COMMITTEE OF PUBLIC ACCOUNTS díospóireacht -
Thursday, 1 Dec 2005

Carlow Institute of Technology: Financial Statement 2003.

Dr. R. Neavyn (Director, Carlow Institute of Technology) called and examined.

Vice Chairman

I welcome the representatives of the Carlow Institute of Technology.

Witnesses should be aware that they do not enjoy absolute privilege before the committee. The attention of members and witnesses is drawn to the fact that, as and from 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act 1997 grants certain rights to persons identified in the course of the committee's proceedings. These rights include the right to give evidence, the right to produce or send documents to the committee, the right to appear before the committee, either in person or through a representative, the right to make a written or oral submission, the right 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, these rights may be exercised only with the consent of the committee. Persons being invited before the committee are made aware of these rights and any persons identified in the course of proceedings who are not present may have to be made aware of them and provided with a transcript of the relevant part of the committee's proceedings if the committee considers it appropriate in the interests of justice.

Notwithstanding this provision in the legislation, I remind members of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable. They are also reminded of the provisions in 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 a policy or policies.

The witnesses may introduce themselves.

Dr. Ruaidhrí Neavyn

With me from the Institute of Technology, Carlow, are Mr. Cormac O'Toole, secretary-financial controller, and Ms Eleanor Rea, finance manager.

Ms Carmody

I am a principal officer, higher education sector, Department of Education and Science. With me are Mr. John Rigney, principal officer, third level building unit, and Mr. Chris Kelly, assistant principal officer, technology and training section.

Vice Chairman

I thank our guests. I now ask Mr. Purcell to introduce the financial statement 2003 for the Institute of Technology, Carlow.

Mr. Purcell

The accounts of Carlow Institute of Technology for the year ended 31 August 2003 have a clear audit report but that masks difficulties encountered in resolving an issue which had repercussions on accounts going back as far as 2000. While we have just heard that in University College Cork there was a shortage of money to fund capital expenditure, the Carlow Institute of Technology had built up a substantial surplus without the Department becoming aware of it for a number of years. We first noticed that the accumulated surplus had reached almost €4 million when clearing the accounts for the year ended August 2000. That was in February 2003. The delay in clearing the 2000 accounts was primarily due to a delay in receiving accounts for audit. There was also a subsequent delay in clearing the accounts. At that stage, I was using a contracted firm and some of the communication lines were not as strong as they should have been. We failed to get a satisfactory explanation at that stage and decided to carry the matter forward to subsequent audits, as the 2000 accounts were already somewhat in arrears. It proved difficult to get to the underlying reasons for the surplus which was growing. This delayed the certification of the accounts for the following years. The institute was still claiming and being paid its full allocation for the last quarter of 2003, despite having a healthy cash balance of several million euro at the time. This is a manifestation of the nature of the problem.

We reviewed the Department's files on the institute in March 2004. In April 2004, the Department notified the institute that it intended to reduce its budget for that year by the amount of the surplus. After all the necessary documentation was examined, the Department determined in 2005 that the institute's final 2004 budget allocation was to be cut by a net €5.76 million. Most of the adjustment related to the clawback of funds associated with the filling of staff vacancies that remained unfilled due to persistent problems in recruiting suitable staff. Once the amount to claw back was determined, it was possible to draw up proper accounts for the outstanding years and have them certified in the agreed format between the parties concerned — accounting policy No. 15 refers.

The matter reflects poorly on the efficacy of the institute's budgetary system at the time and on the effectiveness of the Department's monitoring of the institute's funding. In fairness to the Department, the absence of up-to-date audited accounts was probably a contributory factor. However, it should not have to rely on such accounts as they inevitably come to hand after the event. The Department's budgetary year is different from the institute's accounting year, which is an added complication. There is a certain amount of arbitrary allocation of the annual grant to the institute between particular periods. These matters certainly complicate things. The one saving grace is that the institute did not use the surplus funds to incur extra expenditure.

Dr. Neavyn

I hope my opening statement can be taken as read in order that I can make some comments on Mr. Purcell's opening statement.

Vice Chairman

If the statement is to be put on the record, Dr. Neavyn will have to read it.

Dr. Neavyn

Thank you very much. The Institute of Technology, Carlow, commenced operations in 1970 and since then has become the principal higher education provider for the counties of South Leinster. The institute is now celebrating its 35th anniversary and in that time has conferred over 21,000 full-time awards from certificate to PhD under the auspices of the NCEA, HETAC and, since September 2005, under its own authority. The Institute of Technology, Carlow, offers a broad range of full-time and part-time courses in business, humanities, design, computing, science and health and engineering, and is recognised for specialising in marketing, communications public relations, computer games development, pharmacy studies, physiology and health science, avionics and early childhood studies.

IT Carlow also delivers apprenticeship programmes in the areas of electrical and instrumentation and the institute is in the process of expanding its apprentice provision to include carpentry and joinery. IT Carlow's research expertise is in the areas of biotechnology and molecular environmental science, information technology and communications, optical engineering, marketing and supply chain management. The institute has succeeded in obtaining over €5 million in funding in recent years.

The total student population of IT Carlow is in the region of 4,300 and the institute has an operational budget in excess of €23 million. In spite of recent demographic trends, the institute has had a 9% increase in its student population in the past 12 months and with the development of courses in product design, community care, legal studies, aircraft systems, to mention but a few, it is expected to see a further increase in student numbers in the coming years. IT Carlow has co-operated well with its neighbouring counties in terms of the regional development of higher education and has delivered programmes in Kilkenny, Wexford, Laois and Wicklow. Furthermore, IT Carlow has completed the first year of its current five year strategic plan which focuses on the eight key development goals of academic portfolio, learner population, research and development, lifelong learning, organisational and physical infrastructure, regional development, social and cultural development, and partnership.

The institute became a separate legal entity on 1 January 1993 under the Regional Technical Colleges Act 1992 and since then has set about the implementation of a modern financial management and accounting system. A computerised accounts system and a system of internal financial controls were put in place and monthly management reports have been produced. The Comptroller and Auditor General took on the responsibility for auditing the institute and in recent years an internal audit function was set up. The institute has to date had ten financial statements cleared by the Comptroller and Auditor General with clean audit reports and is in the process of implementing the code of governance for State bodies.

Vice Chairman

May we publish that statement?

Dr. Neavyn

Yes.

Deputy Curran

We had better start with the one issue highlighted by the Comptroller and Auditor General, which dealt with surplus funding. Surplus funding did not come about over one year, but over a number of years. That raises certain questions about the financial management of the institute. Why was it not noticed sooner? Why was it not noticed by Dr. Neavyn? Was he aware of it and, if not, is that why he did not spend the money on something else? What was going on?

Dr. Neavyn

The institute did not misappropriate funds. All the funds utilised were used for purposes approved by the Department of Education and Science. All revenue reserves and deferred income were returned to the Department in 2004. The institute has no objective or policy to create surpluses from State income and has not deliberately attempted to hide information on funds from any relevant party. However, the institute accepts that this situation has arisen and we are endeavouring to ensure that it will not reoccur.

To explain fully how the situation arose, I will go back to the financial status of the institute since it became an autonomous body in 1993. The institute inherited a deficit, but has recorded a surplus every year since, with the exception of 1997. This deficit was cleared by 1998 and the total institute budget up to 2003, excluding major capital expenditure, was €155 million. That represents the total income for the institute. The level of deferred or surplus income accumulated was €5.75 million, representing 3.7% of the total income of the institute over that time. Although it is a small percentage of the total income, we realise it represents a significant percentage of any annual budget.

The bulk of the deferred income was accumulated between the academic years 1998-99 and 2002-03. The breakdown of the deferred income is that €5.1 million is pay related and €650,000 is our own income, generated from self-financing activities. The pay surplus mainly arose due to the difficulties encountered by the institute in the recruitment of staff and due to the volume of recruitment with which it had to deal over that period. An example of this was the recruitment of specialist staff in the late 1990s and the beginning of this decade. Strenuous efforts were made at the peak of the Celtic tiger period to recruit staff with the appropriate qualifications in specialist areas such as computing and IT, which was a major growth area, with the construction related areas such architectural technology. Although we advertised extensively in Ireland and abroad during this period, we experienced delays in getting people on board in the timescales for which we budgeted year on year. The number of public competitions advertised by the institute between 1997 and 2001 trebled. In addition, the number of competitions where no appointment or recommendation was made increased fivefold in that period. With publicly advertised competitions, there were also large-scale internal competitions that had to be dealt with as a result of PCW agreements and theMazars report implementations. Effectively, there were many difficulties and many interviews took place at that time.

Reference was made to the volume of the surplus. It is not uncommon for a third level institute to operate a surplus. Reports exist which summarise the level of surpluses in the institutes of technology and internal balances in the universities. As the committee is aware, institutes are prohibited from running a deficit and publications produced recently by the HEA and the OECD have recommended that prudent financial management requires that, in order to have financial stability, financial reserves accumulated by the operation of small operating surpluses are required.

The institute accepts it could have dealt sooner with the Department of Education and Science on this issue. However, we did not deliberately attempt to hide this information. We also accept we were not fully up to date with reports that may have been requested by the Department. However, we experienced staffing difficulties in regard to our finance function during the relevant period. We would obviously like to review the number of professional posts available to the finance area in the institutes of technology because it is an issue going forward. Further the period 2002-04 was one of transition in the institute at director level.

Deputy Curran

Dr. Neavyn referred to difficulties in filling finance function positions. The surplus in grant funding was highlighted by the Comptroller and Auditor General. Was the institute aware that it was generating this surplus?

Dr. Neavyn

Yes.

Deputy Curran

Did it at any time realise it should make contact with the Department in this regard? It was not a one-year event.

Dr. Neavyn

I will just check my figures for a moment.

Deputy Curran

It is not the amount of money but the fact that the surplus was accumulating over a number of years. A decision was not made to address the issue.

Dr. Neavyn

Our figures suggest that the surplus at August 2000 was €3.978 million and then grew to the final figure indicated. I accept that the institute did not make a conscious decision to contact the Department. However, I refer the committee to documentation published at the time which indicated that surpluses of the order of €2 million to €3 million existed in other institutes of technology or higher education institutes. The institute did not believe the surplus was the problem, although the scale of the surplus might have been a problem.

Deputy Curran

Should the Department have monitored this issue because it was one that rolled from year to year? It seems incredible that had it not been for the Comptroller and Auditor General, this problem would probably still remain today.

Ms Carmody

The Department was independently pursuing the matter on a parallel track to the Comptroller and Auditor General. In late 2003——

Deputy Curran

Is Ms Carmody suggesting that the institute was resolving the matter before the Comptroller and Auditor General became involved?

Ms Carmody

There were difficulties, as the Comptroller and Auditor General stated, due to delays in the accounts. The Department had, through its own systems, become aware of a potential problem but it was difficult, as the Comptroller and Auditor General also noted, to obtain concrete information. We were aware of the problem and were in talks with the director and staff for some time.

Deputy Curran

The surplus, as Dr. Neavyn noted, had accumulated since 1998 or 1999. However, it was 2003 — four or five years later — before the Department became involved. Have procedures changed in the Department in regard to dealing with such issues?

Ms Carmody

The problem was a product of certain circumstances. As the director stated, it is not unusual for an institute to have a level of surplus. It is only when a surplus reaches a certain point that it would become a matter of concern. The situation in question was slightly unusual. The Department has taken full account of it and is ensuring, in so far as possible, that it does not recur. It is obvious that the sooner the accounts are examined, the better.

Deputy Curran

The accounts we are considering are for the year 2003. At what stage are the institute's accounts currently?

Dr. Neavyn

The 2004 accounts have been forwarded to the Comptroller and Auditor General's office for finalisation. The 2005 accounts will be dealt with in January or February 2006.

Deputy Curran

Dr. Neavyn stated that some of the surplus occurred because of the difficulty in recruiting staff, both academic and financial. Has that situation been resolved? Has the institute appointed the required staff?

Dr. Neavyn

There is no doubt that our staffing situation has stabilised significantly since that time. We have a much lower level of vacancies at present. Given legislative requirements regarding pro rata payments and part-time worker payments, cost differences have narrowed significantly and our pay budget has become much tighter.

We are in much closer dialogue with the Department of Education and Science throughout the year on matters in regard to the fine-tuning of budgets and the splits between financial periods and categories of expenditure. At present, we are up to date with all reporting requirements to the Department. If necessary, we will on occasion bring in temporary resources to enable us to deal with finance requests during busy periods.

Deputy Curran

The accounts refer at page 14 to tangible fixed assets. It is stated that the institute campus is adjacent to a second level school operated by Carlow VEC and that no formal agreement has been concluded on the exact boundary between the two institutions. The accounts go on to state that there is a nil value on the land at present or that it is being valued. This strikes me as an important issue. If the value of the land is substantial, the boundary might become an issue. Why has this not been addressed?

Vice Chairman

I am familiar with the layout of the land and the campus. Is there a specific boundary? Surely the institute has clear title to and clear boundaries on the remainder of the land.

Dr. Neavyn

It is a historical point. VEC lands were used to locate the facility of RTC Carlow and its successor, IT Carlow. The site is effectively shared with the second level VEC school. One half was given to the school and the other to the institute of technology. In 1992 the lands were divided. We are in discussions at present with the VEC and a decision on the location of the boundary is almost finalised. One dilemma associated with the discussions is that the boundary runs along a shared entrance, which may create difficulties in the future. The neighbouring secondary school has building development plans and we would also like to develop building projects, so difficulties may arise. However, we are close to finalising a decision. A valuation process with regard to the land is under way.

Deputy Burton

The accounts for the year suggest that the number of full-time students fell from 2,586 to 2,476. Why was that the case?

Dr. Neavyn

One must take into account the circumstances of the year in question. Many of the higher education institutes experienced difficulties at that time because of a significant drop in enrolments in information technology and computing courses. Significant numbers of students were enrolled on such courses in our institute in the preceding years but we began to see a decline in the level of interest through CAO applications and student registrations. This was compounded by the continuing decline in the level of interest in engineering, technology and other science-based courses. This is unfortunate, given that we require those types of graduates to move the economy forward.

Deputy Burton

Has the position changed in terms of full-time students?

Dr. Neavyn

We have seen an increase in our full-time student enrolments through the provision of additional courses in other areas. In addition, we have tried to target the creation of courses that will enhance enrolments in engineering, science and technology. For example, there is a new degree course in aircraft systems. We have also developed a computer games development course in conjunction with a software company. Furthermore, we have the development of a pharmacy technician related course. This has meant our student numbers for the current academic year stand at 2,711.

Deputy Burton

Carlow Institute of Technology received funding from the Department of Education and Science in significant blocks for the purposes of appointments but was not able to recruit the staff. Is staff recruitment still a problem?

Dr. Neavyn

No, that issue has been resolved. As I said, the difficulty related to the volume of recruitment ongoing at the time. We budgeted for positions to be filled at certain times of the year but the number of appointments in respect of which we were unable to make a recommendation increased over that period. This resulted in us estimating a larger budget than was required.

Deputy Fleming

I welcome Dr. Neavyn and his colleagues. In the year in question, there is an allocation of almost €2 million to lands and buildings, in addition to fixed assets of €642,000. Will Dr. Neavyn outline the significant additions to land in that year and how those additions were financed? From whom was the land acquired?

Dr. Neavyn

I refer the Deputy to note 19 on page 16. The capital grant allocation was €1.995 million. This relates to the learning resource centre and the completion of a capital investment project approved by the building unit. The €616,000 under note 19 relates to capital equipment purchased from our State grant in that year. It refers to capital equipment purchases above the value of €1,200, including replacement equipment for engineering, science and technology facilities and additional computers for the learning resource centre.

Deputy Fleming

I appreciate that. I understand that while the balance was building up, it was not used for any other purposes and was retained safely in the accounts. I have a question for the departmental representatives in this respect. A consultants' report produced some years ago indicated that some third level educational establishments were running surpluses. What was the level of such surpluses across all the third level facilities? While there was a significant issue in Carlow, I understand it was by no means unique.

Ms Carmody

I do not have details of that particular report but I am familiar with the level of funding in the institutes. In regard to Carlow Institute of Technology, this was a particularly large surplus, particularly relative to the size of the institute. Some of the larger institutes had surpluses of several hundreds of thousands of euro. There may be cashflow reasons in these cases and they would not normally give us cause for concern. We have mechanisms in place for monitoring, in normal circumstances, the level of funding being carried by the institutes. I assure the Deputy that it is not a serious problem for the sector.

Deputy Fleming

The institute's accounts are for the academic year, September to August, whereas the Department operates on the basis of the calendar year. This must create complications and require the Department to make pro rata allocations. Will Ms Carmody comment on this?

Ms Carmody

It makes comparisons more difficult. We have procedures in place in this regard.

Ms Chris Kelly

A system of site monitoring is in place. At the end of the financial year, we get projected figures from the institutes indicating how funding has been committed. This helps us to identify surpluses. However, we must allow a small amount of leeway to allow them to do their business.

Deputy Fleming

My next question is a difficult one to put to the departmental delegates. Given that a surplus built up over the years, I am sure the Department, had it known about it or tackled it earlier, could have used this money for some other purposes. Are there any more pots of gold out there? Could members be in a position to inform the Minister that there are several millions of euro of which she is unaware?

Ms Kelly

As Dr. Neavyn explained, the accumulation happened because projected expenditure based on the posts the institute was allocated was not realised because of a recruitment problem. There is certainly no pot of gold in any other area.

Deputy Fleming

I have a final question for Dr. Neavyn. He said that the institute's accounts for 2004 are gone for audit and that those for 2005 will be processed shortly. Do any significant issues remain or is this matter fully resolved at this stage?

Dr. Neavyn

The issue is totally finalised. The discussions we had with the Department throughout the course of 2004 resulted in all revenue reserves being clawed back. It is not our intention to create such surpluses again.

Mr. Purcell

Everything has already been said on this issue. The money has been clawed back. The gross figure was €7 million but there was an adjustment of €1.3 million for certain funding commitments. All is well that ends well to some extent. However, there are small pots of money in existence in third level institutions. These are the restricted reserves that are mostly populated by student capitation money and amounts put aside for student facilities. It was a hobby horse of mine to ensure that students, since they are major stakeholders in the universities and institutes of technology, should be able to see exactly where their money goes. This has happened in terms of the institute of technology accounts and I also insist on it as part of the new regime for universities.

In regard to surpluses or breaking even and so on, there is some scope for moneys given for recurrent purposes to be used for capital purposes. In certain cases, it is a pat on the head from the Department for organisations that live within their means. There is scope within the system, therefore, for some level of surplus. This is fine once it is controlled and everybody knows the position. In such circumstances, these types of decisions are totally above board.

Vice Chairman

As examinations have concluded, the committee can now dispose of the accounts. Is that agreed? Agreed.

The witnesses withdrew.

Vice Chairman

The agenda for the next meeting is as follows: 2004 annual report of the Comptroller and Auditor General and appropriation accounts, Vote 9, Office of the Revenue Commissioners, chapter 2.8, relevant contracts tax; and chapter 2.9, stamp duty on electronic share transactions.

The committee adjourned at 2.20 p.m. until 11 a.m. on Thursday, 8 December 2005.