Batt O'Keeffe
Ceist:5 Mr. B. O'Keeffe asked the Minister for Transport, Energy and Communications his views regarding the accounting methods used in framing the 1995 CIE accounts. [18978/96]
Ceisteanna—Questions. Oral Answers. - CIE Accounts.
The new management in CIE which I put in place last year, operating to the clear mandate which I gave them, took a genuinely realistic approach to the CIE Group's financial situation, based on hard facts which previous management had chosen to ignore. As a result, we got the full picture of CIE's financial situation, warts and all, in the 1995 annual report and accounts.
The accounting methods used by the company in framing the 1995 accounts were approved by the board of CIE and its auditors. I understand that the financial statements of CIE for 1995 were prepared in accordance with accepted standard accounting principles under the historical cost convention. It is the board's policy to comply with Irish company law and with the statements of standard accounting practice and financial reporting standards which are set by the UK Accounting Standards Board and approved for use in Ireland by the Institute of Chartered Accountants in Ireland. The changes in accounting policy adopted in drawing up the 1995 accounts are set out in the notes accompanying the annual report. They were instituted to provide greater transparency and a more accurate reflection of the group's true financial position and were clearly indicated and fully explained.
Given that customer receipts were up in 1997 compared with 1994, that the operating profits from 1994 were over £1 million and that there was a further increase in receipts and further cost savings within the company, how did an operating profit of £1 million turn into an £8 million loss? Will the Minister outline exactly what made up the £8 million. The kernel of the problem is that the board created the worst possible scenario so that it could dictate to the workers on the basis of accounts drawn up through guile. Nothing illegal happened, but let us say that the books were fairly well cooked to meet the demands.
Before I answer further questions I ask the Deputy to withdraw the outrageous remark that the books were cooked at CIE. It is a scandalous slur on the management of the company, its independent auditors and the accounting staff.
I said there was nothing illegal. I will deal with the issues.
The Deputy will withdraw the remark.
I will deal with the Deputy.
I asked the Minister if the depreciation on buses was reduced in one year from 16 years to 12, thereby creating £3 million? Was £3.8 million for redundancy——
I ask the Deputy to withdraw the allegation that the books at CIE were cooked.
Will the Deputy respond to the Minister?
The Deputy said they cooked the books. Will he withdraw the remark?
I prefaced my remarks——
The Deputy said they cooked the books.
Let us hear the Deputy. One speaker at a time. Was there a charge that ought not to have been made?
The record will show that I prefaced my remarks by saying nothing illegal was done.
The Deputy went on to say they cooked the books.
Yes, they were cooked to produce a deficit of £8 million.
Creative accounting.
Will the Minister confirm that to achieve a particular result in one year depreciation on buses was reduced from 18 years to 12 years, giving a deficit of £3.85 million? Will he also confirm that more than £3 million was set aside in the accounts for redundancies that never took place? It is similar to the hepatitis C case where the Government in one year set aside £60 million that was not to be used in that year. I am within my rights——
The Deputy's question is too long.
—— in asking the Minister if that is good accounting practice.
Before I ask the Minister to respond and in the interest of order in the House, I ask the Deputy to withdraw the term "cooking the books". It is a derogatory remark with regard to people outside the House.
I substitute the words "creative accounting" for "cooking the books".
It is a slur.
The Deputy should withdraw the comment or any reference to the effect that the books were cooked at CIE——
He has withdrawn the remark.
Any inference that they were is both scurrilous and irresponsible.
The comment has been withdrawn.
It is not.
The question has been put at length. Let us hear the reply.
The accounts were approved by the CIE board and audited by an independent firm of auditors. The Deputy is effectively suggesting there was collusion between the auditors and a deliberate attempt to mislead the public. I refute any such suggestion.
Why is the Minister so sensitive? What is he hiding?
I refute the suggestion from Fianna Fáil that this type of activity took place in CIE under the current management. The notes——
The question obviously hit a nerve.
The Minister is making an inference.
(Interruptions.)
These interruptions are unacceptable. The Minister to respond.
I would appreciate it if I could respond without interruption.
That has just been demanded from the Chair.
The notes on accounting policy in CIE's published annual accounts for 1995 explain in detail the changes in accounting policy and why they have been introduced. In effect, the new management elected to confront certain problems now rather than putting them on the long finger, as was the case in the past. In any realistic view of CIE's situation, including the level of subvention likely for the future, it is in the interest of all sides to take corrective action now rather than when matters get out of control. The accounting policies of which the Deputy complains are just one example of the change of approach necessary to deal with CIE's problems in a realistic and straightforward manner.
The Minister is extraordinary; he never answers the questions he is asked. I put specific questions——
The Deputy did not like the answers.
The Deputy is in possession.
Is it not extraordinary that in one year more than £3.85 million was set aside for redundancy. Was the money used for that purpose in that year? Is it the same type of accounting practice witnessed in the Dáil when £60 million was put aside for hepatitis C in a year when it would not be spent? Is that the type of accounting practice the Minister would uphold? Does he not think it strange that depreciation on buses is reduced in one year from 16 to 12 years at a cost of £3.85 million? Is it not extraordinary that, in the same year, an extra £1 million was set aside for public liability? Is it not——
The question is too long and I have a responsibility to be fair to other Deputies on this and other questions.
I would have no difficulty if the Minister had answered my questions. I am seeking specific answers from the Minister and he has failed to give them to date. My final question is about building and civil engineering projects. A sum of £1 million was set aside to build canteens in two areas where they were not required. The chief executive is telling the company to take it or leave it and saying, in effect: "you asked for these things and I gave them to you. Now you will pay the cost".
I answered the questions but the answers are obviously not to the Deputy's liking.
The Minister has given no specific answers.
The board of the company cleared the accounts and they were audited by independent auditors. The accounts contain several notes to explain why the changes were necessary. I will outline the principal changes and the reasons for them. Depreciation of fleet applies to buses and locomotives. In the case of buses, depreciation was reduced from an incredible and unrealistic 16 year period to a more realistic 12 years. In fact, if it was to conduct its business properly the depreciation should take place after eight years. In addition, higher depreciation charges were introduced in the earlier years of operation to reflect more intensive use of new buses. The acquisition of new locomotives has added substantially to the depreciation cost of the rail fleet.
When they buy Ladas I am not surprised.
These items total approximately £12.5 million in costs. Increased third party and employer's liability provisions, that is, the impact of claims against CIE by staff and members of the public, were recommended by CIE's actuaries to reflect the rising cost of claims and not a rising number of claims. This added £8.9 million to costs. That is a realistic, accurate and professional assessment of what should be included in CIE's accounts for that purpose.
To get a worst case scenario.
Changes in accounting policy in relation to voluntary redundancy provision bring CIE fully in line with standard accounting practice in this area and added a cost of £12 million. These changes were made for sound practical reasons so the accounts would reflect more closely the real financial situation of the group.
The end justifies the means.
There is no point in living in cloud cuckoo land when preparing accounts. This is an accurate reflection of the group's accounts. The change in the arrangements for depreciation charges on vehicles is no more than a formal acknowledgement of the life expectancy of vehicles under current operating conditions.
Has the Minister examined the procurement policy of CIE and, if so, is he satisfied that value for money is being given as a result of decisions taken in this area?
The Deputy is raising new matter which should be the subject of a question from the Deputy. The procurement policy of all semi-State companies, about which the Deputy complained so vociferously in the past 12 months, was conducted. Arising from that assessment we now have stronger procedures and practices in place to ensure we get better value for money and that the interests of the taxpayer are protected.
What has really crucified CIE's annual accounts is the interest charges on its debts. Will the Minister consider an equity investment as was provided to Aer Lingus, which would allow the CIE group to breathe and get back on the tracks?
One day the Deputy is looking for more subvention, the next day the Deputy's party wants to privatise and now he is seeking a State subvention.
His brother asked for it.
I am reminded by the Minister of State, Deputy Stagg, that it was the Deputy's brother, the leader of the party, who asked for privatisation. When he wants to get out perhaps he would inform me and I will be happy to take that into account in whatever our future policy for the company may be.
Yes or no.
The CIE accounts make grim reading. There is no substitute for this kind of transparency in matters connected with the public finances. In effect, in its latest accounts CIE has called a spade a spade. There can be no doubt about the seriousness of the groups financial position which is set out in black and white in the balance sheet. The 1995 figures are the stark reality on the basis of which CIE management and unions must work together to reduce costs and turn its financial position around. The reasons changes in policy were adopted in these areas have been outlined in the group's annual report and financial statement for 1995. I ask Deputies to read those accounts and the notes accompanying them which will provide all the answers Deputies require.
Unlike the Minister we read the real problems.
Given that £12 million was set aside for redundancy, was any of that money used in the accounts for which it was set aside?
All matters in relation to redundancy payments are incorporated in the accounts. They have been audited by independent auditors and approved by the board of the company.
Answer the question.
Please, let us hear the reply, a question has been put.
I do not have available to me the level of moneys spent on it.
The Minister is telling us to read the accounts.
I will get the detail and furnish it to the Deputy.
The Minister is not paying much attention to them.