefully, should bring about a fundamental improvement in our ability to have the management information on which to devise proper strategies and to know what really is going on because many people - and this is natural - will have agendas on how they interpret figures or what figures are produced. Real time information for fisheries management of this nature should improve substantially the basis for decision making, analysis and debate between all the parties involved.

Deputy Dennehy

The Central Fisheries Board is involved in the programmes under a separate subhead. When we examined development programmes and funding under INTERREG II in this area two or three years ago it was a disaster zone in terms of the amount which had not been expended on fisheries and tourism development. Has the position improved? A sum of £358,000 was spent under INTERREG II on the programme. Has there been a general improvement? A new chief executive officer was appointed at the time but the message we received was disastrous.

Mr. Carroll

It has improved substantially due in good part to the efforts of this Committee and the Comptroller and Auditor General in a very valuable report prepared some years ago on the inland fisheries sector. On foot of that report we brought in new legislation 18 months ago which has reformed fundamentally the structure and management of the Central Fisheries Board and the regional fisheries boards. We also streamlined the management of the tourism angling measure as it was known at the time. Concern was expressed by the Committee that this money would not be spent and when it was spent it was not necessarily spent on the right things.

There was a substantial refocus of those programmes, particularly towards some fish species like coarse fish which probably were not getting their adequate share. Virtually every penny of that programme has been spent. A few hundred thousand is outstanding which will be spent in the wrap up. We are very pleased again with the very useful work by the Comptroller and Auditor General and the Committee that that programme has been turned around very effectively.

Deputy Dennehy

Most of the activity in my area is geared for the tourist angler and on a national basis it is geared towards fly fishing people.

I have noticed throughout Cork and Kerry in the past two to three years that almost no stream can be fished by humble worm fishermen like me, of whom I understand there are about 100,000 in the country. Is there any concern in the Department for the angler who does not fly fish and who never had the privilege, equipment, time or ability to do so? Everyone other than fly fishing people will be pushed out of fishing. Almost all these people learned to fish with a small rod and worms. It appears we will make fishing an elitist sport. While one can obtain a permit to fish on almost any river, it can be obtained only if one fly fishes. It is similar to golf and pitch and putt. If one is a fly fishing person, one will obtain a permit, but one dare not go near the river if one is not. I understand there are about 100,000 worm or live bait fishermen and I became aware of that figure during the rod licence dispute. Many of them may fish as part of a society or club in their pub or job. I have a keen interest in those fishermen and it appears they are being driven off the river and out of existence. Do people have the right to allow fly fishing people to fish but not worm fishermen? This seems to be the standard on almost every river which contains fish.

Mr. Carroll

There are a few profound issues in what the Deputy raised. From my understanding, it is not part of national policy to crowd out the local recreational fishing person. The headings on the programmes include the term "recreational angling". It would be a policy objective that angling would be a widespread pastime for everyone. It enhances the quality of life for communities and individuals. What is happening in other walks of life - the Deputy mentioned golf - is that, as the amenity or activity involved becomes more valuable and commercial, clubs and owners who did not previously exercise their rights begin to do so. It is like golf clubs. At one time anyone could join a golf club if he or she had the money and the connections. Now it is very difficult.

The other issue the Deputy raised was particular angling techniques. We must examine the methods being used from a conservation perspective and depending on the level of stock. I am not an angler and am not an expert on particular methods, but we respond to concerns from the fisheries boards or angling organisations from time to time that particular methods in certain areas would devastate or decimate stocks. I do not believe there is any strategy to discourage fishing methods for the sake of excluding certain people. That would not be the rationale for the decisions taken. It would be more related to the level of the stocks or the conservation needs in a particular river.

Deputy Dennehy

Perhaps Mr. Carroll will take on board the opposite view to that which he has just stated. What I outlined is happening and that is a fact. I argued this on a television programme during the rod licence dispute with others who were all fly fishing people and who all had reserved or preserved areas on rivers. No consideration was given to the ordinary working man and I use that term deliberately. People with less finance will fish using a worm for which they can dig. It is not that they do not want to pay, rather that they generally do not have the time or the expertise. They are being driven out, whether it is part of State policy or the policy of regional fisheries boards.

A certain snobbery is attached to it. I deliberately compared fishing with golf and pitch and putt. One could say the same about wine and experts in that area. There is a degree of social snobbery. While people are entitled to do what they like, I do not want State funding used to put local schemes in place, to improve rivers and to make banks accessible only for a large notice to be erected stating that only fly fishing will be permitted. Many of us present have fished from the age of three on and it has invariably been worm fishing. I have been happy to be out on the banks of rivers in all weathers and to learn aboutnature.

Worm fishing people are being driven out. They cannot fish on many of the rivers on which I fished. The availability of State funding may be helping to drive them out. I hope not, but perhaps Mr. Carroll will bear it in mind when examining the allocation of funding and what people do where they decide to restrict fishing to one type. I have paid my subscription to the South-Western Fisheries Board for as long as it has charged it and no one disputes that certain baits are not allowed. However, some intellectual deciding that his type of fishing is superior to another type has nothing to do with conservation and everything to do with snobbery.

Will that issue be taken on board in spending money? Mr. Carroll may recall a few years ago, when certain people in golf clubs thought ladies were not good players and were not equal to them in status, that such attitudes were taken into account in allocating funding. Will the same approach be taken where fishing with worms, the poor man's fishing, is concerned as against the more affluent type? It can be viewed socially or in other ways but it will be seen in the background from which people come. The issue is about affordability and I do not want such people put out of business, especially by the use of State funds. Perhaps that can be taken on board.

Chairman

Has the lock been cleaned as promised?

Deputy Dennehy

Not to the extent promised but we will deal with that with the Central Fisheries Board. It is the expert on carp.

Chairman

Has it improved?

Deputy Dennehy

It has improved slightly but the fish were not returned as promised. Sin scéal eile.

Deputy Durkan

What I wish to ask may already have been dealt with. I had to attend a funeral and could not be here on time. On marine safety——

Chairman

No, it has not been covered.

Deputy Durkan

To what extent has the optimum been reached in the provision of necessary facilities to ensure marine safety and the safety of seagoing vessels and to provide the necessary safety, back-up and rescue services in the fishing and pleasure craft industries?

Mr. Carroll

That is a major question and I will answer it as best I can. There are a number of streams to it. I will focus first on the rescue services, the recovery side. The helicopter infrastructure has developed rapidly in recent years from having virtually no coverage to the point where the Department, through the coastguard, which is a division of the Department, has medium-lift helicopters in Shannon and Dublin. The Air Corps has a helicopter in Finner and had one in Tramore until that very tragic accident there. We are actively considering with the Department of Defence, which has plans to acquire two medium-lift helicopters, perhaps through further interim private provision, at the acquisition of another medium-lift helicopter which would be located in the north-west or the south-east. Within a reasonably short period of time, and in accordance with international standards for call-out times and so on, we should have an adequate helicopter service.

Deputy Durkan

When does Mr. Carroll expect the service to be up to the required international standards?

Mr. Carroll

We probably need these helicopters at present but it is a question of where one supplies them.

Deputy Durkan

There are gaps.

Mr. Carroll

There are gaps in the south west and the north west. Last July the Minister for Defence announced the acquisition of two new medium-lift helicopters. A working group from my Department and the Department of Finance is looking at how to bring this together and how to match the private services and the Air Corps services. We are talking about having in place a top class, full coverage service within the next 12 to 18 months which would be up to international standards. We are not far off that at present.

Deputy Durkan

One regularly hears in the case of tragedies at sea that it was unwise to put to sea at the particular time. To what extent can the service monitor the situation to reduce such accidents to the minimum?

Mr. Carroll

One can divide the response in terms of safety into a number of headings. There is the response when something happens. There is the whole question of what we call safety culture - safety awareness. It is commonly accepted that, particularly in some sections of the fishing industry, the safety culture is not as high a priority as it ought to be.

On the other hand, in the marine leisure sector there is the growing use of pleasure craft. At present anyone can buy a motor boat and put to sea. New legislation is being introduced regarding safety standards for pleasure craft and a Bill providing for new legislation on adventure centres was published before Christmas. A range of legislative measure are being introduced regarding safety. An education awareness campaign is ongoing——

Chairman

Will a driving licence be required for leisure craft?

Mr. Carroll

Specific regulations are being formulated. Last year there was a specific focus on jet-skis. We will be introducing age limits, the equivalent of dangerous driving charges and procedures which will enable the zoning of particular areas. This will be done through local authorities who will be given powers to do so. There will also be restrictions on noise levels. A whole range of measures are being introduced. It is one of the Department's top priorities to bring forward a range of policies, regulations and programmes to address this issue.

Chairman

Sailing boats do not have engines. Are any regulations envisaged to control these boats? People can just go out in a boat and cost a fortune.

Mr. Carroll

I am not sure of the precise details but I can let the committee know of them. It is an interesting area when one talks to the professional organisations. Organisations such as the Irish Sailing Association are very professional and place much emphasis on training, educating and encouraging their members to the highest standards. However, what of the opportunistic person who goes on holidays and wants to hire a boat and go out themselves? Traditionally the State did not interfere with or take on the role of regulating non-commercial safety operations.

Our safety hierarchy of needs starts with major passenger vessels which are our first priority. We work down the grid to small passenger vessels such as those on the west coast. One cannot carry passengers without a licence and there is a scheme in place to deal with this issue.

The area of owner-occupier is a different area.

Chairman

There was a case in the UK where a man caused, I think, 30 marine emergencies. If there are lunatics like that around can you go out and——

Mr. Carroll

Hoax calls are——

Chairman

These were not hoax calls.

Deputy Durkan

He was an habitual disaster.

Chairman

Are there no regulations or powers at your disposal to stop that sort of thing?

Mr. Carroll

If a person is in trouble, one has to deal with it. However, the question is how to prevent it. One cannot base laws on mavericks, one has to seek to protect the normal, average person.

Chairman

Clearly there are no urgent, imminent proposals to deal with this area.

Mr. Carroll

It has been one of the major priorities of successive Ministers for the past number of years to review every area of marine safety. We are probably more advanced in our thinking and analysis and in the laws coming forward than any other European state.

Deputy Durkan

Chairman, will we have an opportunity to come back to this area later? There are many other questions but I do not propose to delay today's meeting.

Mr. Carroll

Chairman, I could let the committee have a comprehensive note which would summarise the current marine safety agenda. It is a wide-ranging agenda.

Chairman

Deputies are concerned about safety but as members of this committee we are concerned about the cost to the Exchequer. Avoidable marine emergencies are the problem.

Deputy Durkan

Chairman, could that include a possible reference to the use of Irish waters by crafts such as oil tankers, which are not necessarily always to the highest specification and which have a potential to cause great damage and result in great cost to the State? Is it possible to come back to this issue at some stage in the year, Chairman?

Chairman

I was going to suggest that we consider whether it is necessary to return to this issue when we get the notes from the Secretary General.

Deputy Gildea

Mention was made of serious concerns regarding sea trout, some aspects of the re-stocking and so on. On what are those concerns based?

Mr. Carroll

The Deputy is aware of the debate which has been running for a number of years.

Deputy Gildea

Yes.

Mr. Carroll

Much time, effort and investment have gone into this area. There has been a general improvement. There have also been improvements in certain areas in sea trout stocks but not in others. Our concern is to stock-take, to review what we have done, to re-focus and, in particular, to get value for money. Much scarce staff, time and high quality scientific effort is going into this issue and we have to ask whether the programme has been effective, if it is the best use of the moneys involved and should we re-focus? The emerging message is that we need to re-focus.

Deputy Gildea

I have one more brief question. Does the Department have evidence from areas such as the north west that the acidification of waters from large-scale afforestation is having an effect? There are some indications from the north of Scotland that coniferous forests are causing acidification to such a high extent that fish fail to reproduce.

Mr. Carroll

In the afforestation programme there are strict guidelines in terms of grant aid and permission being given relating to fish habitats and the impact on water quality. In the past few months we have produced a new set of very modern guidelines relating to forestry and water quality. I am not aware of any concern - we would receive such information from the fishery experts, fisheries boards and official associations - about the impact of forestry in Ireland on fishery habitats.

Chairman

Is the port infrastructure keeping pace with the development of the economy or could there be blockages? Are we in danger of having insufficient capacity in a few years if the economy continues to grow?

Mr. Carroll

We carry out ongoing capacity studies of ports. There may be sufficient berthage and quay space to accommodate an enormous number of ships and tonnage at one level but the key issue in current trade patterns is that everybody wants to use such space at the same time. Therefore there tends to be crowding at peak times, a typical infrastructural problem which can also be found in terms of electricity, gas, etc. The biggest area of concern regarding port capacity is Dublin Port and linkage with the city. This concerns the use of Dublin as our principal port for the entire country. I have seen some ministerial papers on the matter and the increasing emphasis in policy is to try to see if we can take account of these issues more directly and influence the pattern of usage of ports, particularly Dublin Port, to get a better balance from the overall economic viewpoint.

There has been much investment in ports, including Waterford, Cork, Limerick and Foynes ports. Greenore is developing as a private port. Development is largely market driven at this stage. The volume of State money available for future investment is not great and we will be focusing on matters such as logistics.

Chairman

Do we have sufficient capacity?

Mr. Carroll

At the moment we have and I think we have for the foreseeable future.

Chairman

One of the infuriating things in relation to Dublin Port is that all the lorries seem to come in and out at peak traffic times. Is there some way this can be managed?

Mr. Carroll

There ought to be and there is close co-operation between the corporation and Dublin Port. Recently the Minister announced in order to get some order in the matter that he is setting up a study of transport logistics into Dublin Port and a number of ideas have been raised. It is suggested, for example, that empty containers are being brought to and from the port and that if containers could be pooled at one location outside the city the number of trips could be halved. The question of oil depots in the port has also been raised. In many other cities oil is pumped through pipelines to outer city areas which stops the necessity of oil lorries to come to and from the city centre. The Minister is setting up a specific study to examine such issues.

Chairman

I wish to move to issues concerning the continental shelf and oil and gas reserves. What is the up-to-date position in this regard? Have we enough gas to meet future needs? Are there any big oil finds?

Mr. Carroll

We have no oil finds currently. We have one gas discovery at the Corrib gas field off County Mayo and Enterprise Oil is in the process of going through the regulatory framework to develop it. Its objective is to bring the gas on shore in early 2003 - it is a tight timetable. The gas field is smaller than the Kinsale gas field and in international terms is not a major find by any means. This year we have commitments to five offshore wells, if my memory is correct. Beyond this, the pipeline is pretty empty. The Irish offshore is still very much unproven, does not have high prospectivity in international terms and despite what is seen in many quarters as very generous fiscal terms, we have not reached a stage of proving the existence of any significant hypoderm zone.

Chairman

How many people are now dependent on gas supplies? How many years' gas supply do we have?

Mr. Carroll

We are now linked to——

Chairman

To the grid, I know.

Mr. Carroll

So gas supplies are assured for Europe for the next 20 or 30 years. The question is whether we can replace them by indigenous supplies - that is the policy question. There is an intermediate policy question about the timing of the building of a second interconnector, which is a logistics issue.

Chairman

There is currently one interconnector and if anything goes wrong——

Mr. Carroll

It is a question of capacity given the growth in the gas market.

Chairman

Along with capacity, another issue is security.

Mr. Carroll

Yes, there is a safety and security dimension.

Chairman

I want to ask about the Foyle, Carlingford and Irish Lights Commission which is of particular interest to the committee because the accountability of the North-South bodies will be imminently considered. How does the Department relate to this new North-South body. I know it separates into the Irish Lights Commission and Foyle and Carlingford. Is it too soon to——

Mr. Carroll

Currently only the locks agency of the body has been established. Work is still ongoing on the lights side of it. The governing and accountability structure of the locks agency is through the North-South Ministerial Council meeting in sectoral format. Our Minister and his counterpart in Northern Ireland would meet at least twice a year and consider the reports of the agency. I am not quite sure how the role of this committee and the Dáil in relation to it will be resolved - it is a generic issue concerning all North-South bodies. There is an overlapping authority between both jurisdictions and I do not know how this will be managed at the level of this committee.

Chairman

We will soon be having discussions with the public accounts committee in the North on the subject. We may return to this issue later.

Mr. Carroll

Okay.

Chairman

Tell me about the internal audit function of your Department.

Mr. Carroll

It is a newly established function in the Department. It was not a major function until the new Department of the Marine and Natural Resources was created in 1997.

Chairman

There is an internal auditor.

Mr. Carroll

Yes.

Chairman

To whom does that person report?

Mr. Carroll

That person reports to the assistant secretary in charge of finance among other things. The assistant secretary also chairs an audit committee on which there is a representative from another Department. That committee reports to me.

Chairman

Has the internal auditor direct access to you?

Mr. Carroll

Absolutely, yes.

Chairman

Has the internal auditor direct access to all areas of the Department without having to give notice?

Mr. Carroll

Absolutely.

Chairman

On the issue of this coming under the assistant secretary in charge of finance, our experience tells us it is far better to make it independent of that function in order to avoid conflicts of interest. I would like you to consider that; you do not have to comment on it at this stage.

Mr. Carroll

I will do that.

Chairman

What do you propose to do about lengthening the time for collecting fees, etc?

Mr. Carroll

We are doing two things. We are changing the systems internally and are looking at the resources dedicated to this issue although this will not make any fundamental difference within the existing legal and management framework. The only workable solution to this issue and many others which arise would be the establishment of focused, commercial structures outside the Civil Service framework. A ministerial decision has been taken on that and the objective is to introduce legislation in the coming year.

Chairman

The committee will expect progress to have been made on this matter when you come before us next year.

This report is unusual in that there are 73 lines of expenditure in your account, 60 of which are underspent. Perhaps we should congratulate you on that but it, nonetheless, raises some questions. I note that the office premises project did not proceed and that only £389,000 was spent rather than the projected £949,000. Some £109,000 less than expected was spent on office machinery. On the development of coastal radio stations, £80,000 less than expected was spent. In regard to marine emergency coastal units, you spent £509,000 less than expected. On the Loran C navigation system, you spent £600,000 less than you expected. Some £1.3 million less than expected was spent on marine emergency services. It is unusual that so many of the figures were inaccurate and that there was an underspend in so many areas. I wonder whether your estimations are inadequate or whether there was some deficiency in the manner in which these figures were arrived at. A sum of £2.4 million was underspent on grants for the promotion of forestry structures. Some £140,000 was spent on forestry research with £99,000 being spent on INTERREG. A sum of £61,000 was spent on FEOGA measures. I have never before seen such a level of departmental underspending.

Mr. Carroll

I discussed this matter earlier with my colleagues in the Department of Finance. The Vote for the Department of the Marine and Natural Resources is very unusual in that it involves a large number of subheads. One will always have swings and roundabouts in small programmes. People look for more money in the budgeting process and say they can spend it. However, it can sometimes prove difficult to do that because unforeseen situations arise. I concur with the Chairman that over-ambition in terms of programme design may cause these outcomes. People are reluctant to submit realistic estimates or are over-ambitious in terms of what they think they can achieve.

Chairman

Or is it just slowness in reacting? I get the sense that because of our level of economic growth, Departments do not have the necessary reflex action to keep up. There are three subheads under the harbour development and coastal protection heading. Some £2.24 million was allocated for grants for harbour improvements but only £613,000 was spent. On State harbours and Dún Laoghaire harbour pensions fund, £500,000 was allocated but only £35,000 was spent. On coastal protection, £3.84 million was allocated but only £2.44 million was spent. How can all of these subheads be so far out of line?

Mr. Carroll

All these figures can be explained, particularly in regard to coastal protection and fishery harbours. A new problem arose in the year in question due to the emergence of much tighter planning guidelines. It simply was not possible to progress capital projects at the desired speed because planning and heritage guidelines, etc., made it more difficult to proceed. One had to jump through a greater number of hoops than previously.

Chairman

I am not convinced about this. If one takes the example of national roads for which the Government makes huge provision, we hear the same story every year. A road due to be built by 2001 will be built by 2003. Meanwhile, we have huge bottlenecks in the economy. I see the same thing throughout your Vote. Is the Department not up to spending the money or what is wrong?

Mr. Carroll

I think we are up to it.

Chairman

There was gross under-spending under subheads F1 and F2 in regard to marine research. Why was the funding allocated in the first place if you did not intend to spend it? Under subhead G1 - Sea Fisheries and Aquacultural Development - only £6.7 million of the forecast £10.1 million was spent. On the fishery harbour centres fund, none of the projected £75,000 was spent. This worries me and I would like to spend more time examining the reasons behind it. Perhaps Mr. Carroll will consider the matter and write back to me within a month with an explanation and whether there will be an improvement in the current year. Perhaps he will also communicate with Deputy Durkan in regard to the matter he raised.

Mr. Carroll

I will.

Chairman

I do not often complain about under-spending but I am concerned about this. Do the Department of Finance officials have any comment to make?

Mr. Gallagher

We do not complain about under-spending either. Our primary concern is that the Estimate presented should be as accurate as possible in regard to what is likely to happen under individual subheads. As the Secretary General stated, the Marine Vote involves myriad individual subheads and while savings appeared in 60 out of the 73 subheads, the total amount of savings involved is not that massive.

Chairman

It is 10% of the Vote.

Mr. Gallagher

Yes. One would have preferred the estimation to have been more accurate but one would have to look at each individual subhead to deduce the reasons which gave rise to the under-spending. That may become clear in a month's time. We would be concerned if Departments were generally under-spending by 10% for no particular reason.

Chairman

My main concern and that of the Committee is that this under-spending is not arising due to inefficiency in dealing with urgent matters, thereby frustrating economic development and costing the Exchequer more money at a later date. If investment is not made sufficiently quickly in these projects, it could end up costing us money.

Mr. Carroll

The Department submitted a Supplementary Estimate in 2000 because it did not have enough money. That was due to a variety of factors, particularly funding shortfalls.

Chairman

We want to ensure that all Departments are alert to these bottlenecks and the necessity to avoid or reduce them. I will note the accounts and expect to receive the two notes within a month.

The witnesses withdrew.

The committee adjourned at 1.40 p.m.