I thank the Chairman and the committee members for giving me the opportunity to address them on the issues raised in the Comptroller and Auditor General's report. I will address the issues in paragraphs 12.1, 12.2 and 12.3 in the report, and I will speak on the issues of risk management and internal audit in the Department, as requested by the committee. I will make a short comment on the growth in the live register in recent months and its impact on the Department.
The Department administers more than 50 schemes. It processes in excess of 2 million claims per year, makes approximately 1 million payments each week and a further 500,000 on a monthly basis. There are almost 5,000 people working in the Department, spread across the 145 offices in 12 headquarters buildings, 62 local offices and a number of inspectors' offices. In addition, 62 branch offices provide claim services to the public on a contract basis. In 2007, the budget for the Department stood at €15.5 billion while this year it will exceed €20 billion.
Given the size of the organisation, its remit and its budget, it is inevitable that over payments arise through fraud or error. In 2007, overpayments amounted to some €50 million, which was equal to 0.34% of total social welfare expenditure. Although the level of overpayments form just 0.33% of expenditure, we are conscious of our obligation to protect the Exchequer and Social Insurance Fund and we continue to work on minimising overpayments by our ongoing programme of improvements in our control strategy. We adopt a four-pronged approach to control the following: prevention of fraud and error at the initial claim stage; detection through reviews of ongoing claims; deterrence through the application of penalties; and recovery of overpayments.
Our control strategy is founded on a number of pillars, including systematic risk analysis, surveys of the levels of fraud and error within schemes, and scheme specific reviews. While all staff have a responsibility for control, more than 600 staff at local, national and regional level have specific responsibility for control related activities. Our control strategy is further strengthened through our co-ordination and co-operation with other agencies including the Revenue Commissioners, the Garda National Immigration Bureau and a range of Departments and agencies. These arrangements include data matching exercises and on-the-ground joint investigation operations.
In recent years we have implemented a new overpayments and debt management policy, which is aimed at maximising recovery of payments incorrectly made through fraud or error. This policy is supported by a new computer system which provides more accurate, up-to-date and reliable information on debt, and it has enabled us to restructure our business processes to pursue debt recovery, particularly from people no longer in receipt of social welfare.
Prosecutions play a key role in our policy of deterring fraud against the social welfare system. Proceedings are taken against people who defraud the social welfare payments system and against employers who fail to carry out their statutory obligations to deduct PRSI contributions, or to keep records. In 2008, around 350 cases were referred to the Office of the Chief State Solicitor to initiate prosecution proceedings. More than 300 criminal cases involving social welfare recipients were finalised in court, representing an increase of more than 80 cases on 2007. In addition, 15 cases against employers were also finalised. The number of cases referred to the Office of the Chief State Solicitor each year exceeds the number finalised in court, with the result that a large number of cases are on hand at various stages of prosecution. However, the number awaiting prosecution at the end of 2008 was lower than that at end of 2007, due to a substantial increase in cases finalised in court in 2008.
Prosecution of cases through the courts is costly in terms of time and resources of the staff of the Department and the courts engaged in pursuing these cases. While overpayments can be identified and fraud may be suspected, it is not always possible to establish the standard of evidence required for successful prosecution in the courts. Decisions on cases to be referred for prosecution are taken having regard to the likelihood of success, the amount of money involved, the income of the person during the period in which the fraud was perpetrated, and the current circumstances of the person.
I now turn to the comments of the Comptroller and Auditor General on the subvention to the Pensions Board. The board has a statutory function to regulate occupational pension schemes and personal retirement savings accounts in Ireland as part of its role to monitor and supervise the operation of the Pensions Act. It is largely financed by the payment of fees levied on pension schemes. When the PRSAs were introduced, it was recognised that the fee base, in the initial years, would be inadequate to cover development and regulatory costs. It was decided, with the agreement of the Department of Finance, to pay a temporary recoverable subvention to the board until such time as an adequate fee base was established. The intention was that the Pensions Boardwould repay the subvention from any surplus fee income generated by PRSAs.
By the end of 2007, the overall subvention to the board amounted to €8.1 million, but the value of receipts was only €1.7 million. It was important that the subvention should cease so that its temporary nature would be maintained and the board restored to a position where it was largely self-funding. It was also clear that, due to factors outside its control which impacted on PRSA take-up, it was unlikely that PRSAs would generate sufficient income to facilitate the repayment of the subvention in the foreseeable future, as originally envisaged by the board. In that context, with the approval of the Department of Finance, the decision was taken to write off the amount owed. In sanctioning the decision, the Department of Finance required the Pensions Board to increase the contribution it makes to the Exchequer in respect of its pension scheme from a standard 16.66% of payroll to 25% for staff recruited after 1995, and to 30% for staff recruited before 1995.
The Pensions Board funds its day to day spending and maintains reserves through charging fees on pensions schemes. These reserves allow the board to cope with any volatility in its fee income and ensure that it is in a position to take legal actions where necessary to enforce the provisions of the Pensions Act. It would not have been appropriate to use this reserve to off-set the debt due to the Department as this would have involved using reserves of the occupational funds to subsidise PRSAs. The Department continues to monitor the reserves to ensure they are maintained at a reasonable level through its representatives on the Pensions Board and on the finance and audit committee where these issues are kept under review.
The committee asked that I address the subject of risk management and its management within the Department. In line with Government policy, the Department has developed a comprehensive risk management framework encompassing strategic, operational, financial and reputational risks. Operational risks are further broken down into sub-headings of human resources, business process, ICT, business partners, business continuity, documentation, physical security, legal and regulatory, and health and safety.
The overall objective of the risk management policy is to ensure that appropriate actions are taken by management throughout the organisation to identify, assess and manage effectively the risks to which the organisation may be exposed. Governance of risk management is the responsibility of the Secretary General, the management board and the risk and operations committee, ROC. The ROC, headed by an assistant secretary, does the following: approves and reviews the Department's risk management policy, methodology and standards; creates awareness of the need to manage risk effectively; monitors management of risk throughout the Department; and reports on a regular basis to the Department's management board. Senior division managers, who have responsibility for managing risk within their areas of remit, report to the ROC on a quarterly basis. These reports are reviewed and follow-up action is taken to eliminate the risk. Where considered necessary, the matter is brought to the attention of the management board. A comprehensive review of the risk management framework, including the processes and tools, is scheduled for this year.
The Department has a well-trained and professional internal audit unit, headed by a professional qualified accountant. The unit carries out a continuous programme of reviews on financial and internal control issues across the many business units and payment schemes of the Department. The unit provides an independent opinion to senior management, the management board and the Secretary General on the performance of the business areas reviewed. The work of the unit is overseen by an independent audit committee, which includes three members of the Department and three external members, one of whom chairs the committee. The unit works to an audit plan which is agreed on an annual basis with the Secretary General and with the audit committee.
During 2007 and 2008 some 30 internal audit reports and reviews were conducted. They included the following: audits of financial controls and administrative procedures for social welfare programmes; several social welfare local offices; the payments administrative area; money advice and budgeting companies; and information and computer systems. In view of its ongoing and increasing dependence on ICT, the Department in 2006 entered a four-year contract with a company of external professionals to assist with specialised internal audits on its ICT systems.
Finally, as the committee is aware, there has been a substantial rise in the numbers on the live register and, regrettably, the level of inflows is continuing to rise. The number of people on the live register, which at the end of 2007 was some 170,000, now stands at over 350,000. The rate of increase in recent months has been unprecedented and the live register grew last month by 26,000. The growth in inflows has resulted in long queues in local offices and delays in processing claims which, inevitably, has put pressure on staff and managers in the local office network and has impacted on services to customers. The average time for processing jobseeker's benefit claims is two weeks and it is five weeks for jobseeker's allowance. However, this can vary from office to office and the matter is monitored on an ongoing basis so that additional support can be provided where particular problems are being experienced. Some 70,000 claims are awaiting processing.
A number of actions have been taken to address these issues. Staff and management at local level have responded superbly by increasing productivity and working overtime to minimise the impact on customers. A number of process improvements have been implemented to streamline and simplify claims processing. Approximately 250 additional posts have been allocated to the Department in recent weeks. These include an additional 190 posts, including 32 temporary staff, that have been assigned to local offices, and most of these posts have been filled. In addition, 16 additional social welfare inspectors are being assigned to undertake means testing and other claims processing work, and the number of facilitators has increased from 40 to 60.
The increase in the number of staff in local offices has put pressure on our accommodation and we are reaching the point where we will not be able to put more staff into local offices. To overcome this difficulty, four central decisions offices in Finglas, Townsend Street, Sligo and Carrick-on-Shannon, with a staff of ten each, are being set up to process claim decisions and relieve pressure on the local offices. Other offices will be established in the coming months as the need and the opportunity arises.
We in the Department are conscious of our responsibility to deliver our services efficiently and effectively to our 1 million customers and their 500,000 dependents each week, while ensuring that expenditure of the funds entrusted to us is managed appropriately.
