Comptroller and Auditor General Special Report 95: Financial Reporting in the Public Sector

Mr. Robert Watt (Secretary General, Department of Public Expenditure and Reform) called and examined.

At this late hour this afternoon, we are starting into our work on the Appropriation Accounts for the Department of Public Expenditure and Reform. We are dealing with: Vote 11 - Office of the Minister for Public Expenditure and Reform, Vote 12 - Superannuation and Retired Allowances, Vote 18 - Shared Services, and Vote 39 - Office of Government Procurement.

We had also intended to consider the special report by the Comptroller and Auditor General on the financial reporting in the public sector but because of the late hour, we will hold over that special report and come back to it in the autumn. There is one other special report from the Comptroller and Auditor General we will have to get to as well, but we will leave that to one side. If anyone had in their opening comments a reference to that, we will come back to that separately. We will stick with the Department, including Chapter 3 - Vote Accounting and Budget Management, and leave the special report to one side today.

First, I apologise for the late hour of starting. Mr. Watt will be aware we dealt with the Department of Finance this morning. The committee had four or five meetings with third level institutions over the past month or two, and as we are getting near the end of the Dáil session, we wanted to finalise our report in committee today, which we have done, with a view to launching it on Tuesday next.

That took a little bit of extra time to finalise. Even though the Dáil has still to sit for a few hours, we are only now, at this time of the evening, getting to the second half of the public part of the meeting. I have indicated the topics we are going to cover. We are joined today by Mr. Robert Watt, Secretary General of the Department of Public Expenditure and Reform, and also Mr. Paul Quinn, Mr. David Feeney, Ms Helen Codd, Ms Paula Lyons, Mr. Frank Griffin and Ms Fionnuala Burke.

I wish to advise the witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. The witnesses 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 any person or an entity by name or in such a way as to make him, her or it identifiable.

Members of the committee are reminded of the provisions of Standing Order 186 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 or objectives of such policies. They are also reminded of the long-standing ruling of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable.

I call the Comptroller and Auditor General to make an opening statement.

Mr. Seamus McCarthy

I issued clear audit opinions for all four appropriation accounts on this afternoon’s schedule. The 2015 appropriation account for the Office of the Minister for Public Expenditure and Reform records gross expenditure totalling €40.8 million, divided across two programme areas: the public service management and reform programme, on which €24.1 million was spent, or 59% of the expenditure, and the public expenditure and sectoral policy programme, which accounted for the balance. At the end of the year, the Department had underspent by a net €4.1 million relative to its budget.

Vote 12, superannuation and retired allowances, is used to pay for Civil Service and prison officer pensions. Pension payments for other public servants are charged, directly or indirectly, to other votes, including those for education, health, An Garda Síochána and Army pensions. The gross expenditure on Vote 12 in 2015 amounted to €499 million, an increase of 5.3% compared with 2014. Appropriations-in-aid, mainly comprising employee pension contributions, amounted to €136 million in 2015, up 30% from 2014. The increase was due mainly to employee contributions in respect of the public service single pension scheme, which was introduced for all public servants appointed since 2013.

An unusual feature of the account for Vote 12 is the absence of administration expenses. The Department of Finance administered the pension payments charged to Vote 12 on behalf of the Department of Public Expenditure and Reform and charged the associated administration costs to its own Vote. In December 2015, responsibility for administration of the pension payments transferred to Vote 18, shared services.

The 2015 appropriation account for the Vote for shared services records gross expenditure totalling €26.2 million. Overall, there was underspend of €18.7 million, almost 42% relative to the Estimate. A sum of €13.2 million was spent on activities related to PeoplePoint, which handles human resources activities centrally. A sum of €9.3 million was spent on payroll shared services, and €2.3 million on other shared services projects, including a shared financial management project. Expenditure on the payroll shared services centre was €7.8 million, or 46%, less than provided for in the Estimate, mainly due to the later than anticipated transition of certain payroll clients to the shared services office. Expenditure incurred on set-up costs for the financial management project was €8.2 million, or 78%, below estimate.

In the statement on internal financial control, the Accounting Officer draws attention to salary overpayments and steps taken to address this issue. I am carrying out a review of the issue this year and expect to include a chapter in my report on the 2016 accounts of the public services later this year.

The year 2015 was the second year of operation for the Office of Government Procurement. Gross expenditure of €14.3 million was €5.3 million, or 27%, lower than estimated. Note 3 explains that a delay in obtaining office accommodation impacted on recruitment with knock-on effects in other areas of planned non-pay expenditure, resulting in an underspend of €2.8 million. Procurement and subsequent implementation of external support services for the office also took longer than originally planned, resulting in an underspend of €2.4 million.

Chapter 3 is a standard report that aims to consolidate and summarise Vote expenditure for 2015 across all Votes and to demonstrate medium to long-term trends. Gross voted expenditure across all Votes in 2015 was €46 billion, the same as in 2014. This represents a cumulative reduction of almost 13% since 2010.

I thank Mr. McCarthy. I invite Mr. Watt to make his opening statement.

Mr. Robert Watt

In the interest of saving time, I will be very happy to take the statement I prepared as read.

He might just give us a very brief synopsis. We will publish it.

Mr. Robert Watt

I welcome the clear audit opinion given by the Comptroller and Auditor General in respect of the Votes that are subject to review this afternoon. There are issues in regard to underexpenditure across a number of the Votes. The reasons for that have been set out very clearly. They relate mainly to a number of reform projects that have been committed to. We had a slower than expected take-up on a number of initiatives, slow recruitment processes and retention of contractors involved in delivering some of these projects. These projects are very significant. Obviously, what Mr. Paul Quinn is driving in terms of procurement reform and what we are doing in shared services comprise very significant transformation projects. We have an issue all the time in respect of trying to get the pacing right and trying to pace our projects in a sensible way, ensuring value for money while at the same time ensuring we are spending what is allocated and keeping within profile. We are aware that, for 2015, there were significant underspends, as set out in the Comptroller and Auditor General's report. As a Department, we are very much conscious of ensuring we set out only Estimates and draw down amounts as close as possible to those, consistent with the financial procedures.

More generally, in terms of managing spending, the committee will be aware that a key part of our job is not just preparation of the budget but also executing it during the year. A key issue for us is to ensure overall spending stays within profile. Again, the Comptroller and Auditor General has set out in the report our performance in this respect. It varies from year to year. On average in recent years, we stayed at about 2%. The variance against profile is around 2%. There are many reasons for that. They relate to forecasting errors, issues around forecasting demand, particularly in regard to the health service, and specifically Government decisions on issues such as the Christmas bonus or additional moneys allocated for capital programmes. Especially during 2015, as taxes exceeded profile, the Government had the opportunity to make some additional investments in capital infrastructure and it provided for some restoration of the Christmas bonus. That was the first time it was done since the economic crash. It is an ongoing challenge for our Department in terms of managing spending in line with profile.

I will touch on some of the reform issues with which we are pushing ahead. Procurement reform, shared services and digitalisation are issues we discussed previously at meetings of this committee. We are pushing ahead with those. Two issues that have taken up a lot of our time this year relate to the negotiations on the recent pay agreement. Deputies will be aware that the unions are now in a process of balloting in respect of the new agreement, the extension of the Lansdowne Road agreement. It is very important in terms of securing industrial peace and co-operation with ongoing reform but also necessary to ensure we have a pay settlement that is affordable and sustainable for the State.

My next point is on the capital review. I heard some of the discussions this morning when the members were debating with colleagues from the Department of Finance on capital spending and issues associated with that. The Government is now considering the mid-term review of the current capital plan. The Minister, Deputy Paschal Donohoe, hopes to announce on budget day some additional projects and allocations in respect of capital spending. It is a key part of what the Department is engaged in now.

We are delighted to be here and to answer any questions that arise. I thank colleagues in the Department for all their work. It is very rare we get the opportunity to thank people in the Department for all the effort they put in. Members are aware of the significant work that goes on in the Department in terms of the various projects.

We are conscious that we have a representative from the Department of Public Expenditure and Reform present at most meetings.

Mr. Robert Watt

Yes

We acknowledge the Department's continued presence.

Mr. Robert Watt

The Chairman asked for that previously and we decided we would keep doing it.

That is good. We will publish Mr. Watt's opening statement on the committee's website. I call Deputy Cullinane.

I welcome Mr. Watt and his team. As I have four or five themes I wish to work through, I ask the Chairman to give me a shout when I have used half my time.

I will.

Does Mr. Watt read much?

Mr. Robert Watt

As in books, newspapers, magazines and periodicals?

Mr. Robert Watt

I read a good bit, yes.

I brought some documents that may be of use to Mr. Watts. The first is the Central Statistics Office-----

Mr. Robert Watt

Are props allowed at this meeting? I will not bring a bag of waste and dump it on the table or anything.

It is a CSO document on in-work poverty, income and living conditions, which includes a large amount of helpful data. I also brought along a report by the Nevin Economic Research Institute on earnings, low pay and work quality as well as a recently published document from Social Justice Ireland entitled A New Social Contract for a New Century. These also feature a large amount of data that could be useful to Mr. Watt. I will leave the documents for him.

Will Mr. Watt explain what the Special EU Programmes Body, SEUPB, does?

Mr. Robert Watt

That is the programme body that is involved in managing the two main North-South programmes, the INTERREG programme and the peace and reconciliation programme. It is one of the bodies established under the Good Friday Agreement. The projects manage the applications process, so in effect there are two funds with various strands to them and various different themes are set out. The SEUPB organises the process of inviting grant applications, vetting grants and allocating the money. The accountability mechanism, as the Deputy will probably recall, reports to our Department and our counterpart in Northern Ireland, the Department of Finance and Personnel, DFP, and the two relevant Ministers have overall responsibility for its management.

Is it the case that the Department was advised in 2014 that there was a risk to funds paid to a PEACE III project? Will Mr. Watt speak to us briefly on that issue?

Mr. Robert Watt

Yes, there was an issue about a payment made to a company and it came to the attention of the body that there were irregularities and allegations of fraud. On receipt of that, payments were suspended and an investigation has been undertaken in respect of that.

The Department provided funding of €181,438 to the project in question in 2010. Is that correct?

Mr. Robert Watt

Yes, that is right. The matter was referred by the Police Service of Northern Ireland to the Public Prosecutions Service and it concluded there were no further lines of investigation which would support a positive prosecution. The issue is closed at this stage but it looks as if that money will be lost to the exchequers.

I am trying to establish the reason the money has been lost. Before we come to a view on that, is the SEUPB a separate body in terms of accountability? Is it accountable to the Department or to whom is it accountable?

Mr. Robert Watt

The body is in effect accountable to us and the DFP in Northern Ireland and it is accountable to the two Ministers jointly.

If a loss to the taxpayer occurs because of irregularities, who is responsible in terms of oversight?

Mr. Robert Watt

The peace and reconciliation programme is 85% funded from the European Union. We would pay and the UK Treasury would pay and then we would recoup the moneys from the EU. I would need to check for the Deputy but I think in this case the loss would be borne by the two exchequers in Ireland and the UK.

Mr. Watt said that already. What I asked was given that there will be a loss, which I will address in a moment, what Department has responsibility? I know that whoever in the organisation was responsible for the irregularities is ultimately responsible but in terms of governance, who was responsible in this case?

Mr. Robert Watt

Our Department and the relevant Department in Northern Ireland would be accountable for the loss.

Both Departments.

Mr. Robert Watt

Yes.

Why is there no prospect of recovering the money?

Mr. Robert Watt

According to my recollection, and it is a long time since I looked at the matter, I believe that the lead partner in the company has been dissolved so I do not think the legal entity exists any more. I think that is why the money cannot be recouped. I think that is the position, yes. The lead partner has been dissolved in effect.

Mr. Seamus McCarthy

That is also my understanding.

Mr. Robert Watt

There is no legal entity in effect to pursue for the-----

The only reason is that it was simply not legally possible to pursue somebody for the money.

Mr. Robert Watt

In effect, the company has gone. It does not have any assets any more and no longer exists.

Did the company have directors or a board of directors? What was the construct of the company?

Mr. Robert Watt

I do not know. I guess it did have directors. It would have a fiduciary duty.

Would the directors not be responsible and could they not be pursued?

Mr. Seamus McCarthy

I imagine the detail would have to be got from the SEUPB. It is audited by me and by the Comptroller and Auditor General of Northern Ireland and the accounts are presented.

On the make-up of the company, was it a limited company and did it have directors? If so, what were their responsibilities? Could a note be provided on that?

Mr. Robert Watt

We will come back to the Deputy on that. It was 2014 when the issue came to our attention-----

I understand that.

Mr. Robert Watt

-----and we pursued it at that time in order to recover the funds. However, the conclusion from the people who are close to what is going on is that there is not a legal avenue. We will come back to the Deputy in relation to the details. I do not recall whether it was a limited company or a partnership model. I am not sure of the structure. I do not know.

That is fine. On a second issue, the Department made a settlement with the Revenue Commissioners in June 2015. Will Mr. Watt give us a brief overview of the reasons a settlement had to be made?

Mr. Robert Watt

Yes, there was a settlement for €27,800 in relation to work that was contracted out from two barristers who were involved in advising the Department in relation to the statute law revision programme. There were differing views between ourselves and the Revenue Commissioners as to whether this should be the subject to either professional service withholding tax or PAYE. We reached a view and then in further discussions with the Revenue Commissioners they disagreed with that view. On settlement of the matter, we had to pay a further amount. It was, therefore, a different interpretation of exactly what the relationship of the people involved was in the contract with the Department. Obviously, if the Revenue came to a different view, we had to then make that settlement with the Revenue.

Was that a voluntary disclosure to Revenue or did Revenue come to the Department?

Mr. Robert Watt

It was part of Revenue's review of our tax compliance. It was a difference of opinion and we had a discussion with Revenue about it. After that, we accepted the-----

The Department settled. Did interest and penalties apply?

Mr. Robert Watt

No, I do not think there would be, not from a public body to the Revenue Commissioners in respect of that. It was just a different interpretation of whether the professional service withholding tax would apply or whether it was PAYE.

We now have one Minister for two Departments. I know Mr. Watt cannot discuss policy but in terms of his position, given that we now have one Minister and there is talk of the Departments merging, is he still the Accounting Officer? Is he on a par with Mr. Moran who was before the committee earlier or is he subordinate to Mr. Moran?

Mr. Robert Watt

Is Mr. Moran on par with me maybe? I am the Accounting Officer for the Department of Public Expenditure and Reform and Derek Moran is the Accounting Officer for the Department of Finance. The two legal structures remain.

They are two separate Departments.

Mr. Robert Watt

Yes.

That is very good. There is a possibility that the Departments will merge but they are not being merged at the moment. It is simply that we have one Minister for two Departments. Is that the case?

Mr. Robert Watt

Yes.

After the most recent general election, there was much discussion about changing the budgetary process. I understand this arose as a result of a European or international report which stated that Ireland placed far too much emphasis on what was called "one big bang" on budget day and we needed a more elongated budgetary process that was more consultative, engaging and so on. As this issue comes within Mr. Watt's remit and a number of promises were made in respect of establishing an independent budgetary office, will he explain what the new elongated budgetary process consists of or was to consist of?

Mr. Robert Watt

This is part of the overall move as part of our EU commitments to semesterise the budget process. Our domestic elements are aligned with what is required at EU level. There are a number of different elements to it. Obviously, we publish a budget set of proposals in the middle of October and a social welfare Bill and finance Bill-----

I am referring to much earlier in the year than October.

Mr. Robert Watt

Let me start from that then. The social welfare Bill and the finance Bill are considered by the Oireachtas and voted on by the Oireachtas. Then we publish in February-March the returns where the Department of Finance submits the returns to the European Commission in respect of the general Government balance and the fiscal position for the preceding year. We then prepare appropriation accounts, finance accounts and so on in the normal way.

We now produce a performance report, which is a new addition that sets out not only the allocations and what we spent in the preceding year, but also the detail of the outputs and outcomes. We published that report in April.

In order to have more dialogue, the national economic dialogue, NED, took place in recent weeks. There, the Taoiseach and Ministers discussed the budget and heard from a variety of interest groups concerning their budget priorities. We will then produce the summer economic statement, SES, which will be published by the Minister next week. It will set out the updated macro view of the economy, where we are this year, the position for 2018 and the broad strategy and the resources that will be available for next year. That will be published-----

Was the SES not to be completed by April? Was that not the target date?

Mr. Robert Watt

In previous years,-----

Has there been a delay this year in publishing it?

Mr. Robert Watt

-----it was published before the NED. Due to a change in government this year, though, it was felt appropriate that the new Government should have an opportunity to consider its budgetary strategy for 2018.

With respect, that does not chime with what Mr. Watt said in his opening statement about openness and transparency or with the work of the Committee on Budgetary Oversight, which was established to allow for a greater input into the budgetary process. What was agreed and what we were told would form part of the new open and transparent consultative process was a summer economic statement in the first instance followed by the NED. Just because the Government decides that it will rejig Departments should not mean that this sequence should not be followed. I am concerned that we have already reverted back to type and that we are engaged in box-ticking rather than genuine consultation. That is my opinion. Why was there a delay in the SES?

Mr. Robert Watt

It will be published next week. The Minister is discussing it with his colleagues.

Previously, it was published before the NED.

Mr. Robert Watt

We all know why the summer statement is going to be published next week instead of four weeks ago.

We do not. That is why I am asking Mr. Watt.

Mr. Robert Watt

It is because we have a new Government. The Deputy knows that we have a new Government, with a new Taoiseach and a new Minister. It is appropriate for the new Government to consider its budgetary strategy. In parallel to this, the Minister has appeared before several committees over the past week to discuss where he believes the economy and the budget are. Mr. Derek Moran and I have attended the Committee on Budgetary Oversight and spent several days at the NED discussing matters with people.

There is a more open and different approach to budgeting. When I was involved in the Department of Finance in the early 1990s, the budget was prepared and announced to the people on one day and there was no SES, NED, oversight committee, performance report or Maastricht returns. Our current approach to budgeting is different and more open, with Deputies having an opportunity based on parameters set out by the Department to discuss the budget and the options that the Government faces. It is a different situation. Obviously, it would have been better and more desirable had the SES been published in advance of the NED. Hopefully, we will revert to that sequence next year.

I suggest that that be the case next year. I do not accept Mr. Watt's reasoning, but I hope that the SES will be published before the NED next year, given that it helps to frame discussion at that event, which Mr. Watt also attended.

The Deputy is just over half way through his time.

I wish to discuss capital spending. We raised the issue with Mr. Moran earlier. It is accepted almost universally that we have low levels of capital spending. In that regard, we discussed with Mr. Moran the inflexibility of the fiscal rules. What is Mr. Watt's view on the matter? One of my questions to Mr. Moran concerned what changes we were seeking at EU level to enable us to have greater flexibility in how we invest in capital. What is Mr. Watt's Department's view of how rigid or not the rules are?

Mr. Robert Watt

For this year, we propose to spend €4.5 billion on Exchequer capital. That will increase to €7.5 billion by 2021. After last year's election, the Government allocated €5 billion extra to capital spend. For this year, capital spend will increase by more than 10%. Next year, it will increase by a further 15% or 16%. The following year, it will increase by the same amount. Between-----

If I could just-----

Mr. Robert Watt

Could I just set out the-----

No, I must stop Mr. Watt there. If I had wanted an outline of how much we spent on capital in recent years and how much we would spend in future, I would have asked for it. I asked about how the fiscal rules applied to capital spend. We have heard from the Department of Finance and even the Minister has acknowledged today that the fiscal rules need to be reviewed. If it is almost universally accepted that we need greater flexibility in the application of the fiscal rules to allow us to have more capacity to spend on capital, what is Mr. Watt's Department requesting from the European Commission?

Mr. Robert Watt

As I was saying, the current plans would see an increase in capital spending of 70% by 2021 compared with last year's spending. That represents a significant increase based on current plans, as well as a significant increase by the commercial semi-States in gas, electricity, ports and so on.

The Department of Finance is responsible for the application of the fiscal rules and has been involved in discussions with the European Commission about that matter.

I will make a few remarks. In the absence of fiscal rules from the EU, we would still have to manage our affairs in a way that would put a constraint on the resources that we use for current and capital spending. Were we in an environment in which there were only domestic rules or no rules, we would still have to conduct our affairs in a way that would put a limit or constraint on how much-----

We are three minutes into Mr. Watt's second contribution and I still have not heard anything from him to tell me-----

Mr. Robert Watt

If the Deputy allowed me to finish the contribution-----

Mr. Watt has not said anything.

Mr. Robert Watt

I have said plenty.

I will be more distinct. A debate is happening outside the Houses. The trade union movement through ICTU, IBEC on behalf of the business groups and almost every other group is saying that the fiscal rules in respect of capital spending are not fit for purpose. The Committee on Budgetary Oversight will publish a report that will say the same. What is the Department that is responsible for capital spending doing about it? How has it engaged with its sister Department - the Department of Finance - and the European Commission?

Mr. Robert Watt

What we have been doing is managing our affairs in a way that enables us to increase capital spend significantly. We will increase it by 70% between last year and 2021. That is the main thing that we are doing.

No matter what the rules are, we will need to manage our affairs in a way that will place a constraint on our amount of current and capital spending. We must decide on whether to fund capital by borrowing within the rules or by increasing taxation within the rules. That is possible for us. There is no bar on the Government deciding that it wants to fund more capital or current spending within the fiscal rules by taxing people or generating the revenue. As constructed, the rules count capital spending the same way as other spending apart from the smoothing rule, of which the Deputy will be aware and under which an increase in spending of, for example, €100 million would only use up €25 million of the fiscal space in any given year and the full amount by the end of the four-year period. There is an issue in terms of capital smoothing.

The only change to the fiscal rules that would make a difference would be if it was decided at EU level that capital would be treated in a different way so that governments would be allowed to balance current spending and borrow for capital purposes, which is the so-called golden rule. That differs from the approach that underpins our current rules.

Who sets the expenditure benchmark?

Mr. Robert Watt

The Minister for Finance and his Department in consultation with the European Commission.

It is not a fixed amount. Is it negotiable? Obviously, the Government must work within the rules, but it is not-----

Mr. Robert Watt

The expenditure benchmark depends on whether a state is in an excessive deficit procedure or the preventive arm and, if the latter, whether the state has achieved its medium-term objective of a structural balance of 0.5% or is moving towards it. We are moving towards it, so our spending can grow in line with potential growth adjusted for the convergent margin, which is a function of how far our deficit is away from the structural balance. When we reach a structural balance, spending will be able to grow in line with potential growth as debated between the Department of Finance and the European Commission.

I understood from this morning's session that we exited the excessive deficit-----

Mr. Robert Watt

The excessive deficit procedure, and we are now in the preventive arm.

-----procedure last year and we are now in the Stability and Growth Pact.

Mr. Robert Watt

Yes, in the preventative arm of the pact.

It would be helpful if Mr. Watt was able to furnish this committee with the application of the rules in respect of capital spend, and details of what flexibilities have been agreed with the Commission in recent years. Smoothing is one example, and the Department of Finance told us there were others which we had succeeded in getting from the Commission. If there are other flexibilities which the Department has sought but not got, perhaps Mr. Watt would furnish us with a report on those.

Mr. Robert Watt

Yes. The only issue on capital spend relates to smoothing and there are ongoing debates between the Department of Finance and the European Commission about the application of the rules, because they are ambiguous. They refer to a structural balance but this is unobservable. There will always be a debate on potential growth and the convergence margin. The Department of Finance has set out the details but this will always be uncertain and subject to discussion. We do not know how fast the economy can grow in real or nominal terms and we do not know at any given time where we are in the economic cycle, whether we are close to potential output, whether there is an output gap or whether it is minus or plus. All these factors have an impact on the way we can grow spending.

I will come to public sector pay shortly. I have a slight concern that, outside the Committee of Public Accounts, there is an ongoing live and necessary debate on the application of the fiscal rules and their fairness, and whether they are fit for purpose. In a Dáil committee this morning, the Minister expressed the view that they were not but I do not get a sense of urgency from either the Department of Finance or the Department of Public Expenditure and Reform, or that they recognise the debate going on outside. I ask Mr. Watt to forward on to me any information on changes that have been secured or sought. I am only giving my opinion on these things.

Mr. Robert Watt

I do not have to agree or disagree with the Deputy's opinion.

That is the beauty of this. Mr. Watt spoke of industrial peace in respect of the new public sector pay agreement. What was the key issue that brought about industrial unrest in the public service in recent years? What was the one issue that drove industrial unrest?

Mr. Robert Watt

I do not think the period through which we have gone has been one of industrial unrest.

I am asking about where there was industrial unrest in the public sector.

Mr. Robert Watt

There has been a very small number of cases of unrest. There was a strike by ASTI members in secondary schools but I do not think any other public servants have gone out on strike in recent years, though there may have been strike notices. There were issues with Luas and other drivers but the secondary teachers represented by ASTI were the only example I can think of in the public service. As the economy has recovered, people's expectations change as do their perceptions about what the State can afford. They see unemployment falling and wage growth in the private sector again and public servants feel they should benefit from the upturn in the economy. They had very significant cutbacks in pay during the crisis and average pay reductions for teachers, gardaí etc. were between 10% and 15%, with more significant decreases for those at higher levels. People legitimately have an expectation of getting some of this back and that has led to greater debate on how we manage resources to meet those expectations.

The key driver of industrial disputes and threatened industrial action, in An Garda Síochána, teachers, nurses etc., has been the issue of restoring the public sector to a single-tier pay structure or equal pay for equal work. I have met Mr. Watt and the Minister a number of times on this issue and have tried to get a costing for returning the public service to a single-tier pay structure. We were given a figure of €208 million but it was not dealt with in the extension of the Lansdowne Road agreement. It is extraordinary to have an agreement seeking to maintain industrial peace but which failed to deal with the driver of a lot of the industrial unrest which still looms in some unions. It is extraordinary that this one key issue was not dealt with. We have a recruitment problem in some areas of the public service but the issue of new entrants was not dealt with. Can Mr. Watt explain why? Notwithstanding any requests from the trade union movement, did the Department have its own priorities going into public sector pay talks? Why was returning the public service to a single-tier pay structure not a priority issue for the Department?

Mr. Robert Watt

There is only a fixed amount of money available and the extension to Lansdowne Road will cost us €880 million over the next number of years. There is a limited pot and whatever money was used for other things would have to have been taken away from the general increase across the different grades. There always has to be a trade-off and a discussion about what we can do within the resources. Many anomalies that arose from decisions taken between 2008 and 2011 were addressed and in the previous agreement new scales were put in place to close much of the gap.

There are different opinions on the idea of equal pay for equal work. The Department has an assistant principal and an administrative officer on the first and second point of the scale. They are doing the same work as somebody who came in a few years earlier but that person will be on a different point on the scale. There are colleagues who are also on different pension arrangements. People who came in after 2012 are part of the single pension scheme and pension conditions and contributions are very different from those of colleagues who came in before. Equal pay for equal work is open to interpretation and there are issues around it.

I wish to ask one further supplementary question.

Mr. Robert Watt

I have one further point. This mainly affects people who came in after 2012 but the new agreement leads to very significant reductions in the pension-related deduction, PRD, contributions to be made by people who came in after 2012. The new entrants who lost out from the pension arrangements benefit from the agreement significantly in this regard.

Any employer needs to look at what rates of pay are required to attract staff. After the end of this agreement, new entrants to the teaching profession on 1 January 2018 will have a starting salary of €35,000, which will go up to €37,000, €38,000 etc. Given the marketplace for graduates, starting salaries are very competitive. The Department recruits administrative officers as the standard graduate intake, whose starting salary is between €29,500 and €30,000, and we have no difficulty attracting fantastic graduates at that rate. The Government has to strike a balance, to be fair to different groups while-----

I have read all of the previous agreements, including the FEMPI Acts, cover to cover so I know exactly what was taken from workers. From 1 January 2011, in addition to all of the other FEMPI cuts, workers who came into the system suffered further cuts. There was some merging of bands in the Haddington Road agreement and there were PRD changes in the most recent agreement. I fully understand what was taken and given back and the workers to whom I referred are still not on the same pay scale. We are not operating a single-tier pay structure. Mr. Watt knows that it is an issue for some trade unions, as it is for that category of workers. We had a debate on FEMPI recently and some of those workers were in the Public Gallery.

It is an issue for them. It was an issue, unfortunately, for the different Departments that underpinned a lot of the threatened industrial action, and potentially still further industrial action. Yet, it was not dealt with. I find it incredible that it was not dealt with even as an equality issue. I would have thought the Department of Public Expenditure and Reform would have wanted to deal with that first, notwithstanding all the other balancing acts that Mr. Watt says must be done. I find it-----

Mr. Robert Watt

The Deputy is aware that a large amount of the difference that arose has been addressed. He does not need me to go through the numbers, but a large amount of the disparity has been addressed by the merging of the scales and the restoration of the qualification allowance. The only allowance outstanding is in regard to the HDip, which is €1,200-----

I am not talking about that, I am aware of this allowance.

Mr. Robert Watt

-----but the allowances are very significant. They are €3,500 or €4,000 of a qualification allowance, which was not allowed for a while but it was restored. There has been a merging of the scales. The Deputy suggests that the issue has not been addressed to the satisfaction of everybody but this is the way it is and it is an occupational hazard. A significant amount of progress has been made over the last years since the FEMPI cuts and the Minster has indicated there is a process now, under the new agreement, to look again at this issue.

I have one final point. I can tell Mr. Watt that those workers affected by this issue who are on low and middle incomes and are struggling to pay mortgages and rent, certainly would not see it as an occupational hazard. They would see it as-----

Mr. Robert Watt

It is an occupational hazard that we-----

-----an occupational hazard for Mr. Watt possibly, but for those who have to live with it-----

Mr. Robert Watt

No matter who sits here and no matter who is doing this job or the job of government, they are not going to be able to keep everybody happy. They are not going to be able to address all the issues in any given period because we do not have the money to address all the different issues.

The Department has €880 million and the cost of doing this would be €200 million.

Mr. Robert Watt

We have €880 million for 310,000 public servants. That is right. If we take €200 million from that there is a good deal less. I have no doubt that the Deputy would then come in and criticise the very low increases for everybody else, in the event that we did address the new entrants issue to his satisfaction. I am sure he would, and while he is fair enough to make that point he-----

I remind Mr. Watt that he is not yet the Minister for Public Expenditure and Reform. If and when he ever wants to stand for election and become a Deputy he will be more than welcome to so.

Mr. Robert Watt

I am here engaging.

The Deputy made reference earlier to the lack of openness and transparency. I am engaging now with the Deputy, openly, about the challenges we face. In fairness, I am setting out for him the position, which reflects the position of the Minister. It is not solely my own . I am giving the position on the different trade-offs involved as best I can.

Ultimately, the adjudicators of what is fair and not fair are the 310,000 public servants who will be voting on it. It will be their decision and not ours as to whether the agreement will be passed.

They will be there also to vote at the next general election. I welcome Mr. Watt and his team to the committee. With the change of Government and change in Minister, has this had any effect on the two Departments - sister Departments as they have been called? I would like Mr. Watt's' opinion on that. For the last five years there has been a Minister for Finance and a Minister for Public Expenditure and Reform. Now there is one Minster for the two Departments. I would like some comment on this.

Mr. Robert Watt

We are dealing with a new situation in having a Minister who is responsible for both Departments and we are working through that. There are no issues as such that have come up. The concern in the past has always been that when there was one Minister for spending and one for revenue that there would not be the same level of integration or coherence because the budget needs to be considered in the round. Having one Minister responsible for both sides of it should help in that respect. Things are moving along. We are busy with the Minister in the preparations for the budget and we are all engaged in that. There is no immediate issue that is problematic for us. We have the senior Minister and we also have three Ministers of State over the two Departments, which helps with the workload.

Over the past seven or eight years we have had to have the two Ministers due to the crisis - if we will call it that - and maybe now there is no need for a second Minister?

Mr. Robert Watt

That is an issue for the whoever the Taoiseach happens to be-----

I know it is up to the Taoiseach.

Mr. Robert Watt

Clearly, back in 2011 the crisis had so many different economic, fiscal and banking dimensions that it was a good move at that stage to spread the burden. The two Ministers at the time, Deputies Howlin and Noonan, are both of the view that it helped in managing all the different dimensions of the crisis, including the troika. One of the dimensions of the job that has changed over the years relates to Eurogroup and ECOFIN, whereby the Minister would have to be away for two or three days per month at those meetings. This is an extra element that was probably not as demanding in the past, given the nature of monetary union and our obligations in that regard.

In his opening remarks Mr. Watt spoke of an underspend. To me, an underspend sounds like a waste in that the money should have been spent somewhere and was not spent. Mr. Watt spoke of contract arrangements, roll-outs and so on. What happens to that money when it is not spent? Is it held in abeyance and rolled over into next year or is it handed back?

Mr. Robert Watt

Most of it, as set out in the Comptroller and Auditor General's report, would be surrendered back to the Exchequer as a surplus. In some cases there will be capital carryover and I believe that in one or two cases some of the capital money we did not spend would be rolled over into the following year. It is part of the capital carryover.

I would be sorry to hear of the underspend. We need to spend the funds and we need the roll out of projects.

Mr. Robert Watt

It is always a balance. We do not like the notion of asking the Dáil to approve spending, at the end of the year having to say that we were not in a position to spend it and then needing to return the money to the Exchequer. On the other hand we are not going to push ahead with projects just to spend the money if we are not happy about being in a position to deliver in terms of the objectives. It is always a balancing act.

Okay. Are the pension schemes fully funded? Is everybody fully funded for retirement or is the Department behind in pension contributions? Are pensions fully self-sufficient?

Mr. Robert Watt

It is not fully funded. The pension scheme we have now is pay-as-you-go. The liabilities we have every year are met from the general Exchequer. We have not pre-funded the pensions and we do not pre-fund them. Every year public sector pensions cost about €3.1 billion or €3.2 billion. That is funded-----

Will that be affordable into the future unless something is done about future provision?

Mr. Robert Watt

A number of steps have been taken such as the Public Service Pensions (Single Scheme and other Provisions) Act 2012 that I mentioned earlier in response to Deputy Cullinan's questions. The single pension scheme has reduced the pension benefits for people who came in after 2013. They are also making the contribution to the pension. This will help in the future sustainability of pensions. With regard to the agreement that is now subject to balloting, the pension related deduction, which was seen as emergency measures during the crisis, this year yielded €740 million. Some €550 million will turn into a permanent contribution that people are making to their pensions - some 70% of the public service are now making a greater contribution - if that agreement is put in to force.

The steps we are taking to ensure the sustainability into the future involve changes to the pension benefits and also the higher contribution, especially those who came in before 2013 and who benefit from the higher pensions. We believe that measures have been taken. The Comptroller and Auditor General commented on one of our reports that looked at the actuarial liability of pensions. In 2007 public service pensions were estimated at around €115 billion. In the most recent analysis this figure was down to between €85 billion and €90 billion. The changes we have made have had a big impact upon the costs of the future liability of pensions, as expressed in today's terms. We are not complacent or sanguine about it, but we are in a better position than we were previously.

The matter of future pensions is a problem across all sectors, and it is going to be a bigger problem. We must do something about it in the near future or we are going to have a big problem down the line. Deputy Cullinane spoke of the special EU programmes body, SEUPB, and its PEACE III project. What is this special EU programmes body about? Was it part of the PEACE programme?

Mr. Robert Watt

It was set up as part of the Good Friday Agreement, which was in 1998. It was set up to manage the INTERREG North-South programme and the Programme for Peace and Reconciliation funds. It is a body which, on behalf of the authorities on both sides of the Border, manages the programme. There are many cross-Border projects and projects along the Border. The body sets out, with agreement of the Ministers, a broad strategy and then manages the drawdown of the funds. It invites applications from a variety of different community and other groups to access the funding, it assesses applications, it manages the payments and ensures that the recipients of grants actually deliver on what they said they would. SEUPB manages the expenditure on these programmes. Its work, as I mentioned, is accountable to both Ministers.

Is that body a separate account or what are the audit arrangements for that? Are they completely separate?

Mr. Robert Watt

They have their own audit arrangements and would be driven by the EU requirements. When it comes to EU programme funding, EU requirements are very stringent. SEUPB would have to comply with the rules for EU audit requirements and with the rules we have in place for public money. The EU has its own structure and its own way of accounting.

Reference was made to irregularities.

Is there any hope of the money being recovered? What are the irregularities, first of all?

Mr. Robert Watt

I think the allegation is that fraud was involved.

Who is investigating that?

Mr. Robert Watt

The Police Service of Northern Ireland conducted the investigation. I understand that investigation is now closed.

Mr. Robert Watt

Yes.

Has anyone been brought to-----

Mr. Robert Watt

No.

Will there be any moneys recovered?

Mr. Robert Watt

I do not think that money will be recovered, no.

Did that body go into liquidation?

Mr. Robert Watt

Given the questions, we will come back with a more detailed note. This was in 2014. It was brought to our attention and I was familiar with the details of it then, but I have forgotten exactly what was involved. We will come back with a more detailed note about the exact nature of the allegations and about the structure, which the Deputy was asking about, and why it is that we cannot pursue-----

That is what the next two questions are about. Can the directors be pursued?

Mr. Robert Watt

I presume that would have been pursued if the directors were in situ or if there were any assets in the entity. Obviously, if one has a lead on the assets, one tries to pursue them. I guess in this case the fact it was dissolved means there is not a legal entity we could pursue. We will come back to the Deputy on it. I know it is something we do not take lightly. When it came to our attention, we had discussions with our colleagues in the Department of Finance and Personnel in Northern Ireland and the matter was referred to the police authorities and the prosecution service of Northern Ireland.

Is Europe concerned about this? It is its money.

Mr. Robert Watt

Unfortunately, it is going to be our money because we would have recouped it from the EU.

Is it our money?

Mr. Robert Watt

It is our money, yes.

I thought it was EU funding.

Mr. Robert Watt

In effect, we spend the money and then recoup it from the EU. In this case, we will not be able to recoup the money. I have a more detailed note, because this is from memory and it is three years since I dealt with it. I will come back to the Deputy with the details of exactly what happened.

Mr. Seamus McCarthy

Just for the record, the Special EU Programmes Body, SEUPB, is still in existence and will continue-----

It is still there?

Mr. Seamus McCarthy

Yes. The difficulty was with a grant recipient of the body.

Mr. Robert Watt

Sorry, yes. It was the grant recipient.

Mr. Seamus McCarthy

It was not the body. The body continues.

I want to go over ex gratia pensions. I see it was €725,000 in 2015. How many cases were involved in those ex gratia pensions? Why were there no entitlements to the pensions? What is that cost?

Mr. Robert Watt

As part of the pension deal for public servants, they receive a lump sum on retirement. There are two schemes: the established scheme and the unestablished scheme. There are various schemes. There are then payments under the children and spouses schemes where there might be payments made as well of the same-----

Are they annual expenses?

Mr. Robert Watt

We incur lump sum expenditures of this nature every year because there are civil servants who retire. For the year 2015, we forecasted 950 to retire. We underestimated that. I think there were 1,170 civil servants who eventually retired. Those people received a lump sum. The pensions for widows and children of civil servants is the particular payment the Deputy mentioned. That is for established civil servants and people who are-----

Were there not entitlements there originally?

Mr. Robert Watt

Yes. The pensions for widows and children refer to people who had retired or died before the introduction of the contributory pension back in the late 1960s. There are a small number of people still in that category. Obviously, there are not many of them left, but that is-----

This will be a cost ongoing for-----

Mr. Robert Watt

This cost is under subhead A3 and will come to an end over the next few years. It is a small amount. As the Deputy can see, if I am looking at the right-----

It states it is €725,000 for 2015.

Mr. Robert Watt

Mr. Frank Griffin will tell me if I am looking at the wrong numbers. The cost is coming down now. It reached a peak of €1.7 million in 2008 and is falling away now as the numbers who would have fallen into this category are dying away. It is a smaller amount. We could provide the Deputy with a more detailed note on it.

Mr. Seamus McCarthy

In note 5 there are details of the numbers. There were 44 recipients in 2015.

Mr. Robert Watt

I see it there. There were 37 the previous year.

So that will die out altogether eventually?

Mr. Robert Watt

Yes. These are people who retired or died before the 1969 contributory pension.

With regard to overpayments, the year ended with €257,832.27 of overpayments. Was this due to neglect? How do overpayments come about? What are the overpayments of 2015 about? It seems to be so much in excess of 2014. How did this come about with the modern technology we have?

Mr. Robert Watt

I will ask Ms Paula Lyons from the shared services office to speak in a moment to some of the detail. This is an issue that has now been given more visibility because we have established the shared services of PeoplePoint. In the past, overpayments took place across Departments but we did not have the same visibility that we have of them now. Now that we have moved transactional HR and, increasingly, payroll to the shared centres, we have more visibility of this issue. That is the first point. The second point is that we changed the entitlements of sick leave. Previously, public servants would get six months' full pay and then six months' half pay. That has been reduced now to three months and three months. There are more and more people who are pushing up against the threshold when they do not have full pay. As people are paid in advance rather than in arrears in the public service, if we are not notified in a timely fashion that someone has-----

Will the witness say that again about people being paid in advance? Normally people who start an employment get paid at the end of the month. I ask him to tell us about the system.

Paid in advance?

Mr. Robert Watt

Ms Paula Lyons will be able to explain. In effect, normally one would get paid on a Friday for the work one has done. In the public service, people tend to get paid in advance. If one is sick and exceeds one's threshold where one is no longer due full pay, the bank run has actually commenced before we can make the adjustment that the-----

Whether it is Mr. Watt or Ms Paula Lyons, I ask the witnesses to explain the mechanism. What is the pay-----

Mr. Robert Watt

I will ask Ms Paula Lyons to come in on that.

I ask for that cycle to be explained.

Mr. Robert Watt

I just have a final point on the issue of overpayments. It is something we are taking seriously. We are looking at a variety of different steps we can to reduce it and we are putting them in place. That is the final point I was going to make. We have recovery plans in all-----

Will the Department get back its money?

Mr. Robert Watt

Absolutely. We have in place recovery plans where people have to pay back the overpayments over a certain period-----

Is it foolproof now? Will it occur again?

Mr. Robert Watt

We can never say never but we are taking steps to reduce the incidence of overpayment. We hope that in the next few years we will get to a figure that is better. It is an issue for us and a concern. However, the numbers should be seen in the overall context of the pay bill. In the Civil Service, the pay bill is €1.5 billion. The numbers need to be seen in that context. It is a concern for us. Perhaps Ms Paula Lyons will come in.

I ask her to take us through the mechanics of it.

Ms Paula Lyons

The issue is probably around the processing of the pay runs where the processing has to close at a particular point and the payment is made for the following week. The pay run closes on, let us say, a Tuesday for the following week's payment. That is to allow for the process in which a bank file has to be run to distribute the payments. The issue is in capturing any change that would be pay-impacted as a result of absence. That can be sick absence or annual leave. It is about the window of opportunity available.

There are a number of different causes of overpayments. Some of them relate to delay. We have moved to a self-service system, so it is now reliant on employee input or manager input to keep the system updated. That then informs changes that have to be made in the payroll processing. We have put in a lot of effort in recent years in terms of the communication and training processes for employees and managers to input correctly in a timely manner to minimise overpayments.

In response to the Deputy's inquiry-----

I have one point. Does that system start from day one when a person begins employment? Most people would assume in every job they take up that there is a week or two-----

One gets paid the week after, not the week before.

Yes. Is there-----

Ms Paula Lyons

The payment-----

Why is the system not changed so that when somebody starts in the public service on the Monday or whatever-----

Very few people get paid beforehand. Most people get paid after doing a week's work.

They are being paid in advance for doing the work. No one else does it that way.

Ms Paula Lyons

No.

Mr. Robert Watt

The payment is in arrears, but to make the payment in a week or ten day's time, we have to run the process.

It is the processing time.

Ms Paula Lyons

It is the payroll process.

Mr. Robert Watt

It is the payroll that is in advance.

Okay, so by the time the person gets the money, the work has been done, but at the time the processing of the payment is done, the work has not been done.

Ms Paula Lyons

The processing has closed on the payroll process. If a pay-impacted absence happens that should have cut or reduced that payment, it is too late.

I do not mean this in a bad way, but it seems to be an essential feature of the system that this is happening.

Ms Paula Lyons

It is inherent.

Mr. Seamus McCarthy

Frictional, I think, is the term, which means exactly what Ms Lyons has described. It is built into the design of the system.

There should be a better system. Someone who is out sick is paid and then the money has to be recovered. It sounds like a strange way to do business. It would not work in my business.

Mr. Robert Watt

It is an issue we are addressing. Perhaps Ms Lyons might set out some of the statistics.

Is it peculiar to the public service?

Ms Paula Lyons

No. Overpayments can happen in both the public and the private sector.

What about the processing issue? What is the processing time for payroll?

Ms Paula Lyons

It closes one week before the next pay date.

Why is there a week's gap between the completion of processing and payment? It only takes 36 hours to get a payment through to a bank.

Ms Paula Lyons

It is just the processing time involved.

Mr. Robert Watt

It is due to the scale of the public service. There are an awful lot of payments to be made through the banking system.

Mr. Seamus McCarthy

Mr. Watt will correct me if I am wrong, but I think the processing time has lengthened compared to when everything was done locally. Although there are economies of scale in operating shared services centrally, one of the drawbacks is that the processing period has extended.

Ms Paula Lyons

There are 120,000 payees in the payroll shared services system, a very significant number. Individual Departments would have processed smaller numbers of payments. I also draw the committee's attention to recoupments.

What methods are used to recover moneys?

Ms Paula Lyons

There is a recoupment process. Once the overpayment and its value are identified, the recoupment process kicks in. To provide some figures, there were 4,800 recoupment plans in 2016, the value of which was €4.1 million. The point made by Mr. Watt was that this figure represented about 0.3% of the total pay bill.

It is still a significant amount of money.

Ms Paula Lyons

It is, but in the context of the total pay bill, it is a small percentage. There have been some changes this year that will assist us in getting the recoupment process up and running and having the money paid back more quickly. Auto-recoupment means that if there is a recoupment for less than five days, there is now an automatic process. We do not need to go through stages of the agreement process on the value of the overpayment or to set a plan for recoupment. There has also been a change in respect of the value of the overpayment. It had been calculated with either a gross or a net value. That has been changed in this year's legislation to a net value only. That speeds up the calculation of the overpayment.

Is there any loss to the Exchequer as a result of this change?

Ms Paula Lyons

No. It is simply the way in which the recoupment is calculated.

Would tax and PRSI and so on not come into it also?

Ms Paula Lyons

In what sense?

In respect of an overpayment that has to be taken back, tax and PRSI would have been paid, although they were not due. How is that handled? I presume it is a problem.

For example, let us say someone was overpaid by €100 gross. The net amount was €50, to keep the figures simple. The computer calculates the overpayment based on the net amount received. Rather than recouping the gross amount, the net amount is recouped.

Ms Paula Lyons

It is an adjustment to the system.

Mr. Robert Watt

It is in that position at the end.

The system uses the gross amount internally.

Ms Paula Lyons

Yes. The idea is to reduce the time taken to get the recoupment process up and running. That is the effect.

Is there a figure below which it happens automatically or is it necessary to ring a person to get his or her consent?

Ms Paula Lyons

That is where the auto-recoupment system comes into play. It is used where the recoupment, in terms of overpayment value, is for less than five days.

If it is less than a week's wages, it is done automatically.

Ms Paula Lyons

The salary is adjusted to take account of the overpayment.

That would apply in a good few cases.

Ms Paula Lyons

Yes.

What is the general nature of the court case referred to in note 6.1? What are the costs involved?

Mr. Paul Quinn

We have simply made a note that we will have legal costs in the future in respect of a matter that has been settled in the Court of Appeal. It was litigation that arose originally in the Office of Public Works when the national procurement service resided within that body. The staff members transferred to the Office of Government Procurement in 2014. The case and case management system also travelled to the new office. The decision was appealed to the High Court by the State and the Court of Appeal ruled against it. The matter has still not been settled and we will have to recognise the costs at some stage.

Does Mr. Quinn know what costs are involved?

Mr. Paul Quinn

We have no estimate, although we have sought one on a number of occasions. The case has to go through the taxing system and we will eventually have to settle. Even in the current year, we are still recognising that it needs to be settled, but we do not have a final amount. The matter was quite significant from a public policy perspective because it concerned the issuing of circulars, which are effectively secondary legislation. It was, therefore, important for the State to appeal in the matter.

Tá céad míle fáilte roimh na finnéithe. Is iontach beirt bhean a fheiceáil ar an mbord. Tá mé tuirseach traochta. Níl a lán ceisteanna fágtha agam.

I was going to begin with the matter of litigation costs, but Deputy Bobby Aylward has dealt with them. The case went before the Court of Appeal which held against the State. Where does the settlement come into it?

Mr. Paul Quinn

Pardon me.

Did the court make a judgment?

Mr. Paul Quinn

The High Court case was left outstanding as everything was left to the Court of Appeal. The State appealed to the Court of Appeal which held against it.

Are we talking about one person?

Mr. Paul Quinn

It was a set of bidders in a particular competition. There were a number of parties originally who initiated a case against the OPW in respect of a competition for managed print services.

Are the legal costs greater than the price of the original contract that is in dispute?

Mr. Paul Quinn

They would not be by a long shot, thankfully, although they will undoubtedly be substantial.

It was a judgment against the State.

Mr. Paul Quinn

Yes.

Where does the settlement come into it?

Mr. Paul Quinn

It is a settlement of fees. I apologise. There wee no actual damages awarded to any party. It will simply be a settlement of fees.

For the sake of clarity, can Mr. Quinn describe the matter without going into the details if he does not want to do so? It was an order made against the State.

Mr. Paul Quinn

Yes.

The outstanding matters involve costs.

Mr. Paul Quinn

Yes.

When was the judgment made?

Mr. Paul Quinn

In 2015.

Has it gone before the Taxing Master?

Mr. Paul Quinn

Yes, it has, but it is still-----

Where are we precisely?

Mr. Paul Quinn

We are waiting for the Taxing Master to rule. We still do not have-----

That is better. It was not a settlement but a judgment. The costs are outstanding and the matter has gone before the Taxing Master. It will take its course and the State will abide by whatever ruling is made. The officials will then be in a position to tell us what the costs are.

Mr. Paul Quinn

That is correct. My apologies for using the wrong word. It is soley a matter of costs.

The Secretary General might have heard my previous comments. We have a major housing crisis, a major health crisis and have failed to deal with climate change. Therefore, I would like to know what he meant when he said in his opening statement that he seeks "to support economic and social progress." It is too late in the evening and I have already run through all of these matters. I ask him to note that I have a difficulty with his use of language. I have a difficulty when officials use difficult language as opposed to what I or ordinary people understand. When economic language is so different from the norm it becomes a crisis for democracy. Rather it serves a particular purpose but that is a debate for another day.

As for specific questions on the Department's documents, I have an outstanding question on the allegation of fraud and the money. I seek clarification on a point. The Department provided €181,438. In the normal course of events does it recoup the money from Europe? Does Ireland contribute to the PEACE project? We give it but do we get it back?

Mr. Robert Watt

I will come back to the Deputy with a note, if that is okay.

Mr. Robert Watt

I do not want to mislead the Deputy as it has been so long since I looked at this matter. Yes, the structure of the programme is that it is funded by the Exchequer and then there are recoupments from the EU.

Mr. Robert Watt

We then go through the process of verifying spending, the auditing and so forth. We will get a note for Deputies Connolly and Aylward, if that is okay.

Yes. Did the Special EU Programmes Body, SEUPB, discover the fraud?

Mr. Robert Watt

Yes.

It carried out the investigation. Did it have nothing to do with the Department of Public Expenditure and Reform?

Mr. Robert Watt

I would not say it had nothing to do with my Department.

Mr. Watt should clarify the Department's role.

Mr. Robert Watt

The body is given work to do. It has a work programme and remit. It undertook an investigation or forensic audit and discovered that there was an issue. Perhaps the money was intended for a particular purpose but was not spent on that purpose. I am only speculating here. Let us say there is a project to support a particular community group or activity and then it transpired, with audit, that the spending was undertaken for a different purpose. In effect, the SEUPB has a responsibility to us then. We are the body to which it is accountable.

Does the Secretary General mean the group?

Mr. Robert Watt

The Special EU Programmes Body.

Mr. Robert Watt

It has specific responsibility for managing the progress. Obviously it brought the matter to our attention.

Mr. Robert Watt

We had discussions with the Department of Finance and Personnel, DFP, then.

The SEUPB carried out its jobs correctly. After the money had been misused it looked and discovered a problem.

Mr. Robert Watt

Yes, it made the discovery as part of an audit process. Deputy, I am not sure exactly-----

That is okay. What has the Department learned from the incident? Has the Department learned how the discrepancy can be avoided in the future?

Mr. Robert Watt

Without getting into specific details, I am not sure exactly what the situation was here. Our experience of the body is that it is very thorough, very professional and it has carried out its work well over the years. I am sure it has learned lessons from what happened.

I would like to know the lessons learned.

Mr. Robert Watt

We can come back.

I would like to know what the Department has learned. I would like to know what has changed as a result of losing €181,000, which is nearly €200,000.

Mr. Robert Watt

Yes.

That is all we want to know at this level.

Mr. Robert Watt

Yes.

What processes have been put in place? How can the situation be avoided? What has the Department learned?

Mr. Robert Watt

Sure. We will do that. As the Deputy will know, when one engages with a third party there is always a possibility or danger, if the third party receives a grant to achieve some social good or social purpose, that the funds will not be used for that.

Yes. This is a recurrent theme and it is a recurrent theme with charities. There has been a recurrent theme with public moneys going out, yet everyone adopts a hands-off or removed approach.

Mr. Robert Watt

Yes.

Therein lies a lesson for us. We must discuss the best way to go forward-----

Mr. Robert Watt

Yes.

-----if everything has become so removed from us that we cannot monitor it properly.

The Secretary General mentioned an interesting initiative on page 8 of the opening statement he submitted. It states "Ireland is a member of the Open Government Partnership (OGP), a multilateral initiative of some 70 countries that aims to secure concrete commitments from governments to promote transparency, empower citizens, fight corruption, and strengthen governance." I welcome the initiative. I believe it is very necessary to empower citizens but we disempower them by using language that they cannot understand. The opening statement provided continued by noting "A public consultation on the Implementation of Ireland’s OGP National Action Plan 2016-2018 is currently underway." The Secretary General should clarify and elaborate on that point.

Mr. Robert Watt

We signed up to the initiative a number of years ago. The Irish Government, along with other countries, committed to the principles of open government around the freedom of information, the regulation of lobbying, formal consultation when it comes to politics and a variety of different measures to improve the effectiveness of government and be more open about how we go about it, as the Deputy mentioned.

To whom does the phrase "public consultation" refer?

Mr. Robert Watt

We prepared a set of new actions or initiatives in this area to build on what we have achieved already and they were approved by Government. It has gone out there and it is for consultation. We have invited people to come back to us with their views on the actions.

Where would ordinary people see the notice?

Mr. Robert Watt

The notice is on our website. We would put it on our website, and we would advertise with the NGOs and the groups that are involved in this space. I presume there was an advertisement somewhere. We normally put an advertisement in the newspaper inviting views. We have put it up on our website.

Mr. Robert Watt

Deputy, as I said, we have mailshots. We have got people who are interested in this area and we tend to consult with them as well as worldwide. If the Deputy wishes we can come back to the matter.

I just want to know where the advertisement can be found so that I can advise people about where to find it.

Mr. Robert Watt

I think we are at the stage where we are coming to the end of the consultation process. After that we will look at the plan and then we will go back to the Government.

I ask the Secretary General to supply me with a quick note on what stage the initiative has reached and whether it is still open to consultation.

Mr. Robert Watt

Yes.

The final item that I wish to raise is our lovely ID card. The Secretary General dedicated just two lines to the matter in his opening statement. By comparison, the Comptroller and Auditor General dedicated half a chapter to it not too long ago.

Mr. Seamus McCarthy

A full chapter, I think.

Page 10 of the Secretary General's opening statement reads: "The Government's Digital Services Gateway together with the Public Services Card and MyGovID, our online identity service, are key to Ireland becoming an exemplar in digital transactions." I disagree with that language because what I have read is certainly not an exemplar.

I want to get this matter straight. Is the Department of Social Welfare the lead Department to roll out the card?

Mr. Robert Watt

The Department of Social Protection-----

Mr. Robert Watt

-----has been involved with the card with private contractors.

Has the Department of Public Expenditure and Reform worked with the Department?

Mr. Robert Watt

We work as part of the group that co-ordinates it across. We are very supportive of the initiative. It is more a digital identity. The card is a physical manifestation of it. When one gets a card one can put it in one's pocket, wallet or bottom drawer and not look at it again. In effect, it is a process where we can establish a digital identity so that we know who the person is behind one's tablet, smartphone or computer. That means one can access services more efficiently with us. One has a situation where people can now claim social welfare or pay their taxes.

No, Mr. Watts. That is okay for the moment.

Mr. Robert Watt

Can I explain?

Mr. Robert Watt

We are trying to empower citizens to engage with us at a time that suits them in a more convenient manner by providing them with a digital identity. The card is the physical manifestation of the process. It is most important that we have identification that we know. The people in Ireland have a password identity and then they can interact with the services.

I want to comment before the Chair stops me. To use the word, "empower" is a misuse of language.

Mr. Robert Watt

I do not think it is.

Let me finish. The Secretary General can disagree with me. I disagree with his use of the word, "empower". An identity card is being rolled out. Is that correct?

Mr. Robert Watt

No.

One needs the card in order to apply for a new passport. Is that right?

Mr. Robert Watt

No. One must go through the process of-----

Please listen to my question.

Mr. Robert Watt

Yes.

Does one need an ID card to apply for a new passport?

Yes.

Mr. Robert Watt

One needs to go through the process of identity verification, the SAFE II process, where we then can establish who a person is. We can establish that by taking a photograph and matching it against one's records in order that we know who a person is. At the end of that process a person is given a public service card, which one can then use to access services. One can put that card away and never look at it ever again.

That is not accurate. One needs the card.

Mr. Robert Watt

In the future, in order to renew one's passport online, one will need to have a digital identity, with one's password, that one can then access online. Whether one carries the card or not is irrelevant.

Is the card necessary to apply for a new passport?

Mr. Robert Watt

In the future, in order to renew one's passport one will need to get one's digital identity.

So one does need a card.

One cannot do it without going through the process.

Mr. Robert Watt

One must go through the process, Deputy, yes.

One must go through the process to get the card.

Mr. Robert Watt

The card is the end of the process, yes.

Mr. Robert Watt

One does not have to carry the card around.

No, but one must have it.

Mr. Robert Watt

One must have it.

To carry it is a personal choice and that is where empowerment comes in. A person cannot decide not to get the card. Is that right? From now on a citizen who is resident in this country cannot decide not to get the card. Is everyone required to have the card? Please answer "Yes" or "No".

Mr. Robert Watt

If one wants to access services in the most efficient possible way. People do not want to wait outside Molesworth Street to get their passport. They want to do it while sitting behind their laptop.

The Secretary General can give justifications.

Mr. Robert Watt

Yes.

The Chair can let him do so on Mr. Watt's time. I simply want to hear answers.

The Passport Office is now on Mount Street.

Mr. Robert Watt

Pardon?

The Passport Office has moved.

Mr. Robert Watt

The Deputy is right. The office has moved from Molesworth Street. In the future, to access services-----

Mr. Watt, please.

Mr. Robert Watt

-----people will have to go through that process.

The Chairman might want to seek elaboration on the justification for the card; I just want to ask questions to get answers. The word "exemplary" or "exemplar" has been used.

Mr. Robert Watt

Yes.

This process has been ongoing since 2004. The target was to have 3 million cards rolled out by 2013, but it was not reached. I have all of the figures, courtesy of a previous report from the Comptroller and Auditor General. The rolling out of the card was a complete debacle. Would Mr. Watt agree?

Mr. Robert Watt

No.

Mr. Watt does not agree. Does he agree that the process started way back in 2004 and is still continuing in 2017 at a cost of over €60 million?

Mr. Robert Watt

I think the cost is €60 million.

Therefore, Mr. Watt does agree.

Mr. Robert Watt

We now have 2.7 million cards and the majority of adults have gone through the verification process. It is going to provide enormous benefits for citizens.

It may well do-----

Mr. Robert Watt

There will be enormous benefits for citizens in how they interact with us and there will be enormous cost savings for the State. In the future people will be able to access the driver licence, social welfare benefits, tax and passport elements. The process will revolutionise how people interact with the State.

It may well revolutionise it in Mr. Watt's opinion, but so far it has cost the taxpayer-----

Mr. Robert Watt

May I say-----

Please allow me to finish. I am reading from the Comptroller and Auditor General's report. In December 2009 the Department of Social Protection entered into a contract with a supplier at a fixed price of €19.7 million. I am not going to catch Mr. Watt out on little figures, but I am giving a timeline and examples of the large costs involved. In 2009 the contract was entered into at a fixed price of €19.7 million, plus 21% tax. What was the contract for? It was to produce 3 million cards by 2013. Mr. Watt's Department and the Department of Social Protection were to work together, ag obair as lámh a chéile. That was the target. Was it reached? The answer is no. Have we even reached that target? The answer is no. By June 2016 there were 2.6 million cards. According to the report, the figure is now €60 million. Mr. Watt might update me, but the current position is that the Department has entered into a contract with a provider. If it does not succeed in providing a certain number of card, the Department will still pay. Mr. Watt is nodding. Will he clarify the nature of the contract?

Mr. Robert Watt

The contract is run by the Department of Social Protection. We can provide the Deputy with details of where it is. We fully support this initiative which absolutely has been slower than we would have hoped. The Deputy has indicated the numbers. There are costs, but we must look at them versus the benefits. We carried out surveys recently in which we asked people about their experience in interaction with the Civil Service. It was generally very positive and particularly positive when it came to interacting with us through digital platforms and online portals.

Mr. Robert Watt

People tell us repeatedly in that and other surveys that they want to be able to interact with the State at a time that is convenient for them. That is what we are about.

The Department-----

Mr. Robert Watt

In time, this initiative will bring enormous benefits.

I did not ask about the benefits as I have heard Mr. Watt's comments and got all of them in the Comptroller and Auditor General's report.

Mr. Robert Watt

I do not believe the Comptroller and Auditor General's report dealt with the benefits of the card.

It did. It indicated the benefits from the perspective of the Department of Social Protection. I am asking Mr. Watt about the matter in his very senior capacity. He has described the process as exemplary, but he has not referred to a single problem that arose. He does not refer to the cost involved, but he does tell us the card is the way forward. I am telling him that so far €60 million has been spent and that the 2016 contract provides for an advance payment to be made by the Department of Social Protection in January 2017 of 50% of the outstanding balance. We will be paying in advance. The cost of cards produced in 2017 is to be deducted in full from the advance payment. Should the target of 3 million cards not be reached by the end of 2017, the cost of cards not produced will become payable in full. It is late, but I cannot accept Mr. Watt telling us that the process is exemplary. I ask him to look at that comment. He could not possibly call it exemplary. There is, however, a bigger issue. This started as a social welfare card, but it has changed, at huge cost to the taxpayer and with no business case being made in advance. It has metamorphosed into an identity card without any open discussion being held. but that is not Mr. Watt's fault. Every person in the country must have it to access a passport. Have I lost Mr. Watt somewhere?

Mr. Robert Watt

I am trying to find the reference to the word "exemplar". I see it now. We have been criticised repeatedly in that when it comes to the provision of digital services, we are not doing as well as we should. The reason is we do not have a digital identity for every citizen in the country. That is what the process is about. The mygovid.ie gateway will be transformative. I hope that in the future we can have a discussion with the Deputy about the benefits in comparison with the costs.

At this point I would prefer to have accountability and an explanation of how the Department can stand over the cost of the contract so far, the failure to deliver the cards and use of the word "exemplar". If I were to have a general discussion, it would be in the context of calling this a thriving economy, but that is a matter for another day.

Mr. Robert Watt

I stated "The Government digital services gateway, together with the public services card and MyGovID, our online identity service, are key to Ireland becoming an exemplar in digital transactions." That is our ambition and what we are striving towards. I hope the next time I appear before the committee I will be able to set out further progress having been made in providing these services.

The provision of further services is a separate matter. What has the Department learned? Why did it cost this much? Why was there no business case made? Why has the process been ongoing since 2004? I am subject to correction, but it certainly has been ongoing since 2007 or 2009 and we are now in 2017. Why has it still not been rolled out and why has it cost us a fortune? Those were my questions and I have the answers.

I have a few final questions before concluding. We are almost done.

I get the point on the public services card. As I have not yet had to apply for one, everyone has not had to apply. It started with the Department of Social Protection as a card that was needed or else a person would not receive anything. It has since moved on and is now required to be issued with a passport or have one renewed. It is a system that will eventually catch most adults. If a person does not depend on receiving something from the State, separate from a passport, for now he or she can get by without it, but the need to have a passport will be the hook from which people will not be able to escape. If a person does not want to have a passport or claim a pension or social welfare payment, he or she will able to survive without it. That is how I see it.

With regard to Deputy Catherine Connolly's questions, there are benefits to the card, but our job in this committee is to inquire about costs, the contract and lessons to be learned. There are benefits, but we have to look at something else. Mr. Watts knows this.

I have a couple of questions about the Department's information and communications technology, ICT, strategy in general. Will Mr. Watt give us the list of services that may be migrated to a digital platform? We have just been talking about being able to tax a car while sitting at the kitchen table or applying for a passport or a driver's licence, with the ability to take a picture on one's phone. What are the main services still being considered?

Mr. Robert Watt

The main elements include the passport application, in respect of which we are moving to an online process. There is also the driver's licence. They are two big transactional elements.

That can be done already.

Mr. Robert Watt

We will use the MyGovID system to approve the service people can access. There will be a variety of new features that will enable people to do it in an easier way. Most tax payments can be made to the Revenue Commissioners online.

That is the Revenue Online Service, ROS.

Mr. Robert Watt

The other area with the biggest volume of transactions with the State involves the Department of Social Protection. We are starting to move some services. Jobseeker's allowance can be claimed if a person has gone through the MyGovID system and obtained a public services card. The big areas will involve the Department of Social Protection, as well as applications for a driver's licence, a passport and a change in vehicle ownership.

Where I see a gap is in the health service.

Mr. Robert Watt

Yes.

There is a lot of interaction within the health service in which 30% of all public servants work. I have not seen this process in operation in the health service. Is the Health Service Executive utterly unconnected with most of this process? It seems to be and it was not even in Mr. Watt's train of thought as he spoke. It is possibly one of the biggest areas in which people could be assisted.

Mr. Robert Watt

Yes, I agree. People make appointments to see a GP or undergo a hospital procedure.

There are 600,000 people on waiting lists. It could be done electronically.

Mr. Robert Watt

Based on one's digital identifier, one should be able to go in with a personal public services number, PPSN, and password and book an appointment.

People would know their appointment date or could cancel an appointment.

Mr. Robert Watt

Yes or cancel an appointment and receive a text or email alert to say it has been cancelled or whatever.

Has the Department discussed this directly with the Health Service Executive, HSE?

Mr. Robert Watt

Yes.

Will Mr. Watt give us something on that? While the other areas are good for those who want them, the HSE is a very big area. Outside the Department of Social Protection and perhaps the Department of Education and Skills to an extent, the HSE is the State body with which most people have most contact.

And social welfare.

Yes, social welfare is well caught in there already. Will Mr. Watt come back to us with that because there is a big gap there?

Mr. Robert Watt

I will revert to the committee on that.

Does the fact that there is no Executive in the North have an impact on the operation of the North-South bodies?

Mr. Robert Watt

No.

No problem.

In the past few years the Department of Public Expenditure and Reform has trained freedom of information, FOI, officers throughout the public service. How has that training gone?

Mr. Robert Watt

In 2014 we changed the original Act to extend FOI to several new bodies and reduce the exemptions. On foot of that, we went through a process of training up appeals officers throughout the system to ensure they could manage.

How was that done?

Mr. Robert Watt

We provided that centrally, either ourselves, through officials in our Department or we procured the services.

I am not talking about the Department but the entire public service.

Mr. Robert Watt

In respect of FOI, 99 contracts were awarded up to the end of 2016. There were almost 5,500 participants under that framework contract. We entered into contracts with outside bodies to provide the training.

Mr. Watt might send us a note on that. It is important that Mr. Watt listens to what I say next. The Department now has to do the same for protected disclosures. I have yet to meet a single body that knows how to deal with a protected disclosure. Members of this committee are being inundated and I have yet to see a public body that has dealt satisfactorily with protected disclosure. It is no good Mr. Watt saying that the Department has sent the circulars. The Department needs to do what it did with FOI. That is why I teased out that question.

We deal with third level institutions and the Garda Síochána and almost every week people tell us about protected disclosures because people are utterly dissatisfied. There are commissions of investigation into Sergeant McCabe's protected disclosure, and a social worker in the south east had to make a protected disclosure about Grace, who was placed in foster care by the HSE. The system could not cope with that protected disclosure. There have been others in the Irish Prison Service and the Garda Síochána.

For the third time I say I have to yet see a State body handling a protected disclosure adequately. I note we probably only see the ones that did not work out. There is ineptitude. I have seen protected disclosures go to mediation, retired judges doing the adjudication and the public body three months later goes into the Labour Relations Commission and disowns the mediation report. That was a case in the Irish Prison Service. Mr. Watt might have been aware of that. We are utterly at a loss and frustrated at the lack of ability in the public service to deal with these. Whoever did the FOI training needs to bring that thinking to the protected disclosure and must move to that next.

Mr. Robert Watt

Protected disclosure is complex and difficult and the Chairman knows all the reasons why that is the case. We are providing overview training and more advanced training but I take the point. Our Department has produced policy guidelines on how to deal with a protected disclosure and we have a process there which we go through. All public bodies now have to have that same guide. I might share that with the committee. It is a question of people understanding, training and culture. The culture needs to change.

It is not a question of giving people the manual, they have to be shown and met and people have to be sent out.

Mr. Robert Watt

People need to want to be able to deal with the protected disclosure in the appropriate manner and to respect the process.

How long has the shared services, Vote 18, system been in place? Mr. Watt need not go into detail.

Mr. Robert Watt

We set up the Vote in 2014.

Inevitably some mistakes have been made along the line. It is a big system and lots of different things were mentioned. Mr. Watt might give us a note on some of the lessons the Department learned, three years into implementing the new system. It is important that lessons are learned because the Department cannot have got it all right. I am not setting out to criticise because nobody can get everything right the first time. There is no point seeing a mistake, correcting it and making a different one the next month.

Mr. Robert Watt

Yes. We have learned lessons from PeoplePoint and they were applied to how we implemented the payroll and we are using those lessons now in financial management. We can send the Chairman a note on what we have learnt.

A note would help increase public confidence in the public service if it sees there is a learning process.

Has the Department produced the annual Financial Emergency Measures in the Public Interest, FEMPI, report?

Mr. Robert Watt

The Minister brought it to the Dáil last week. I think there was a debate in the Dáil last week.

Yes, there might have been a brief one.

Mr. Robert Watt

Yes, it was a brief debate.

I will not debate the contents of it with Mr. Watt now but I know its format from other years. I suspect very few, if any, of the issues set out in the first FEMPI legislation as to why we were in a financial emergency still exist, apart from the level of national debt. I do not think Mr. Watt will be able to answer this question but do the criteria that existed when the measures were first introduced still exist? We are inventing new excuses each year to keep it alive.

Mr. Robert Watt

We are preparing a Bill to repeal FEMPI.

In its entirety?

Mr. Robert Watt

In its entirety. The Minister hopes to get it through Government in September and bring it to the House after that.

In the autumn. It will not all go at once but there will be a timescale to wind it down.

Mr. Robert Watt

That will set out a timescale for ameliorating all the measures. The original legislation will be repealed.

The seriousness of the housing crisis today is equivalent to the conditions of the national finances at the time that merited that legislation. If there was a case for FEMPI then there is a case for housing emergency legislation in the public interest. That is not Mr. Watt's Department but he could take that on board because it is a recurring theme here.

We feel that while mistakes were made getting into the financial crisis, one of the biggest mistakes made during the crisis was not to plan for the exit from it. We are talking now about planning, zoning, sites and speeding up the planning process. That should have been done three years ago at very little cost so that the houses we need now would have been built rather than in the next two or three years. The housing plan is going out. The troika left in 2013 and while another country would have planned for the recovery, we made no plans. We waited till we got to where we are and sat back for two years. We are two years behind catching up in the housing situation. I am not saying this is the fault of the Department of Public Expenditure and Reform but collectively, the Government and the Oireachtas did not plan adequately and we are playing massive catch up and it is getting harder and harder to catch up.

As there are no more questions I thank everybody for coming here today. I apologise again for the late start. One of the reasons for it was that we wanted to conclude all our business on the Votes in the Comptroller and Auditor General's report before the Dáil recess and we had other reports on the Garda Síochána and third level education, not to mention Project Eagle, which took up quite a lot of our work a few months earlier.

The committee agrees to dispose of Votes 7, Chapters 1, 2 and 18, the finance Votes, which it discussed this morning. It also agrees to dispose of Votes 11, 12, 18 and 39 and Chapter 3 for this Department, which we have discussed.

The witnesses withdrew.
The committee adjourned at 6.10 p.m. until 10 a.m. on Tuesday, 11 July 2017.