COMMITTEE OF PUBLIC ACCOUNTS díospóireacht -
Thursday, 13 Nov 2003

Vol. 1 No. 32

2002 Annual Report of Comptroller and Auditor General and Appropriation Accounts.

Vote 34-Enterprise, Trade and Investment-

Chapter 11.1.

Chairman

I welcome everyone here this morning. Members have been circulated with the relevant correspondence.

Witnesses should be aware that they do not enjoy absolute privilege. 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 granted certain rights to persons who are identified in the course of the committee's proceedings. Those rights include the right to give evidence, to produce or send documents to the committee, to appear before the committee either in person or through a representative, to make a written and oral submission, to request the committee to direct the attendance of witnesses and the production of documents and the right to cross-examine witnesses. For the most part, those rights can be exercised only with the consent of the committee. Persons being invited before the committee are made aware of those rights and any person identified in the course of proceedings who is not present may have to be made aware of them and provided with the transcript of the relevant part of the committee's proceedings if the committee considers it appropriate in the interest of justice.

Notwithstanding that provision in legislation, I remind Members of the long-standing parliamentary practice to the effect that Members should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable. Members are also reminded of the provision within Standing Order 156 that the committee shall refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policies.

I welcome Mr. Paul Haran, Secretary General of the Department of Enterprise, Trade and Employment, and ask him to introduce his officials.

Mr. Paul Haran

Mr. Michael McKenna is the assistant secretary in charge of corporate services and economic policy. Ms Patricia Lynch is the official in the finance unit mainly responsible for assembling the brief I have before me and she will help me out if I cannot find certain pieces of paper, something that is likely to happen. Mr. Seán Gorman is the assistant secretary in charge of the labour force development division and looks after such things as FÁS and community employment. Mr. Ned Costello is the newly appointed assistant secretary who, essentially, is in charge of our science and intellectual property divisions.

Chairman

I welcome the officials from the Department of Finance.

Mr. Pól Ó Duibhir

I am Pól Ó Duibhir and I am involved in the Department of Enterprise, Trade and Employment Vote in the public expenditure division of the Department of Finance.

Mr. Paddy Howard

I am Paddy Howard of the organisation, management and training division of the Department of Finance.

Chairman

As the paragraph is relatively straightforward, I propose to open the Vote and the paragraph.

Mr. John Purcell

Chapter 11.1 of the Report of the Comptroller and Auditor reads:

Administrative Oversight at Companies Registration Office

The Appropriation Account for 2002 for the Vote for Enterprise, Trade and Employment, records that fee income to the Companies Registration Office (CRO) in 2002 was in excess of €20.26m. The Department had originally estimated these fees at €7.86m. Fees for the late filing of annual returns by companies alone amounted to over €12.75m for the year. The explanation given in the Notes to the Account for the increased level of fees collected was that it was 'due to a vigorous enforcement campaign with the aim of forcing companies to bring their filing of returns up to date.'

The Company Law Enforcement Act 2001 altered the rules relating to the filing of annual returns with the CRO. Section 60 of the Act, which came into effect on 1 March 2002, set out a new deadline for filing the first annual returns after this date.

The Act and subsequent statutory instruments implemented significant changes in the factors which govern the late filing penalty, if any, that a company must pay in respect of the filing of its annual return.

These factors are:

The rules that determine when the annual return is due to be filed with the CRO

The rules that determine when the late filing penalty commences

The amount of the late filing penalty itself and how it is calculated.

The Act provided that:

Every company should have a statutory annual return date76

The annual return should be filed within 28 days of the date up to which it was made, which date should be no later than the annual return date

Companies should be allowed three months to prepare and file their first return under the new rules (the transitional arrangement).

The new provisions relating to the annual return date came into effect on 1 March 200277 and affected only those returns made up to a date on or after 1 March 2002. However, because of the three month transition provision, returns dated after 1 March which would otherwise have been due to be filed within 28 days could be filed any time up to and including 4 June 2002 without incurring a late filing penalty. New late filing penalty provisions to reflect the end of the transition period on 4 June should therefore have been made to take effect on 5 June 2002. Due to an administrative oversight the required new fees order was not made. The administrative oversight was not discovered until early December 2002. A new fees order was made by the Minister on 5 December 2002 to apply the 28 day rule.

Arising from the oversight in June, a number of companies were overcharged late penalties in respect of their annual returns. Audit inquiries established that some 9,876 companies were identified by the CRO as being affected and that the total amount to be refunded was €1,371,752 inclusive of interest at 8% - €37,780.

76 Every company in existence on 1 March 2002 was assigned an annual return date by law. New companies incorporated on or after 1 March 2002 have an annual return date triggered by their date of incorporation.

77 SI No 438 of 2001.

The CRO wrote to each company involved setting out the amount due to be repaid by the CRO enclosing a credit note for the amount. Each company was offered the option of:

Using the credit note for future filing or company search fees in the CRO

Lodging the credit note to an account in the CRO to pay filing fees or for online company searches

Surrendering the credit note in exchange for a Payable Order.

Inclusive of interest, cash refunds totalling €498,670 have been made to companies. The Department has not yet computed the value of credit notes availed of.

I sought the views of the Accounting Officer as to how the administrative oversight arose and the steps taken to rectify the situation.

The Accounting Officer informed me that the Act was implemented in phases and required 19 statutory instruments to date to give legal effect to its various provisions. In order to ensure that as many as possible of the returns due under the existing provisions were filed before the new provisions took effect, a fees order 78 was made increasing the late filing penalty to €100 for the first day the return was late, plus €3 per day thereafter up to a maximum for any return of €1,200.

He agreed that a fees order to govern late filing penalties incurred after the 3 month transition period elapsed should have been made to take effect on 5 June 2002. However, no such order was made and the Statutory Instrument of 26 October 2001 remained valid for all annual returns. Hence, as and from 5 June 2002, the late filing penalty should legally have been calculated from 78 days after the date up to which the annual return was made (to remain compliant with the fees order which gave 77 days between the date the annual return was due and the date of applicability of the late filing penalty). However, the CRO proceeded on foot of a Ministerial decision to introduce the 28 day rule, which had been announced some time earlier, and as and from 5 June 2002, calculated the late filing penalty accordingly.

The Accounting Officer stated that the error came to light when the CRO's legal advisor, while examining a separate and unrelated matter, discovered that an order had not been made in respect of the 28-day filing period. The new fees order came into effect on 6 December 2002. With effect from that date, the late filing penalty applies to annual returns made up to 1 March 2002 or later which are delivered to the CRO more than 28 days after the newly defined statutory annual return date.

The only annual returns in respect of which an excessive late filing penalty had been charged were:

Returns filed with the CRO between 5 June 2002 and 5 December 2002 and

With an effective date of 1 March 2002 or later and

Which were received late (more than 28 days after the statutory return date).

The Accounting Officer pointed out that the category of annual returns affected was clear-cut in that it only included annual returns with statutory return dates and received dates within specific ranges. These cases were readily identifiable on the CRO database. The CRO is satisfied that all potential cases have been identified.

78 SI No. 477 of 26 October 2001.

With regard to the determination of the interest rate, legal advice requested by the CRO was that the then current Courts Act interest rate of 8% was appropriate. The approval of the Department of Finance was not sought. However, the Department of Finance had sanctioned the repayment of overpayments.

The CRO have made refunds in 3,376 cases to date. Requests for cash refunds have been received in 39 cases since the end of May 2003. These have not yet been processed. It was anticipated that small numbers of requests for cash refunds would continue to be received in the short-term. Any amounts unclaimed will be brought to account as Appropriations in Aid of the Enterprise, Trade and Employment Vote for 2003.

He estimated that the administrative cost of rectifying the oversight amounted to €24,850.

The Accounting Officer concluded by stating that the chain of events that led to this oversight was extremely unusual and a similar combination of events should not occur in the future. A procedure has now been agreed with the CRO and Company Law Administration Section to prevent a similar oversight.

When new legislation is due to be enacted a schedule will be drawn up detailing the sections of the Act and their commencement dates. In the future, any statutory instruments required in relation to each section will be identified and closely monitored. He is satisfied that this procedure is sufficient to prevent similar oversights occurring.

I will confine my comments to the paragraph, which highlights the financial impact on the Exchequer of the failure to introduce a statutory instrument at the appropriate time to cover part of a new fees regime for the late filing of annual returns by companies.

The Company Law Enforcement Act 2001 introduced a more stringent compliance regime for companies. Among other matters, it changed the rules governing the filing of annual returns. Various provisions were to be introduced at different times by way of statutory instrument. The statutory provision relating to the annual return date duly came into effect on 1 March 2002 but under the Act a three month window from that date for making the first return was permitted before the 28 day rule came into play.

Once the three month transition period had expired at the beginning of June, a statutory instrument covering the new late filing penalty provisions should have been made but the need for this was overlooked in the Department. As a result, the new penalties, applied as intended from June 2002, had no legislative standing. This oversight was not discovered until early December 2002 when the legal adviser of the Companies Registration Office spotted it when examining a separate and unrelated matter. A covering statutory instrument was made immediately to regularise the position from a current date.

The upshot was that from a legal point of view almost 10,000 companies had been overcharged late filing penalties, amounting to about €1.33 million, and arrangements for refunds had to be made. All of the companies which had been overcharged were notified and given a credit note for the relevant amount which could be used against future Companies Registration Office charges, or, alternatively, support a cash refund. I understand that to date about €500,000 has been refunded in cash, that understand credit notes to the value of €326,000 have been used by companies to offset fees and charges and that the balance, roughly another €500,000, has yet to be claimed.

In response to my inquiries the Accounting Officer attributed the failure to make the appropriate fees order to the plethora of statutory instruments necessary to give effect to the various provisions of the Act. Arising from this oversight, he has informed me that he has put new procedures in place to ensure there will be no repeat of this type of omission.

Chairman

Thank you very much. Mr. Haran, do you wish to make an opening statement?

Mr. Haran

The Comptroller and Auditor General has captured very well the essence of what was a complex sequence of events. It stems from our desire to effect a significant improvement in compliance with the needs of the Companies Registration Office. We had a very serious problem in the 1990s with a very low level of compliance, on which we were seeking to improve. We asked the McDowell group to look at company law enforcement. One of its set of recommendations was that there was a need to significantly improve our management of registration and return compliance.

A new Act took effect, with the result that new rules about the return date as well as the penalty that should apply were phased in. The Companies Registration Office reasonably expected the Department to bring forward at the end of the moratorium, the phase-in period, a statutory instrument to give effect to the new rules relating to the period of time from which a penalty would apply, a movement from 77 to 28 days. The Department omitted to do this. It was a failure on its part.

The Companies Registration Office proceeded to levy the penalty in question which worked out at about €130 per company for filing late returns as regards the category from which we had no legal right to collect money. The Companies Registration Office discovered this inadvertently in December and immediately set about rectifying the position. It cost about €50,000 and there was interest to be given back. The Companies Registration Office, following legal advice, employed a penalty rate of 8%. It paid fees back to companies with a penalty rate of 8% by means of a credit note and, where demanded, cash.

The Companies Registration Office acted promptly and well when the error was discovered in a manner which ensured payment was made and interest applied. I also highlight the point that it did this in the context of an aggressive series of enforcement measures aimed at raising the level of compliance, not necessarily raising fees or penalties. There was a significant increase in the fees levied and received by the Exchequer in the year in question.

The most important aspect of our objective is the raising of the level of compliance. When the McDowell group was reporting, the filing-on-time rate stood at about 13% which in 2002 was brought up to 72%. I do not add a lot beyond what the Comptroller and Auditor General has said and written in his notes. I will be glad to take any questions the committee may have, or it may wish to move on to the main Vote.

Chairman

The Company Law Enforcement Act 2001 provided that companies should be allowed three months in which to prepare and file their first return under the new rules. I am astonished that it took six months to recognise that the procedure required a fees order to be passed, and also that income from registration was estimated at a figure of €7.86 million. The actual figure was around €20 million. Was this not a major miscalculation? It took six months for the error to be identified. A total of 10,000 companies were affected.

Mr. Haran

I accept that we made a mistake. There is no gainsaying this. The Companies Registration Office, the implementer of policy, reasonably assumed that the Department had ensured the order was signed in time. The reality is that it was not watching on an ongoing basis. It was not receiving the returns and levying the fee. Unlike the Companies Registration Office, it was not in a position to see the flow of funds and the levying of penalties in line with the new rules. The Companies Registration Office reasonably expected the Department to have the statutory instrument passed, signed and enacted. I cannot question its behaviour in regard to this. The failure lay within the core of the Department in not realising that, while a new fee regime was introduced in 2002, the impact of changing the due date for returns from one linked to a company's annual general meeting to a new concept of an annual return date required the making of a new fees order.

On the issue of forecasting, there would, perhaps, have been a naive hope that with the introduction of the new rules, the three month moratorium and the extensive public comment about the new companies law Bill, a significant improvement in compliance would follow. It is very difficult to know when a new set of rules is introduced what the level of compliance is going to be. It was not a matter of a figure of €20 million in revenue for the Companies Registration Office versus something else. Of that figure about €12 million relates to late filing fees. We did not expect to get the full €12 million. Therefore, the estimation difficulty centred on the figure of €12 million in late filing fees.

Chairman

I am astonished that three methods were used in refunding the amounts outstanding. Would it not have been simple to make a payment to each company overcharged, given that there was a detailed address and the amount overcharged was known?

Mr. Haran

Credit orders have been used in the past with clients of the Companies Registration Office. It was felt this would be an acceptable mechanism for dealing, in general, with professional intermediaries. As only a limited number of companies went looking for cash, it was a reasonable approach to take. It was the most cost-effective and speedy from our perspective. It was a reasonable one to take to help secure an immediate response from the Department. Software developers were brought it and we ran a suite of programmes against a database to identify the 9,000 companies involved. We then ran a system to issue them with credit notes.

Chairman

That was a complicated way to do it, given that the Department had the companies' names and addresses. I am astonished that it did not say: "A mistake was made. Here is your payment by return." Something very similar happened in the case of the medical card refund when very little of the money was given back.

Deputy J. Higgins

I am somewhat constrained by virtue of being required in the Chamber shortly. I want to go straight to the main Vote, if that is okay.

Chairman

It is. If any member wishes to return to this issue, we can do so.

Deputy J. Higgins

I refer Mr. Haran to page 248, subhead T - health and safety. There was an allocation of €13 million for the national authority for occupational health and safety - grant for administration and affairs. How was the figure for that aspect of the budget arrived at?

Mr. Haran

This was the amount regarded as being required for the staffing and operation on an ongoing basis of the Health and Safety Authority. About 57% of the figure - €7.3 million - is accounted for by pay costs and the remainder - €5.7 million - by non-pay costs. It was a function of the evolution of the authority over a period of time as staffing requirements, in particular, changed. Sometimes individual issues such as accommodation costings emerge. The increase in staffing in this area in recent years will have led to a cost push on the authority. It also reflects changes in the size of the workplace and a political response to various issues.

Deputy J. Higgins

What were the criteria in arriving at that sum? Are there discussions within the Department on an annual basis before the sum is allocated, with regard to the work of the Health and Safety Authority and the adequacy or otherwise of staffing levels, for example, for health and safety inspections in workplaces? Is there an examination of, say, the previous year's work, issues such as fatalities in the workplace and whether, for example, the numbers of inspectors are adequate and, arising from this, a change made in the allocation?

Mr. Haran

Effectively, it is all of those things but within a dynamic environment. Unlike most other agencies of the Department, the Health and Safety Authority is a trilateral body which has delegated to itself responsibility for both the development and execution of policy in this area. We did a significant review of the work of the authority either in 2001 or 2002 which looked at its overall management. Changes have been brought about in its senior management layers to develop a new structure and try to improve its effectiveness. As part of the Estimates mechanism, there is a bidding and response process. This is driven by a desire to address the perceived problems within the authority and the workplace that we are trying to protect on an ongoing basis through a series of interactions between the world of politics, the Department and the authority.

With trade union and employer groupings, we have been reviewing the overall allocation on an ongoing basis. I understand that between 1997 and 2002 the number of staff went up from a figure of 130 to about 160, an increase of 23%. The overall level of staffing represents a complex dynamic between the outcome, a safer working environment, and the resource, that is, public servants who try to implement policy.

Fundamentally, most policy concerns the workplace and the actions of individuals, both employers and employees. Some of our work involves the spreading of information and raising awareness, for which we have different programmes. Some of the allocations have been used to try to upgrade the level of information and raise awareness. Sometimes, however, there is a need for specific intervention, when the authority is used to address sectors such as construction in which there is a particular risk exposure. We also use other sources to try to improve health and safety in the workplace such as the FÁS safe system for buildings and encourage the social partners such as the CIF and the employee trade unions to come together and improve their own actions. We are looking at issues surrounding corporate manslaughter and other approaches to pursuing health and safety in the workplace.

Deputy J. Higgins

Trade unions representing construction workers, for example, are hugely disconcerted at the number of inspections being carried out on construction sites. Will Mr. Haran say why, if the level of staffing went up along the lines he has quoted, when there were supposed to have been about 8,000 inspections on construction sites, 6,118 were carried out in 2002? In that year 22 building workers tragically lost their lives on building sites. Mr. Haran mentioned the necessity to reduce this figure, I hope to nil. He also mentioned the concept of corporate manslaughter, something with which I agree, but slightly different from what is under discussion. How does he reconcile the concern within the Department about the need to cut the number of fatalities and workplace accidents with the fact that the number of construction site inspections earmarked for this year is 4,500? More than 6,000 were carried out last year. Is this not moving in the wrong direction in view of the fact that 22 construction workers lost their lives last year? If 22 Deputies had lost their lives last year, or if a teacher was killed in the classroom every fortnight, or a nurse, we would be holding many inquiries. This should be a source of major concern. That is the reason I asked how the figure of €13 million was arrived at. Is it not inadequate to guarantee the resources needed to ensure effective health and safety inspections to curb abuses, particularly in the construction industry, but in other areas also?

Mr. Haran

Our goal has to be to avoid fatalities or serious injuries in the construction sector or other areas of business. The agricultural sector is another about which I have a lot of concerns. Clearly, enforcement, inspection and prosecutions are important elements. I do not think the Health and Safety Authority has been remiss in any way in the energy it has exerted in this area. In 2002 there were 13,000 inspections and 1,700 enforcement actions with the concentration on the construction area. There have also been improvements. The fatality rate per 100,000 workers has been halved since 1998 when we started to upgrade the number involved but in any one year one can have problems and an horrific accident can take place.

It is not just inspections that secure the welfare of workers. It is primarily about how the workplace is functioning and whether individuals are cutting corners or otherwise. It is also about whether there is undue pressure on workers to cut corners, either self or externally induced. Sometimes, no matter how well workplaces are designed, sad things happen, as they do every day in the wider environment. Sometimes, no matter how many inspections we carry out or what process we engage in, the forces of action that occur create a fatality that just cannot be avoided.

I am not aware of serious pressure being exerted on us by the Health and Safety Authority concerning the overall resource level from an inspection point of view. I am not proclaiming it has no concerns and say this because I am not aware of a big push. We are involved in reorganisation and restructuring to try to ensure there are more involved for inspections. We have increased the overall staff complement. The authority is working with other health and safety authorities across Europe to try to glean what is best practice and improve outcomes in the workplace. The fact that additional resources have been employed reflects a political desire to put more into this area but, like many areas of life, the marginal benefit to be gained from additional numbers might not result in a particular gain from the point of view of health and safety. As I said, it is not only about inspections, it is also about awareness raising, ensuring responsibilities are identified and proper levels of training are provided for.

I do not want to sound in any way complacent. Every fatality, or injury that is not fatal, is of extraordinary concern to us. Lots of people have their lives destroyed by what happens to them in their daily lives.

Deputy J. Higgins

I have no doubt Mr. Haran has very serious concerns in that regard and that Health and Safety Authority staff are equally concerned but, unfortunately, we know, for example, that in the construction industry there are ruthless operators who have exposed construction workers to serious injury and death and who have been found to be negligent by judges in court. The pressure on the building industry in recent years has brought increased pressure on workers. About one third of the total number of fatalities in workplace accidents involve construction workers.

More resources are needed. It is inexplicable that the number of inspections has been cut back by about 1,600 in contrast with the figure for last year. Can Mr. Haran explain the reason for this? Towards the end of last year there were a number of unfortunate fatalities that one would have imagined would have been completely wiped from the face of construction. I am referring to trench cave-ins in which workers are buried in their trenches. The most fundamental safety manoeuvres could prevent such a terrible happening. The fact that they still happen calls for more, not fewer, inspections.

Mr. Haran

I do not have the up-to-date figures for the numbers of inspections taking place in 2003, although I know that the number of staff in the dedicated inspectorate is not as high as it was in 2002 when a particular initiative was taken to try to blitz and grow the number of inspections and there was a lot of activity. I understand FÁS has trained over 260,000 people in the safe pass scheme. I also know that 1,700 enforcement actions took place and that there were 199 on-the-spot fines. There were 78 convictions from 95 prosecutions taken by the Health and Safety Authority.

There are cases where employers are rogues and workers have been put under undue pressure. Clearly, this happens in places but it would not be necessarily fair to ascribe all fatalities to rogue behaviour. Sometimes honest to God mistakes happen. We should try to find out why they happen and seek to prevent them happening. If one looks at the agricultural sector, a lot of accidents happen which sometimes involve self-employed persons. Such cases reflect what can happen in the area of construction. Sometimes people are unlucky, or there are bad practices, or a lack of awareness of the dangers. The ones involving trench-filling are horrific.

Neither the Health and Safety Authority nor I is aware of a lacuna in inspections contributing to the problems about which we are talking. It is an ongoing job to achieve the desired outcomes by whatever means are necessary. Part of this comes down to education, concerns FÁS and the way in which one builds in safety in apprenticeship training, and inspections. As we have read in the newspapers, the authority has closed down building sites. It has also closed down public sites such as the one in Ballymun, a site that was effectively being developed for the State. I have not seen a lack of willingness or resources which has prevented the authority from enforcing the law and trying to prevent unnecessary fatalities - all fatalities are unnecessary - caused by negligence, bad practice or bad employers.

Deputy J. Higgins

I would like my concern about the reduction in the number of inspections to be noted. The figure produced by the Health and Safety Authority indicates a projected number of 4,500 inspections. As I said, I have no doubt that inspections are carried out thoroughly but it is crucial that there is the maximum number in order that would-be rogue construction bosses would be on alert and put proper safety procedures in place.

I revert briefly to subhead K3, FÁS employment programmes, which indicates that the projected figure for 2002 of €413 million was not spent, it came up about €5 million short. How does the Department arrive at such an allocation for the FÁS employment programmes?

Mr. Haran

They are a function of previous activity levels and costs by activity. There will be agreement in a given year about how many places will be made available for the variety of programmes undertaken and a cost allocated per participant. These are added and we come to a gross spend figure. At times activity rates and the training and ancillary costs associated with some of the programmes undertaken might not be as high as one might expect. There is a starting and a closing participation rate with an allocation for the year in question. The closing participation rates for 2002 were 25,000 in the case of the community employment scheme; 2,525 in the case of the jobs initiative scheme which is often called community employment, of which it is a type; and 1,902 in the social economy.

Deputy J. Higgins

Does Mr. Haran have the opening figures for each of those three programmes?

Mr. Haran

I am afraid I do not, although my colleagues might.

Deputy J. Higgins

The number of participants in the community employment scheme would have been about 30,000.

Mr. Haran

The figure for the community employment scheme was just over 30,000 - 30,800. In 2000 the figure for the jobs initiative scheme was 2,762 but I am not sure if that was the opening participation rate at 1 January. That is why I am reluctant to make a direct comparison between Governments but I can check the numbers and send the committee a note on the matter.

Deputy J. Higgins

Let me ask a general question. I am sure members will want to pursue the matter in much greater detail. A fundamental problem has emerged and I would like to hear Mr. Haran's analysis. Many of the employment schemes such as the community employment scheme were initially designed as labour management policy measures as they arose in a period of very high unemployment. I have no doubt that they were designed in part, from the viewpoint of some political manager, as routes to lessen the dole figures at a certain stage and also as a way of alleviating the distress of those caught in the trap of long-term unemployment.

As a result, labour management policy - the employment of tens of thousands on schemes - became entwined in the fabric of communities, particularly, for example, through employment in community employment schemes in a range of services in working class communities. There is a whole range of such services from child care, coffee mornings for parents with children to caretaking in community centres which are hugely dependent on community employment schemes and essential in communities which otherwise have very few facilities. The fabric of communities and community life is very much dependent on such schemes.

Fundamental changes are being proposed because the employment situation has changed. For example, there is a reduction of 5,000 in the number of places available in community employment schemes. Does Mr. Haran see the huge distress and angst this is causing in communities, in community centres and for the providers of community services, many of which will be left bereft and closed down, leaving deprived communities in a far worse situation? I hope he understands the point I am making. It is about how policy, perhaps dryly worked out by public servants, clashes with the living reality of communities dependent on and embracing community employment schemes which we are now told will be cut.

Chairman

The Deputy is engaging in a detailed policy discussion. While the Secretary General is not obliged to deal with the policy aspect, he can obviously deal with the actual figures.

Deputy J. Higgins

I do not ask him to go outside his brief.

Chairman

We are not having a policy debate. We just want to get the facts.

Deputy J. Higgins

The Department over which he presides administers the schemes. The policy, as implemented, has a serious impact on the people we represent.

Chairman

He is not directing policy. He may, however, wish to reply.

Deputy J. Higgins

They have to manage the change in policy.

Chairman

Correct. However, he is not responsible for policy decisions.

Deputy J. Higgins

The Department has to manage the changes policy change brings about.

Chairman

I realise that fully.

Mr. Haran

I will do my best. I am acutely aware of the points made by Deputy Higgins. It is not the case that we do not discuss and have serious concerns about the issues raised.

Clearly, we have a labour market policy for which the Oireachtas has granted us certain funds. In its implementation we filled a void, or deficit, in many communities for service provision in respect of which we were never empowered or granted moneys to provide for such a provision. In recent years we moved from the area of service provision to that of schools when there was a direct transfer from our Vote to the Vote for the Department of Education and Science. Caretaking changed from being a social employment-work creation scheme to address the deficit from a service provision point of view. As a Department, in trying to secure a labour market response, we are responsible for the labour market element. Clearly, there is a political decision to be made as to what the balances should be.

As we reduce the labour market project, which is what community employment is all about, it is the responsibility of the political system to address the issue of the service provision deficit that the reduction in the number of community employment places available might create. Part of the response has been to ensure certain elements of certain schemes are ringfenced to try to minimise the damage being done within communities where greatest disadvantage is deemed to lie.

Parallel to this and in addition to the points raised, I have heard people talk about the suitability of unemployed persons for certain tasks in service provision. For example, I have even heard people state they did not want a severely unemployed person to provide meals on wheels, that they would prefer if it was provided by somebody who had done the job for a while and was better at it.

One runs into a policy conflict between optimum service provision and the Department's responsibility to secure labour market outcomes and use funds in the way dictated by the political system and the Oireachtas. I have tried to respond to the valid policy issues raised as best I can.

Deputy Curran

Before I look at the Vote in general, I refer briefly to the opening paragraph which refers to the administrative oversight at the Companies Registration Office, on which I have one or two questions for Mr. Haran. In his opening comments, he mentioned that this administrative oversight was a failure of the Department rather than the Companies Registration Office. It arose from the Company Law Enforcement Act 2001. A statutory instrument was to have been signed by the Department prior to June 2002, at the end of the three months period. Is that correct?

Mr. Haran

There were a number of statutory instruments signed, the purpose of one of which was to change the penalty rate. This was signed in 2001. There was a statutory instrument signed to implement a change in the annual date of return which used to be linked to the AGM of a company. It legislated for a fixed date which we call the annual return date. Before 5 June 2002 we should have had another statutory instrument signed to allow the charging structure which had already been brought forward to be linked to the new return date, 28 days after the ARD.

Deputy Curran

Specifically on that——

Mr. Haran

I consider the staff of the Companies Registration Office to be part of my Department and fully support them. Given that they had done a very hard job in pursuing the issue of late filing, I would not like it to appear that they were negligent in some way in not realising that the statutory instrument had not been signed. It would have been more proper for our company law side to ensure it was signed.

Deputy Curran

That is the aspect at which I am looking specifically. How much earlier could that statutory instrument have been signed? What was the window of opportunity?

Mr. Haran

It could have been signed in the preceding months. Even though we had the fees order signed, somebody did not realise that one needed to have the new order refer to the new dates.

Deputy Curran

Therefore, it was not a question of somebody forgetting, rather it was not known that it was necessary. Is that a better way of looking at it?

Mr. Haran

I would have to go back to the person concerned and ask that question as the Deputy has posed it. They did not realise that they should have done this or that this had to be done. There was a team working on legislation. Perhaps someone knew it had to be done but the other person did not realise this. I did not go down into the middle of the team and ask who had forgotten to do it.

Deputy Curran

This error cost €60,000 which in overall budgetary terms Mr. Haran will probably admit is a relatively small figure. What is startling and worrying is that the error was only found by chance. There was no mechanism or checking procedure.

Mr. Haran

Correct.

Deputy Curran

What procedures are now in place to ensure this will not occur again with each piece of new legislation?

Mr. Haran

The Deputy's question is valid. Irrespective of size, we were very embarrassed that we had forgotten to do it. It emanated from the complexity of a lot of changing pieces in the same area centred on the annual return date. Our new procedure is that when we draft legislation such as that relating to the IASA which will have implications, we will draw up a schedule of statutory instruments that will need to be signed before the primary legislation is enacted. We will exchange this schedule with others.

Deputy Curran

About 10,000 companies were discovered. They were due about €127 each, a relatively small amount.

Mr. Haran

Yes.

Deputy Curran

What is the registration fee paid by companies?

Mr. Haran

There are a number of fees payable. It amounts to a few hundred euro. There is an annual return which is registered. Under EU law, the Companies Registration Office is not allowed to earn a profit.

Deputy Curran

How much would an average company pay in total to the Companies Registration Office per annum?

Mr. Haran

We are not sure, probably €100 or €200. They only pay at time of registration. They do not pay on an annual return basis. They also have to lodge information whenever there is a change of directors and encumbrances, especially director encumbrances, for which I do not think there is a charge. Other than at the time of initial registration, they do not have to pay a fee on an annual basis. Our fees are generated from initial registrations and the use of our facilities such as searches. They are the main fee sources.

Deputy Curran

The bulk of companies would not send money in on an annual basis.

Mr. Haran

Correct.

Deputy Curran

Why not send them back the cheque in the post and be done with it?

Mr. Haran

The Companies Registration Office took this decision for operational reasons and found it was the easiest and probably best way to do it. Generally, it is dealing with professional intermediaries who might send in a lot of money in fees. The professional intermediary allocates a bill to a third party. If company accounts are done by an accountancy firm, it might cost a few hundred euro and the firm might send us the fees and bill its clients. I imagine this was the type of reason which entered the mind of the controller of companies when he decided that this was the most efficient way of dealing with the matter.

Deputy Curran

I would understand it if companies made a regular payment to the Companies Registation Office. It would have been much more efficient to ensure the error was identified and the 10,000 companies involved were written to directly. That would have closed the issue from an administrative viewpoint but this is ongoing in the sense that credit notes are circulating. Are they accumulating interest?

Mr. Haran

No.

Deputy Curran

There is still administration. It would have been tidier to send cheques to the 10,000 companies involved and close the matter.

Mr. Haran

There are companies and also intermediaries which might be paying the bills on their behalf and levying them. There might be a much smaller number of intermediary companies such as accountancy firms which are bringing together the accounts for those remitting the money to their banks.

Deputy Curran

Is Mr. Haran suggesting that the cheques have been written by accountancy firms? Would they not go directly to the individual company concerned?

Mr. Haran

I do not know. I do not have the operational person concerned with me as he is out of the country. I can return with the particularities. They obviously felt this was the most efficient and least costly way of responding in good faith. The interest issue was responded to also——

Deputy Curran

I appreciate that. There was a figure of €37,000.

Mr. Haran

——with a view to trying to ensure the clients with whom they dealt were best managed. They have a very good client interface group with which they discuss most issues. I do not believe anybody felt this was an unfair or inefficient way of making refunds.

Deputy Curran

I am afraid we must differ. From the manner in which it was explained to me, it does not look as if it was the most efficient way to settle the matter. May I ask one or two questions on the Vote in general?

Chairman

Let me ask one question first. This error has cost the State €1.3 million because of the fact that the statutory instrument was not signed. Is that not another way of putting it?

Mr. Haran

I do not wish to split hairs on the issue. If we had signed the statutory instrument, we would have legitimately collected another €1.3 million.

Chairman

That is a very important point.

Mr. Haran

I accept the Chairman's point. Technically, we had no right to the money but if we had followed the procedures that we had intended to follow, we would have collected another €1.3 million.

Chairman

That point has been lost to a fair degree. I imagine that no performance payment was made to the official who missed the need to sign the statutory instrument. If it had been signed and the penalties had applied, there would have been no refund.

Mr. Haran

I accept that. I will not split hairs on whether the money was lost or otherwise. The reality was that if we had signed, the State would have been richer by €1.3 million.

Chairman

Deputy Curran's point is that it was only by accident this came to light. I am astonished a ministerial directive was missed, the most important of the 19 directives.

Mr. Haran

I would not say it was the most important. It was a correcting directive to do with the sequencing of a change in the law. I am not trying to diminish it - please understand I would not do that - but it was to change to a new fees regime. We had signed another statutory instrument to change the return date. An honest mistake was made in the context of the Companies Registration Office raising a lot more revenue than anybody had expected. However, I accept that if we had signed it, the State would have been wealthier by €1.3 million. The goal of this policy is to transform compliance dramatically; it is not to collect revenue. I would like to be able to come back in three years time and say we had collected nothing in this area because we had secured compliance.

Chairman

Mr. Haran would also have to agree that there was total compliance when the estimate was less than €8 million and €20 million was raised. In fairness to the business and small company sectors, they were duly compliant.

Mr. Haran

The receipts one gets are a measure of non-compliance rather than compliance because there are penalties for a failure to comply. It would be wrong of me to stress the failure rate because the rate of compliance went up from 13% to 72% in the same year. The fact that we had increased the fees payable dramatically and had a new procedure for determining the due date helped to transform corporate behaviour. We have been very positive about this transformation but the goal is to get the rate to 100%.

Chairman

Would Mr. Haran not describe it as a bit of mess given that we have lost €1.3 million, and that the payment methodology and the time required by staff to operate this in and out system are going to require a fair degree of regulation?

Mr. Haran

We have costed the staff in the note that the Comptroller and Auditor General has mentioned. There is also the cost of compliance to companies dealing with these small sums of money. It would be sad to describe this as a complete mess and failure in an environment where we have transformed corporate behaviour and raised significant additional revenues. We did make mistakes——

Chairman

If a private company lost €1.3 million by way of a technicality, it would not get a clap on the back from its board of directors.

Mr. Haran

No but if it brought in an extra €8 million or €10 million, that would be taken into consideration. I am not trying to underestimate, devalue, change the approach or appreciation of what happened. We had a right only to the money we had collected. We did not have a right to an extra €1.3 million, although we should have had because we should have adopted a procedure and had the statutory instrument signed. The State is poorer because of our actions in this area but wealthier because we conducted a vigorous and rigorous enforcement campaign. We changed the law and have authorised a brand new structure for ensuring compliance. We have transformed compliance and raised revenues. In this context, we also made a mistake that cost money.

Chairman

For what percentage did the 10,000 firms account of the total number of non-compliant companies?

Mr. Haran

They were a small group because they were non-compliant for a short time. The penalty reflects this. About 20,000 companies were non-compliant. There are 132,000 companies. Of the 20,000, 9,000 were small companies which fell into this lacuna. They should have been charged interest only on the late payment beyond a period of 78 days; instead they paid interest on the late payment between the 28th and 78th days.

Deputy Ardagh

It appears it is very difficult for small businesses in general to comply with what is set out here. As Mr. Haran said, there was a plethora of statutory instruments. The matter appears to be extremely complex, particularly with the dates mentioned, whether it is 28 days, three months, the date on which the company was formed or of the last annual report. It is a bureaucratic nightmare for small businesses trying to operate within the commercial reality in running a small business. To get a sum of €12.75 million from a small business sector in late fees is disproportionate to the offence committed unintentionally.

Mr. Haran

There are issues of balances in what one is trying to achieve and the cost of achieving it. In Brussels it is called the SLIM policy. There is governmental regulatory reform. Some say there is a need for less regulation, some say there is a need for more. I like to use the word "appropriate", which is probably a cop-out. It is about finding balances. Small businesses are also the most exposed creditor grouping. If people are not filing returns or do not know what their creditworthiness is, they can be very exposed. They do not always use the Companies Registration Office as the source of that information.

Deputy Ardagh

We all agree that there should be compliance.

Mr. Haran

We want to encourage it. The old regime, which the Oireachtas approved, required that the return be sent in after the AGM but there was no fixed date on which it might take place. It was virtually impossible to effect compliance when the annual return date was linked to an AGM about which the enforcers, the Companies Registration Office, had no knowledge. We had to introduce a new concept, the annual return date. The transition from the old to the new regime was very difficult for companies and placed great strain on many small accountancy firms which suddenly had clients coming in, dealing with the transition to the euro, the new tax regime——

Deputy Ardagh

The €12.75 million penalty was very severe in that sector for the offence committed.

Mr. Haran

I agree that, in aggregate, it seems hard but if one looks at some of the returns, for example, €132, that we were giving back, one could question how hard they were. How else can we secure compliance? The general view is that non-compliance has to hurt to get compliance. In the IASSA Bill which should reach Committee Stage fairly soon we will look at other issues concerning compliance for small companies.

Deputy Ardagh

Is it not true that Mr. Haran's Department estimated that it would receive €7.86 million in 2002 from the Companies Registration Office?

Mr. Haran

Correct.

Deputy Ardagh

The Department actually received €20,271,094. Is it not obvious that the estimations were out of line as was the amount received from the sector and that it was effectively a severe, inequitable, unjust aggregate penalty?

Mr. Haran

This is straying into some of the policy issues but I will answer as best I can. The Oireachtas enacted what it considered to be the appropriate levels of charges in compliance requirements on the corporate sector.

Deputy Ardagh

That civil servants propose and politicians dispose is true.

Mr. Haran

We also had an external group, the McDowell group, which worked as experts and produced a set of proposals on which these measures were based. If people comply, there is no charge. The other revenues we receive are on a cost return basis. The Companies Registration Office is not allowed to operate in profit. The only area in which we earn a profit is the penalty regime. If the penalties are small, they do not effect compliance rate improvement. If they are high, there is a higher rate of compliance. Most of the difficulties about which I have heard from the professionals who deal with companies, and some companies, are to do with the transition from one regime to another. It is important to get a proper level of compliance. It was the best judgment of the Oireachtas about what the level should be to secure it. On aggregate, it looks like a big lift from a sector made up of many small companies but they also enjoy and seek to have a high level of compliance in order that they can use the register to protect themselves in their trading environment. They also benefit from other forms of the State's infrastructure.

Deputy Ardagh

There is still over €500,000 in credits somewhere in the system of the Companies Registration Office. Would the Department not send out cheques for that amount to the companies involved to ensure they get back the money taken from them because the statutory instrument was not in place at the correct time?

Mr. Haran

If a company wishes to get its money back, it can get a cheque. We will not prevent people from getting cash. We will talk to our user groups. If there is a big push from our user groups and the professions to have a cheque issued, I will talk to my colleagues but I do not believe we would have a negative view.

Deputy Ardagh

We are talking about nearly 40% of the money, €500,000, which still has not been taken up. Obviously, there are people who do not realise that there is money in an account for them in the Companies Registration Office. Many companies operate on a bank overdraft, on which they pay 8% or 9% interest, yet this money is due to them. Does this area not come under the prompt payments legislation? Can the Department not just write the cheque and give them back the money instead of holding on to it?

Mr. Haran

We have written to the people concerned and told them we have the money which they can collect in cash, if they so wish. We deal with many intermediaries - probably the nub of the issue - but I would have to cross-check with my colleague.

Deputy Ardagh

Obviously, there is embarrassment on the part of the intermediaries which are not talking to their clients, the companies. Should the Department not go directly to them?

Mr. Haran

We have written to everybody in cases where money has been levied. We have paid back cash where it has been required but have a standard practice of using credit notes which we frequently use within the Companies Registration Office in this type of area.

Deputy Ardagh

I understand that.

Mr. Haran

We are dealing with such people on a regular basis. They might lodge money and we would issue a credit note. It is a standard practice with our intermediaries. I will gladly review with my colleagues the policy about a credit note versus a direct remission. They can take up the matter with the CRO user group, the client group we talk to, to try to ensure our policies reflect best client practice but I assure the Deputy that I am not aware of any unhappiness with the policies we have adopted and the fact that we have communicated with everybody. When we made a mistake, we told them we had the money and that they could collect it in cash or we would provide some credit for them.

Deputy Ardagh

Does Mr. Haran seriously believe the directors or principals involved in the companies concerned would not be unhappy to realise that there was €1,000 or €1,200——

Mr. Haran

It would be €120, on average.

Deputy Ardagh

Based on Mr. Haran's figures, there are 5,000 companies, from each of which the Department has €100.

Mr. Haran

Some 4,073.

Deputy Ardagh

They should be sent a cheque. I understand the credit system operates very well with the user group and professional advisers in regular day-to-day work but this is a one off case which needs one off type action.

Deputy Boyle

This is the second set of accounts I have seen from the Department of Enterprise, Trade and Employment since I became a member of the committee and the second year that a significant surplus has been surrendered to the Exchequer. Why were the savings achieved under these funding headings and who decided, having asked for the original allocation, that less money would be spent? The Department appears to be earning a reputation as one which does not like to spend money and given that the Estimates were published today, I might have to discount the figure included.

I want to take Mr. Haran through a few figures, some of which are small but significant nonetheless. I notice the Office of the Director of Corporate Enforcement spent €1 million less in the year in question. Perhaps that is by way of compensation for the administrative oversight in the Companies Registration Office in that the money is got back immediately but given that it appears to be working effectively - if more money was spent, it could work even more effectively - why was €1 million of the €3.5 million originally allocated not spent?

On grants to industry, there is a significant shortfall in respect of both the IDA and Enterprise Ireland - €17.5 million in the case of the IDA and the best part of €10 million in the case of Enterprise Ireland. Are these companies which have ceased operating in Ireland or is less money being spent in these categories because of the inability to attract new companies?

There does not appear to be a particular heading for research and development. I presume Technology Foresight is the main heading in that category. There has been significant criticism of the Department in not investing enough in this area.

I am concerned that there is a shortfall of €3 million for community enterprise development. This has implications for regional development and the national spatial strategy. Why were decisions made not to spend the full amount?

Most significantly, less money is being spent on active labour force measures. I have worked out that €18 million less is being spent in FÁS, admittedly most of this applies to administration and general expenses, but €5 million is being spent on employment programmes. There is also a shortfall in the community initiative development partnerships on the basis, I presume, of matching funding, being a European programme. Perhaps Mr. Haran will explain this later.

On the issue of FÁS, I am returning to a question I asked last year. Does the Department engage in any cross-departmental cost benefit analyses of the numbers it engages in active labour market programmes, particularly the community employment scheme? The Cabinet sub-committee on social inclusion stated that for every 6,000 fewer places on community employment schemes there was a net saving to the Exchequer of €8 million. This does not take into account the additional costs other Departments will have to pick up in providing social services in the areas of health and education, not to mention programmes under the Department of Community, Rural and Gaeltacht Affairs. Can I take it that this type of cross-departmental cost benefit analysis is not being undertaken and that the actual Exchequer cost might be even higher than the saving ascribed to it by the Cabinet sub-committee on social inclusion?

On the reasons the money was not spent, €34 million is a significant sum. Given the Department's various responsibilities in a number of areas, some would be concerned about certain funding headings not being met. I do not understand the reason the money could not have been transferred to other funding headings, on which there is public acceptance that the money could have been spent more productively in the Department.

Mr. Haran

The Deputy asked about the ODCA in the first instance. It had to do with the start-up year and recruiting staff; it was the start-up phase. It was moving premises and recruiting staff. That is the reason. There is no carry-over into the Companies Registration Office. They are independent offices.

On the IDA, the key issue is that it spent more money, some of which came from its own resources. Rather than remit one's own resources, at a mid-term review correction of expenditure we cut back expenditure on the IDA. The Exchequer has an input but it used revenues from its own resources which can come from a variety of areas such as companies paying back money when they do not meet their job targets and disposals in certain areas.

Deputy Boyle

Was it the case that in the year in question more jobs were lost than created?

Mr. Haran

Last year and the previous year more jobs were lost. There was a net decrease in the overall number of jobs created by the IDA but expenditure generally does not refer to what is happening currently because usually approval is given in a particular year and expenditure arises a number of years later. If a company has met its job requirements after a certain period, there is no comeback to it if it decides to contract. In 2002 the IDA spent €116 million, even though the Exchequer element was a lot less because it used money from the national training fund, NTF, and money that it had received in capital grant refunds - €41 million. Overall expenditure, therefore, increased, even though the Estimate appears to have reduced. We remitted money to the Exchequer by way of a reduced Estimate for the IDA.

I do not believe there was a major change in the expenditure of Enterprise Ireland. There is a saving of €9 million but a number of things did not happen. There was an allocation for web works, a policy with which Enterprise Ireland is proceeding. This is occurring in a number of areas where Enterprise Ireland is trying to put in place infrastructure to help companies which aree-oriented. This project took a lot longer than expected, which resulted in a €5 million saving.

On the community enterprise incentive programme, there was a saving of €2.4 million. There are lead-in times on some of these projects, some of which are built projects, which means there can be a delay in having them done. Because of the global downturn, there was also a reduction in the draw-down by individual companies for their expansion plans.

Mention was made of the science fund which appears in subheads F1 and F2, from which one can see there was an increase in and reprioritisation of resources. On the question about FÁS, the first saving, in subhead K1, was €12.5 million.

The NTF is another source of funding for us. Effectively, it comes through a PRSI type system which involves a levy. A total of €12.5 million came from the fund, from which there was an increase in the draw-down. As there was a higher surplus, there was a reduction in the direct Exchequer payment through the Vote. We have discussed the level of expenditure under subhead K2.

On the programmes funded by FÁS, there was a reduction of €5 million in expenditure. Its own resources were higher than expected and the amount it had to spend was less than that estimated. While some are demand led schemes such as apprenticeships, my understanding is there was lower than expected demand.

On the question of the community employment scheme, the closure numbers were tied. Management is simply a matter of not increasing the numbers, from which we secured a saving of €4.7 million.

Deputy Boyle

I asked particularly about a cross-departmental cost benefit analysis.

Mr. Haran

The figure about which the Deputy asked - which was quoted previously - is €8 million. That is the cost to our Vote. Other costs could arise at other locations. I do not have a precise figure for the net cost. It depends on whether one assumes that a person will enter a period of unemployment and that there will be commensurate expenditure by the State to meet a service deficit that might emerge but the figure is a straight one. The interdepartmental group dealing with the live register is examining a review that has been done. This is the type of issue being discussed by it.

Deputy Boyle

I asked also about the failure to use the sum of €3 million on community enterprise development, which has implications for regional policy.

Mr. Haran

I do not believe it has. The reduction is a function of the delayed take-up of expenditure. That is my understanding. There is an approval stage. The approvals are announced and there is an expenditure allocation. As I said, some of these matters are functions of physical development.

Deputy Boyle

Even though they are well established at this stage.

Mr. Haran

Not all of them. My understanding is some are new. The Minister announces a round of expenditure on community enterprise development, a bidding process takes place, there is an adjudication panel and a list of what they call the winners is published. That is an unfortunate expression because it is an incentive——

Deputy Boyle

We are well used to racecourse parlance at this committee.

Chairman

As I have to excuse myself for a brief period, I ask Deputy Ardagh to take the Chair.

Deputy Ardagh took the Chair.

Deputy Noonan

To return to the question of the Companies Registrations Office, the outturn realised was in excess of €20 million for the year. Does this include the penalties collected illegally? Has Mr. Haran allowed for the rebate on his realised figure?

Mr. Haran

My understanding is that is the outturn. There is an accounting regime but that is the additional amount we collected. Excuse me, I am told it was placed in a suspense account and, therefore, not counted as part of the €20 million.

Deputy Noonan

Therefore, the €20 million is held onto.

Mr. Haran

It has been placed in the central fund.

Deputy Noonan

The figure included in the Estimates was €7.86 million. What was the 2001 outturn?

Mr. Haran

I will try to establish that figure for the Deputy. Apart from the small amount one would get on a normal basis in fees, the outturn would be quite close to the prescribed outturn after allocating the costs and departmental overheads of the Companies Registration Office. It is not meant to be a revenue raising exercise.

Deputy Noonan

I understand that but the 2002 Estimate would have been based on the 2001 outturn, with a number of assumptions about the new companies legislation. That is what I am getting at. What was the outturn in 2001? What were the additional assumptions which led the office to believe it would collect €7.86 million and what extraordinary events occurred to increase this figure by almost 300% to over €20 million?

Mr. Haran

I do not have the data from which we derived the Estimate figure. There was probably a reasonably conservative estimate of the expected yield under the late filing penalty regime. That would have been the main variable. The variables would have been the additional number of companies registering and the fees environment. We would not have assumed a significant increase in the number of new companies. It would have been a standard inflator of a particular number. I do not know what it was but it would not have been material.

Acting Chairman (Deputy Ardagh)

Is that the basis for the figure of €7 million?

Mr. Haran

I apologise but I do not have an explanation the figure of €7 million but we did not expect to get anything like the late filing penalty regime that we——

Deputy Noonan

I am going back to Deputy Ardagh's questions. The office sponsored the amending legislation on company law and built an Estimate on an assumption of how it would impact on the revenue flow to the Companies Registration Office. The estimated figure was €7.6 million. Apart from any illegal take, not reckoned in the figures, the outturn was nearly three times that sum - it exceeded €20 million. Either the office had erroneous assumptions in building the Estimate or it had erroneous assumptions when sponsoring the legislation.

Mr. Haran

Clearly, we had erroneous assumptions about what we could expect. We did not expect that bounty or that level of revenue to flow. While we might have expected a higher level of compliance, we definitely did not expect the additional yield from implementing the policy.

Deputy Noonan

Did the error occur from underestimating the number of non-compliant companies or the fee assigned in the legislation?

Mr. Haran

I have not done an evaluation and a determination of what caused the difference in the return versus the Estimate but we did not expect to get this amount of money. In other words, we would not have expected that number of companies to file late. Perhaps we did not put enough thought into how much it would yield. It must be remembered that the new regime was taking place against a background of unknown behaviour. When we introduced the new regime, the energies would have gone into trying to maximise the achievement of a high level of compliance. Perhaps the goal was that we would get a higher level of compliance so that we would not have yielded as much moneys. I am not sure how scientifically we went into establishing what the yield would have been.

Deputy Noonan

In the interests of moving on, perhaps Mr. Haran would write to the committee giving a fuller explanation of how that Estimate was built on.

Mr. Haran

I will do that.

Deputy Noonan

On Vote B.2, the original Vote was approximately €10 million. A total of €6 million was under-spent. This concerns the Trade and Business Development Body. Approximately €4.6 million was spent. What was that spent on and what is the reason for the under-spend?

Mr. Haran

This is a jointly funded body, as the Deputy knows, and it is located in the North, outside Newry on the Warrenpoint Road. The money would have been spent on the organisation. It took over many of the island of Ireland activities and award events including the trade, design and innovation awards. The body brought all those together. It ran an equity network programme. It has done some work on competitiveness, North-South, but that is a politically sensitive issue. It worked on a policy on digitalisation coming originally from the Belfast-Dublin corridor and expanding to a digital island. It introduced a number of schemes, including FUSION and FOCUS. FOCUS was aimed at marketing expertise on a cross-island basis, locating graduates in a company North or South. FUSION looked at the area of technology. It also ran a number of forums and road shows throughout the country.

The reason for the under-spend was that the political situation changed dramatically. We had periods of suspension and the body never got up to its full level of activity. The ministerial body was not meeting in the same way. From a Northern perspective there was a lacuna at the political level which would have restricted the capacity of the organisation to expand its activity base.

Deputy Noonan

My understanding was that once it was set up, it had been mandated to carry out various activities in the interests of business, industry and competitiveness.

Mr. Haran

There is a staggered process where the body interfaces with the North-South Ministerial Council.

Deputy Noonan

It is not only dependent on the presence of an Executive at Stormont but also on the North-South Ministerial Council.

Mr. Haran

That is my understanding. I am not speaking about the law; I am speaking about my understanding of the practice and what I have seen happen. The suspensions of the Executive in the North led to a very conservative development of the body's activities. Its budget would be approved at meetings of the North-South Ministerial Council. New programmes it wished to initiate would be raised and approved at those meetings. The absence of that political structure inhibits the capacity of this organisation to develop.

Deputy Noonan

So €4.6 million was spent against an Estimate of over €10 million. What is the outturn looking like for 2003?

Mr. Haran

I do not know the figure but it will not be very strong. My colleagues are saying it is about €4.9 million but there has been no significant development of new initiatives in this area.

Deputy Noonan

I want to move to the appropriations-in-aid, No. 10 - work permit fees. The Estimate was €6.3 million but the outturn was €14.5 million. The explanatory note suggests that 40,000 permits were issued to non-EU nationals to come to work in Ireland. Mr. Haran said in reply to Deputy Boyle that the economy was in decline and that this would explain the lack of draw-down of grant aid for the IDA, Enterprise Ireland and the Shannon development company. How can Mr. Haran explain the issuing of far more work permits to overseas workers in a declining economy?

Mr. Haran

This is not an issue of notes but of policy. A number of things are happening. First, I do not believe I said that the economy was in decline but that there was a decline in certain areas of the economy. Second, there is a clear decline in international cross-border investment and that has an impact. Overall, trade has been under pressure also and as we all know, many companies are suffering. The economic reality is that it is much tougher and it was very tough in 2002. The Deputy is right to highlight the juxtaposition of a tough year and the robust issuing of work permits.

The causes of these are manifold. First, despite the fact that there is overall economic pressure, skills shortages remain in certain fields. They can emerge both at regional and national level. Second, there is a client population of people on work permits, and I will ask my colleagues to find that figure for me. Many of the permits issued in 2002 - 41% - were renewals for people already here. There has been a policy generally that despite labour market difficulties, a positive attitude would be taken towards individuals who are already here and looking to have their permit renewed. Third, the live register and unemployment levels reflect the fact that regardless of the difficulties, the labour market remains relatively tight. Long-term unemployment today is at 1.4% and unemployment is at 4.4%. I am not sure what the figures were then but we still had a fairly tight labour market.

Over the past few years we have progressively introduced more controls to try to ensure that Irish or EU and EEA people are given first option, but despite those controls, we have witnessed a robust demand from companies for work permits. We have raised the price of the work permits but there is still a robust demand. In the face of severe trading problems many companies say that if we close off the work permit regime entirely, they will find it difficult to meet the cost pressures under which they operate. They usually find that the work permit people they secure are highly productive and valuable members of the labour market.

We have tried to reconcile the competing needs of the Irish, EU and EEA citizens and company requirements, both at national and regional level. We are using FÁS to help us implement that. We have a process for the renewals. In future years we will also have the accession states and a revised policy which I believe will have a profound impact on the overall numbers of work permits. I am trying to give the Deputy a sense of the parameters of issues we would identify.

Deputy Noonan

I understand that. The Estimate was an appropriations-in-aid figure of €6.3 million. The Department took in €14.5 million. Mr. Haran's explanatory note states that the €14.5 million arose from issuing in excess of 40,000 work permits. Mr. Haran talked about policy considerations and renewals, but the policy and the renewal demand would have been built into the Department's Estimate. The Department's Estimate implied the issuing of about 17,000 permits, but the Department issued 40,000 permits. What changed during the course of the year, especially when the economy was declining at that point, to account for the issuing of that number of permits?

Deputy Perry resumed the chair.

Mr. Haran

A factor that influenced us was an extraordinary high and robust level of demand which we did not anticipate. As the economy's growth reduced and given that it cost money to source such people and to get the permits, we anticipated a reduced demand, but that did not occur. We made the system for getting permits tighter, but that did not stop the demand. We do not fully understand how this element of the labour market has been transformed in the space of maybe two years. We moved from a position of issuing about 6,000 work permits in 1999——

Deputy Noonan

How many were issued in 2001?

Mr. Haran

In 2001, some 36,000 permits were issued. Then there were the events of 11 September. The Department of Finance was projecting increases in unemployment. We all thought that the economy was going to take a much harder landing. I know that some people lost their jobs and there was a big turnover in employment, but thankfully the economy demonstrated itself to be a lot more robust than many people anticipated.

Deputy Noonan

Is the scheme operated as a demand-led one?

Mr. Haran

It is a demand-led scheme subject to the way in which policy evolves over time. Quite strict moves have to be gone through to prove that FÁS cannot secure a worker for a particular post. We have limited certain areas of business where Ireland Inc. is closed, particularly in the lower skills area and we have changed the rules for the accession countries. As and from 1 May next, there will be a new pool of people one can bring in as a matter of right. The scheme is demand-led subject to a policy prescription. We do not have an absolute number above which we do not allow in people. The policy is a dynamic one.

Deputy Noonan

The Department does not have a quota.

Mr. Haran

We do not have a quota.

Deputy Noonan

How many work permits has the Department issued to date in 2003?

Mr. Haran

Some 39,000.

Deputy Noonan

The number issued by the Department is up to almost 40,000 again.

Mr. Haran

That is in spite of the fact that we have dramatically increased the fee level. We increased it to——

Deputy Noonan

Has Mr. Haran a figure for renewals among those 40,000 permit holders?

Mr. Haran

Renewals are increasing, and among that number the figure for renewals is 50%.

Deputy Noonan

In the final analysis, is it at the discretion of the Secretary General or of the Minister that a permit is eventually signed?

Mr. Haran

In the final analysis, it is a ministerial decision. What we do is under delegated authority.

Deputy Noonan

Therefore, an applicationfor a permit would not cross the Minister'sdesk?

Mr. Haran

Not generally, no. I am not saying no individual application would, an individual application could cross the Minister's desk.

Deputy Noonan

One that might have been refused down the line could be passed to the Minister?

Mr. Haran

Her input is generally one of policy, such as deciding to change the fees. We have a periodic review of the sectors and she would be involved in discussing that. We are looking at changing the legislative base and she has been driving policy in regard to the accession countries. The Minister generally sets the policies and the civil servants implement them. We have a team of people. Our service levels have been deficient but we have recently moved to try to improve them. Many Deputies found our service levels, particularly in the past eight months, fairly poor, but we have now returned to a level of processing within three weeks.

Deputy Noonan

Under the appropriations-in-aid, No. 13 on IDA capital, the Department seems to have expected to get in excess of €20 million from the sale of broadband facilities, but it got nothing.

Mr. Haran

That is correct.

Deputy Noonan

I do not fully understand Mr. Haran's explanatory note. Will he go through it again?

Mr. Haran

The IDA was the agent for what was then a Department of Public Enterprise, but is now the Department of Communications, Marine and Natural Resources, led initiative to attract into Ireland a company called Global Crossing, which provided two large pipes of bandwidths to give us international connectivity. The IDA was the vehicle used to do this because it had the vires to do it. The contract for provision of the bandwidth was sold on to a consortium. There were a number of global market crashes and telecommunications difficulties in the global market, particularly in Europe around deregulation in terms of the amount of money people paid for bandwidth for third generation licences. The IDA had difficulty collecting money from creditors - people who had agreed to buy bandwidth and were factored into the cost. Global Crossing filed under Chapter 11 in the United States and hopefully it will work its way out of that. The IDA had difficulty collecting money from some of its creditors that was legitimately owed. The IDA has gone after that company's creditors and recouped about €13 million this year and it is actively pursuing debts with three other companies.

Chairman

Mr. Purcell has a comment on that.

Mr. Purcell

For the information of the committee, that whole issue is the subject of section 8.2 of my report, which we did not reach with the accounting officer, Mr. Tuohy, the last day. It will come up for consideration in detail at a date which I understand has been determined at this stage.

Deputy Ardagh

Does that come under the Department of Communications, Marine and Natural Resources?

Mr. Purcell

Yes. The IDA comes into this because for legal reasons it was used as the Government contracting agency. In that sense, if there were receipts coming in, they would come in through the Department of Enterprise, Trade and Employment Vote. It is rather complicated, but there were problems with the marketplace - it changed with the economic downturn in the ICT and dot-com sector.

Deputy Noonan

I appreciate that. I do not want to dwell too long on this. I will pursue it by way of one or two more questions. It seems that it was not so much the downturn in the global telecoms market that caused this loss because from what Mr. Haran said, the IDA sold capacity and it is a question of not being paid for the capacity it sold.

Mr. Haran

Yes.

Deputy Noonan

Did it sell to the tune of the Estimate - to the €22 million level?

Mr. Haran

That would have been the debts it would have expected. It settled one of the debts, the largest individual one, and received moneys for it this year.

Deputy Noonan

There is general agreement politically, and I presume across the Administration, that to place Ireland at the forefront of IT economies is a shared national ambition. To do that, we need easy access to broadband. Has Mr. Haran some of the recently published league tables which show how badly we are doing?

Mr. Haran

There are a number of elements to that. This piece was to do with our international connectivity and Ireland was way behind the globe in that regard.

Deputy Noonan

It still is.

Mr. Haran

The deal in regard to a few of these matters has significantly addressed the international connectivity piece. Generally, for large corporates, particularly depending on location - there is a big regional development aspect to this - if one is lucky enough to be in certain locations around Dublin, for example, in most of the very big industrial locations, one can get access to fairly good international connectivity at fairly reasonable prices. I am not an expert on this area. It is not my Department's prime driver. There are areas where we are way behind because of issues around access in terms of the last mile and issues around the physical infrastructure, in respect of which there is a lack of adequate competition and supply. For societal use of the Internet and the societal cost of ASDL or two-four megabyte connectivity - I am talking about ordinary citizens - the quantum in Ireland using such technology and the cost of it would be a good bit behind that of the use and cost of it in certain other places.

The recent Census showed that the penetration of Internet access here is close to 50%. Many industrial development issues have been addressed but there are much wider societal ones. If there is a sufficient level of penetration of high quality and high speed access, perhaps the supply service could flow from that and there would be a portered clustering concept, a diamond concept arising from a high domestic demand which would encourage good companies to emerge who could supply globally.

As to our being behind in the league table, we have won many good businesses because our international connectivity has been so good and reasonably priced.

Deputy Noonan

In Dublin.

Mr. Haran

Not only in Dublin but in some of the locations that are properly wired and have access to the national backbone, as it were. I am not pretending to be the expert on these matters. I do not know where some of the ISP providers exist.

Deputy Noonan

Is Mr. Costello an expert on this area? He might say something about it.

Mr. Costello

I reiterate what the Secretary General said. Interesting developments are also taking place in the Shannon region that will improve connectivity, but there is also the wider societal issue.

Mr. Haran

I know that Shannon Development is involved in the Limerick ring. There are a number of gateway towns and as their populations increase, hopefully they will provide competition and access to a much wider population of companies. The small and medium sized companies are the ones I would be worried about from an industrial development point of view. I would also be concerned about ordinary citizens' access to generate demand and to their access to stimulate teleworking, which is a useful development from a labour market perspective.

Deputy Noonan

Under appropriations-in-aid in regard to the European Social Fund, the Department estimated that it would receive in excess of €22 million but it got nothing. Did it get such funding in 2003?

Mr. Haran

We got it this year. It is good for us bureaucrats - civil servants - to have to deal with Europe because we learn a good deal about form filling and regulations. There is a great deal to be achieved through the cascade regime by way of section 8 closure statements. We hoped to get the closures completed and paid back from Brussels in that accounting period, but we got them this year.

Deputy Noonan

In full?

Mr. Haran

That is my understanding. We got €22 million. That is what my note states. We also had difficulties in other areas of drawdown. I am talking about the €22 million figure. We still have difficulties from previous rounds in regard to drawdown on which we are negotiating with Europe.

Deputy Noonan

Under item 8.7, some €1 million expenditure is estimated on consultancy services. The Department spent almost €700,000. What areas of work were covered by consultants and what consultancy firms were retained?

Mr. Haran

It has been suggested that we are expecting that funding of €22 million; it has not come in yet, although I thought it had.

Deputy Noonan

Will the Department get it before midnight on 31 December?

Mr. Haran

I will write to the committee on the matter. I understood that funding had come in. It has been allowed for in our appropriations-in-aid and I assumed that meant it had been paid in. I missed the Deputy's last question.

Deputy Noonan

Has Mr. Haran a credit note for it?

Deputy Curran

Can we cash it?

Mr. Haran

I can give the Deputy the list of consultants or I can read them out.

Deputy Noonan

I would like Mr. Haran to read out the list of consultants and the purpose of their retention.

Mr. Haran

One of our largest expenditures was for actuarial advice. We were until recently the Department responsible for the regulation of insurance. As part of the responsibility of the Department, we retained a consultant actuary, as that was the cheapest mechanism securing for advice to help us in our prudential supervision. As I recall, this involved one individual.

We had a consultancy expenditure of €136,000 for the disposal and sale of Irish Fertiliser Industries, which subsequently went into liquidation. This consultancy would have been taking place on a jointly funded basis with the other owner of the company, IFI.

Deputy Noonan

As Mr. Haran lists the reasons he retained consultants, will he also list who they were?

Mr. Haran

Yes, I will do that. The consultant who gave actuarial advice is an individual and I am not sure if the committee wants me to name the individual. The consultant used for the sale of Irish Fertiliser Industries was Bear Stearns, the international merchant bank.

I compiled a list in descending order of expenditure, but my notes are compiled in the opposite order. A consultancy fee of €20,000 was paid to three individuals who gave us information of a legal nature in regard to the Company Law Review Group. I can list the individuals but I am not sure if the committee would like me to do so. Those individuals are three practitioners.

Deputy Noonan

Are they employees of the company? It is companies I am interested in hearing about, not individuals.

Mr. Haran

I do not think they were employed as companies, they were legal experts. We recruited an accountant to do work in regard to the prompt payment of accounts at a cost of €4,000. I do not have a note of from what company that accountant came. If there is a list of companies, I can supply that information in a note to the committee.

Eustace Patterson was contracted for a consultancy on the fastrack to information technology at a cost of €13,000. We had an expenditure of almost €32,000 in regard to the European Policy Research Centre, which is a quango attached to a university that examines regional aid expenditure. We paid €33,500 to PricewaterhouseCoopers for work it did on examining the Register of Friendly Societies in the post-credit union environment, which was the biggest part of its work. The credit unions were moving out, leaving friendly societies, trade unions and industrial problems in societies to be dealt with, and we did a consultancy on that.

A consultancy fee of €16,500 was paid to an individual who provided accountancy services to the RFS, which was contracting. We did not want to hire a new accountant. Somebody had retired and we paid a retainer of €16,500 for professional work carried out by an accountant. We had an expenditure of €8,000 for a consultancy involving an expert examining the recognition of the IIPA, a body that was seeking to be recognised for audit under the Companies Acts. We brought in an expert to examine and advise us on some of its policies. I do not have the name of the individual.

Chairman

Were any consultants paid more than €50,000?

Mr. Haran

A consultancy fee of €62,000 was paid to BearingPoint, which used to be KPMG, to examine our sheltered employment scheme for the disabled. A consultancy fee of €97,000 was also paid for a review carried out by Mercers on the Labour Relations Commission, and we have taken actions on that. There has been a restructuring of the LRC. A consultancy fee of €74,000 was paid to an individual consultant, not a company, who has helped us with work in regard to the Health and Safety Authority. Another consultancy fee of €57,000 was paid to Indecon which carried out work on reviewing our active labour market programmes. The output from that will be an input into the review group I mentioned who are examining our active labour market programmes. I think I have covered all the consultancies.

Deputy Noonan

It is hard to grasp the information when they are read out that way.

Mr. Haran

I understand that.

Deputy Noonan

Will Mr. Haran give a full schedule of the consultants used by way of letter?

Mr. Haran

I will.

Deputy Noonan

Including names.

Mr. Haran

Does the Deputy want the names of the individuals concerned?

Deputy Noonan

I do. If they are getting paid money they might as well be named.

Mr. Haran

I noted the direction given about not mentioning people by name.

Deputy Noonan

They can be mentioned in the letter.

Chairman

It is covered under FOI legislation, therefore is it in order to release that information.

Deputy Curran

I will not delay Mr. Haran too much longer, but I wish to follow up on one or two points. With regard to item K.3, the FÁS employment programmes, the estimated provision was €413 million, but the outturn was €408 million. What percentage of that figure goes to participants on the various schemes and what is the administration cost of the schemes?

Mr. Haran

I do not have an estimate on that. FÁS's direct expenditure is listed under K.1 but its indirect expenditure involves paying supervisors who are also CE participants. A residual amount for CE is used for materials and training, but that is a fairly small amount. I can check if we can source a breakdown of that figure.

Deputy Curran

I do not want to dwell on this, but it would be useful if Mr. Haran could give a breakdown in global terms of that €400 odd million.

Mr. Haran

We should be able to do that.

Deputy Curran

In his answers to questions, Mr. Haran said that the economic climate in 2002 was a little more difficult. We frequently discuss our competitiveness. I notice that the Competition Authority, which comes under item A.9, was grossly understaffed. It was envisaged it would have a staff of 44. At the start of the year it had a staff of 25 and the best it achieved was when it had a staff of 36 at the end of the year. I find it difficult to understand the reasons a recruitment drive did not take place during the year to provide a full complement of staff, particularly when that was a time the work of the authority would have been of particular relevance.

Mr. Haran

I accept the thrust of what the Deputy has said in so far as we need a vigorous Competition Authority particularly when the economy is very hot. We need the authority to examine such issues as service, inflation etc. The authority is operating from a low base. It had 19 staff at the beginning of the year when it had many vacancies. The labour market is still tight and the authority went through the procedure of trying to recruit people to fill those vacancies over the course of the year, which is what led to the saving. It filled those vacancies effectively, but there is also a turnover of staff and by the end of the year there were eight vacancies.

Deputy Curran

I am not satisfied that it recruited the required number of people. There is a saving. At any given point at best it was short of at least eight people.

Mr. Haran

It is short eight people.

Deputy Curran

Budgetary provision was made for this.

Mr. Haran

That is right.

Deputy Curran

This happened when the work of the Competition Authority would have been more important than perhaps at times in the past. I am surprised that a greater effort was not made to focus on this because it was one of the areas where a small group of people would have had a significant effect. What is the number of people working in the Competition Authority today?

Mr. Haran

I do not know what that number is. The authority lost a member of staff at the end of last year to the office of the communications regulator. There was a flow of staff from the authority to that office when it was established and we replaced a member of staff. The authority lost one of its senior economists, but that person has been replaced. I do not know the number of staff in the authority today. I would have to talk to the authority about the detail of its recruitment process through 2002. It would have to be careful about who it recruits and how it does so. I accept the thrust of the Deputy's point about the desirability of having the authority fully staffed.

Deputy Curran

As public representatives, we daily encounter complaints from constituents, be they private individuals or those engaged in business, about the lack of competition in the marketplace. That can apply to professional services, banking etc. Yet during the 2002 the Competition Authority always had in excess of 20% of its staff positions unfilled. That shortage of 20% of staff was the authority's best position in terms of staff during 2002. If one was to examine a broad range of Departments and other agencies and organisations, I do not believe such a position would be the case. How seriously has the Department examined this issue? The numbers do not add up. One would not normally have 20% in terms of vacancies——

Mr. Haran

The number of staff in the authority doubled. It increased from 19 to 36 with an outturn of eight vacancies remaining at the end of the year. Those additional staff represent a good deal of absorption for an organisation. It involved a good deal of IT provision, the creation of offices and the provision of desks for people.

Deputy Curran

I do not agree. If companies in the private marketplace decide to establish in a particular way and their target is to recruit a certain number of staff, they generally do it because it is driven by the marketplace and they have to do it.

Mr. Haran

There is also a labour marketplace into which they also have to tap and one can only tap so much out of it. I imagine the authority went to the market at times and it could not find the resources it needed. We are talking about specific skill sets that Ireland was not necessarily producing in adequate supply and for which there was a significantly increased demand, particularly arising from the growth in the number of regulators in the competition area. I am talking about the sectoral ones, such as in communications, energy and in transport, which were emerging. There was a good deal of pressure in terms of demand for staff in the marketplace. The fact that the authority doubled its staff over that period reflects some immediacy and priority being ascribed to this issue. The fact that it was authorised by the Department of Finance to do so also reflects a governmental desire to respond to this issue.

Deputy Curran

There is also the reality that the authority did not achieve what it set out to do.

Mr. Haran

There is also the reality that the authority doubled its staff.

Deputy Curran

It failed significantly to meet the target that was set for it at that point.

Mr. Haran

I do not try to maximise my staff to meet authorised numbers. I have a policy of trying to recruit staff to meet the current needs and absorption capacity of the organisation for people at any point in time. It may be that one cannot absorb a certain number of people or find the right people to do the jobs that are vacant. This is a dynamic environment. The goal is not merely maximising the number of staff. That cannot be a goal for a public sector organisation. I accept the thrust of what the Deputy, said is that it would be desirable for the authority to maximise the outcomes of its activities and to doso one needs people on the ground doing thework.

Deputy Curran

I will put it this way, I think there is plenty of work for the Competition Authority.

Mr. Haran

I also think so.

Deputy Curran

I want to refer briefly to work permits. Like Deputy Noonan, I am surprised at the figures, but there is one variable on which we did not get the detail, although it is only a minor one. In the explanatory note Mr. Haran said the level of €40,000 had been reached. He said the variation can be attributed to an unexpected increase in the demand for work permits; the original estimates were prudently based on a fee of £125 or approximately €150 per annum. The fee must have increased significantly in 2002.

Mr. Haran

The Deputy is right. I was looking at 2002 and 2003. It was €400 and it increased to €500 in 2003. There was——

Deputy Curran

It went from €150 to €400?

Mr. Haran

There was an increase in thatyear.

Deputy Curran

In 2002?

Mr. Haran

I do not have the date of its introduction. There was an increase in 2002 and another in 2003. I do not have the date when the increase in 2002 was implemented.

Deputy Curran

The 2002 figure is €400?

Mr. Haran

Yes.

Deputy Curran

That is a significant increase.

Mr. Haran

It is. One would have expected it to have dampened demand.

Deputy Curran

Was the fee increase introduced to dampen demand, as an administration cost or to raise revenue?

Mr. Haran

I cannot look into the heart of the Minister at that point in time. There would have been an element of revenue raising because there would have been an administrative cost burden. We would not have wanted it to be too easy for somebody to employ a foreign worker rather than employ somebody already in the country or in the Union. We wanted to try to encourage a priority to——

Deputy Noonan

Is it not the practice to deduct the fee from the first week's wages of the guest worker when they arrive?

Mr. Haran

It is not allowed. We would send in our investigators. We have published the rules on this in a number of languages and we have asked people to include the wage they will pay the worker on the permit form. I am not saying that there are not abuses but we have an inspectorate and we try to capture and deal with abuse. We know the ways of the world. There could also be people paying in the host country before they come to Ireland. We know that people can be doing that, especially at the lower skills level. That is where I would be more concerned about abuse because people might be too concerned to assert their rights adequately. That is the reason we have the inspectorate. Their colleagues will also help to support them. Most of these people do not go into an exclusively work permit environment. The unions and their colleagues support us a great deal in ensuring that rules are enforced properly.

Deputy Curran

Is a work permit normally issued for a year?

Mr. Haran

It can vary. It is cheaper. The schedule for rates would be €65 for one month, €95 for two months, €125 for three months, €170 for four months, €210 for five months and it increases progressively from five months up to a year, to €500.

Deputy Curran

The work permit is given to a specific company.

Mr. Haran

The individual and company are linked in the permit.

Deputy Curran

How many individuals, after they arrive in Ireland and are working for a company, subsequently apply in Ireland for a work permit for another company?

Mr. Haran

It is a small number, a few thousand each year. It is a technical point but the new company applies for them. In cases where we find there is some sort of abuse or a concern in that regard, we are supportive of transfer for people.

Chairman

I have one question with regard to IFI or NET. There is a provision of €12 million. What was the total cost of the closure of NET?

Mr. Haran

It came in by means of a Supplementary Estimate. It is a sum of nearly €12.5 million.

Chairman

What is the total cost of the closure of that company?

Mr. Haran

We do not have a closure. Things are still happening on it. The State and IFI created a pension fund under a trust arrangement of about €24.5 million. We made a contribution to a pension fund. The liquidation is still ongoing and property disposals are still awaited. It is anticipated that not everybody who is owed money will be paid fully. There is a hierarchy of creditors and there are also pensioners. What we are trying to do is put a level of pension into a trust environment.

Chairman

What level of debt has been written off to date?

Mr. Haran

I do not have the figure. This came up at the committee over many years. A significant amount of expenditure took place and I believe the State lost over €100 million. I do not have the figure with me. We also had a cheap gas deal at that time. The gas agreement itself changed in value over time, according to how the price of gas moved. It could have become of negative value to the company at one stage. It had a preferential gas arrangement and it got gas cheaper. A lot of committed moneys went into IFI.

Chairman

Was a due diligence report done on this or was there an overall report?

Mr. Haran

I do not know if an after the fact report was done. Good work was done by the Comptroller and Auditor General in the 1980s and 1990s.

Chairman

The fact is that it is still costing €12 million.

Mr. Haran

That was a decision by Government to recognise the fact that many workers would end up with poor pensions, so it put money into a trust for them. It was an extra-statutory type of arrangement.

Chairman

What provision is there for next year?

Mr. Haran

There is no provision. This was a once-off provision in which we funded a trust fund for pension allocation. The fund was €24.5 million for ex gratia severance payments.

Chairman

Who is managing that trust fund?

Mr. Haran

That is under the liquidator. The company is still under liquidation. There are clean-up costs, site disposals and revenues and some of them could be considerable. Against that there is a range of creditors with a variety of preferences.

Chairman

Where is the €12 million going? Is that sum ring fenced?

Mr. Haran

It is ring fenced. I believe many payments have been made from it. It would have been ring fenced under the control of the liquidator and it is subject to an agreement with the workers on its disposal. It is for ex gratia payments so they must decide who gets paid how much and how that is to be determined.

Chairman

Is it fully safeguarded by the liquidator?

Mr. Haran

It is.

Chairman

It is surprising that when ring fencing a pension fund it is put under the control of the liquidator.

Mr. Haran

There would have been legal issues about protecting the State as well. This was done following legal advice.

Chairman

Perhaps you would give us a report on that. County enterprise development is the funding vehicle for small companies in every county. I am familiar with this in Sligo and there seem to be exacting criteria for the allocation of a limited amount of money. The budgets for this have been curtailed. The enterprise boards deal with companies that create jobs for between one and ten people. It is most unfair that such a limited amount of money is going to small companies.

Mr. Haran

These balances have to be decided by Government. We give money in the form of capital grants and we give soft supports. It is unclear how much we should be giving. I do not wish to be trite but how long is a piece of string? The more we give, the more tax we need to collect from those companies to fund the amounts we give them.

Chairman

The sum is €32 million. When one takes into account the cost of the administration of each enterprise board in the 26 counties, the net benefit to small companies is small.

Mr. Haran

That is right. However, perhaps the role is not to give people free money——

Chairman

It is not free money.

Mr. Haran

——or grants. Much of what the CEBs do is to provide a variety of other supports, such as advice, encouragement and information on how to exploit markets. There are severe dangers in this concerning displacement and in helping a small start-up company in one town and their potential to compete with another company somewhere else, both in the tourism sector, where some of this work is done, and in the general trading area. We are at present conducting a review of our policies in these areas and our governance of the CEBs to try to find a way forward with the best policy. I am not sure it is about giving grants, but that brings us into a policy debate.

Chairman

Look at the level of funding for Enterprise Ireland and the IDA. Big companies grow from small companies. I disagree with you in that the critical time in the success of any company is at the start-up stage. When one takes away the cost of administration from the budget for county enterprise boards, what is left over is only investment for feasibility studies. In one sense and given the big budget, as a level of priority funding it seems quite small.

Mr. Haran

Our reviews have looked at some of these issues. The IDA budget is understandable given that it is competing globally to buy jobs for Ireland Inc. There is a global marketplace and we have to pay a certain amount in grant aid to attract companies. Europe is significantly limiting how much we can spend in this area. Enterprise Ireland has a variety of programmes to help certain types of companies but generally it is trying to get an input into some of these small companies. We have a high potential start-up support structure and a lot of equity money. Much money is going from free money into equity and venture capital support, where we are trying to give a spur to companies that we believe can be global winners. That is what one must be in this business.

The question is what to do with small companies, knowing that we have a benign tax regime for people who do succeed, such as low capital acquisitions, low capital gains and low corporate taxation, and that the level of entrepreneurship in Ireland is higher than in most other countries in Europe. Ireland is a good country at producing small companies who are anxious to do business. The question is how much money does Ireland Inc. want to give to support these companies and what is the benefit or return on doing that. Some people suggest that encouraging too much grant seeking activity can itself thwart true entrepreneurship. Small companies have many problems. As was mentioned earlier, our company law requirements and CRO registration are problems, as is administration. Hiring people is a difficult problem and puts a burden on an entrepreneur. It is a case of trying to find balances between the burdens we put on people, the level of support we can give them, the rewards they get if they are successful and who participates in those rewards.

We are giving them about €7,000 per job created. It is not lower, as far as I recall, than what we give for other jobs created. Then one must ask, who creates a job?

Chairman

The success of the economy in the recent past has been built on small companies who have got little or no support. It is not a policy issue to look at the allocation. In the administration of such a huge budget and the creation of wealth in the economy, small companies, particularly in the manufacturing sector, get very little. Looking at the allocation for the 26 counties and taking the administration costs of each enterprise board away, the net figure available is only about €10 million for the country.

Mr. Haran

I accept that. Against that, it is bad to take the administration out of it because some of the supports we provide for small companies are the people about whom we are talking. It is the executives of the county enterprise boards who meet the companies, try to help them develop and try to help business communities realise their potential rather than it necessarily being a case of transferring cash funds from one part of the economy to another.

Chairman

Does Mr. Purcell wish to comment before we conclude?

Mr. Purcell

Not really. The key issues surrounding the paragraph were adequately dealt with by the committee. These bodies, right down to the individual county enterprise boards, are ultimately accountable for their actions to this committee. It is open to the committee to call any of these organisations before it, if it wishes to go into any of these matters in greater detail. Previous committees have done so. It would not be creating a precedent.

Chairman

That is a good point. We could invite IDA Ireland under a separate audit. I thank Mr. Haran, his team and the officials from the Department of Finance. Is it agreed that we dispose of Chapter 11.1 and note the Vote? Agreed. The agenda for next week is the Department of Social and Family Affairs, Vote 40, Chapter 12, 12.1 and 12.2.

The committee adjourned at 2.15 p.m. until 11 a.m. on Thursday, 20 November 2003.