COMMITTEE OF PUBLIC ACCOUNTS díospóireacht -
Thursday, 17 Oct 2013

Forfás Annual Accounts 2012

Mr. Martin D. Shanahan (Chief Executive Officer, Forfás), called and examined.

Chairman

We are dealing in this session with the Forfás annual accounts for 2012. Before we begin, I again remind members, witnesses and those in the Visitors Gallery to turn off all mobile telephones as the interference from them affects the sound quality and broadcast transmission of the meeting.

Witnesses are protected by absolute privilege in respect of the evidence they are to give to the committee. If they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a Member of either House, a person outside the House, or an official by name or in such a way as to make him or her identifiable.

Members are reminded of the provisions within Standing Order 163 that the committee shall refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policy or policies.

I welcome Mr. Martin Shanahan, chief executive officer of Forfás, and ask him to introduce his officials.

Mr. Martin D. Shanahan

I thank the committee for the opportunity to present to it this morning. I am accompanied this morning by Mr. Declan Hughes, divisional manager, enterprise, trade and innovation policy; Mr. Michael O'Leary, secretary and HR manager; Mr. Tom Clayton, chief financial officer, and Mr. Adrian Devitt, head of economic and competitiveness policy.

Chairman

Thank you. I now invite the Comptroller and Auditor General, Mr. Seamus McCarthy, to produce the accounts.

Mr. Seamus McCarthy

Forfás is the national policy advisory board for enterprise, trade, science, technology and innovation. It is an agency of the Department of Jobs, Enterprise and Innovation and works with it and its sister agencies, Enterprise Ireland, IDA Ireland and Science Foundation Ireland, to ensure the coherence of policies across the agencies in support of enterprise growth and job creation. The primary source of income for Forfás is Oireachtas grants, which totalled €51.4 million in 2012. These were paid from Vote 32 - Jobs, Enterprise and Innovation.

In addition to its policy functions, Forfás activities in 2012 also included the accreditation of laboratories, certification bodies and inspection bodies through the Irish National Accreditation Board, which is a sub-board and division of Forfás. Forfás also provides certain shared corporate services to its sister agencies, including property management of buildings occupied by them and responsibility for the costs arising from lease obligations for two properties previously leased for the former Industrial Development Authority.

In 2012, some 22% of Forfás expenditure related to its policy, corporate and shared services activities. Pension costs accounted for the remaining 78% of the agency's expenditure in 2012. Forfás is the legal employer of staff across the development agencies, including Enterprise Ireland, IDA Ireland, Science Foundation Ireland and some staff of the National Standards Authority of Ireland. Forfás centrally manages the pension schemes for all the agencies and their predecessor organisations. All pension benefits arising for retiring and retired staff are paid on an ongoing basis by Forfás. In 2012, payments to pensioners amounted to €43.4 million.

The Forfás Financial Statements for 2012 were certified on 27 June 2013 and an unqualified opinion was given. However, my audit certificate drew attention to non-effective expenditure of €1.4 million arising from rent and associated costs related to unoccupied office space. On foot of a Government decision, it is planned that the policy and research functions of Forfás will be integrated with the Department of Jobs, Enterprise and Innovation. I understand that the Government has agreed that Forfás will be dissolved by way of legislation and that all of its functions, responsibilities and liabilities will be transferred to other legal entities, with consequential changes in accounts and reporting arrangements. Forfás will continue as a legal entity until enactment of the legislation.

Chairman

Thank you. I now invite Mr. Shanahan to make his opening statement.

Mr. Martin D. Shanahan

As I have provided a detailed briefing note to the committee, in presenting the annual report and accounts for 2012, I will make a few introductory remarks.

Forfás is Ireland's policy advisory board for enterprise, trade, science, technology and innovation. Its primary function is to advise the Minister for Jobs, Enterprise and Innovation on the development of enterprise within the State. Forfás also has a co-ordination role with respect to Enterprise Ireland, IDA Ireland and Science Foundation Ireland. It is the statutory body in which the State's legal powers of industrial promotion and technology have been vested.

Forfás is also the legal employer of staff in Forfás, Enterprise Ireland, IDA Ireland and Science Foundation Ireland. It provides research and analysis and manages the work of a number of independent councils, including the National Competitiveness Council and the Expert Group on Future Skills Needs. In addition to its primary policy advisory functions, Forfás undertakes a number of other functions. The Irish National Accreditation Board is a sub-board and division of Forfás. In 2012, Forfás provided a range of shared services to Enterprise Ireland, IDA Ireland and Science Foundation Ireland, including pensions management and properties and facilities management. In 2012, Forfás was the legal host for the Office of Chief Scientific Adviser to the Government and for the Euroscience Open Forum, which was a significant international event held in Dublin in July of last year.

In September 2011, the Minister for Jobs, Enterprise and Innovation announced his intention to integrate the policy and research capability of Forfás with the Department of Jobs, Enterprise and Innovation. Government agreement was secured in April 2013 to commence drafting legislation to provide for the dissolution of Forfás and the transfer of its staff and functions to the Department and other legal entities, as necessary. In anticipation of the dissolution of Forfás responsibility for certain functions previously undertaken by Forfás and which did not require statutory adjustment have already been transferred to other bodies, including, for example, property management, the discover science and engineering programme and the Office of Chief Scientific Adviser to the Government.

On the core function of Forfás in 2012, the agency provided advice to the Minister for Jobs, Enterprise and Innovation and the Government across a wide range of policy issues, including strategies for the construction, manufacturing and social enterprise sectors; a review of the cost of doing business in Ireland; a review of Ireland's competitiveness performance; an audit of the licensing requirements for business and the proposed measures to reduce the burden; identification of the key skills requirements of enterprise; the prioritisation of State investment in research and development; analysis of tax and finance issues for business and a study to identify changes in the operation of sector regulators that would enhance cost competitiveness.

A significant focus of Forfás work in 2012, as in 2011, was the development and implementation of the Government's annual action plan for jobs. Forfás has a number of roles in this regard. It works closely with the Minister and his Department in developing the action plan and liaises closely with other Departments and stakeholders in identifying the key actions required to support enterprise and jobs growth. Forfás is a member of the committee which monitors progress on the plan on a quarterly basis. It also has lead responsibility for implementation of a significant number of the actions in 2012 and 2013. Forfás is currently working on the development of the 2014 Action Plan for Jobs.

Forfás regularly reviews enterprise and sectoral policies and, through its annual surveys, monitors Ireland's and, specifically, the enterprise agencies', performance in terms of job creation, innovation and economic impact. In 2012, we also undertook evaluations to assess the impact of individual agency programmes, as part of the ongoing programme of evaluations across the enterprise agencies. Forfás operates effectively and efficiently and has delivered a substantial work programme, particularly in the context of significant decreases in staffing resources. This is achieved through the commitment and flexibility of its staff. Forfás policy work cannot be undertaken without partnership engagement and the commitment of others, including Departments, the enterprise agencies and the wider community of stakeholders.

While the focus of this meeting is the annual accounts for 2012, Forfás has a broad ranging and challenging work programme for the current year.

We are working closely with the Department of Jobs, Enterprise and Innovation and the relevant agencies to ensure the successful integration of Forfás in the Department. I would be pleased to respond to any questions the Chairman and members may have.

Chairman

I thank Mr. Shanahan. May we publish his statement?

Mr. Martin D. Shanahan

Yes.

Deputy Robert Dowds

I thank Mr. Shanahan and his colleagues for coming before us today and providing the committee with its report. When will Forfás be wound up? Will all staff transfer to the Department of Jobs, Enterprise and Innovation? How will this change impact on the work done by Forfás? Will it all be done through the Department to which Forfás staff have been assigned? Are there any implications for staff pay and so forth given the restrictions on pay that apply in Departments? In a broad sense, how does Mr. Shanahan envisage the work of Forfás continuing? Will the winding up of the agency have a negative effect?

Mr. Martin D. Shanahan

The purpose of integration, as stated by the Minister for Jobs, Enterprise and Innovation at the time of the decision, was to improve the capability to develop and implement policy and to harness the capacity of Forfás and the Department of Jobs, Enterprise and Innovation in a synergistic way.

On the dissolution of Forfás, the organisation's policy research capability and staff associated with that function will transfer to the Department. A number of staff will transfer to other bodies and some have already transferred to IDA Ireland with the property function. The staff who are associated with the Irish National Accreditation Board, INAB, will transfer to the Health and Safety Authority where the functions currently carried out by the INAB will be vested.

Implemented correctly, this change could have a positive impact in driving enterprise policy and implementation. As with any change, there are risks associated with it and we must be mindful of that. The protection of the policy research capability within Forfás is a key part of the integration. The Department and Forfás currently work together very closely, particularly in the policy area. The ability to undertake evidence-based analysis will be protected. The capability transferring from Forfás will form the core of a strategic policy division within the Department. All staff who are transferring will do so at their existing grades, which are analogous to Civil Service grades. As such, there is a direct mapping.

As to when the change will take place, the heads of the Bill have been published, the Office of the Parliamentary Counsel is drafting the appropriate legislation and the Bill is scheduled to be published in the autumn. The timeframe for its progress through the Houses then comes into play. One would envisage that the process could be completed in the first six months of next year, although that will be dependent on a number of things happening.

Deputy Robert Dowds

As regards the Forfás function, to what extent does it have a role in trying to encourage certain types of industry to locate here, whether through the IDA or by encouraging Enterprise Ireland to go down particular tracks Forfás believes would be useful in terms of employment creation? Tremendous work has been done in this area and it is extremely important, given the changing nature of business and the world, that we are at the cutting edge in this regard. I ask Mr. Shanahan to comment.

Mr. Martin D. Shanahan

Forfás currently works very closely with our sister agencies, Enterprise Ireland, Science Foundation Ireland and IDA Ireland. We develop broad enterprise policy together with these agencies and the Department. The most recent review of industrial policy was in 2010 when we set out the strategy for the foreseeable future, Making it Happen - Growing Enterprise for Ireland. We work very closely with the agencies in identifying sectoral opportunities and developing sectoral strategies. We also undertake evaluations of the programmes run by Enterprise Ireland, IDA Ireland and Science Foundation Ireland. We are heavily involved in the development of the overall science, technology and innovation strategy which supports industrial policy and also the recent research prioritisation exercise. It is envisaged that this work will be undertaken from within the Department of Jobs, Enterprise and Innovation as part of the strategic policy division to which I referred.

Deputy Robert Dowds

One concern I have as regards Forfás being absorbed in the Department - the civil servants present may object to my phraseology - is that a dead hand sometimes operates in the Civil Service. Clearly, the most innovative and flexible minds are required. While I accept it is difficult for Mr. Shanahan to comment, will Forfás, once it has been absorbed, be able to draw on the expertise that it may require, even if it is outside the Department? What is the position in that regard?

Mr. Martin D. Shanahan

The challenge is to make this happen effectively and efficiently and to ensure we can continue to do as many of the things we currently do within the Department. I can speak to what makes Forfás successful. We are currently successful because we have the skills and expertise, albeit skills and expertise that have been significantly reduced since the moratorium on recruitment and promotion was introduced. We have recruited people for specific skills, whether they be in economics, business, science and technology or education or analytical skills around evaluations and data.

An important part of our current activity is our relationship with our sister agencies in developing a coherent industry policy not only on foreign direct investment and indigenous business or innovation, but also to ensure the three areas work in tandem. Our ability to engage with enterprise directly is an extremely important part of what we do. It will be necessary to ensure those facets of our current activity continue in so far as is practical within a Government Department in the future. This is what we will be mindful of as part of the integration. The process involves an implementation team chaired by the Secretary General of the Department of Jobs, Enterprise and Innovation of which I am a member. I assure Deputy Dowds that this issue is at the forefront of our minds as we go through the integration process.

There are also some upsides. The Department has primary function for enterprise, jobs and innovation policy. Co-locating Forfás in the Department will shorten the gap, as it were, between policy development and analysis and its implementation. That is a potential upside.

Deputy Robert Dowds

Is it envisaged that Forfás will be able to draw on external expertise when required?

Mr. Martin D. Shanahan

I do not see why that would not be the case. As I stated, we currently support the work of a number of councils which are populated by people with independent expertise, for example, the National Competitiveness Council and the expert group on future skills needs. We have established ad hoc committees from time to time to assist us with our work and I do not see any reason this cannot continue within the new paradigm.

Deputy Robert Dowds

As regards the Action Plan for Jobs, Forfás is responsible for 11 actions in 2013. The report describes some of these actions as disruptive reforms. I ask Mr. Shanahan to explain that reference. To take one of these actions, namely, trading online, what exactly is Forfás's input in that area and other areas?

Is it making a significant impact on how people can do their business?

Mr. Martin D. Shanahan

Forfás has a number of roles in relation to the Action Plan for Jobs. We have been involved in developing the annual action plan for 2012-13 and are currently working on developing the 2014 action plan together with the Minister and the Department of Jobs, Enterprise and Innovation. Second, we are involved in the monitoring of the action plan. I am a member of the monitoring committee and we have some staff located in the Department of the Taoiseach who monitor and help that Department monitor the action plan. Third, we have an involvement, as the Deputy has pointed out, in a number of the actions which need to be delivered through the 2013 action plan and we had some actions in 2012.

In regard to the disruptive reforms, there were seven areas singled out for specific attention in the 2013 plan. So there is a broad swathe of actions within the plan. There are 333 actions within the Action Plan for Jobs. A significant number of them coalesce around seven areas. Forfás has a role in a number of those, including the big data analytics disruptive reform, where we are providing research and secretariat support to a group which is identifying the priority areas to take forward under that disruptive reform. There has been significant investment in that area. Earlier this year €80 million was invested by Science Foundation Ireland into the Insight programme. We are involved in the ICT skills disruptive reform. We are undertaking a detailed study as to what is required out to 2018 in relation to ICT skills. There are actions undertaken in the delivery of that disruptive reform, so the expectation is that there will be 3,000 additional ICT professionals available to industry who are desperately needed in 2013 and that we would increase the output to 2018.

In regard to trading online, that is an area that is led by the Department of Communications, Energy and Natural Resources together with the involvement of our parent Department, the Department of Jobs, Enterprise and Innovation and ourselves. It is identifying a mechanism by which we can support businesses, particularly small businesses, to trade online. The expectation is that would be done through a form of an e-trading voucher-type support, but the details of that are currently under way.

There are other disruptive reforms, like the JobsPlus, which was implemented on 1 July; and the health innovation hub, where there is currently a demonstrator project operating in Cork and the analysis is happening currently to set up the national innovation hub.

In terms of the action plan and tangibles, I suppose-----

Deputy Robert Dowds

I apologise for interrupting. Is Mr. Shanahan satisfied it is yielding new jobs to the best extent possible? Does Forfás have a function in tipping off the relevant educational or other agencies to indicate the areas of likely skills shortages where people need to be upskilled to be in a position to take up jobs coming down the line? I know there are problems in some areas in that regard.

Mr. Martin D. Shanahan

First, I am confident that it is having an impact. The premise of the Action Plan for Jobs is about making it easier for businesses to do business and for them in turn to create sustainable private-sector employment. If we look at the most recent figures available from the CSO, 33,000 jobs have been created year-on-year to Q2 2013. We also see very small increases in the labour force during that time and very small increases in participation. That is against the background, obviously, of a significant unemployment issue and against the background that there are other factors that come into play, like emigration. However, it is a positive trend.

If we look within that, private-sector employment has driven that increase and is, in fact, entirely responsible for that increase because it is against a background of public sector jobs continuing to decline. So the trend directionally is absolutely right. There is other evidence to support its working, which is that the competitiveness ratings are improving. They are an indication of the environment for private-sector business.

Skills is one of the more significant issues that we are involved in and we manage and support the work of the expert group on future skills needs. We have detailed evidence and analysis of where we believe the shortages are currently and what the likely future shortages are. We work very closely with the Department of Education and Skills and the Department of Social Protection in advising them of where we believe those skills shortages are. That includes the educational spectrum of what we should be doing at primary and secondary level, right up to third level institutions and universities. We also engage with those institutions directly where we can with the limited resources we have and advise them as to what courses we think are required and what curriculum is required. We bring the combined intelligence of what we can see in the broad macro-data together with the information we get from our agencies and their clients as to what their specific needs are.

Deputy Robert Dowds

I turn to the property over which Forfás has leasehold, particularly Carrisbrook House in Ballsbridge, where the current occupancy rate is only 15%. On a lease that is due to expire in 2034, it is currently costing Forfás €1.2 million per annum in vacant space. I know there is a minor problem with Knockmaun House in Mount Street, but that is obviously much less significant in terms of the waste of money. Is Forfás directly responsible for those buildings, does it come under the Office of Public Works, or is there joint function in that regard? I understand there is a particular problem with Carrisbrook House because the Israeli Embassy is there. As that is an embassy that requires huge security it may be deterring potential tenants. It grieves me to see that kind of money going down the drain especially given that the other day we had to introduce cuts, some of which are quite painful to people.

It raises a more general question, which Mr. Shanahan may not be able to answer, of that being a problem right across the public service. Is there any way to get over that problem? I gather this house was put up for sale a few years ago and could have been sold for €12 million, which would equate to ten annual payments for this vacant space. The public would find that hard to take. It raises questions over the extent of the problem.

Mr. Martin D. Shanahan

In regard to Carrisbrook House, the Comptroller and Auditor General has referred to the expenditure as non-effective. I agree with the Deputy that I am not happy that this expenditure is effective either. I must point out that we have a contractual obligation to pay this money. The State is contractually obligated. A leasehold interest was taken out on this building by the State in 1969 for 65 years by AnCO.

It passed from there to the former Industrial Development Authority, which had its headquarters there until 1985. Forfás took over responsibility for the building in 1994. As the committee has pointed out, it is a little more than 15% occupied by a single tenant. Management of the building has passed to IDA Ireland since 1 July this year. In the time that we have managed the building and had the leasehold interest, including 2012, we have made every effort to secure tenants. We have explored all options in respect of our leasehold obligations and in respect of the sublease. The building has been marketed heavily. There has been some interest in it and there were 12 site visits in 2012 although none of those who visited opted to become tenants in the building.

A question was asked relating to the Office of Public Works. We have made the OPW aware of its availability dating back to 2008 and we have continuously-----

Deputy Robert Dowds

What role did the OPW have in respect of this?

Mr. Martin D. Shanahan

As the Deputy is aware, the OPW manages public sector buildings. This building is managed by Forfás and now by IDA Ireland. The OPW does not have a direct role in that regard although it manages accommodation for public sector organisations. We have continually made the OPW aware of the fact that there is space available within Carrisbrook House. We have also engaged with our sister agencies, Enterprise Ireland and IDA Ireland, to make them, and, in particular, their client-facing functions, aware that there is available space in Carrisbrook House. We have engaged with other agencies and public bodies to say that there is available space there.

The committee alluded to another point. It is fair to say that the fact that we do not have vacant possession of Carrisbrook House is a hindrance in respect of securing a tenant or additional tenants for it.

Deputy Robert Dowds

I appreciate this is a sensitive issue. Might it be possible to encourage the Israeli Embassy to go to a one-off building that might suit its needs? Perhaps that might remove one of the obstacles for Forfás. I am unsure whether that is Mr. Shanahan's responsibility.

Mr. Martin D. Shanahan

Given that the State will have a commercial interest in this property, potentially out to 2034, it would be imprudent for me to go into the commercial details around any discussions that we have or might have or that our sister agency might now have with tenants of the house. The Deputy has already alluded to the fact that there are some associated sensitivities.

Chairman

We are running out of time.

Deputy Robert Dowds

There is one other area that I wish to ask Mr. Shanahan about, that is, the Forfás throughput of expenditure with regard to pensions. I understand that Forfás is responsible for pensions for former Forfás, IDA, Enterprise Ireland and Science Foundation Ireland people. What will happen to that role when Forfás is subsumed into the Department of Jobs, Enterprise and Innovation?

Mr. Martin D. Shanahan

As Deputy Dowds has pointed out, a significant proportion of the Forfás budget, fully 78% in 2012, relates to our administration of pensions on behalf of the agencies mentioned, as well as former agencies, including An Bord Tráchtála, Eolas, The Irish Goods Council, NBST and IIRS. All of that is managed from Forfás and the future liability in respect of those pensions appears in the Forfás accounts, as is the convention under the financial reporting standard, FRS, 17. The liability relates to 1,120 serving staff, 1,200 pensioners and 420 former staff with preserved benefits. This will be dealt with within the legislation around integration. I have no wish to pre-empt what the Houses will decide but the expectation is that the administration of the pensions will be from within the Department of Jobs, Enterprise and Innovation. The agencies are likely to become employers of their own staff and Forfás will no longer exist at that point. Then, the liability in respect of pensions, or some proportion of it, will pass to the agencies. This is a matter which will be dealt with through legislation. It is a matter for the Office of the Parliamentary Counsel in terms of drafting the legislation and there will be engagement with the Comptroller and Auditor General in respect of the appropriateness of how that is accounted for.

Deputy Robert Dowds

Presumably it is basically a transfer from the Government to Forfás to pay those pensions. Is that the case?

Mr. Martin D. Shanahan

Yes, we pay pensions on an annual basis. We paid out €43 million in pensions in 2012. The Vote associated with that was a little over €40 million and the remainder is collected in the form of contributions from existing or serving staff.

Chairman

I raised the issue of Carrisbrook House with representatives of the OPW when they were before the committee because I had thought the OPW was responsible for the building. If you do not mind, I want to get some understanding of where this lease came from or how it originated. In 1969 an agency entered into that lease for 65 years. Is that correct?

Mr. Martin D. Shanahan

That is my understanding.

Chairman

What happened from there? Was the building then fully rented or fully used? I realise you were not responsible - I want to make that clear - but I am keen to find out the position.

Mr. Martin D. Shanahan

My understanding is that the building passed from AnCO to the former Industrial Development Authority, which used it fully as its headquarters.

Chairman

It was fully used. Is that the case?

Mr. Martin D. Shanahan

That is my understanding but we can check that and see if there is information available. It passed to Forfás on foot of the restructuring of the enterprise agencies in 1994. It was fully let until 2008. We had a significant tenant that occupied many floors of the building. The tenant left in 2008. The committee has highlighted the fact that we have had significant difficulties in finding a replacement tenant since that period and the Comptroller and Auditor General has rightly pointed to non-effective expenditure in this regard as well.

Chairman

Was it the practice back then that 65 year leases without a break clause were agreed? I do not believe that was common.

Mr. Martin D. Shanahan

I cannot speak to it.

Chairman

We are going to have to find out why this was the case. Why is it that an agency of the State, even though it was in 1969, entered into a 65 year lease without a break clause? I would like to know the answer to that question. I realise Mr. Shanahan cannot give it but perhaps someone within a Department somewhere, whether the Department of Finance or otherwise, might have some answers. Who was the landlord in 1969?

Mr. Martin D. Shanahan

Perhaps my colleague, Mr. Hughes, might be able to shed further light on it but my understanding was that AnCO was the original lessor of the building.

Mr. Declan Hughes

That is right.

Chairman

The original what?

Mr. Martin D. Shanahan

The lessor of the building, that is to say, AnCO took out the lease.

Chairman

From whom? Who was the landlord?

Mr. Declan Hughes

I do not have the details to hand but we can certainly provide them to the committee. We have copies of the original leases, etc.

Chairman

I wish to know who was the landlord back then in 1969. Did the identity of the landlord change in the years between 1969 and the present? I am aware it changed recently. Can the committee have a list of the names of who or whatever was the landlord, be it a person, company, trust or whatever?

Mr. Martin D. Shanahan

We will provide the committee with any details we have.

Chairman

Moreover, there must be some sort of legal explanation or commentary on the fact that the State was going to enter into a lease for 65 years without a break clause. How much has this cost the State since 1969? I note that from 2008 onwards, there has been a single occupier of the building. In each year since 2008 to date, approximately how much has Forfás paid in total rent?

Mr. Declan Hughes

In 2008, the amount in respect of the vacant space was €743,000. In 2009 to 2012, inclusive, the amount in respect of the rent was €990,000 each year. There also were associated service charges and rates, which obviously were reduced on vacant space, but the amount in 2012, for example, with service charges and so on was €1.2 million, as we stated in our document.

Chairman

The amount was €1.2 million. Does the lease contain an upward-only rent review clause?

Mr. Declan Hughes

There is a rent review clause, it is upward-only and the most recent rent review was a nil increase.

Chairman

A nil increase. Prior to that, did the rent increase regularly over the years?

Mr. Declan Hughes

I do not have that detail to hand but we can revert to the committee in this regard.

Chairman

May we also have that detail? It would be interesting were the witnesses to provide the committee with a history of the building in respect of landlords, tenants, rents, losses for each year and so on as that would be important. When the building was offered for sale, is it the case the State took no interest in it? It sold in 2012 for €16 million. The witnesses have stated it might not be attractive for people to rent that building because of the single tenant therein or some other circumstances concerning the building itself. However, it was attractive to an investor of some kind because the building was sold for €16 million. Deputy Dowds made the point that had the State bought the building for that amount, it would have saved itself some money. Is this not the case or what happened at that point of sale?

Mr. Martin D. Shanahan

Forfás did not take an interest in buying the property at that point. We did seek to try to reduce our leasehold interest in the property and at the time thought it might be opportune to off-load our current leasehold interest in it. However, we obviously are not in a position to buy the property.

Chairman

Who is the landlord at present?

Mr. Declan Hughes

The landlord currently is an investment trust. We are not aware of the exact backers but it is an investment trust.

Chairman

An investment trust now owns the building but Forfás has the building and is left with the hot potato. At the time of the sale, what negotiations went on with the Office of Public Works, OPW, on the possibilities of reducing the State's exposure by purchasing the building or reaching some sort of solution around that?

Mr. Declan Hughes

As Mr. Shanahan mentioned, we have been in ongoing contact with the Office of Public Works. We have written to it on various occasions and brought to the OPW's attention that this is available. At the time of the sale, we had put our own interest on the market previously and had made that known to various estate agents. When it came to the actual sale, we again made it known to the market that we were interested in disposing of our own interest in the building. We have been advised throughout this by professional advisers in terms of the appropriate steps and so on. However, the key piece was making sure the market was aware that we would dispose of our own interest on a commercial basis.

Chairman

Yes, but from the point of view of purchasing, did the OPW have any comment on it? I am interested in this issue because the last time the OPW appeared before this committee, its representatives very quickly referred the problem to Forfás. In my opinion, the OPW manages the property for the State and should have had some sort of input into the consideration being given to the disposal of the property that ended up being disposed of for €16 million. It should have done so to save the State from losing €1.2 million on a seven-storey property with just a single floor occupied and from possibly continuing to lose on that property until 2034. The State is locked into a lease with an upward-only rent review until 2034 and has missed the boat in respect of reducing its exposure when the aforementioned property was sold for €16 million. Between the present and 2034, should the property not be occupied or should matters continue as they are, the State will lose double the amount for which it could have bought the property in 2008. This raises a number of serious questions about the State's ability to manage its property.

I am not laying this at Mr. Shanahan's door, as the OPW has a highly significant role to play in this regard. I am astonished it was unable to or did not wish to answer the question the last day it appeared before the committee and that members find today there was no significant progress on the consideration of purchasing that property when it sold for €16 million. It appears to be the case that the OPW simply continued on to blindly ignore the fact the State was losing €1.2 million per year and will continue to lose it and perhaps more, unless the properties can be rented out and I note Forfás is having difficulties in this regard. I ask the witnesses to submit a full report to the Committee of Public Accounts outlining what has happened since 1969 regarding the landlords, the costs and so on in order that members can explore properly how much has been lost to the State from 1969 and perhaps forecast up to 2034, because I reiterate this raises serious questions in respect of property management. I ask Forfás to work with the OPW in this regard. At least the highlighting of this issue and the obligation to make a report to the Committee of Public Accounts might cause the OPW to get off its hands and do something in respect of that property.

Mr. Martin D. Shanahan

We will provide the committee with any information and data available to us in respect of it since 1969.

Chairman

Finally, I refer to Wilton Park House and note Forfás has a problem with, for example, Knockmaun House. What is the position there?

Mr. Martin D. Shanahan

Knockmaun House is 88% let at present. The lease on Knockmaun House expires in mid-2014, that is, in July 2014.

Chairman

Does Forfás intend to renew that lease?

Mr. Martin D. Shanahan

As I pointed out earlier, the responsibility for property and the leasehold interest in all these properties now has passed to IDA Ireland. I do not expect that IDA Ireland would renew the lease but that is a matter for it.

Chairman

Has it always been 88% occupied or was the rate lower or higher?

Mr. Declan Hughes

It was let fully up to 2007, at which stage one of the tenants in the building went into receivership. Given the downturn in the property market, it proved difficult to re-let the property.

Chairman

What will happen with the space Forfás currently uses in Wilton Park House? Will that simply continue?

Mr. Martin D. Shanahan

That is under consideration at present. I am aware that the Department of Jobs, Enterprise and Innovation is conducting an audit of its own space requirements and availability at present. In the event that Forfás and the Department do not have a requirement in Wilton Park House, I would expect it would be let to private or public sector tenants. As it is an attractive property that was let fully in 2012, it would be an attractive property space.

Chairman

We will rely on Mr. Shanahan to give us the report. As I said, the OPW passed the property to him and the IDA has now taken it over. It would be good for the committee if he would take up the task of providing a background report on the building.

Mr. Martin D. Shanahan

That is fine, Chairman.

Deputy Simon Harris

I thank Mr. Shanahan and his team for attending. I concur with the comments made by the Chairman and Deputy Dowds on Carrisbrook House. It does not add up to have a 65-year lease. It stinks, to be honest, that a 65-year lease was taken out in 1969 that had no break clause and an upward-only rent clause. I accept that the blame for that decision does not land at the door of Mr. Shanahan and appreciate the report on the matter. We are, as the Chairman alluded to, being sent from Billy to Jack which is frustrating. Somebody somewhere let the ball slip when there was an opportunity to protect the taxpayer from losing even more money in 2012. I would like to know the name of that person. Understandably, Mr. Shanahan said that he cannot go back and explain the matter but the OPW has kicked the ball back to Forfás. We need clarity on the matter but that might involve bringing in other agencies.

I shall return to some of the issues that were raised about the work of Forfás. Can the chief executive tell me the staffing level of Forfás? On page 24 of the annual report he said that the moratorium on recruitment to the public sector has put a significant "strain on the organisation's ability to deliver on its mandate". Please outline the impact the moratorium has had on the organisation.

Mr. Martin D. Shanahan

Forfás, like many public sector organisations is subject to the moratorium on recruitment and promotion. Since 2008 the Forfás staffing complement has reduced by approximately 32% and the policy complement has reduced by 42%. In light of that we have re-prioritised, re-organised and redeployed in the organisation. We have not received sanction to replace staff who have retired or left us for other reasons. As I said, we have managed the situation with redeployment, re-organisation, prioritisation and so on. Obviously there is an element of cutting our cloth to measure. We examine our priority policy issues and try to address them in as full a way as possible.

Deputy Simon Harris

Is there a skills deficit? Is there a specific skill set that his organisation is missing as a result of the moratorium?

Mr. Martin D. Shanahan

We do not have the depth of skills in all of the areas that we would want, rather than having no skills in a particular area. Undoubtedly, we do not have the numbers and depth of skills in the areas of economic analysis, tax, labour market, evaluations and surveys.

Deputy Simon Harris

On 26 July last Dr. Constantin Gurdgiev - and he will have to excuse me if I have pronounced his name wrong - authored a commentary on the Forfás annual report. He was quite damning about the way Forfás divides its expenditure and concluded his analysis by saying that "less than 12.65% of the organisation grant actually went to fund its activities". He said that €43.5 million was spent on pensions, €1.4 million was spent on what he termed "wasted rent", a matter we have previously discussed, and that such expenditure does not give the taxpayer "confidence in getting value for money". He continued by quoting a senior science body head in Ireland as saying:

I was gobsmacked to see this figure. I wonder how much of the country's so-called ... 'science' budget goes on pensions? This is not to begrudge retired public servants their entitlements, but we should be transparent about what we spend.

We need to be careful what we spend on activities as opposed to just meeting wage and pension costs. I shall give the chief executive officer an opportunity to respond.

Mr. Martin D. Shanahan

I will not respond to the comments made in the article directly but to the Deputy's queries. As I made clear earlier in my responses to Deputy Dowds, Forfás receives funding with 78%, which was €40 million in 2012, to pay pensions. It is not a discretionary activity. We pay pensions and we receive money to pay pensions but that may look a little unbalanced to an uninformed commentator. However, it is worth repeating that we manage and administer the pension fund on behalf of Enterprise Ireland, Science Foundation Ireland, IDA Ireland, An Bord Tráchtála, the Institute for Industrial Research and Standards, the National Board for Science and Technology, Eolas and all of the retirees from those former agencies. I am talking about an accumulated pension liability and the pension payments related to retirees from all of those former bodies. That skews the accounts in terms of balancing them. It is not a discretionary activity and that is why we receive funding.

Deputy Simon Harris

That is a perfectly fair explanation of the situation. I ask the chief executive officer to comment further on the pension liability and the next deficit. Note 8 in the annual report states that "Forfás has no evidence that this funding policy will not continue to meet" its pension obligations. If the pension deficit is to continue then what impact will that have on other operations? What is the projected net deficit for the pension scheme at the end of 2013?

Mr. Martin D. Shanahan

I wish to clarify that the term "net deficit" may be a little misleading. The figure refers to a future liability that is actuarially derived and based on a number of assumptions, out in the future, for all of those pensioners. In that regard, the State does have a future liability. However, it is not a deficit in a sense because there is not a gap, at present, between the liability. The asset that is capitalised on the balance sheet is the State's continual obligation to pay those pensions. Forfás has no reason to believe that such a practice will be discontinued. Obviously there is a broader issue.

Deputy Simon Harris

Okay.

Mr. Martin D. Shanahan

I do not think that it is an immediate issue for the Forfás accounts.

Deputy Simon Harris

Where are we projected to be at the end of 2013, as opposed to the end of 2012?

Mr. Martin D. Shanahan

I do not have the assumptions that will underpin the 2013 figure, as yet. That will happen in the coming months.

Deputy Simon Harris

Thank you.

Chairman

I shall continue on from where Deputy Harris finished. Between 2011 and 2012 the cost of payments to pensioners increased by 23%. What figure did Forfás pay pensioners in 2012? What is the likely increase in that payment?

Mr. Martin D. Shanahan

The overall payment to pensioners was €43,445,000 in 2012. I do not yet have a clear sight of the payment in 2013. Obviously pensions will be paid up until the end of-----

Chairman

I am reading the income and expenditure account for Forfás which states that "pension costs" for 2012 was €61,372,000. What is the difference?

Mr. Martin D. Shanahan

I shall ask my financial controller to comment on the matter in a moment. I shall simplify my answer but we can also give a detailed answer. The €43 million figure is the amount that Forfás pays out in pensions. The €64 million figure that the Chairman alluded to relates to the amount that is accrued for pensions for the year 2012. Therefore, Forfás is required under FRS 17, the accounting convention, to account for pensions as they are accrued each year and that is the liability for 2013. The amount actually paid out was €43 million in 2012.

Chairman

What will that be in 2013? What is the projected figure?

Mr. Martin D. Shanahan

Until the end of the year, it is very difficult ---

Chairman

Given that it increased by 23% between 2011 and 2012, is it Mr. Shanahan's expectation that there will be a similar increase in 2013?

Mr. Martin D. Shanahan

I do not expect that it will be similar but, again, I would caution that we are not at the end of the year yet. The year 2012 had a certain set of circumstances that caused that increase. I would not expect that to be repeated in 2013.

Chairman

Does the net deficit of €1.2 billion increase in 2013? Is that on the cards?

Mr. Martin D. Shanahan

Again, it depends. The figure for the future liability depends on the assumptions underlying the liability. It is primarily driven by the discount rate and we will have to decide at the end of the year what discount rate should be applied to this. It is actuarially derived. That is the liability out into the distant future in terms of pensions. It could increase in 2013 but if a higher discount rate was applied, it might reduce slightly.

Chairman

On the internal audit function, is the audit itself outsourced?

Mr. Martin D. Shanahan

The audit is outsourced, yes.

Chairman

How much does that cost each year?

Mr. Martin D. Shanahan

I will defer to my colleague on that question.

Mr. Michael O'Leary

Currently, the cost is in the order of €40,000 per annum.

Chairman

Has that figure been more or less the same for the last few years? Has it gone up or down?

Mr. Michael O'Leary

It has been negotiated down significantly in the last few years.

Chairman

I ask Mr. Shanahan to provide the committee with a copy of that report. I also ask him to give a copy to the IDA, given that it is now responsible and we will be anxious to bring the matter up with the authority when it appears before us. I thank the witnesses for coming along this morning.

The witnesses withdrew.

Sitting suspended at 11.25 a.m. and resumed at noon.