COMMITTEE OF PUBLIC ACCOUNTS díospóireacht -
Thursday, 3 Jul 2008

Special Report No. 8 of the Comptroller and Auditor General: NationalEducational Welfare Board.

Mr. Eddie Ward (Chief Executive Officer, National Educational Welfare Board) called and examined.

Chairman

We are looking at special report No. 8 on the National Educational Welfare Board, Lapses in Internal Control. We will look at a number of other issues later. We have allowed about an hour for this session but if it must run over then so be it as we must do our jobs. We will then move on to consideration of special report No. 59 on management information systems in the institutes of technology sector for approximately 45 minutes. We will conclude by considering the report on the City of Cork VEC, 2006, for which one hour has been allowed. We will commence with special report No. 8.

I wish to make witnesses aware that they do not enjoy absolute privilege and I draw their attention 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 who are identified in the course of the committee's proceedings. These 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, these rights may only be exercised with the consent of the committee.

Persons 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 these rights 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. Members are also reminded of the provisions within Standing Order 158 that the committee shall refrain from inquiring into the merits of a policy or policies of the Government or a Minister, or the merits of the objectives of such policy or policies.

Having said all that we will now deal with special report No. 8. I welcome Mr. Eddie Ward, chief executive officer of the National Educational Welfare Board, and ask him to introduce his delegation

Mr. Eddie Ward

I am accompanied by Ms Laura Slevin, director of corporate services, Mr. Declan Dunne, board member, and Ms Nuala Doherty, director of educational welfare services.

Chairman

I also welcome the delegation from the Department of Education and Science and ask them to introduce themselves.

Mr. Jim Mulkerrins

I am from the social inclusion unit of the Department of Education and Science.

Mr. Brian Duggan

I am from the finance unit of the Department of Education and Science.

Ms Bláithín Dowling

I am from the finance unit of the Department of Education and Science.

Chairman

For the record, I confirm that there is no one from the Department of Finance here. I ask Mr. Buckley to introduce special report No. 8 on the National Educational Welfare Board, Lapses in Internal Control.

Mr. John Buckley

The National Educational Welfare Board was established in 2002 and began to recruit staff and set up its organisational structure soon thereafter. As part of this, attendance officers were transferred from local authorities. It used consultants to establish procedures for the financial management and control of its affairs. A review of the operation of these financial control procedures was carried out by PricewaterhouseCoopers, in the second half of 2004. The review concluded that there were weaknesses in the administration of payroll, purchasing and accounting systems. The review also found that administrative functions in the IT area were not separated, which would potentially allow the same person to order goods, approve invoices and sign cheques. These exposures led to a situation in which, in the area of IT procurement, only one in 122 individual purchases was tendered for and more than €900,000 worth of business was conducted with a single firm. This represented 64% of all IT expenditure in the period June 2003 to August 2005. In the case of payment by cheque, while there was a limit of €10,000 in place on the amount for which cheques could be written without the counter-signature of the CEO or the director of corporate affairs, this was not observed in a significant number of cases.

A committee of the board was set up to examine certain overtime and merit payments which were brought to its attention during the course of the review. The merit payments were found not to be in accord with the board's policies. However, the overtime payments were ultimately found to be justified.

Following concern about the integrity of the board's electronic communications, a separate review found evidence to suggest that the board's tendering processes had been undermined; that there appeared to have been collusion in determining the prices of goods and services purchased by the board; that computer equipment costing €200,000 and which was in excess of the board's needs had been purchased; that evidence could not be found to confirm delivery of certain services; and that unexplained payments had been made by a supplier to a manager of the board. These activities resulted in a loss being incurred by the board which cannot be precisely calculated but has been estimated in a follow-up report by PwC to be possibly as high as €270,000.

Up to the date of the publication of this report, €228,000 had been spent by the board on investigating these incidents. The CEO attributes the losses to staff ignoring the established procedures and the board is pursuing recovery of these losses by way of a civil action. He will be in a position to update the committee on the current situation and the actions taken by the board to address the shortcomings in internal financial control.

Mr. Eddie Ward

I am grateful to the committee for inviting me here to discuss the special report of the Comptroller and Auditor General. The National Educational Welfare Board was established in 2002 to ensure every child attends school or otherwise receives an education. In the course of its work the board works with children who are not attending school regularly and those educated in other settings, for example in the home. The board also has responsibility for young people who leave school to enter employment. The board has a range of advisory and support functions with regard to behaviour at school and participation in education.

The board is appointed by the Minister for Education and Science and its members are drawn from Departments, education and welfare staff and other organisations with an interest and expertise in school attendance and participation, including teacher unions, school management, parents and the youth sector. The board is funded annually through a grant allocation from the Department following discussions on priorities. This year the grant is €10.1 million. The board has 109 staff, 95 of whom work with children, families and schools in 30 locations throughout the country. The board's finances are audited by the Comptroller and Auditor General and an audit has been completed for each year since 2002.

In the special report we are considering today, the comptroller outlines the facts relating to the discovery in 2005 of payments made by the board for services not received and the purchase of equipment in excess of need. The organisation's documented systems of controls and checks were overridden and bypassed and the loss was made possible by the collusion of an outside party. This failure in controls and procedures and the associated loss is a matter of greatest regret to me as chief executive officer. It occurred at a time when management was building internal capacity and the infrastructure necessary to support the delivery of a national service. I assure the committee that we have learned from the experience and I have taken steps to ensure the board's affairs are conducted in a safe and regular fashion. Legal proceedings are under way to recover the amounts lost and the matter is currently before the High Court. A formal complaint has been made to the Garda, which it has followed up with us. We have responded to its requests for additional information and have given it a copy of the special report of the Comptroller and Auditor General.

Since 2005 the board's systems for procurement and purchasing of equipment, for making payments and for the appointment and payment of staff have been comprehensively reviewed by external accountants and their recommendations have been implemented. From the outset the organisation has incrementally built up the capacity and expertise to manage its affairs and to ensure our legal and accountability responsibilities are met and that allocated funds are used wisely and well. Robust controls and procedures are now in place to safeguard the board's resources and to prevent and detect irregularities that might occur. These procedures involve greater oversight by management and by the board.

The board has in place a comprehensive corporate governance structure with the following key aspects: a strong strategic and business planning framework to set the direction for the board but also to monitor performance; a comprehensive system of budgetary and financial control; an audit committee which reports directly to the board; a system of independent checking of controls and procedures; and a framework for the identification and management of risk. In addition, to address specific issues raised in the report, there is now a clear segregation of duties in order that no one person can manage a transaction from the point of initiation through to payment. There are clear authorisation limits which are documented, and these are adhered to. All capital expenditure requires my approval and must be accompanied by a business case and a cost-benefit analysis. There are also clear requirements for tendering and procurement. Procedures are well developed for adding new employees to the payroll and setting their pay levels. A fixed asset register is also in place. Staff and managers are trained in the working and implementation of the controls and accountability is ensured through the performance management framework. Each month I receive and review a listing of all payments made by the organisation.

The Comptroller and Auditor General has qualified his report on the annual accounts of the board on foot of the weaknesses identified in the report we are considering today. In this regard, I am pleased to tell the committee that the board has received a clear audit report for 2006 in respect of these matters and we expect a similar report for 2007. The key to the operation of effective controls and procedures is to have well documented requirements and standards, good corporate governance, timely staff training and effective management-owned oversight, including internal and external audit. I am satisfied these conditions are now in place.

Chairman

May we publish Mr. Ward's statement?

Mr. Eddie Ward

Yes.

Deputy Niall Collins

The National Educational Welfare Board is a relatively new agency. I do not know which of the representatives would prefer to address this matter, but perhaps a member of the Department may wish to address this from the start. At the centre of this report is an individual who is currently before the courts. Who employed this IT manager, and who employed the person who employed him? It was mentioned in the report that the person concerned had unsubstantiated qualifications.

Mr. Eddie Ward

The board was established as a legal entity in 2002 and I was appointed chief executive officer on an active basis in August 2002. My first priority was to build internal capacity and recruit the management team. One of the people to be recruited was an IT manager, who came on stream in May 2003. The person was employed by another public body at the time. He had the qualifications necessary to do the job and his references checked out. We had no reason to think there was anything else out of place. Subsequently, when the issue about which we are talking - the subject matter of the report - came to light, we inquired into the person's qualifications, and it turned out that the other qualification he had claimed, above the basic qualifications, did not have a basis. However, the person was qualified to do the job and we had satisfied ourselves about his references and his performance in a previous role.

Deputy Niall Collins

Is Mr. Ward saying he did not check all of this person's qualifications? Some of his qualifications checked out, but not all of them.

Mr. Eddie Ward

We had checked the basic qualifications, yes.

Deputy Niall Collins

If all of his qualifications has been checked at the time, it would have established that not all of them stood up to scrutiny and that would have set off alarm bells. Would Mr. Ward agree?

Mr. Eddie Ward

That is so. There is now a procedure in place to make sure all qualifications are inspected.

Deputy Niall Collins

What type of procedure is carried out for appointments? For example, who appointed Mr. Ward? Was it the Civil Service and Local Appointments Commission?

Mr. Eddie Ward

No, I was recruited directly by the board.

Deputy Niall Collins

The board members were appointed by the Minister.

Mr. Eddie Ward

Yes.

Deputy Niall Collins

For the appointment of the IT manager, was recruitment carried out on the open market or internally through the Civil Service? Was it a public competition?

Mr. Eddie Ward

It was a public competition. An advertisement was placed in newspapers nationally. At the time the commission could not take on the work, so we engaged an outside consultant to do this. All of our posts were filled through national competitions advertised in the national papers.

Deputy Niall Collins

Ordinarily, are places filled through the Public Appointments Service?

Mr. Eddie Ward

Yes, we have used it in the past year to fill our recent posts.

Deputy Niall Collins

But it was too busy at the time to do the work for the board.

Mr. Eddie Ward

Yes.

Deputy Niall Collins

They were too busy at the time to take the board on. Is it normal practice that the board would not join a queue or bring in a consultant?

Mr. Eddie Ward

It is. The situation at the time was that we would have gone into a queue with a possible delay of about 12 months. Clearly the legislation had commenced and there was an imperative to get the board management in place. The 37 school attendance officers formerly employed by local authorities had been transferred to the board. We needed to begin, to set direction and put in place capacity and management structures to begin delivering services. There was an expectation that we would begin to deliver these very quickly. The attendance officers needed direction and their situation required to be resolved during the transition.

Deputy Niall Collins

The individual in question came to the board from Comhairle. Did any retrospective review of his history take place, given the link to the IT person? I believe the same supplier was involved with Comhairle.

Mr. John Buckley

We looked back at the situation in Comhairle but there was no evidence to suggest that the same situation had pertained there or that any of the practices we have noted in the report had occurred in that organisation. The CEO could not find any evidence to suggest that.

Deputy Niall Collins

Is the Comptroller and Auditor General planning to do that?

Mr. John Buckley

We have not done a detailed report on Comhairle. The focus of our activity has been on the National Educational Welfare Board.

Deputy Niall Collins

Is there a plan to do so?

Mr. John Buckley

We had not planned to look back at it in any depth. The issue has surfaced now and must be dealt with in the context of the NEWB and the legal case there. When we look back at such things there is a limit to the amount of resources we have, as somebody noted earlier. Obviously we cannot trawl back forever. It is a matter for the courts.

Chairman

If I interpret correctly what was said was that the board availed of consultants to employ this individual but they did not check his credentials.

Mr. Eddie Ward

The basic qualifications were checked, as were his references.

Chairman

The consultants, therefore, did not perform an adequate check.

Mr. Eddie Ward

A full check was not made.

Chairman

Were they paid in full for their work? Who are they and are they still employed by the board?

Mr. Eddie Ward

We have not engaged them in recent times. They are a well established firm, PE Executive Search and Selection. I make the point that the qualification the individual claimed is not germane to the issue because he was qualified to do the job.

Chairman

Might a check have raised the issue of dishonesty?

Mr. Eddie Ward

It might have done so.

Deputy Jim O’Keeffe

Was this the only additional qualification that he claimed?

Mr. Eddie Ward

He claimed to have a Ph.D. We have not been able to substantiate conclusively the existence of that degree as claimed.

Chairman

There is a recurring theme in much of the evidence we hear, week in week out, namely, the employment of consultants who do not do their job properly. The State body and the taxpayer are left with the mess. We have heard it so many times. How long afterwards was this matter discovered?

Mr. Eddie Ward

This only emerged when an issue surfaced about the employee's general performance. An e-mail sent within the organisation should have turned up on my laptop but could not be found. I sought an explanation and when it was not forthcoming I brought in outside experts to investigate the matter. They could not find an explanation either but began to analyse e-mails going back to the time when the organisation's systems were established, in mid-2003, around the time this person came on board. Based on an analysis of those e-mails they were able to crosscheck names that appeared, and the finance manager's e-mail, and begin to bring these e-mails together. On that basis the relationship between the manager and the supplier was detected. That was the first time there was an indication that this person's standing was not what we had understood it to be. Up to that point, I had found the person to be reliable and trustworthy and I had no doubt about his ability to do the job.

Deputy Niall Collins

We shall come to that. This man claimed he had a doctorate which probably supersedes most other qualifications, yet the consultants did not substantiate that. Have those consultants been used since?

Mr. Eddie Ward

We have not used them for about two years.

Deputy Niall Collins

Has any recourse been taken concerning these consultants?

Mr. Eddie Ward

We asked them about the checks they carried out at the time. They confirmed that, because the person had been employed by another State body, it is normal practice for qualifications to be investigated in the first instance by the first employer in the public sector. That was the explanation we received.

Deputy Niall Collins

I find that truly amazing.

Mr. Eddie Ward

We have learned many lessons from this. One is that we no longer take statements in a curriculum vitae at face value. They are checked out and we evidence the qualifications, see them at first hand and keep copies.

Deputy Niall Collins

From which institution did the individual claim to have been awarded a Ph.D?

Mr. Eddie Ward

I do not know.

Deputy Niall Collins

To move to another matter, was the merit award scheme approved by the Department of Finance?

Mr. Eddie Ward

No, it was not approved by any body. The normal Civil Service procedure is to have a scheme drawn up internally which is approved, in our case by the board. The approval of the Department of Education and Science is also required. That procedure was not followed through. When I became aware that there was only one merit payment, with an attempt to pay two, I brought the matter to the attention of the board and sought an explanation from the person concerned. The board investigated the matter, the outcome of which was a finding that controls had been bypassed and that no scheme was in place. I had not authorised it, nor had the board.

Deputy Niall Collins

In that case, did the individual pay himself?

Mr. Eddie Ward

He did not pay himself but was paid by his superior at the time.

Deputy Róisín Shortall

Who was that person?

Mr. Eddie Ward

It was the director of corporate services at the time, who resigned after the incident.

Deputy Niall Collins

Was it only the Department of Education and Science that approved the merit scheme, without the approval of the Department of Finance?

Mr. Eddie Ward

It was not approved by anyone.

Deputy Niall Collins

Did the board not approve it?

Mr. Eddie Ward

It did not. The obligation of the board would be to prepare a scheme for merit payments to its staff. That scheme would then be brought to the Department of Education and Science for approval. That did not happen on this occasion and such a scheme was not in place. The single payment was made without a scheme in place and was also made contrary to the controls concerning authorisation of payments and cheque signatories and all of that.

Deputy Niall Collins

The board had a number of professional advisers, such as Mazars, PricewaterhouseCoopers and Ernst & Young. Does it still engage with them on an ongoing basis?

Mr. Eddie Ward

Mazars provides the payroll service for the organisation. We have had no dealings with PricewaterhouseCoopers since 2006. Ernst & Young was the firm that carried out the specialist IT investigation into the e-mail that could not be found.

Deputy Niall Collins

At the centre of all this there was a lack of segregation of duties. Had this individual authority to sign cheques?

Mr. Eddie Ward

He had cheque-signing authority, up to a certain limit. At that point my signature should have been on some of the cheques and some should have been brought to the board for approval. That did not happen.

Deputy Niall Collins

Did the bank clear cheques that had only one signature?

Mr. Eddie Ward

One of our internal controls was that cheque signatory limits were agreed. There is then a procedure--

Deputy Niall Collins

- -where that is followed through with a bank mandate.

Mr. Eddie Ward

Exactly.

Deputy Niall Collins

That is amazing. The procedure was not followed.

Mr. Eddie Ward

Two signatures are required on each cheque and these are agreed by the board.

Deputy Niall Collins

Neither the board nor Mr. Ward had followed that through to complete a bank mandate and lodge it with the bank.

Mr. Eddie Ward

It would have been the finance manager's job to make sure that the mandate was consistent with the agreed cheque signatories and that such a requirement was passed to the bank. I understood that this had been done but it had not.

Deputy Niall Collins

A great deal of this matter concerns IT and the board has a geographical spread around the country. We have seen instances in other areas where there have been breaches of security in IT and relevant data. What is the board's policy on IT security? Obviously it is in possession of sensitive information, some of which possibly relates to vulnerable individuals. Have there been lapses in policy regarding this, if the board has such a policy? Has there been theft of computers or data around the country?

Mr. Eddie Ward

No. The security and type of data we hold is something on which we have placed a strong value within the organisation from the outset. If there was any question about the integrity of our systems it was followed up quickly and efficiently. We did not have any complaint or issue around the security of our information technology systems at any time. There are several hundred thousand names on these systems.

Deputy Niall Collins

In Mr. Ward's opening statement he said the board is appointed by the Minister and its members are drawn from Departments. Does the management have any input at board or senior management level concerning the board's corporate governance structure? Are there individuals who would have come from the private sector or who would have had experience acting as chief executives or senior managers outside of an educational background?

Mr. Eddie Ward

The board is appointed by the Minister. Its members generally come from the public service. There is a parents' representative and there is someone from the voluntary pillar. It has an audit committee in place including an outside expert, somebody who has worked as an internal auditor elsewhere in the public sector. The board has employed other people and put other people onto other committees. It has engaged people with particular expertise in particular areas from time to time, when the board has lacked that expertise. One of the strengths of the legislation is that it allows us to engage people to sit on committees.

Deputy Niall Collins

The issues we are discussing include the content of the report. Is it the case that the board did not have too many outside professional people involved at the time?

Mr. Eddie Ward

There were consultants advising us on different matters. When I became chief executive in 2002, I was one person and my job was to build up an organisation and its capacity, to manage the 37 staff transferred in and to begin to communicate the important mission of the board. There was a very strong expectation that we should work with children who did not attend school. That was our priority. However, at the same time we were trying to build the capacity. We had to rely on consultants at different times to do particular jobs. There have been many solid achievements in terms of how we have progressed the service. The report has outlined weaknesses which are serious and any time there is a loss of public moneys we have to be very conscious of that. I wish to reassure the committee that the procedures in place now are robust. There are independent checks and as recently as last year our internal control procedures were reviewed by an external firm and were found to be operating and well. Procedures have moved on and we have learned from this.

Chairman

The board was set up in 2002 by the Department of Education and Science.

Mr. Eddie Ward

Yes.

Chairman

There was a question about the missing e-mail. How long would this whole affair have continued, only for the missing e-mail and the investigation which took place? I also have a question for the Department of Education and Science. The Minister set up the board in 2002. What steps did it take to ensure there were adequate governance structures put in place in the National Educational Welfare Board? Was Mr. Ward thrown in at the deep end and asked to develop it himself? What contacts had the Department with the board to ensure there were adequate structures in place to safeguard the interests of everyone involved? What checks did it carry out between 2002 and 2005 to ensure the adequacy of governance structures? These are questions for the Department. The first question about the missing e-mail was for Mr. Ward.

Mr. Eddie Ward

From talking to people who know more about this matter, I gather that generally when irregularities are discovered it is because of a tip-off of some kind. It is unusual for them to be discovered in the way that this one was discovered. We followed up on a control which did not seem to be operating properly. I do not think one can necessarily detect collusion simply by examining a set of records and this is noted in the Comptroller and Auditor General's report. It is difficult to check. Generally, something happening elsewhere will lead to its discovery. We had accountants reviewing our procedures in 2004. They were satisfied on the basis of the paper trail presented that procurement procedures were being followed in respect of the purchase of €600,000 of information technology equipment. That was based on an examination of the records, but also on some other exercises carried out.

Chairman

We are examining information in the report of 122 transactions. Only one was checked. How could the auditors be satisfied that proper procedures were in place? How could they give the board a clean bill of health if proper tender procedures were adopted in only one of the 122 transactions?

Mr. Eddie Ward

They found the paper trail. The report also states there was a paper trail created which would give the impression to someone examining the records that proper procurement procedures were being followed. It is also stated in the report that quotations were being provided by this supplier. So there was a paper trail and it would have taken more digging to find out something was wrong. One would have to be suspicious or to be searching for something before one could have discovered the element of collusion. It only came to light when we began to see the conversations that were taking place in the e-mails that were being exchanged. The price fixing arrangement between the two became very clear. Then our financial people were able to begin to go back and carry out a detailed examination of all the transactions and begin to marry these to the assets we had.

Deputy Jim O’Keeffe

Is Mr. Ward saying that in 120 out of 121 transactions the was no proper tendering process and that the accountants failed to pick this up?

Mr. Eddie Ward

We now know that there was not a full tendering process entered into.

Chairman

There was a paper trail but--

Mr. Eddie Ward

At the time, the accountants were satisfied on the basis of the paper trail presented and the other evidence available that the €600,000 worth of information technology purchases had been properly tendered for. That was what the paper trail presented. They had no reason to suspect otherwise.

Deputy Jim O’Keeffe

Was this because phony invoices were being put on--

Mr. Eddie Ward

Yes, the supplier provided more than one quotation. The conversation taking place in the e-mails exchanged concerned how they were going to fix the prices and the nature of that arrangement. God knows when the arrangement would have been picked up only for the discovery of the e-mails.

Deputy Niall Collins

Would this not have come to light when there were several cheques below the signing limit requiring two signatures - the same number of cheques? Supposing one had to have two signatures for a cheque greater than €10,000 and there were several cheques issuing just below €10,000 with only one signature. Did that not raise questions? That should be basic for the chief executive and it should be ever more basic for the financial or professional accountants providing advice. I find it unbelievable. I have no more questions.

Mr. Jim Mulkerrins

The question for us was what steps the Department took to ensure the board was adequately supported at the time it was established. I will go through the historic events at the time. The board became a statutory body in March 2002. For several weeks there was an interregnum because the initial chief executive officer decided not to take up his post and formally tendered his resignation in April of that year. In June 2002 the Department took its first steps to ensure the body had adequate regard to its corporate requirements. We asked the Department of Finance to make a presentation to the board on the code of practice for governance of State bodies. That presentation dealt in detail with internal audit, procurement requirements, disposal of assets and access to assets by third parties, subsidiaries, acquisitions, remunerations and directors fees, reporting arrangements and a wide range of matters. It was a long a detailed presentation.

At this stage the Department was acting as a payment agent for the board on its non-payroll issues. There would not have been significant concerns at that point. The board in essence was in transition and was commencing its recruitment. It was in negotiations with the 37 school attendance officers who were being transferred from the council to the board. There was a long delay in getting that process through the Labour Court.

In August 2002 Mr. Ward took up his appointment as chief executive. In February 2003 the delegated sanction which provided the purchasing responsibility and responsibility for financial arrangements to the board was cleared. So the NEWB had delegated sanction from then. Straight away the consultants, Mazars, were appointed to take responsibility for payroll payments. The delegated sanction imposed a number of conditions on the board in terms of its reporting relationship with the Department. On an ongoing basis throughout 2002 and up to early 2003 there were meetings between the Department and the NEWB on a monthly basis to ensure that the board conducted its financial arrangements appropriately.

In May 2003, the IT manager took up duty and coincidentally at that time the board decided to engageMazars again to draw up a procedures manual which was presented to the board in July 2003. The procedures manual dealt in a practical way with all of the board’s responsibilities, including managing its income, procurement, payroll processing, cheque signatories, payment authorisation limits and bank reconciliation procedures. The Department was made aware of all of this and was happy that appropriate work was being done in the development of the corporate governance structure.

Chairman

Is Mr. Mulkerrins saying he is satisfied that he had proper procedures and that he had taken every step possible to ensure that proper governance procedures were in place?

Mr. Jim Mulkerrins

We were satisfied at all times that the board was actually taking the appropriate steps to put in place its governance procedures and also to review the procedures, as it did in June 2004 when it recruited PricewaterhouseCoopers. We recognised during these reviews that certain deficiencies were identified which have come to light in the Comptroller and Auditor General's report.

Deputy Seán Fleming

I wish to refer to the opening statement that states legal proceedings are under way to recover the amounts lost and that the matter is before the High Court. Why is the case in the High Court?

Mr. Eddie Ward

That is where the claim was lodged.

Deputy Seán Fleming

Is that the first court in which it was lodged?

Mr. Eddie Ward

Yes.

Deputy Seán Fleming

Mr. Ward said a formal complaint was made to the Garda Síochána and it has been followed up with us. Did somebody sign statements for the Garda Síochána?

Mr. Eddie Ward

Yes.

Chairman

In private session, before the meeting started, we advised caution.

Deputy Seán Fleming

I will be cautious. I am merely reading the statement verbatim.

Chairman

The Deputy was not present when we addressed that issue.

Deputy Seán Fleming

I appreciate that and I am not getting into an area about which the Chairman may be concerned. Who is taking the proceedings? Is it the National Educational Welfare Board?

Mr. Eddie Ward

Yes. We are taking civil proceedings against the supplier and the former employee.

Deputy Seán Fleming

That is fine. Mr. Ward has said that the losses to the board amount to €271,000 on foot of payment for IT services not provided to the board - that is what is contained in the Comptroller and Auditor General's report. Professional fees of €228,000 have been incurred to date, that is, at the time of writing the report and dealing with the matter. What would be the up-to-date figure for the professional fees incurred at this stage?

Mr. Eddie Ward

It would not be much more, perhaps another €10,000, but we can get the figure.

Deputy Seán Fleming

What would be the full cost of the High Court proceedings? What amount has been budgeted for by the board to proceed with this case, on the basis of winning or losing?

Mr. Eddie Ward

There have been a number of hearings in the court where issues have been raised and dealt with. We had to file a number of affidavits. I understand we are going to the next stage of the claim which is around discovery. That will happen in the autumn. At that time we will take estimates of cost and consider the strategy from here.

Deputy Seán Fleming

Is Mr. Ward saying that depending on costs the board may not proceed with it?

Mr. Eddie Ward

No, our legal advice is that we have a very strong case. We have made our statement of claim. There have been a few issues around the response and we had to file some other documentation. Discovery is the next stage. Certainly one of the issues in taking that next stage will be the consideration of costs because it is something in which the board, and no doubt the Department, will have an interest.

Deputy Seán Fleming

One of the key weaknesses I saw was that the board had an interior system of internal controls but that was only brought to a point. The bank mandate did not correspond with the system of internal controls drawn up. Why did that system break down? I understand the board drew up its rules and that somebody can sign a cheque up to €10,000 and a higher amount with a second signatory. Why was the internal control mechanism, which was to be the bank mandate authority for approving cheques, not notified to the bank? So far as I understand, only one cheque was outside the bank's mandate. Perhaps Mr. Ward will take the committee through that. One of the weaknesses I see is that the board did not tell the bank about its internal control mechanism. Obviously its mandate allowed all of the much larger cheques to go through.

Mr. Eddie Ward

The mandate that was given to the bank was consistent with our controls up to a point. It would not have been aware of the internal threshold limits. It would have been aware of the names of the four people who were signing cheques. Every cheque required two signatures. It would not have been aware of the threshold limit which applied within the organisation which was an organisational responsibility. As noted in the Comptroller and Auditor General's report the controls were bypassed by the people who had responsibility for ensuring they were followed.

Deputy Seán Fleming

Really, there was a parallel system of internal controls. One is that the board notifies the bank of who can sign cheques. That is part of the internal control, that is identifying who can take money out of the organisation's funds by way of signing cheques. A fundamental part of that internal control is the instruction to the bank. The board had a parallel or a subsidiary set of controls--

Mr. Eddie Ward

The bank would have a list of cheque signatories in place to sign the cheques, but adherence to the actual threshold to be applied to all four signatories within the organisation was for the organisation to ensure. Clearly the approval and authorisation levels were not followed internally. That is one of the weaknesses highlighted in the report.

Deputy Seán Fleming

I understand that but why did the board not notify the bank? The bank mandate could easily specify four signatures and that the mandate up to a certain amount would require two signatures or whatever the case may be. The bank could have been notified.

Mr. Eddie Ward

We could have done that. I am not sure if this is the normal way in which these things are done but it is an issue we can examine. My understanding, from other involvement I have had, is that the organisation normally gives the bank the names of cheque signatories. Certainly we can look into that and see whether they would be prepared to take on board the limits that apply to each cheque signatory.

Deputy Seán Fleming

The board was established in 2002 but it was 2006, four years later, before it set up an audit committee. Why did it take four years to set up the board's audit committee which then met an internal audit function?

Mr. Eddie Ward

I was appointed in 2002 when the organisation was established. The work of the first year was very much around putting in place the internal capacity to set up the organisation, the controls and the procedures to develop the corporate governance framework. That takes time. We were all taken aback when this issue surfaced. We immediately set about having a root and branch examination of the way we worked, central to which was an audit committee. A corporate governance committee was established immediately after this incident took place in the autumn of 2005 which began to put in place what it is we should be doing in the corporate governance framework. It has a very robust standing because there is an internal audit provider who works to the committee and the committee reports to the board. We have learned many lessons from the experience.

Deputy Seán Fleming

To whom does the audit committee report? Is Mr. Ward a member of the audit committee?

Mr. Eddie Ward

I am not a member of it.

Deputy Seán Fleming

That is good. In regard to the internal audit committee, Mr. Ward said that shortly after the board was established the Department of Finance gave it a full briefing on the controls, systems and procedures that were to be put in place. Did that briefing deal with the internal audit function?

Mr. Eddie Ward

Yes, it would have referred to the importance of having an audit function. Cognisant that we were dealing with public funding, we had our controls review in 2004. We brought in a firm of external accountants to have the controls reviewed and to have extensive training for our managers and staff at the time. That report was presented in December 2004. We now know it did not discover everything that was going on in the organisation because there was an element of collusion.

Deputy Seán Fleming

The entire essence of the existence of the board is to ensure that teenagers who are not attending school, attend school. I am sure much of what the board's inspectors are told by the people they deal with every day is not true because if it was, there would not be a need for them. The daily business of the inspectors is to deal with people whom they know tell yarns. All the inspectors are suspicious about everything they are told and do not accept it at face value otherwise there would not be a need for them. I am surprised at the naïveté at management level and that management was not vigilant as they would expect the inspectors to be. If the inspectors told management they accepted at face value the reason given for a student not attending, that a student was in school when he or she was not, or the validity of a letter, allegedly written by a parent, excusing a child from attending school, those in management would tell the inspectors to live in the real world. Management seems to have been more naïve in dealing its affairs than it would have accepted from its inspectors.

Mr. Eddie Ward

I am not sure that I want to go into the second issue raised by the Deputy, but in regard to the first one I placed trust in - it was not unfettered trust or confidence - and gave responsibility to a key member of staff, and in regard to this issue I was disappointed. Any time there was a breach of controls or procedures within the board it was followed up relentlessly. That took time and patience. That is what happened in regard to this e-mail. It looked innocuous. It did not seem to be something to be worried about, but we followed it up because there were issues in regard to it that needed to be tied down.

Deputy Seán Fleming

Has dealing with this matter taken up a considerable amount of Mr. Ward's time and that of his senior management? Has the time his senior people have had to devote to this issue taken from their work in carrying out the board's mission of dealing with the basic job of looking after children who should be in school?

Mr. Eddie Ward

Yes.

Deputy Seán Fleming

It has.

Mr. Eddie Ward

Yes.

Deputy Seán Fleming

Unfortunately.

Mr. Eddie Ward

Unfortunately, it has been one of the--

Deputy Seán Fleming

For me, that is the tragedy. The board was established with a mission and we all know the difficulties with which the board has to deal. This issue involved corporate attention, the involvement of consultants and is the subject of the Comptroller and Auditor General's report. The board's attention has not been on its basic task. As well as the financial tragedy reported, the real tragedy is that the organisation's focus has not been where it should have been. Mr. Ward would probably agree with me that this is unfortunate.

Mr. Eddie Ward

I think so. I have been a civil servant for well over 20 years and I realise that trust is placed in civil servants to use resources wisely and that trust is part of the way we function. It is not unlimited and when things go wrong we have to manage them. That goes to the heart of what is involved in being a public servant, namely that one must manage the rough with the smooth. That is what we did. This issue certainly diverted our attention and took up a good deal of our time.

Deputy Seán Fleming

Are there lessons to be learned from dealing with this issue for public service bodies in dealing with a crisis management issue? This is something to which we will have to return. The organisation has a crisis to deal with and understandably it had to devote considerable resources to managing it and following it through. The process is still ongoing and in dealing with this the time of its executive management has been diverted from dealing with its core activity. I am not referring specifically to this issue, but I suggest generally that the public sector should be asked to draw up a plan when a crisis arises to ensure that it is isolated and managed and that the organisation concerned is not distracted from dealing with its core activity. This case raises a broader issue that would apply to all organisations.

Mr. Eddie Ward

I would like it to be noted that while this issue distracted us, solid achievements have been made on the service side to follow up children in terms of non-attendance.

Deputy Seán Fleming

I accept that.

Mr. Eddie Ward

Each year we work with 10,000 children. We have registered more than 500 children who are being educated in the home. We issued guidelines recently to all schools on the behaviour of children. Therefore, solid achievements have been made by the organisation in the past six years to date.

Deputy Seán Fleming

As the Committee of Public Accounts, we would be remiss in our duties if we did not mention the children concerned.

Chairman

I thank Deputy Fleming for his contribution and before I call Deputy Jim O'Keeffe, Mr. Ward might indicate the board's annual budget in 2006?

Mr. Eddie Ward

It was approximately €6 million.

Chairman

A limit applied to signing cheques over the value of €10,000. Page 18 of the report states that one cheque for €162,000 was signed which was not co-signed by Mr. Ward. In his monthly management of the board's expenditure how was the drawing down of such a large cheque, in the context of the board's annual budget which was in breach of the bank mandate, not detected?

Mr. Eddie Ward

We did not get information on individual payments then which we get now. We certainly did not get the type of management information that would have shown that up as an issue.

Chairman

Should the board's bank have alerted Mr. Ward?

Mr. Eddie Ward

Perhaps, but it was an internal issue.

Chairman

If the limit that applied to signing cheques was €10,000, and a cheque was drawn down for €162,000--

Mr. Eddie Ward

The bank would not have been aware of the signing limits.

Chairman

But you should have been.

Mr. Eddie Ward

Yes, it was an internal issue for the organisation to ensure that our controls applied at the time of authorisation of the payment and when the cheque was signed, but that did not happen.

Deputy Jim O’Keeffe

Were the accountants aware of the--

Deputy Seán Fleming

Which accountant?

Deputy Jim O’Keeffe

The accountants who audited the board's accounts.

Mr. Eddie Ward

The finance manager - yes, they would have been.

Deputy Jim O’Keeffe

Why did they not pick up the breach in terms of the drawing down of a cheque for €162,000?

Mr. Eddie Ward

That person has moved on. I am not in a position to answer that question, but I would think--

Deputy Jim O’Keeffe

As the CEO of the board, surely Mr. Ward should be in a position to answer it.

Mr. Eddie Ward

I can come back to the committee on that, but from what I recall and based on the information I have, our controls were bypassed in regard to that. The cheque should have required my signature. The review of our controls in 2004 picked up that and it was one of the issues we were following up internally when news of this other issue broke. This is one of the issues we were following during the summer of 2005 before news of this other issue broke.

Deputy Jim O’Keeffe

This issue has resulted in a loss to the taxpayer of approximately €700,000. At least €200,000 relates to equipment ordered in excess of the board's requirements, €270,000 was paid for IT services that were not provided and, in addition to those amounts, €228,000 has been paid to date for professional fees to investigate the matter. Can Mr. Ward give a breakdown of the payment of €228,000?

Mr. Eddie Ward

I do not have that information with me but I can come back to the Deputy on that. The financial aspects of the investigation would have been a large part of that figure, another part of it was the IT forensic investigation and the third part of it would have been legal fees.

Deputy Jim O’Keeffe

These would have been paid to consultants and lawyers.

Mr. Eddie Ward

They would have been paid to consultants and lawyers at different times.

Deputy Jim O’Keeffe

Mr. Ward might report back to the committee on that.

Mr. Eddie Ward

Yes, we will come back to committee on that.

Deputy Jim O’Keeffe

Am I correct is saying that the taxpayer is taking a hit of approximately €700,000 as a result of this issue?

Mr. Eddie Ward

That is the figure in the Comptroller and Auditor General's report.

Deputy Jim O’Keeffe

In regard to the legal proceedings, these matters came to light in June 2005. When were these legal proceedings issued? Mr. Ward mentioned the current status, but when it is likely they will be disposed of?

Mr. Eddie Ward

I am told that it will be later this year. A discovery process has to be gone through and then the case will go to a hearing. The legal proceedings were lodged in summer 2007. In the lead up to that we outlined our claim to the supplier and to the employee. Throughout this process we have been advised by legal people and our initial concern was to investigate the matter and quantify the losses as much as we could. However, one of our major concerns early on was to secure the co-operation of the different parties involved to try to get to the bottom of all this, resolve the issues and secure recovery of the moneys. We were advised by legal people throughout and the legal route became our only option last year.

Deputy Jim O’Keeffe

Was the Garda Síochána involved at an early stage? As soon as it became apparent that a serious irregularity, to put it mildly, was involved, was the Garda notified at any stage and information given to it? At what stage was the Garda notified?

Mr. Eddie Ward

An official complaint was made to the Garda in September 2006. The professionals involved would have made professional statements in the early part of 2006. I had conversations with them in August 2005 and throughout that period our concern was to see if could we resolve the matter internally and speedily and then any criminal issues could be dealt with at that time. Our hope was that we could get this done quickly, recover the moneys involved and let the criminal proceedings take their course.

Deputy Jim O’Keeffe

However, so far there has been no such recovery or any indication thereof?

Mr. Eddie Ward

As documented in the Comptroller and Auditor General's report, the Deputy will probably note - I am trying to be careful here - there were negotiations at some point.

Deputy Jim O’Keeffe

I will leave it at that.

Deputy Róisín Shortall

I would ask Mr. Ward to take us back to the detail of the salary and other payments that were made to the individual concerned, the IT manager, from his appointment in May 2003 up to and including his promotion in July 2005, until his suspension the following month, August 2005. Can Mr. Ward tell us what was his starting salary and provide details of all additional payments, salary increases, special payments, merit awards and so on that were made to him during that period?

Mr. Eddie Ward

The person was recruited on the basis of the normal public service-Civil Service grade at assistant principal officer level. That is the grade he remained on throughout his period with the board.

Deputy Róisín Shortall

That was a salary of €59,000. Is that right?

Mr. Eddie Ward

We can check out what it was at the time.

Deputy Róisín Shortall

I would like Mr. Ward to tell us, please.

Mr. Eddie Ward

I do not have the information with me, but I can come back to the Deputy with it.

Deputy Róisín Shortall

All right.

Mr. Eddie Ward

A situation arose where the person made a statement regarding a job offer elsewhere. We found it difficult to recruit an IT manager. We were operating in a very tight labour market at the time. We had discussions with the Department official about putting the person on a higher level within that salary scale. We did that. I was aware of it and I approved it at the time because IT was central to the way we operated. We had gone through the hoops and I felt it was a necessary thing to do. I was not aware of the merit payment. It was authorised and approved without my approval. That was fully investigated at the time by a committee of the board. That found that the payment was not in accord with the normal criteria in place, that there was not a board scheme and that it was not authorised either by me or the board. He was not promoted to any other grade within the organisation.

Deputy Róisín Shortall

What happened in July 2005? Was there some question of him being promoted at that point?

Mr. Eddie Ward

We asked him if he would assist us looking at a strategic management framework and begin to introduce that within the organisation. That was going to be a short-term assignment but it was not at a different level or grade. He was involved because he had been there from the outset of the organisation. He was a person who knew it and knew our work. I felt he had a high commitment to and awareness of what we were doing. That is the kind of role we discussed with him at that time.

Deputy Róisín Shortall

Did his job title change? Was he called the strategic planning manager?

Mr. Eddie Ward

That might have been the title he was given, yes.

Deputy Róisín Shortall

Was any increase in salary involved in that?

Mr. Eddie Ward

No.

Deputy Róisín Shortall

Mr. Ward says the merit payment was approved by his senior manager.

Mr. Eddie Ward

Yes.

Deputy Róisín Shortall

The director of corporate services.

Mr. Eddie Ward

Yes.

Deputy Róisín Shortall

Was that ever brought to the attention of the board?

Mr. Eddie Ward

The issue of that merit payment was, yes. When I became aware of it, I asked the person concerned to explain it. I brought it to the attention of the board.

Deputy Róisín Shortall

When did Mr. Ward do that?

Mr. Eddie Ward

I would say it was probably in June or September 2004. The board did not meet in July or August.

Deputy Róisín Shortall

Yes.

Mr. Eddie Ward

The board appointed a committee to investigate the payments, which it did. It presented a report and found that the payment had been made contrary to our established procedures and controls.

Deputy Róisín Shortall

What action was taken on foot of that?

Mr. Eddie Ward

The person who authorised the payment resigned from the organisation in early 2005. I had discussions with the manager concerned, who received the moneys, about recovering them. We had a number of discussions about it and he had agreed to pay it back. Those discussions went on for a little while and then this issue arose in the middle of 2005.

Deputy Róisín Shortall

What were the circumstances of the director of corporate services resigning? Was there a settlement with that person?

Mr. Eddie Ward

The director of corporate services became ill in early 2005. I am aware that we are talking about an individual here. She became ill at that point.

Deputy Róisín Shortall

This was after the findings of the investigative committee.

Mr. Eddie Ward

Yes but she became ill at that point and did not return to work with the board. She resigned in early 2005.

Deputy Róisín Shortall

Was a settlement made with her?

Mr. Eddie Ward

No.

Deputy Róisín Shortall

Was any disciplinary action taken?

Mr. Eddie Ward

She resigned when the board had completed its investigation. She got a copy of the report and then she resigned.

Deputy Róisín Shortall

Did she resign on a pension, or what were the arrangements?

Mr. Eddie Ward

No. As far as I know, she returned to work in a previous employment.

Chairman

In the public service?

Mr. Eddie Ward

Yes.

Deputy Róisín Shortall

Once Mr. Ward became aware of these unauthorised payments, he said he had discussions with the individual concerned who received the payments. What action did he take to recover those payments?

Mr. Eddie Ward

There was only one payment. I had discussions with him about how we were going to manage this affair. He agreed that he would repay it and that it was something we would come back to. We had a number of discussions. There was not a disagreement between us about it.

Deputy Róisín Shortall

What does Mr. Ward mean by saying that "it was something we would come back to"? Did Mr. Ward reach an agreement with him that he would repay it?

Mr. Eddie Ward

Yes, that was what we were going to do.

Deputy Róisín Shortall

That was some time in mid, possibly September 2004. What happened then concerning that payment?

Mr. Eddie Ward

The board finalised its report in December 2004, it was finalised in January 2005. It was at that stage that we were clear about the nature of the findings, that the controls had been breached and an inappropriate payment was made. It was at that stage that I had discussions with the manager.

Deputy Róisín Shortall

What was the outcome of those discussions?

Mr. Eddie Ward

There was an agreement that the amounts would be repaid. We had to discuss how they would be repaid.

Deputy Róisín Shortall

Over what period?

Mr. Eddie Ward

What we needed to agree was the period and how it would be done.

Deputy Róisín Shortall

This is public money for which Mr. Ward is responsible, which was inappropriately paid to a person in the employment of his board.

Mr. Eddie Ward

Yes.

Deputy Róisín Shortall

Why did Mr. Ward not reach an agreement that the money would be repaid at an early date?

Mr. Eddie Ward

Those discussions were overtaken by events. The e-mail issue arose and there was this other investigation. The person was suspended in August.

Deputy Róisín Shortall

Mr. Ward should give us the details of that. He is saying that it became obvious what had happened in January 2005 when the report came out. Can he take us on from there? Why did he not pursue the unauthorised payment at that stage?

Mr. Eddie Ward

I had discussions with the manager about the nature of the findings of the board's investigation and how we were going to manage the situation from then on. He agreed that he would repay the amount. What we needed to agree was how and over what timeframe the repayment would take place.

Deputy Róisín Shortall

Certainly, but one can agree that over the space of an hour or two in discussions with the person. Why did it drag on?

Mr. Eddie Ward

We had at least two discussions about it. It was something that we had planned to come back to.

Deputy Róisín Shortall

Nothing happened about that then?

Mr. Eddie Ward

It was overtaken by events.

Deputy Róisín Shortall

Can Mr. Ward tell us about the role of the financial manager in all of this? As CEO, did Mr. Ward question the financial manager about that person's knowledge of the various transactions that took place? I also want to ask the Comptroller and Auditor General if he interviewed the financial manager.

Mr. Eddie Ward

The finance manager left the organisation in June 2005. One of the pieces of work she was doing before she left was tidying up outstanding issues. Some of those issues were on the accountant's evaluation of controls, which had been concluded in late 2004. There was also an issue from the Comptroller and Auditor General's office which was being followed up. That e-mail was copied to me to send to the IT manager. Sometime afterwards I was talking to the finance manager. She had checked with me to see if I had received her e-mail but it was not to be found on my laptop. It had disappeared from her laptop as well. When that happened I asked the IT manager to explain why this e-mail had gone missing. I also requested that the external accountants would come in immediately to update their review of the controls that were carried out the previous year. I asked them specifically to come in before the finance manager left and to do an interview with her so they would be satisfied that they could pick up the issues that needed to be followed up. I was conscious that there were important issues relating to a paper trail for particular transactions and I was anxious that would be done. It was done and the finance manager co-operated with that. The finance manager behaved perfectly throughout and I have no reason to suspect that she was anything other than a very competent finance manager.

Deputy Róisín Shortall

Under what circumstances did she leave the board?

Mr. Eddie Ward

She went on to work for another agency in the public service. I understand she left on promotion.

Deputy Róisín Shortall

Did the Comptroller and Auditor General interview that person?

Mr. John Buckley

We did not interview her. She had left at that point.

Deputy Róisín Shortall

I wish to ask Mr. Ward about complaints raised at board level by a then member of the board, Mr. Flanagan, about financial irregularities which were brought up in December 2004. What action did the board take on foot of those complaints?

Mr. Eddie Ward

A complaint was made to the Department. It came back to the board. I am not too sure I am the appropriate person to deal with that.

Deputy Róisín Shortall

What action did the board take in response to the complaints raised by a board member?

Mr. Eddie Ward

For clarification, Mr. Flanagan is a staff member. He resigned from the board. He was there for the initial period and he left the board around May 2004. He would have been there for some of that time. The board had a full and exhaustive investigation into the complaint made. A copy of that report has been given to the Comptroller and Auditor General and it has been submitted to the Department.

Deputy Róisín Shortall

Would it be appropriate for the Comptroller and Auditor General to outline the nature of those complaints and the findings?

Mr. John Buckley

As far as I can recall, we have not seen this report.

Mr. Eddie Ward

It has definitely been given to an officer of the Comptroller and Auditor General's office.

Deputy Róisín Shortall

Does Mr. Ward know when it was given?

Mr. Eddie Ward

I do not know the date off-hand. The report was finalised by the board on 4 March this year. Officers of the Comptroller and Auditor General would be on-site doing audit work and they would have access to all documentation.

Chairman

That is different from what Mr. Ward just said. He said it was given to them. The impression created was that it was formally presented to them.

Ms Laura Slevin

The Comptroller and Auditor General's office conducted its audit for the 2007 accounts approximately three to four weeks ago. During the course of that, they requested a copy. A copy was sent over to the office.

Chairman

That is different from what was said.

Deputy Darragh O’Brien

Where is the original then?

Ms Laura Slevin

The original report?

Chairman

Yes.

Mr. Jim Mulkerrins

Certain allegations were made to the Minister and the Minister forwarded these allegations to the board. The board convened a committee of the board which investigated the allegations. I have a copy of the report in front of me and I am happy to make it available to members. It will need to be photocopied. If members would like, I will run through some of the issues.

Deputy Róisín Shortall

When were those complaints first made?

Mr. Eddie Ward

From what I recall, the submission from Mr. Flanagan was sent to the Minister in November of last year. Previously e-mails had been sent to the Comptroller and Auditor General's office which were all covered in the submission.

Chairman

What kind of e-mails?

Mr. Eddie Ward

E-mails outlining concerns about certain issues, or about management of the organisation in short.

Chairman

Who sent them?

Mr. Eddie Ward

They were sent by a staff member.

Deputy Róisín Shortall

My information is that those complaints were made to the then chairperson of the board in January 2005. Is Mr. Ward saying that it investigated that and the report of that investigation only came out in March this year? He said the report was dated March 2008.

Mr. Jim Mulkerrins

To be helpful here, the complaints were forwarded to the Department in November and on foot of that they were referred to the board. The board convened a committee which conducted an investigation. Its report was issued in March of this year.

Deputy Róisín Shortall

My information is that the staff member concerned wrote to the chairperson of the board in January 2005.

Mr. Jim Mulkerrins

I do not have that information.

Deputy Róisín Shortall

Will Mr. Mulkerrins make copies of that report available to us?

Mr. Jim Mulkerrins

Yes.

Deputy Róisín Shortall

On the court proceedings, is there a date for a hearing this year?

Mr. Eddie Ward

I am advised by our legal people on that. I understand the next process is to do a discovery where both sides present the basis of their claim and the papers supporting that. A hearing date will be set after that. The legal advisers have told me that will probably take two or three months. They will look for a hearing in the latter part of the year.

Chairman

Am I right that the director of corporate services gave the IT manager a bonus, that it was detected, she became ill, then resigned and took up a position in another area of the public service? In other words, she went before disciplinary action could be taken and is now working somewhere else in the public service.

Mr. Eddie Ward

I am not exactly sure where she is now.

Chairman

Mr. Ward said she was in the public service.

Mr. Eddie Ward

I understand she went back to her former employment from where she was on secondment.

Chairman

I thought Mr. Ward said in the public service.

Mr. Eddie Ward

Yes. It was in the public service but I am not sure if she is currently--

Chairman

Is it in the Department?

Mr. Eddie Ward

It is in a State agency.

Chairman

Can we get information on that?

Mr. Eddie Ward

Yes. I know the name of the agency but I am not sure whether it is appropriate to say it because I know--

Chairman

Mr. Ward can write to us on that and we can consider it.

Mr. Eddie Ward

Okay.

Deputy Darragh O’Brien

To go back to what Deputy Shortall said, I am still confused about this report. Mr. Ward mentioned that it went to the Comptroller and Auditor General but it did not. It actually went to the Department of Education and Science.

Mr. Jim Mulkerrins

I think when the Deputy sees the report he will probably understand that a number of allegations made referred directly to Mr. Ward's stewardship of the board and that Mr. Ward would have been excluded from all of the investigation and, indeed, management of the process. That was handled by a committee of the National Educational Welfare Board. The allegations were made directly to the Department either at the end of October or the beginning of November last. The Department regarded it as appropriate to refer the matter directly to the board which convened a committee that conducted an investigation.

Deputy Darragh O’Brien

I thank Mr. Mulkerrins for that clarification. That report did not go to the Comptroller and Auditor General. Did Ms Slevin say a copy of the report went the Comptroller and Auditor General a month ago?

Ms Laura Slevin

Yes.

Deputy Darragh O’Brien

However, the Comptroller and Auditor General has no record of it.

Ms Laura Slevin

It was part of the audit process.

Deputy Darragh O’Brien

So it is not the same report referred to here.

Ms Laura Slevin

It is the same report. It is a copy of it.

Chairman

It was not sent.

Ms Laura Slevin

A copy was given to the Comptroller and Auditor General.

Deputy Darragh O’Brien

It was said that the report was given to the Comptroller and Auditor General. Members, including myself, were given the impression that was some time ago. We now find a copy of the report was given a number of weeks ago and that it has been in the Department of Education and Science.

Chairman

It was not given to the Comptroller and Auditor General but to an auditor who was in looking at the records. It was not sent. It was picked up by the auditor when he or she went in.

Ms Laura Slevin

It was sent by courier to the Office of the Comptroller and Auditor General one day after it had completed its audit.

Chairman

That is different from saying it was sent. The impression given to the committee was that it was formally sent. It was detected by an auditor who went in.

Ms Laura Slevin

It was not detected.

Mr. John Buckley

The 2007 audit is ongoing. I have not seen the file on it. It is quite possible that a document did pass. I simply was not aware of it because the file is still in action. It should be signed off in the next fortnight or so. I have not seen that file yet.

Deputy Darragh O’Brien

I will not dwell on that. From reading the report, alarm bells were going off all over the place, as there should have been. Eight days after the appointment of the IT manager, these e-mails start. Going back to what Deputy Collins said, the initial breakdown was that the qualifications were simply not checked. The basic qualifications of this individual were checked but the PhD and the further qualifications were not checked. This is clearly something the person thought about before taking the job.

What bothers me, in particular, is that PricewaterhouseCoopers first report PWC1, dated November 2004, states clearly that the review of internal controls found that there were significant weaknesses in the operation of the payroll and purchase order system, and it recommended that these matters be addressed immediately. On the other hand, PWC1 also reported that the supplier for much of this equipment was correctly sourced through a tendering process, but that each project was not reviewed and approved by the CEO. It stated that on this basis, the CEO and the board concluded in December 2004 that proper tendering procedures were being applied to IT purchases.

That simply cannot be the case. I do not know how anyone could have come to that view. First, on the internal control deficiencies, the report stated clearly that the organisation was wide open to fraud and later the same report states that the CEO and the organisation thought that the IT procurement procedures were above board. I do not know how Mr. Ward came to that conclusion at that time.

Can Mr. Ward explain it to me? All of these different things happened. It came down to an e-mail not arriving at a desk. If that did not happen, probably none of this would have come to light. How were these internal controls not in place when he had a report from PWC? Why were they not acted on immediately, as per the recommendations of the PWC1 report?

Mr. Eddie Ward

They were acted upon. One of the first exercises done when the report was signed off was a seminar involving all the key managers with PricewaterhouseCoopers. They were brought through the controls and the amendments that were now being made to the earlier manual and how the thing should operate.

The finance manager, in the e-mail that was sent in June, was following up on some of the issues that had been identified in the PricewaterhouseCoopers report. We were still following up on that. Sometimes some of these issues just take some time to implement.

Deputy Darragh O’Brien

I appreciate that. With all due respect, the National Educational Welfare Board is not a massive organisation and it is not a question that it must have a seminar to discuss basic internal controls on the signing of cheques. As I do not know the finance manager, I will not mention anything in that regard. However, there is a cheque for approximately €160,000 that just goes through and Mr. Ward does not know about. It is signed by one person. It is public money. No one picks it up. It is probably the biggest single cheque signed, I would imagine. These are basic internal controls. PricewaterhouseCoopers should not have to come in to tell anyone how to do this. This is just basic stuff.

I honestly do not understand how it took so long. From the organisation being set up, Mr. Ward was told clearly in December 2004 that the organisation was wide open to fraud and that there were serious inherent weaknesses in the processes there.

I hope those issues have been addressed. These are normal internal controls. Mr. Ward does not need consultants to tell him that major cheque signings and such major expenditure should be flagged by the finance manager. Why was it not flagged, in particular, that one cheque payment?

Mr. Eddie Ward

The systems did not allow that at the time. The Comptroller and Auditor General's report clearly documents the weaknesses in our controls at the time. Certainly, I was not happy with the procedures that operated. We brought in PricewaterhouseCoopers to check on how they operated. All our payments needed two signatories and that procedure was followed, but there was not a segregation of duties and there was not the approval and authorisation.

The other thing the Comptroller and Auditor General mentioned in his report is that there is the element of collusion. It is very difficult to detect that.

Deputy Darragh O’Brien

I appreciate that. In fairness, there is a basic bottom line that one will trust people, first and foremost. I am speaking about their financial controls. Frankly, their systems were all over the place and I am surprised that more money was not lost. If there is a situation where cheques are being signed by one person for such substantial amounts--

Mr. Eddie Ward

There are two signatures required on each cheque.

Deputy Darragh O’Brien

They were signing over the limit of €10,000 which they were allowed. They signed a cheque for €160,000 plus and no one in finance saw this. Did the organisation's accountants see it?

Mr. Eddie Ward

I acknowledge there were certainly failures in controls, but it was facilitated by collusion. There were people here with a motivation to use the situation for their own advantage. Sometimes when that motivation exists it is very difficult to thwart because they will find opportunity. We have learnt valuable lessons from this.

Chairman

With all due respect, Mr. Ward had a person whose title was financial manager, who was supposed to check all of these transactions. There was a cheque for €162,000 issued. Did Mr. Ward, as chief executive, get any periodic summary of expenditure?

Mr. Eddie Ward

Yes. I got it at a top level.

Chairman

Surely it should have been detected within a week.

Mr. Eddie Ward

At the time we were not getting the type of management information that we are now getting. The situation has been addressed comprehensively.

Chairman

There was a finance manager, who has been promoted since and who either did not make Mr. Ward aware of the fact that there was an irregular cheque issued in breach of bank mandate or who made him aware of it and nothing was done. It was in the context of a budget of €20 million that a cheque for €162,000 was signed.

Mr. Eddie Ward

We now know that procedures and controls were not followed and adhered to. We have learnt lessons in this. It takes time to put a corporate governance framework in place. We were a new organisation established in 2002. We began to put in place the capacity and the infrastructure necessary, not alone to meet our corporate service obligations but our service obligations in respect of children and families.

Deputy Darragh O’Brien

I understand that. I very much appreciate the work that has been done. No one here is taking away the work that has been done by Mr. Ward's agency. It is a pity that we must get down to this.

Just 20 minutes ago Mr. Ward referred to a competent finance manager. I would question a finance manager who does not raise a cheque for €162,000 with the CEO of this organisation.

My big difficulty with this, and a number of State agencies who come in here, is that when mistakes like this are made, the taxpayer loses but nothing happens except that there is a report, we return to the matter and establish we have lost taxpayers' money.

I want to ask about the legal proceedings, and leave it at that. Obviously, the cost of the legal proceedings is increasing. What are the chances of recovery of any of the moneys from this individual?

Mr. Eddie Ward

Legal action is being taken against both the supplier and the individual. I am advised by our legal people that we have a strong case. The supplier in this situation has admitted to making direct payments to the former employee. We believe we have a very strong case and I am being guided by that.

Deputy Darragh O’Brien

I understand that Mr. Ward will take the legal advice. Has he sought separate legal advice in that regard? I ask that because when we look at other Departments which did not, we see that they ended up going down the legal route and costing the taxpayer even more money. Has Mr. Ward sought separate legal opinion as to how strong the case is?

Mr. Eddie Ward

Not directly, no.

Deputy Darragh O’Brien

I suggest that he does.

Mr. Eddie Ward

Fine.

Deputy Róisín Shortall

I return to an issue I raised previously, that it came to the attention of the CEO and the board that an unauthorised merit payment had been made to the individual in question. Mr. Ward stated that in January 2005 he entered discussions with the IT manager on the return of this payment, and stated that those discussions never reached a conclusion or the person concerned never returned the payment because events overtook it. Given that Mr. Ward was aware of that in January 2005, why did he promote this individual seven months later, in July 2005, to a new position where he was the strategic manager in the absence of him returning that payment?

Mr. Eddie Ward

From the information I had, this person had done nothing wrong. This person was still in good standing with the board. The person had not authorised this payment and was willing to co-operate. This person was still in good standing.

Deputy Róisín Shortall

Mr. Ward told us earlier that in January 2005 he was in discussions with this person about him repaying the unauthorised payment that he had received from the director of corporate services, who subsequently left the board in unusual circumstances. In July of that year, however, the person in question was promoted to the post of strategic planning manager without the money having been repaid. Why was that the case?

Mr. Eddie Ward

There was no disagreement about it. He had agreed that he would repay the money. We then engaged in discussions regarding what we needed to do in respect of strategic planning. He was familiar with the organisation and had been with it from the outset. Following discussions I had with the people around me and members of the board, we decided that he might be a good person to head up this internal strategic planning aspect. This was only a temporary assignment, it was not a promotion. In light of the knowledge he possessed, we were of the view that it would probably be easier and less costly to get him to do it and bring someone else in to deal with the IT aspect. A person brought in from outside who was not familiar with the organisation would have faced certain challenges in trying to deal with strategic planning. That was our thinking when we asked him to work on the strategic planning aspect.

Deputy Róisín Shortall

It certainly did not end up being less costly, particularly when one considers what happened in the interim.

Mr. Eddie Ward

He never got to do the work on the strategic planning aspect.

Deputy Róisín Shortall

There is no question but that it did not end up being less costly for the taxpayer. The issue of the role of the director of corporate services is a matter to which we should return. I cannot see us closing the book on this matter today because the information with which we have been provided raises more questions than it answers. A number of major questions arise regarding the role of the director of corporate services.

Most reasonable or right-thinking people who received payments that were not due to them would be keen to repay the money as quickly as possible because that would be the correct course of action to take in order to protect their standing within the organisations for which they work. However, the individual in this case did not make any attempt to do so. The board was involved in discussions with him on when and how he would repay the money. Seven months after the irregular payment came to light - and even though the money has still not been repaid - the board promoted this individual. That is extraordinary. Questions arise as to the judgment of those involved in making that promotion.

Mr. Eddie Ward

Again, it was not a promotion. There was no disagreement and the individual in question was an employee of good standing.

Deputy Róisín Shortall

He moved from being IT manager to being strategic planning manager. I do not know if there was a salary increase involved.

Mr. Eddie Ward

There was no salary increase involved.

Deputy Róisín Shortall

The strategic planning manager in a very important organisation would certainly hold a higher status than would the position of IT manager. Deputy Fleming stated earlier that the people who will lose out in this regard - apart from taxpayers - are the children who are being kept out of school. Mr. Ward may refer to progress having been made. In my constituency, the service provided by the NEWB is infinitely worse than that provided by those who used to be responsible for the school attendance service. In certain areas, the Garda used to run the latter. It is not possible to get education welfare officers to deal with cases in certain areas. I spoke to the principals of two schools in my constituency last evening and they complained to me about the level of service on offer.

Not only is this a matter involving fraud on the part of a number of public servants that was obviously not dealt with properly, it also diverted attention away from the core business of the NEWB, which is supposed to be tackling the problem of early school drop-out rates. Those who leave school early are the real losers in all of this. It is difficult to have confidence in this organisation.

Deputy Thomas P. Broughan

I was informed about a parish in my constituency where 48% of the children do not proceed beyond primary level education. I appreciate, however, that this is a matter for another day.

On the establishment of new independent agencies, etc., will the officials from the Department indicate whether there are any controls in place with regard to the corporate governance of such agencies? There appears to have been an appalling litany of errors in this instance. If this was a private or publicly-quoted company, there is no doubt that the chief executive would be obliged to resign. Will the officials from the Department also indicate whether lessons have been learned? Why was this matter allowed to develop in the way it did? Does the Department bear major responsibility in respect of this matter?

Mr. Jim Mulkerrins

Yes. I outlined earlier the number of things that were happening within the board at the time. When the board was formed, the Department was heavily--

Chairman

Mr. Mulkerrins should not repeat what he said earlier.

Mr. Jim Mulkerrins

I appreciate that. There are lessons for the Department to learn from this matter. That was highlighted by the Comptroller and Auditor General in his report. The Department accepts some of the recommendations in the report regarding learning lessons, sharing experiences with other Departments and working with the Department of Finance. However, there is a recommendation - the Department has adequately addressed this matter - at paragraph 4.16 which suggests that enhanced central guidance should be provided either by the Department of Finance or by sponsoring Departments during the early transition phase. While I accept that there are lessons to be learned, I would be anxious that Departments would not be expected to undertake the role that is properly assigned to boards of directors and chief executive officers, who are statutorily accorded responsibility for the proper management of financial affairs.

Deputy Thomas P. Broughan

How much did the various reports compiled by PricewaterhouseCoopers, Mazars, Ernst & Young, etc., during the past six years cost?

Mr. Jim Mulkerrins

Each year the Department would have received detailed reports from the board on its various expenses - both the pay and non-pay aspects. I could not provide the Deputy with details of the costs relating to individual reports from 2004. However, we can certainly provide such information if the Deputy requires it. The Department closely monitors what the board is spending. The board is required to operate within the spending limits imposed upon it.

Chairman

I wish to draw the debate on this matter to a close. I am conscious that people wish to ask questions on other issues.

Deputy Thomas P. Broughan

Perhaps we will have an opportunity to obtain further information on this matter.

Chairman

We will certainly not be bringing our deliberations on it to a close today.

Deputy Thomas P. Broughan

Will the Comptroller and Auditor General indicate the net loss to the organisation? Will he also indicate the moneys, if any, that have been recovered and provide information of the level of legal expenses involved relating to this imbroglio?

Chairman

That matter was dealt with earlier. The total amount was €700,000.

Mr. John Buckley

It was approximately €700,000.

Chairman

From where did the finance officer and the director of corporate affairs come? How were they recruited? Did they come through the Department?

Mr. Eddie Ward

No, they were recruited by means of public competition.

Deputy Róisín Shortall

Were they both seconded?

Mr. Eddie Ward

From different organisations. The finance officer was not seconded from elsewhere.

Deputy Thomas P. Broughan

Is Mr. Ward the interim chief executive referred to?

Mr. Eddie Ward

I am.

Deputy Thomas P. Broughan

And Mr. Ward has continued in that position.

Mr. Eddie Ward

Yes.

Chairman

We have obtained a copy of the report to which reference was made earlier in the context of the complaints made. However, we do not have time to consider it. We will be asking the Comptroller and Auditor General to provide his views on this report. All I will state is that there was a board decision to give full support to the chief executive. That is one of the key issues here.

We will bring to a close our deliberations on this matter for the moment. We will not be noting the report. We will reopen our deliberations when we consider what we heard today and the information that has now come to hand. We will be inviting our guests to return at a later date in order that we might deal with some outstanding issues. I thank them for their contributions. Does Mr. Buckley wish to comment?

Mr. John Buckley

There are two levels at which we might need to consider this. The first is at the level of the organisation itself and the other is at the wider systems level. There are lessons at the level of the organisation, namely, that it is not enough to put in place controls, one must have some system to ensure that these are operated in practice.

The statement relating to internal financial control procedures, which is signed off on every year by all State organisations, probably should prompt the taking of two actions. The first would be to ensure that all senior officers sign off in respect of the operation of the controls entrusted to them. This would give the board and the chairman an opportunity to put direct questions to members of senior management at that point. The second aspect is that where internal audit is done, either in-house or contracted in, it may be useful to obtain a statement of assurance in respect of internal control before the chairman signs off on the statement relating to internal financial control procedures. That would build in a practice going forward which would help to ensure these controls are not only there on paper but are signed off by managers in practice.

The other issue is at the wider systems level. The report states there should be enhanced transition monitoring by the supervising Department or the Department of Finance and there needs to be rules or guidance to help an organisation to get off the ground to build the relationship between the supervising Department and the organisation itself and to understand what are its financial responsibilities. The Department said some of this was done but, in general, lessons can be learned at both organisational and systems level from this episode.

Chairman

My concern is a plethora of organisations has been set up across the board over the past ten years. What controls and cross-checks are in place? Is this just the tip of an iceberg?

Deputy Thomas P. Broughan

Does the board and the chief executive officer see all bank statements?

Mr. Eddie Ward

I see all payments made every month and I see the bank reconciliation on a regular basis as well.

Chairman

The committee will not dispose of this report today. Members will consider what they heard and we will communicate with the board at the earliest opportunity. I thank the delegation and Mr. Buckley.

The witnesses withdrew.