JOINT COMMITTEE ON FOREIGN AFFAIRS díospóireacht -
Wednesday, 23 Sep 2009

Department of Foreign Affairs Audit Committee Annual Report 2008: Discussion.

Chairman

No. 3 on the agenda is the Audit Committee of the Department of Foreign Affairs Annual Report 2008. I welcome members of the audit committee, Mr. John Pittock, chairman, Fr. Gerard O'Connor and Mr. Michael Scott. The audit committee members are accompanied by Mr. Tom Hennessy of the Department of Foreign Affairs. The role of the audit committee is to provide independent appraisal of the audit and evaluation arrangements for the two Votes of the Department of Foreign Affairs: Vote 28 — Department of Foreign Affairs; and Vote 29 — International Co-operation.

The joint committee is keen to hear the views of the audit committee of the Department of Foreign Affairs on the effectiveness of Ireland's aid programme, the Department's organisational resources and internal control frameworks, and the key findings of its recently published annual report for 2008.

Before proceedings commence, I advise that whereas Members of the Houses enjoy absolute privilege in respect of utterances made in committee, witnesses do not enjoy such privilege. Accordingly, caution should be exercised, particularly with regard to references of a personal nature. I invite Mr. Pittock to address the joint committee, after which we will take questions from members.

Mr. John S. Pittock

I thank the Chairman and members of the joint committee for the invitation to appear before them. I understand members have been given copies of the most recent annual report of the audit committee which includes the committee's charter. I shall, therefore, limit my remarks to a brief summary rather than reiterate all our recommendations.

The audit committee, a voluntary body, reports to the Secretary General and plays an important role in the accountability framework of the Department. The committee provides an independent appraisal of the audit and evaluation function of the Department including the multi-annual evaluation and audit work plans and their implementation. These plans cover review of internal control, risk management systems and value for money.

It is important, however, to note that it is the Comptroller and Auditor General who has responsibility for the audit of all departmental expenditure. Put simply, the audit committee's role is to provide constructive advice to management to strengthen internal control and risk management to optimise value for the taxpayer in the work of the Department, including the aid programme. The committee engages with the Secretary General, senior management and the staff of the evaluation and audit unit during the year on the topics covered in the work programme. As part of its work, members of the committee also meet with representatives of the Comptroller and Auditor General.

The audit committee's annual report is based on the work programme during the year and its main observations and recommendations are structured into five main areas, namely, management information systems and internal controls, internal audit, evaluation, risk identification and organisational and resource matters. Given its size and complexity, the greater part of the audit committee's work programme and annual report content is directed towards the aid programme.

To give members some idea of the extent of the committee's work, our current programme includes the following: advising the Secretary General on updating the audit committee charter; an ongoing review of public financial management in programme countries; an update on the status of past audit committee recommendations; an update and review of audit and evaluation coverage and reports for both Votes; endeavours to arrange a meeting with internal audit and evaluation officials of the Department for International Development in the United Kingdom; consideration of the management review of Irish Aid; an update on departmental risk management systems; an update on aid effectiveness, including donor co-ordination; a further meeting with the Comptroller and Auditor General; a review of a travel and subsistence audit; and an update and review of arrangements for audits of non-governmental organisations.

As I stated, the committee exercises oversight over the evaluation and audit function. It is important to note the two main roles of the evaluation and audit function are to manage the evaluation programme, including value for money reviews to assess the effectiveness and efficiency of programmes and, in particular, their impact and to review internal control systems and provide assurance as to the proper use of public funds.

On the aid programme, the evaluation and audit unit is also supported by internal auditors who are based in the embassies in the programme countries. The audit committee welcomes the deployment of these auditors as evidence of Irish Aid's commitment to accountability. As far as we are aware, Ireland is the only donor with internal auditors based in its field offices. The audit committee is impressed with the effectiveness of the Department's evaluation and audit function.

I propose to highlight some of the key issues raised by the audit committee and how these are being addressed. Development aid is complex and there is a continuous challenge to find the right balance of programmes and modalities which will optimise efficiency and effectiveness. The nature of donor programmes has been evolving in recent years, with greater levels of funding now going directly to partner Governments through modalities such as budget support. This contrasts with the more direct project-type funding of the past. The audit committee understands the logic for this approach, which aims to strengthen Government partners' ownership of their development programmes and enable donors to better influence the shaping of policies for health, education and so forth. However, we have highlighted in our recent reports our concerns that there are significant weaknesses in partner government systems and these shortcomings result in qualified audit reports.

The audit committee has noted the efforts of Irish Aid, working in partnership with other donors, to strengthen the systems of public financial management in partner countries and has recommended that these be continued. In addition, it is essential for partner countries to build the capacity and competence of national auditors general. It is also important that Irish Aid continues to develop its level of resident expertise in the area of public financial management.

The audit committee has also commented in its reports on the level of staffing resources in Irish Aid generally and in evaluation and audit specifically. The committee is conscious of the Government's overall efforts to reduce headcount as part of the requirement to get public finances in order. Mindful of this reality, the committee restates the importance of maintaining the skills and competences needed to run a complex aid programme and ensure an effective evaluation and audit function.

We are pleased the Secretary General and senior management have taken our recommendations seriously and most recommendations have been accepted. A system is in place to track implementation of our recommendations and we have seen a gradual improvement in systems and controls over the past five years. That is a brief summary of our role and work. I am aware members of the joint committee will want to explore our work further and I and my colleagues will endeavour to answer any questions they may have.

Deputy John Deasy

The presentation is short on detail in some of the areas of concern identified by Mr. Pittock. These issues need to be teased out. The reports note that the audit committee expressed concern that reductions in the Irish Aid budget may adversely impact on the integrity of the aid programme. What does this broad statement mean? What are the audit committee's specific concerns in this regard?

The report also refers to renewed focus on measuring impact and achieving value for money. Again, this is a broad statement. Did the audit committee conclude in its deliberations that we are losing focus on measuring impacts?

Mr. Pittock referred to significant weaknesses in partner Government accounting and financial systems? What are these weaknesses and in which countries have they been identified? Have cases of money going astray been identified by the Department's auditing systems?

Mr. Pittock also indicated that the audit committee would continue to monitor qualified audit reports, assess the reasons for the qualified nature of such reports and take appropriate action. What types of qualified audit reports have been made in programme countries? Mr. Pittock indicated there were a high level of them.

The audit committee recommends that Ireland continues to take a prominent role in the United Nations reform process. I thought that was already the case. Is there a shortcoming or failure there? In an unusual statement the audit committee spoke about developing within Irish Aid a level of resident expertise in the area of public financial management. Given that the budget we are discussing was recently €900 million, does the committee suggest there was not a level of expertise in the area of public financial management? That statement leapt out when I read the report. It worried me. One would have presumed the expertise existed when dealing with a budget of almost €1 billion.

On Vote 28, I noted the curious comment that due to staffing constraints during the year, the evaluation and audit unit was unable to carry out further audit work on the Vote and focused exclusively on the value for money aspect of the passport office. The audit committee expressed its regret for this. There are four people employed and one post became vacant. How did that arise? What are the implications for the Department? It effectively states that the audit and evaluation committee was severely limited in the material it audited in 2008.

My last question relates to the management review of Irish Aid completed in July 2008. Where is it? I presume the committee asked why a report that was completed well over a year ago was not made available to the audit committee. When the audit committee asked why that report was not available, what answer did it receive?

Deputy Seán Ardagh

I thank Mr. Pittock, chairman, and his fellow members of the committee for doing the job on a voluntary basis. It is the type of work and effort that exemplifies public service. It makes our job in Government easier when there are people of such experience who are prepared to do this type of work.

However, once one takes the job, one must also take on the responsibility. I support the questions asked by Deputy Deasy. There are further questions and issues I wish to put to the audit committee. The Comptroller and Auditor General is the auditor and, under normal circumstances, when the audit is completed a management letter is prepared in which the weaknesses in internal control and incorrect reconciliation of wages and money are brought to one's attention. Does the audit committee discuss this with the auditor and the executive? What effect does the audit committee have in mitigating or reducing the number of issues and getting them resolved?

Mr. Pittock said the current programme includes a number of items and Deputy Deasy has already referred to several of them. Are they set out in order of priority in the statement? An update of the audit committee charter does not appear to be of huge significance. Is there an update and how is it going? The second item, the review of public financial management in programme countries, has been mentioned. What influence does the committee have or what work can it do given the restrictions it presumably has? What restrictions does the committee have and what are its capabilities in that regard?

As Deputy Deasy mentioned, the management review was published in July 2008. Did the audit committee view that review? Does it have full and open access to all the reports and reviews prepared by the Department which might be relevant to the work of the audit committee? Another item on the list is an update and review of the arrangements for audits of NGOs. What does the audit committee do with regard to NGOs? How effective is it? The committee probably does not have the time, as the members are voluntary and only have so many meetings, but how effective is it in reviewing the arrangements for the audits of the NGOs to ensure they are being operated and managed in an effective and efficient manner and that money is not going astray or being spent incorrectly?

I am delighted Mr. Michael Scott who was previously the head of the evaluation and audit function is here. I very much appreciate his position on the audit committee but, having previously been head of that function, is there any conflict in that regard and how does he deal with it? That is no criticism and I hope he will accept that.

The question of corruption at official level in programme countries is a matter that receives much public press and comment. What is the committee's attitude to that and what effect, if any, does the committee have on it? Deputy Deasy mentioned qualified audit reports. What is the result of these? When an audit report is qualified, obviously there is some weakness or something is wrong. What effect can the committee have to ensure the next report will not be qualified? What input can it make with regard to the weaknesses in partner government systems that result in those qualified audit reports?

The competence of national auditors general in partner countries is an important aspect of the committee's work. It is not specific to Ireland but it can be very helpful. The Comptroller and Auditor General here is certainly a force for good and is part of the reason the Civil Service is looked upon with such respect. If there are auditors general in programme countries, that will help to reduce the alleged corruption that is occurring.

Mr. Pittock stated: "[...] the Secretary General and senior management have taken your recommendation seriously and most recommendations have been accepted." A Secretary General could accept 98 minor recommendations but not the two one really wants to be accepted. Why does he not accept all the recommendations? What type of recommendations does he not accept? The last item is that the committee has seen "a gradual improvement in systems and controls over the past five years". I am concerned about the word "gradual". When composing this statement, did the committee think twice about using the word "gradual"? It seems that there should be quantum leaps in improvement in systems and controls, taking into account all that has happened in Ireland over the past ten years.

I thank our guests in advance for their replies on these matters.

Chairman

We will take one more speaker. I call Deputy Noonan.

Deputy John Deasy

There have been several questions. We should give Mr. Pittock a chance to answer and then we can continue.

Chairman

We will give Deputy Noonan the opportunity before Mr. Pittock replies and then have three more after that.

Deputy Michael Noonan

I thank Mr. Pittock for his presentation. I thank him and his colleagues for their voluntary work which is so essential. What they are doing is the essence of public service. We are asking these questions because of our concern for the programmes rather than any criticism of Mr. Pittock, who is doing an excellent job. It is not the first time this committee has had this conversation, not with the audit committee of the Department of Foreign Affairs but with Irish Aid and with senior officials in the Department of Foreign Affairs.

Many members of the committee have expressed concern over the change in policy over the years away from project-type funding to direct country funding by way of budget support. Two concerns have been expressed here on a number of occasions. First, we want assurances that money is not being skimmed off when it goes directly into the exchequers of countries whose pedigree for democracy and rectitude is not of very long standing to put it at its mildest. Second is an issue that is harder for an audit committee to identify. In country-to-country support there is a capacity to substitute funds coming from abroad through Irish Aid, for example, for domestically generated funds. If Irish Aid funds were being given to underpin an education or health programme how can we be sure an equivalent amount was not being taken out to support the army or whatever project the people in power had? That is more difficult to identify immediately through an audit.

When we discussed the matter previously we got absolute assurances from the officials in the Department of Foreign Affairs and Irish Aid that our concerns were unfounded, that systems were in place which gave everybody assurance, that the kinds of statements being made by John O'Shea of GOAL, for example, about one particular country were not correct and that the systems existed to ensure that either in terms of fraud or substitution as I have described there was no need for concern. I am somewhat surprised that the presentation has now changed. Quite clearly it is due to the audit committee's good work.

I do not need to amplify what Deputy Deasy has probed already and what was followed up by Deputy Ardagh. Two things are obvious from reading pages 3 and 4. There are significant weaknesses in partner government systems and these shortcomings result in qualified audit reports. We need the "for example" sentence. We need that information in detail. Obviously the audit committee is suggesting a major weakness. However, to ensure this committee does not misunderstand the audit committee, we need that to be spelled out in detail.

As Deputy Deasy mentioned, the next page refers to the importance of Irish Aid developing its levels of residence expertise in the area of public financial management. That is a strong statement especially when the members of this committee were assured that all those systems were in place. We were also assured that there was a level of expertise to ensure the €900 million being provided through Irish Aid was going exactly to those the Government intended to aid and that there was no reason for members of the Oireachtas Joint Committee on Foreign Affairs to have any concern about the effectiveness of the programmes and the focus and targeting of the programmes.

Would Mr. Pittock distinguish between financial audit and value for money audit in the work of his committee? He seems to be suggesting there are weaknesses in the financial audit and he has been pretty silent on the value for money audit. Even in circumstances where the audit committee has no concerns over the financial audit, do issues arise on its assessment of value for money? From the script it is not clear whether the audit committee is dealing with the value for money audit here or whether it is simply dealing with the financial audit. I again thank Mr. Pittock for all his good work.

Mr. John S. Pittock

I believe I have 21 questions to answer so with the help of my colleagues I shall do my best to do so. I have learnt that we will be even more careful with the language in our next report. My colleague, Fr. O'Connor, who was chairman when we wrote this report, did a very good job in passing it on to me.

I invite members to come back to me if I have not written down the questions properly. The first question was about the integrity of the programme. This is our report to the end of December 2008 when reductions had been signalled. When we said we were concerned, what we meant to say, perhaps, was that we were concerned the Department and Irish Aid should take great care in their planning processes to minimise integrity problems with the programme. We were not suggesting we were aware of anything that caused integrity problems with the programme. Subsequently we have received a number of briefings on budget reductions. While the amount of the reduction is a matter for Government, it is fair to say that personally we are all supporters of Irish Aid and would prefer there were not reductions. However, there are reductions and we are as satisfied as we can be that the Department and Irish Aid have taken considerable trouble to plan and review to minimise the effect of those reductions.

Should I just continue to answer the questions and then people might want to come back?

Chairman

I ask Mr. Pittock to do so because some other people also want to speak.

Mr. John S. Pittock

I ask that if my colleagues want to come in on any subject they should feel free to do so.

We mentioned that we were looking for further focus on the impact. A number of our recommendations both this year and in previous years are repeated. The programmes are always changing. The organisation is changing and, in particular, structures will change. In a previous year we might have said it was important to keep impact and risk management under review. The fact we keep saying it does not necessarily mean it is a problem. We simply feel it is our job to advise the Secretary General that matters need to be kept under review. Because we say something needs to be kept under review does not necessarily mean there is a problem.

One of the members raised the issue of very significant weaknesses in Government systems. I will try to answer that, which will probably cover a number of other questions. The Department of Foreign Affairs is unique in that it, as a Department, and we, as an audit committee, need to cover not just expenditure of the Department but we also endeavour to examine what happens to that expenditure when it has left the Department.

With regard to internal departmental expenditure, which is audited by the Comptroller and Auditor General and on which the evaluation and audit unit also has an input, this is a relatively simple matter and it is generally in order. Issues arise when the money leaves the Department, whether it goes to a multilateral organisation, non-governmental organisation or government. Concern extends across all these areas. While partner Governments have been singled out — I will address that issue in a moment — one must remember that NGOs and multilateral organisations also have fraud and performance problems. We must consider this issue in a balanced manner.

To address specifically the issue of partner Governments, the Department endeavours to ensure that all expenditure in the partner Governments, non-governmental organisations and multilateral organisations is audited once it has left the Department. In the case of the partner Governments, this task is done by national auditors general. The reports submitted to us are summarised. We examine the summaries and in some cases the detail of the reports. Many reports are qualified, which broadly means that the auditor, in this case the national auditor general, does not feel able to state that in all respects the particular accounts present a true and fair view. This may be done for technical reasons. For instance, a requirement to maintain a particular, separate bank account may not have been met, which means the terms of reference have not been complied with and the national auditor general cannot give an unqualified report. This does not necessarily mean there is anything wrong.

Another case which comes to mind is a qualified report on a programme in a partner country of €120 million, to which Ireland contributed approximately €8 million. The main reason for the qualified report was that it was not possible to certify certain balances relating to less than 0.6% of 1% of the relevant expenditure. The issue behind the qualification was, therefore, relatively small. No one knows whether there is a problem with the programme in question. However, the inability to verify something does not mean there is a problem. It simply means we do not know whether there is a problem.

The reasons for qualified reports include technical reasons and limitations on the resources available to national auditors general. Notwithstanding these factors, I will not detract from the serious issue that a large number of the audit reports are qualified. None the less, a qualified report does not necessarily mean that money has gone missing. It could mean a range of things, for example, that the accounting systems are not efficient or effective or do not record certain information or that people are not trained correctly. There may be many reasons. The problem from the perspective of the audit committee is that we cannot be certain because the accounts are qualified. I can only say that in some cases there is no need for concern, while in others there may be cause for concern.

What can the audit committee and Department do to address the issue of qualified reports? Ireland is not different from other donors. All donors, including Ireland, spend a great deal of time trying to improve the systems in partner governments, whether in governance, training programmes or the competence and resources available to the national auditors general. Considerable efforts are being invested in this issue. The audit committee can ask that the missions in the programme countries try to identify what are the problems and do as much as they can to improve the systems.

Fr. Gerard O’Connor

In recent years, the main lesson we have learned has been that in each of the programme countries in which we have high expenditure the respective office of the comptroller and auditor general or national auditor is vital in this equation. Much of the expenditure is made through government systems and structures. The information about qualification or weaknesses often surfaces through audit reports that were commissioned by the auditor general's office of the country in question. For example, much of the information we receive in Ireland comes from systems the Mozambiquean Government has in place. As our knowledge of weaknesses in partner governments increased, we began to focus on how vital are vibrant, well capacitated national auditor offices.

It is also important to note that we are not alone in this respect. The French, Spanish and British are also contributing to budget support, sector support and basket funds and examining this issue. There are examples of one country working closely with the national auditor's office of a programme country. For example, the Norwegians and Swedes are supporting the national auditor's offices of a number of countries to ensure they have competent resources and capacity, parliamentarians in the countries in question are well informed and there is open questioning, transparency and good accountability in their Parliaments.

We are to some extent assured by virtue of the fact that the national auditor's offices of some programme countries are more competent than we had imagined. These offices could do with more resources. Some of the information spotlighting weakness is coming from national auditor offices. For this reason, we encourage Irish Aid and the Government, when entering into partnership relationships with programme countries, to assess their national auditor's offices and its competences as a way of being assured about the weaknesses in the countries in question.

Mr. Michael Scott

If I may, I will add one small point. The donors jointly have introduced training programmes in all these countries to beef up the strength of the national auditor's offices in various places. It is proving a long-term and difficult task but it is being done and the donors are jointly funding the operation.

Chairman

We will now take questions from Senator Ormonde, followed by Deputies Michael D. Higgins and Rory O'Hanlon.

Mr. John S. Pittock

What should I do with the other 17 questions?

Chairman

Mr. Pittock may revert to them afterwards.

Senator Ann Ormonde

I will be brief given that many of the key issues have been covered. With funding being made available to partner Governments, it is inevitable that programmes will reflect the policy of these Governments on what type of programmes should be undertaken in their countries. The qualified audit reports highlight that shortcomings sometimes occur. They do not reflect how the money is being spent but that it is not balancing up. There is a great deal of tidying up to be done on how programmes are implemented, the type of programmes, and whether there is duplication. Deputy Noonan referred to the difference between a financial audit and a value for money audit. They are two different concepts. I would like Mr. Pittock's views on them.

Deputy Michael D. Higgins

I will be brief as I have to speak on the National Asset Management Agency Bill, which is dealing with our own failure to do audits. I have a slightly different perspective as my training and background is on the other side of the issue, namely, development from the anthropological and indigenous aspect. First, as Deputies Noonan, Deasy and others have done, I pay tribute to the public service of the six people who serve on the audit committee. The four members who are present are most welcome.

With regard to this exercise from the point of view of European committees I am conscious of the fact that at this stage less than two countries in Europe have ratified the United Nations Convention against Corruption, which leads to a credibility gap. In our White Paper on development from many years ago we had it as a commitment that we would ratify it but we have yet to do so.

I have visited some of the national audit offices in some of the recipient countries and I have been very impressed by the quality of their accountancy and skills. In one country we visited a person had been trained in London and was first class in terms of organisation and utilisation of the new technology required for the capture and analysis of information. I support the report's finding that in an atmosphere of cutbacks it is important that the resources would be left in place to enable us to build on current practice.

I have a few small suggestions to make. One of the points has been raised previously by Fr. Gerard O'Connor, namely, that when one considers the Norwegian Government's White Paper on development and the monitoring mechanisms for the Norwegian spend, which is not shrinking but increasing – it is one of the great examples in the world – it would be useful to carry out a comparison of the audit systems of donor countries and perhaps in a future report to include strengths.

There are other Scandinavian models that are very interesting. A research programme that is supported by the Dag Hammarskjöld Foundation in Sweden has considered, for example, the use of local radio stations in the dissemination of information about allocations from donors to central government and from central government to localities. Professor Svensson's work is an example.

There is an aspect of the matter on which we in this country do not have much public discussion, namely, the two-sided nature of corruption. It would be useful to read a special section on, for example, how corruption is structured in countries with extractive industries. The biggest scandals that have come to light have been in regard, for example, to countries that has been raped many times over such as the Democratic Republic of the Congo. If corruption is to be dealt with it must be done in its fullest sense. I say, en passant, as a footnote, that if one puts all the corruption in all the countries in Africa together, one would probably not reach a single year’s corruption to equal the scale of corruption at Enron. It is a matter of keeping our head in a moral sense as well.

The most important issue has two sides to it. I am supportive of the audit function, but from experience, it is sometimes an attempt to put discipline on elites. In many cases elite structures in cities in developing countries are involved in corruption. Mr. Pittock is correct to use the word "corruption". One is dealing with that. However, an evaluation of value for money and the delivery of aid is another issue. I do not see as much enthusiasm from the Joint Committee on Foreign Affairs, aid committees and others to do what I call the indigenous test. I refer, for example, to the 80% of women in west Africa who are involved in agricultural production who are concerned about wells, hoes, seeds or the loss between production and the marketplace. At this stage of my life I would be reluctant to go to a village in Asia, Africa or Latin America and to tell people what they should want, but lots of organisations do precisely that. Sometimes they are falling over each other to tell people what they should want. As far as I am concerned that is a real test.

From looking at the literature, most recently on the debate taking place on the sociology and anthropology of development, it is apparent that the development model is breaking open. Africa is changing due to the arrival of money from China, and all of Africa is threatened by the huge amount of land purchases to which we referred today in the Dáil on Question Time. That will change entire structures of agricultural production. Hundreds of thousands of acres have been purchased by states. Everything is changing. In many cases the return from the cities in different countries means that the indigenous argument is surfacing again. Practically and morally, there is much to be said for not evaluating merely in terms of a transferred technology for the avoidance of corruption aimed at elites and regarding that as sufficient. It is time to listen to what people want and that means going out of the capital city.

I do not understand the relationship between the audit committee and the advisory committee. I do not know what advice is so precious that it cannot be published by the advisory committee. That is another day's work. That is all I wanted to say. It is useful if we undertake comparative studies on how the evaluation committees work. However, I am not supportive of the notion, for example, that universities in this country can combine to turn it into an area of excellence and to produce an industry based on aid evaluation. Whenever I hear that I think of pastoralists losing their cattle in northern Kenya. I am far more interested in asking whether we have replaced the animals. To tell the truth, I would not mind if we lost a lot of money doing it, as long as we had replaced their animals.

Deputy Rory O’Hanlon

My question is on value for money. We have a multiplicity of agencies, namely, Irish Aid, the partner governments and NGOs. What level of co-operation, co-ordination and integrated service is there to ensure we get good value for money? I refer in particular to the area of emergency relief. Can we be sure that food and supplies reach the target and that there is not any waste due to a lack of co-ordination among the multiplicity of agencies involved.

Reference was made in the report to a delay in the availability of the report management review of Irish Aid. Has the report become available since? Page 16 lists a number of areas of evaluation that the witnesses were considering in 2008. Were there any significant findings in these areas?

Mr. John S. Pittock

If I may, I will return to where we were and endeavour to get through the questions in some sort of order. We were talking about corruption and qualified accounts. I take the point made by Deputy Higgins that corruption is not only a problem in Africa as it happens in the West also. Probably enough has been said on that.

That accounts are qualified does not mean the money has disappeared or is gone. It means there is uncertainty as to what has happened to it. Everything is being done by the donors and the Department to improve the situation. This leads us to the wider question of budget support.

Deputy John Deasy

Can I clear this up? The report refers to trends in qualified reports. Are there more or fewer qualified reports in the countries in question?

Mr. John S. Pittock

I cannot answer that. I would have to look at the data for the various years. I cannot answer the question but, if the Deputy wishes, we could ask the Department to send the Deputy information.

Deputy John Deasy

That is fine.

Chairman

Mr. Pittock could send us a note afterwards.

Mr. John S. Pittock

All right. Let us consider the wider question associated with Irish Aid in light of these problems. The only reason the audit committee is involved with the question of budget support concerns its desire to determine whether there is value for money. That is the bottom line. Given the concerns about the qualified reports, one must ask why there is budget support. The first point is that Ireland has signed up to the Paris declaration, which has underlined the importance of supporting these countries. It supports them because, in our view and that of the audit committee, in order to have sustainable development one must support the Governments. They must be supported in developing their policies and systems and in development generally, including economically. The countries cannot be developed by NGOs, however good they are. That is why the Department and Irish Aid have a balance of aid. It is between the multilaterals, the UN, the NGOs and partner Government and that seems to be right. To strike the exact balance required is extraordinarily difficult. Would Fr. Gerard O'Connor like to comment further on that?

Fr. Gerard O’Connor

It is fair to say my background is based on projects. Projects can be great but one can also see their limitations. One can create an oasis of health in one location and of education in another but, if they are not part of the strategic planning of the local government or national Government, it will always end up being very dependent on external aid. There are limitations to the project approach but they are absolutely necessary. Therefore, that is not a criticism of it.

Both the chairman and I came to the audit committee with many very good questions about budget support. We probably were slightly critical of it and have spent a lot of time asking questions and seeking answers. I read very carefully all the joint donor evaluation reports on budget support. As one studies them and visits some of the countries in question, one begins to realise budget support does not result in all the answers but is an important modality. For example, one would like the Government of Mozambique to train enough teachers to replace all those who died from HIV-AIDS and work in the schools. However, it cannot train them for the next five, ten or 15 years if its budget is not certain and predictable. This is one of the achievements of budget support. One is allowing local ownership of it, not donor ownership of the process of training teachers. It helps local Governments to become responsible for their own affairs and planning.

Donor countries gain unique access to the recipient countries. In Mozambique, for example, Ireland and the other contributors to the general budget support set targets with the Government, evaluate the progress on those targets, and get a chance to make suggestions about changing the labour laws so they are more in favour of enterprise or employment creation. One gets an opportunity to raise problem of gender violence in the home in Mozambique, for example, and have it prioritised in its Parliament. There are features of budget support that give Ireland a unique opportunity to share the knowledge we have in partnership with Mozambique and the other countries.

It is interesting to consider the joint donor study of budget support. It covers seven countries and it is reported that there were positive effects in five of the seven. The two countries to which the authors were not sure budget support was contributing positively were Malawi and Nicaragua. In the other five, including Mozambique, to which we give a good amount of budget support, there were very tangible and positive effects. There is a lot of information available on these countries and I will not dwell on it.

The study indicated Malawi was not ready for budget support. Its Parliament and the National Audit Office were not strong enough to take it and the authors of the report question whether budget support should have been initiated in the country. They felt Mozambique was ready and was contributing substantially and significantly to development.

Mozambique, in which I worked, was destroyed by the civil war but now one can actually see life coming back and trade where there was none before. Certain rural communities are now benefiting from primary education for the first time. I spent two months in a very remote community in one of the provinces that Irish Aid prioritises in Mozambique this year. The teachers there are being paid their salaries and they are being paid on time. This is an indication of something very positive happening in a country that was torn apart by war. Budget support is one reason that is happening.

Does budget support help the very poor? The joint donor evaluation was not able to prove that. As with many evaluations and scientific studies, it can be hard to work out what progress or development can be attributed to.

There is a new joint donor study that the European Union is pioneering and in which Ireland is very interested. Ireland is having an input to determine what the learning will be. Those involved want the study to focus less on the process than on the impact. This committee, in addition to the audit committee, would be interested in seeing the results of that study.

Deputy Rory O'Hanlon took the Chair.

Mr. John S. Pittock

I should move on because I still have approximately 17 questions to answer. I was asked whether there had been any improvement and I said we will endeavour to send the committee details thereon. There has been improvement in the systems and there has been more reporting of problems by Governments themselves. The ambassadors and development advisers in the different countries are getting feedback and they have a very close view of what is happening therein. Circumstances are improving. They gave a good idea of what is going on there and it is improving.

On the point of continuing to take a prominent role in UN reform, I must explain that last year we examined this role. I visited New York and one of my colleagues went to Vietnam. At that point the ambassador to the UN in New York was heavily involved and leading the work on this with the president of one of the programme countries. As this was coming to an end, we said he should continue that role.

We have no doubt or concern about the public financial management of the Department of Foreign Affairs in the Department of Foreign Affairs. What we were referring to earlier was the level of resources and expertise available to advise and work on the deficiencies in programme country governments and systems. For example, we cannot send the head of the finance unit from Dublin to advise the Zambian Government. There is significant expertise in the Department. What we are referring to is a greater focus on working with other donors to develop public financial management in programme countries and national audit offices. We did consider at the time that a greater number of resources should be allocated. Since our report, an individual was allocated to examine policy in that area. We have been informed more focus will be given to it.

Regarding the position of Vote 28, there is a vacancy in staffing in that departmental section. We are satisfied that with the work done by the Comptroller and Auditor General and some work done by the audit and evaluation unit that sufficient work is done in auditing Vote 28. If there are vacancies, consultants may have to be brought in or the work spread over time. We do not think the staffing vacancy is a significant issue. This year more work has been done on Vote 28 and additional evaluation has been carried out on assistance to emigrants.

On the question of management review, some of the audit committee attended a meeting with the review team and expressed our views. We did not have any real insight into what was included in the report until it was produced in June. We are now in the course of examining it. While we would like to have had a greater involvement, it is important to restate we are not part of the management function. We are not inputting into decisions or even doing audits. We are advising the Secretary General and departmental management that the controls and risk management issues are examined.

We review evaluation reports as well as audit reports. Out of that, we try to see that proposals are implemented. We will be commenting on the management review if we feel there are items that will affect value for money. It is not appropriate for us to get too involved before decisions are made.

On the question concerning conflict of interest and Michael Scott, as far as I am aware he was head of the division some time ago. The only area where I could see a conflict arise would be if he were involved in making some decisions or examining a project he had instigated. That is not, however, the case. We are one of the few audit committees with no conflict of interest because its members are all external, independent and voluntary.

Deputy Seán Ardagh

With no disrespect to anyone, the committee is appointed by the Secretary General and reports to him. Would there be any benefit in it being appointed by the Minister and reporting to, say, the Joint Committee on Foreign Affairs?

Mr. John S. Pittock

Our charter does allow us to report to the Minister if we believe it is appropriate. I personally believe that is adequate. It is a matter for others if that should be changed.

Deputy John Deasy

The delegation stated the systems it audits are improving. Is it fair to say that progress is being made in this area?

Mr. John S. Pittock

Yes. The auditing systems in the Department for departmental expenditure and controls are entirely satisfactory. There are concerns about the audits of Ireland's partners and their systems. Considerable progress, however, has been made in this area. We are inclined to focus on audit. It is much more important that there are systems in place to ensure expenditure is made properly in the first place. One area where there has been much improvement is in ex ante reviews before we put money into an NGO or partner government.

A question was raised about the Comptroller and Auditor General's management letter. We meet with him and see the management letters and responses from the Secretary General. We satisfy ourselves that the matters raised are acted upon. We have asked the Department to put in a system which tracks to see that recommendations are followed up and implemented. We are satisfied that action is taken on any weaknesses mentioned in management letters, which are few and far between. Procedures and policies are already in place and additional work is being done to look at that.

We as a committee have been focusing, as may be seen, on country programmes and also on the UN, and so this year we have decided to have a greater look at NGOs to satisfy ourselves as to their effectiveness and as regards audits.

I believe we have dealt with corruption in programme countries and we cannot, perhaps, labour that any more. Audit reports qualified what effect and what input to improve? We are supporting the work that is being done. Irish Aid has done specific work with national auditors general which has resulted in considerable improvement. I went to Ethiopia and certainly Irish Aid has assisted there with Tigray.

Most recommendations have now been accepted that hitherto had not been. At the risk of finding out that I am not chairman of the audit committee tomorrow, I am not sure whether it was a recommendation but I do not believe we were desperately keen on the move to Limerick. However, the move to Limerick has taken place. To put that in context, we were concerned at the time at the loss in expertise, particularly development expertise, but I believe that has been retained and has, in fact, been increased.

Deputy John Deasy

Just as well Deputy Noonan was gone before Mr. Pittock said all that.

Mr. John S. Pittock

Our former chairman is from Limerick as well, so perhaps we did not have a unanimous view on it. In any event, hopefully all is well that ends well. I am sorry, but I appear to have lost my thread here.

Deputy Seán Ardagh

Was Mr. Pittock referring to gradual improvements in assistance?

Mr. John S. Pittock

Yes, I was dealing with gradual improvements. However, I wanted to talk about the recommendations that had not been accepted. Again, it is a question of time. What we are doing is dynamic, so at the point in time when we are writing the report, a recommendation might not have been accepted. We might, for instance have come up with a recommendation in December, but management has not had an opportunity to consider it, so that at this point in time it might not have been accepted. For the avoidance of doubt, however, we are satisfied that we believe our important and critical recommendations will be accepted. Over the five years that I have been involved as a member of the committee, a number of recommendations have been accepted and implemented. Hopefully these have resulted in improvement.

It is a gradual improvement, admittedly. One year we might have had a new policy on partner fraud. Another year there might be one on departmental fraud, and one on documentation of financial systems in another, and so on. When I say there has been a gradual improvement, there have been improvements each year over the last five years.

There is something here as regards saving money between one department and another, on which I am not clear, so somebody might, perhaps, come back at me on that.

While I am looking at this, perhaps my colleagues might like to expand on some aspects.

Fr. Gerard O’Connor

On the question of the financial audit versus value for money, I believe what we are really talking about is the impact of programmes. It is difficult at times to measure impact, not just on overseas aid but with regard to projects and initiatives in Ireland as well. For example, Richard Manning of the OECD has said we are very bad in this regard when he stated: "Demonstrating the results of aid is difficult. We are bad at measuring results. The basic quality of statistics is shockingly bad". He is not referring to Ireland, as such, but rather the world generally. The Swedish equivalent of Irish Aid carried out a study entitled "Can We Trust Evaluation". It adjudicated on 30 evaluation reports and found that only two were of very high quality when it came to value for money. Therefore the value for money initiatives that have been undertaken by Irish Aid or under the finance initiative of the Department of Foreign Affairs, while they might seem to be very good reports, are difficult to quantify in terms of impact.

With regard to my experience of evaluation and impact, I worked for a number of years in Brazil. An elderly man in the community there told me that the children were not going to school because they had chest infections and worms because they were sleeping on dust floors. If cement floors were put in, he said, they would not have the chest infections and the worms and the school attendance rate would improve. That seemed to be common sense, so we rolled out a programme to put in cement floors.

I was interested to see that in Mexico one of the government regions there had a programme to put in cement floors for the same reasons. The Americans wanted to evaluate this programme and to do this they had to get the same cohort in another region — the same type of population, livelihoods, educational standards, health backgrounds — and had to go to tremendous depths to discover whether the cement floors made an impact. The study cost almost $500,000 and they found, of course, that it did make an impact in terms of improved school attendance rates. Sometimes, therefore, to have impact studies that prove things scientifically can be very difficult, but one can get a general sense of direction. We have learned that if one looks at a country's overall statistics for school numbers, the number of teachers trained, the number of people in employment and very importantly, as regards budgetary support, signs of increase in the country's revenue that might indicate signs of economic progress, such features are indicators of a country that is on the move and in the event we are happy that we are able to engage at a certain level. It means that such countries can be good partners. There can be a positive impact, but it might be difficult to quantify in a scientific manner.

Mr. John S. Pittock

Would Mr. Scott care to address a question as regards the level of co-operation, particularly as regards the question of value for money?

Mr. Michael Scott

I would like to cover the way in which the donors work together. A large proportion of aid goes through budgetary support in one form or another. Clearly, one cannot identify every dollar spent down to the last note because it is not necessarily, say, Ireland's dollar. It might be Sweden's dollar or anybody's. Donors as a group work very closely together. They meet on a regular basis. At a certain point in each year they meet with the finance ministry, usually, of the government concerned and go through the budget of that particular country. They might decide less should be spent on defence or something else and ultimately some form of agreement is reached.

The contribution to the budget might be from all the donors combined. It is probably quite substantial, anything from 20% to 50% of the total budget, so it is a very large sum of money. Having met with the governments concerned, the donors will then go away, put forward a proposition and decide to support the budget to a certain extent, and they will specify all the details. After a certain period, they will then review what the government in question has actually done. For example, if the government budget included, very simplistically, building X number of schools, the donors will check that X number of schools have been built. As far as possible, they will monitor and control, then meet the government again, go through the details and express either their satisfaction or dissatisfaction with the outcome of the expenditure programme. It is not a perfect or foolproof system but it is a very good mechanism for exercising some limited degree of control over the funds.

Deputy John Deasy

I have a general question. Individuals in this country have over the past few years given the impression that a large percentage of Irish Aid money ends up in the pockets of corrupt politicians, chiefs of police or otherwise. The witnesses are members of the supreme auditing committee. Have they found any evidence of this?

Mr. John S. Pittock

We have no evidence of it. It is clear that there is corruption. We come back to the fact that there are multiple donors providing support to Governments, and these multiple donors carry out and evaluate the audits that are being done. While in some cases there have been qualified reports which cause questions, there have been very few such reports of corruption.

I addressed a meeting of the heads of mission and development in recent days and they have reported they are satisfied that, because of improvements in the systems, some of the government systems are reporting corruption. However, we have no information to suggest that Irish aid is getting into the wrong hands on a significant or material basis. That is not to say there is not corruption everywhere.

Deputy Michael D. Higgins

Deputy Deasy's point is very important. Incredible damage is done when this kind of claim circulates. It is terribly important to have the kind of presentation we have had today. In the scale of comparing the impact of the work and its necessity with the notion that there is a loss of Irish taxpayers' money and so forth, which is very easy to say, it is very important that a stop be put to these kinds of rumours before they get legs.

Mr. John S. Pittock

The impression is sometimes given in the media that the Irish Government writes a cheque, then flies out on an aeroplane and gives it to somebody. A great amount of work and evaluation and effort goes into this process, influencing policy and monitoring progress. When I was in Ethiopia, our people were out there in the field very close to it. Our job is to say what should be done; we are saying it, and we say more should be done. Broadly speaking, however, Irish Aid is doing everything it can in very difficult circumstances. We cannot help these people unless we take some level of managed risk.

There was a question on the difference between financial audit and value for money. If one gives €10 million to a government for its education programme, the financial audit will check to see that there are receipts and that the €10 million has been spent on education. For example, it might have been spent on building a school, so we would be quite happy with regard to the financial end in that the money has been spent and the spending was on education. However, the school might be gold-plated and, therefore, we would not have value for money. Basically, the evaluation endeavours to focus on value for money whereas the financial audit is to ascertain whether the money is actually accounted for. To clarify, we spend as much time trying to focus on value for money, including programme content and the complexities therein, as we do on the strict financial audit.

Deputy Higgins suggested the comparison with other audit systems. A couple of my colleagues went last year to another European organisation to study their systems. We were not terribly impressed with them, which is why I am not telling the committee which organisation it was. However, we hope to set up a meeting with DFID, the UK Department for International Development, so we have taken the committee's suggestion on board. We accept, of course, that we can learn from others.

I hope I have answered all the questions. If I have not done so, or if there are further questions, we would be pleased to deal with them.

Vice Chairman (Deputy Rory O’Hanlon)

I thank the delegation for attending and for giving a very informative presentation. As can be seen, colleagues on the joint committee have a keen interest in the work the audit committee is doing. The joint committee is committed to its responsibility to ensure there is proper oversight and accountability in the Department of Foreign Affairs. We recognise that in order for the Department of Foreign Affairs to achieve its key goals, there need to be robust and accountable systems in place within the Department which track internal spending control and review mechanisms. We thank the members of the audit committee for their clear and focused presentation of the strengths and weaknesses of the Department's work in that regard, which is of great assistance to our committee.

The date of the next meeting will be advised. We will now adjourn.

Senator Mark Daly

I sent an email requesting that Colonel Desmond Travers be invited to the committee. He is one of those who went on the EU fact-finding mission to Gaza.

Vice Chairman

It has been agreed to discuss that report at a later date.

Senator Mark Daly

Will we be inviting the Colonel to the committee?

Vice Chairman

Yes.

Senator Mark Daly

Thank you.

The joint committee adjourned at 5.20 p.m. sine die.