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COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 19 Apr 2018

Chapter 5 - Fiscal Transparency

Mr. Derek Moran (Secretary General, Department of Finance) and Mr. William Beausang (Assistant Secretary, Department of Public Expenditure and Reform) called and examined.

We resume in public session. There will be two sessions today, the first of which is to examine and discuss with officials from the Department of Finance and the Department of Public Expenditure and Reform Chapter 5 of the Comptroller and Auditor General's 2016 report on fiscal transparency.

In our second session we will examine matters relating specifically to the Department of Finance with officials from that Department, from which we are joined by Mr. Derek Moran, Secretary General; Mr. John McCarthy, Mr. Gary Tobin, Ms Mary McSharry and Mr. Fiachra Quinlan. From the Department of Public Expenditure and Reform we are joined by Mr. William Beausang, Mr. Brian O’Malley and Ms Vicki Cahill. They are all most welcome.

By virtue of section 17(2)(I) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. If they are directed by it to cease giving evidence no a particular matter and continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and 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 are reminded of the provisions within 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 of the objectives of such policy or policies.

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

Mr. Seamus McCarthy

The International Monetary Fund has developed a set of standards for systems used by governments to ensure fiscal transparency. Their underlying objectives are that fiscal reports should provide a comprehensive, timely, reliable, comparable and accessible summary of a government’s financial performance and position. In 2013 a team from the IMF visited Ireland, at the request of the Secretaries General of the Departments of Finance and Public Expenditure and Reform, to review and assess Ireland's fiscal system against the standards. The report concluded that Ireland's fiscal reporting was relatively comprehensive, frequent and reliable but quite fragmented. The team made 35 recommendations for change, with a view to full implementation by 2017. The Government referred the report and action plan to a steering group for implementation, as appropriate. I carried out a review last year to assess progress in that regard.

As outlined in the chapter, the recommendations can usefully be grouped together under three broad headings. They relate to the budget process, in respect of which there were 13 recommendations; the need to recognise and value a wider range of State assets and liabilities in fiscal budgeting and reporting, in respect of which there were nine recommendations; and financial reporting, in respect of which there were 13 recommendations. The chapter includes an annex listing the recommended actions individually and outlining the status vis-à-vis each one as at mid-2017. Figure 5.1 in the chapter which can be shown on screen for Deputies summarises the position. It indicates that most progress has been made in implementing the recommendations related to the budgetary process. Progress was more mixed in recognising a wider range of assets and liabilities, while least progress was made in implementing recommendations related to financial reporting.

I will be as brief as I can. I want to focus and like a response on the growth of the economy in 2017 and 2018.

Is the Deputy referring to chapter 5 on fiscal transparency?

I want to assess issues such as contract manufacturing which cause fiscal shocks to the economy. How are they measured and looked at?

Is that question directed at the Department of Public Expenditure and Reform or the Department of Finance?

The Department of Finance.

I ask the Deputy to hold that question. Does he have specific questions for the Department of Public Expenditure and Reform on the opening statement of the Comptroller and Auditor General? We will come back to the witnesses from Department of Finance after the witnesses from the Department of Public Expenditure and Reform have left to get answers to those questions.

To focus on the accounting methods used, the IMF's report was published on 16 July 2013 and made various recommendations. In terms of having real-time information or as close to it as possible, I note the requirement for the Comptroller and Auditor General to publish audited accounts which should be ready for scrutiny by June. No progress has been made on this recommendation. I believe September is the date in that regard. Do the witnesses have any response?

Mr. William Beausang

The Comptroller and Auditor General noted that this recommendation had been partially implemented in expanding the institutional coverage of our fiscal accounts.

There is a very clear red dot in the report.

Mr. William Beausang

What recommendation is the Deputy discussing?

The recommendation that the Comptroller and Auditor General be required to submit audited accounts to Parliament by June.

Mr. William Beausang

As set out in chapter 5 of the Comptroller and Auditor General's report on the enhancement of fiscal transparency, it would require a legislative change.

I am asking Mr. Beausang, not the Comptroller and Auditor General. The report suggests no action has been taken. If legislation is required, at what stage is it? Has the Department looked at it in providing information in a timely manner?

Mr. William Beausang

The point is that the recommendations need to be looked at very much as presented by the IMF and the Comptroller and Auditor General, that is, as a package of measures to improve and enhance fiscal transparency.

Does Mr. Beausang accept that the measure specifically would enhance fiscal transparency, as we would have access to information earlier?

Mr. William Beausang

I do not think I will be able to give an answer to that question because we have to see it in the context of all of the other issues picked up in the report on fiscal transparency. A range of issues would give rise to a need if we were to make such a move. The fundamental objective or purpose of the IMF's report is to point to the adoption of accrual accounting as an appropriate way in which to report on government accounts and move away from the current basis of cash accounting. It would be a significant change in reporting on the public finances. Notwithstanding the fact that the IMF was obviously very strong in thinking this measure could bring significant-----

Obviously, when looking at it on a cash accounting basis the focus is very narrow. We cannot see pension obligations or many other liabilities that may be contingent in that regard. The United Kingdom has made a lot of progress in that regard, but we seem to be lagging behind. The Chairman is always very eager to have accounts in on time and the committee sees various bodies. I am not confidence that this is something that is being actioned or prioritised by the Department or that legislation is in the offing to try to make it clear that this information should be available by June.

Mr. William Beausang

There has been a significant programme of work, as set out in the report of the Comptroller and Auditor General, in implementing the recommendations made in the report on fiscal transparency. It is really in the area of financial reporting about which I am speaking, where a Government decision needs to be made on whether we should move to accrual accounting as set out in the presentation of the Comptroller and Auditor General, where progress has been slowest. Internationally, when people look at the move from cash to accrual accounting in reporting on the fiscal accounts, an authoritative international organisation such as the OECD states the value of accrual accounting is unclear and even disputed in some instances. In the light of the costs and implications of a move to full accrual accounting for reporting purposes, from the perspectives of the Department of Public Expenditure and Reform and the Department of Finance, we need to be very clear that the benefits should outweigh the costs. Countries have been at this process for up to ten years and when they report on progress, they state they have only realised half of the benefits in terms of transparency and accountability they expected to see.

To explain very quickly to the Deputy, the financial management shared services project is under way. It will integrate 31 financial systems into a single financial system in the coming years. The decisions made in looking at the IMF's report on fiscal transparency and the implementation of the recommendations on reporting were that we had to move to that single system before we would be able to consider a move to accrual accounting. Fundamentally, that is where we are.

A huge amount of work is being undertaken in making the move to the single financial system and establishing the single financial management shared service.

Even then, there are huge risks in terms of a cash basis for someone reading the accounts, interpreting the information, and assessing the data. There are shocks and liabilities. One can see that in recognising the valuation for fixed asset holdings and contingent liabilities that might be associated with them, when one tries forensically to go through notes attached to different appropriation accounts. In adopting an accrual base, I would like to hear more confidence from the Department that progress is being made on this. Is there an implementation group which is looking at this, both in bringing the date forward and changing the scope to ensure that more data and information are available?

Mr. William Beausang

That is an important point on the risks that are there if the accounts do not have the coverage that they ought to. Colleagues from the Department of Finance may be able to expand on this, but much progress has been made in the presentation of our fiscal accounts and improving the institutional coverage. As far as public expenditure matters are concerned, the IMF raised two specific matters, namely, the recording of pension liabilities and the recording of public private partnership, PPP, liabilities. Although they are not formally integrated into our accounts, there is much more information provided on those aspects of the public finances than there was in the past. Finance has led on a particular initiative in capturing our fiscal risks, which is a very important response to the issue raised in the IMF report and is a very important part of the fiscal documentation. Mr. McCarthy might wish to add to that.

Mr. John McCarthy

To add a little from the Department of Finance perspective, we published a stability programme on Tuesday, as we have done in the stability programme ever since the fund published this bundle of work. We set out a table outlining the contingent liabilities, trying to get a wider assessment of the risks to public finances. Contingent liabilities have fallen dramatically, the bulk of which relate to the financial sector. For instance, NAMA is no longer a contingent liability on the State, but there are other contingent liabilities. These are set out in the table in the stability programme. Additional information from both Departments is there.

This is on fiscal transparency. My concerns if I were reading this as a report card, which would form the kernel of the issue and which are highlighted by the key red symbols, would be transparency in reporting requirements, trying to ensure that contingent liabilities are reflected, and trying to ensure the information is available in a timely manner. That is where my concerns lie. Irrespective of what the officials are saying, the red dots on this report are on those key issues. I want to be more confident that the Department is looking at improving this and that it has an implementation process which is under way or that some sort of legislation is progressing in this area.

Mr. William Beausang

The financial management shared services, FMSS, will happen. The decision needs to be made on whether we continue with our current basis of reporting, taking on board the innovations and improvements that have been introduced in recent years and whether there is a move to full accrual accounting. This year, with the assistance of funding from the European Commission's structural reform support programme and OECD expertise, we will undertake a very detailed due diligence on our fiscal reporting to map the information we provide against international best practice. This is with a view to identifying the gaps so that when we move forward on FMSS, we will be in a position to assess how we can best ensure that when decisions are made on how future financial reporting will be carried out, it is based on international best practice and standards.

From a policy perspective, rather than the work done on moving to the single financial system, a very active work programme is planned for 2018. Responding to Deputy Burke's comments, that demonstrates that the Department and our colleagues in the Department of Finance are very committed to continuing to engage with the transparency agenda, as we have done in the past.

Does the Department look at the UK and similar jurisdictions to see how its procedures have progressed?

Mr. William Beausang

The UK's experience gave us pause for thought. It is probably one of the countries which has had the longest and most intense experience of making changes in its approach to financial reporting. Even where it reports on progress itself, it is not claiming to have realised all the benefits. When one looks at Europe, countries such as Germany, the Netherlands, and Norway have decided they will not move to accrual accounting. Alongside that, they are making every effort to improve the transparency of their fiscal reporting. As we look at our options, we have the choice between moving to accrual accounting or, if Government decides to stick to cash accounting, that we engage with and address the weaknesses that can give rise to in fiscal reporting in areas such as liabilities and so on, as the Deputy raised.

I understand where Mr. Beausang is coming from but I believe it is of value. The UK is providing more information and, as an accountant, I am fearful when dealing with cash accounting or a central fund that not all the data is there and that there are significant liabilities. Sometimes, when the appropriation accounts come to us, we find ourselves searching through notes within those accounts to assess contingent liabilities. That poses risks in terms of transparency and assessing how the State is doing. We have a lot of improvement to make in those key reporting requirements.

Mr. William Beausang

The Deputy is correct. The Comptroller and Auditor General or one of his officials wrote to the Secretary General of the Department of Public Expenditure and Reform in November about how, within the existing framework, we could improve reporting in the appropriation account. The office of the Comptroller and Auditor General recommended a number of changes to the appropriation account that could be undertaken in the short-term and medium-term issues. Arising from that, the Secretary General of my Department wrote back proposing the establishment of a working group composed of the Comptroller and Auditor General, the Department of Public Expenditure and Reform, the Office of Financial Management and Shared Services and other Departments to move on those weaknesses in the appropriation accounts which the Deputy highlighted, which were highlighted by the Comptroller and Auditor General and which are reflected in a recent periodic report of the Committee on Public Accounts.

The Deputy has used about half of his opening time.

Okay, I will take the last ten minutes later.

Before Mr. Beausang leaves, I will put a number of questions to him and then we will take the opening statement. Does anyone else wish to come in on this chapter?

Mr. Beausang says there are plans for a good deal of activity on this in 2018. Has the Department mapped out the outcomes of this? What can we expect to see in 2018 and 2019?

Mr. Beausang spoke of the cost. Can he indicate what sums are involved and over what period? Where does this fall within the pecking order of the Department's work? Is it high priority? Are other things ahead of it which are regarded as higher priority? Without transparency, there cannot be accountability. We have a different dynamic in the Dáil now that there is a Committee on Budgetary Oversight. The quality of information available to us, including internationally, enhances our reputation. The more transparent our systems are, the better it is for all of us.

Mr. William Beausang

The Department of Public Expenditure and Reform strongly endorses the importance of transparency across the board, in the Department's work programme and in matters such as lobbying regulation, freedom of information, and open data. In the area of public expenditure, we fully understand, including from our own work, the importance of a presentation of the Government's fiscal accounts that is as clear, transparent and simple as possible. If that information is not available, it represents a significant obstacle to understanding and accountability.

On the pecking order, it is fair to say that arising from the OECD's work, which is featured in its report on improving parliamentary scrutiny of the budget, we have prioritised many of the measures arising from that. The publication of a performance report, expected later this month, will allow sectoral committees to examine the performance of Departments relative to the allocations made to them.

That is an important innovation. On our side, the mid-year expenditure report is a very important stocktaking in the middle of the year in terms of where spending has got to and our projections as to what spending will look like for the remainder of the year. It is also very important in setting up the position for the budget for the next year. We have done a lot of work. The work on implementing the IMF fiscal transparency report came to a point where we understood that we could not do more until we had progressed things like the financial management shared service. We have moved, as a result, our emphasis and focus to the issues that were highlighted in the OECD report on parliamentary scrutiny of the budget.

In terms of the specific outcomes from the European project, members will understand that when Europe provides very significant resources, given that we do not know exactly how much the project will cost, it is very focused on what the outcomes should be.

What would Mr. Beausang regard as very significant resources?

Mr. William Beausang

I do not have the figure with me, but in terms of all the projects that are being supported through the structural reform support service, I think they add up to a number of millions that will be provided by the European Commission to support them.

What is a number of millions? Is it €5 million?

Mr. William Beausang

The sum of €3 million or €4 million might be allocated to us. I will not put a price on a project like this, but if we were undertaking it ourselves, it would consume a significant amount of the resources that are available to us for things like consultancy. There is, or there will be soon, a full statement of the scope of the project and the outcomes that are expected from it. I am happy to share that with the committee once it is finalised.

In terms of the cost of moving to accrual accounting, I have not seen that quantified formally in any way other than in a research paper where the authors referred to France having spent perhaps up to €1.5 billion on budgetary reforms and other reforms leading to the introduction of accrual accounting. The other figure that was quoted there, but without any particular reference or source, was the assessment that a move to accrual accounting could cost a medium-sized country up to €50 million, but I am not sure of the provenance of those figures or how accurate they are otherwise. Going back to the OECD work that I mentioned, the point is that countries have spent ten years moving from cash-based to accrual accounting, and I am sure they have consumed a lot of resources in doing that. The question is whether they have seen the benefits of that investment. It is the OECD's assessment rather than ours but it is fair to say that the jury is out on that.

What are we likely to see in terms of 2018?

Mr. William Beausang

We hope to kick off the European Commission work with the help of the OECD and national experts from the UK and Portugal by mid-year.

How much is being spent this year?

Mr. William Beausang

I do not know how much the Commission has allocated to the project for this year. I do not have that information to hand.

I call Deputy Connolly, and the rest of the speakers can come in when we finish this topic.

The fiscal transparency chapter by the Comptroller and Auditor General dates to July 2017. What specific progress has been made since then?

Mr. William Beausang

The specific progress that has been made is the work we have done with the European Commission to set up this project under the structural reforms support service initiative. That was something that we had in our mind as we looked at the way forward. That is a very significant response to the deficits in financial reporting that the Comptroller and Auditor General highlights in this report, and it will be an important and, indeed, critical part of our response to that issue.

While I am not criticising the IMF's work, typically, it has a team over for a week or two, it is high level, it looks at best practice and says this is the direction of travel of what we should be trying to do in terms of fiscal transparency and fiscal reporting. For a system as complex and as large as the Government accounting system, we need a deep-dive, granular analysis to come to a clearer view of what is involved in mapping what we do currently against detailed international accounting standards to find the gaps with a view to following through on those.

I understand that. I am no expert and I am guided by experts in this. My job is to ask questions on progress. Since the chapter from July 2017, what has been set up?

Mr. William Beausang

We have continued to engage with the Commission on the establishment of the project.

The IMF was here in 2013. Those recommendations were made in 2013, five years ago. Was most progress made following the Comptroller and Auditor General's chapter?

Mr. William Beausang

No, it was before my time, but a group was set up following a Government decision when the fiscal transparency report was brought to the Government.

The progress was made then and that was when the budget process got all the green circles.

Mr. William Beausang

Yes, if Deputy Connolly looks at the green dots, that is the work that was done in that two-year period.

Yes, that is lovely. We are giving a green tick to the budget process and saying it has improved significantly and there are just three outstanding recommendations. What are they?

Mr. William Beausang

Could Deputy Connolly just reference one?

I am looking at diagram 5.1 where the budget process gets all the greens. We have three orange, or they might be red. I am a bit colour blind so I cannot make out if it is orange or red. In any event, what are those three?

Mr. William Beausang

I am looking at 5 a, b and c.

I am looking at figure 5.1 which sets out the progress from the Comptroller and Auditor General's chapter.

Mr. William Beausang

That relates to recognition of a wider range of assets and liabilities.

Mr. Seamus McCarthy

Perhaps we should have done a cross-referencing. I do not have the cross-referencing with me. The aim of the diagram was to give an overview of where matters had been progressed best. The annexe contains the 35 individual actions, but it does not code them as being budgetary process or financial reporting. That is something we should have done.

Mr. William Beausang

One of the issues highlighted in the two red dots was recognising the accrued pension liabilities of public servants and a substantial programme of work has been undertaken in the Department of Public Expenditure and Reform in light of an EU regulation to quantify our accrued pension liabilities. That was reported on late last year. It is work that is done every couple of years but now there is a more recent statement of accrued pension liabilities for public servants, which responds to this issue that the IMF highlighted that we did not have as good a handle on it as we should have.

The other issue that arose was the recognition of liabilities associated with PPPs, and although under EUROSTAT rules we are not required to report - EUROSTAT guides how we report in terms of PPPs - there is significantly more information available now on the liabilities that arise from PPPs and that is published and is in the public domain. Those are two gaps that the IMF identified, namely, PPPs and pension liabilities.

Will Mr. Beausang repeat what he said about PPPs? He said it a bit too quickly for me to understand. I understand what he said about pensions. What was said about PPP liabilities?

Mr. William Beausang

Since 2013, there has been enhanced financial reporting about PPPs on our website, and details are now publicly available for all central government PPP projects so we know what we paid up to now in terms of unitary payments to PPP partners and we know what we will have to pay in the period that the PPPs will be paid off. That information is all available and it was something that the IMF said was missing in 2013 when it looked at our accounts.

Is there a deadline for the completion of the work on the financial management shared service?

Mr. William Beausang

Yes, there is a very structured and detailed, comprehensive project plan.

What is the deadline for its completion?

Mr. William Beausang

I know that the first movement across in terms of financial management shared services is happening this year. The Department of Public Expenditure and Reform and the Department of Finance will come in under the system at that time. In terms of the end point, I am sure it is programmed into the plan but it will depend on progress as it works through the 40 public service bodies that will be brought in under the single financial management shared service. I do not have the information with me so I will share with the committee what the sequencing of public bodies is expected to be.

That is important because Mr. Beausang said that is one that has to be done first before the Department makes decisions. Roughly, when will that be made?

Mr. Derek Moran

I might be able to help.

Mr. Derek Moran

The project board meets when they go live. This will happen in five waves. The first wave will be ourselves, the Department of Public Expenditure and Reform, the Comptroller and Auditor General, the Department of the Taoiseach - a number of relatively small offices. That will go live in the next six to eight months, I think. The level of preparedness and readiness is being done. Then there will be five waves in total, I think, thereafter over a period of about 18 months, bringing in a lot of the larger spending Departments.

Two years.

Mr. Derek Moran

About that timeline, yes. It is the biggest change in the financial platform that the State has seen in a very long time.

Recommendations were made - we are not experts - and Mr. Moran says there are difficulties and he cannot go from cash to the accrual basis. I understand that. They have to look at it. Mr. Moran said clearly that the first big thing is to get the financial shared management. We have heard details on that before and nothing can happen until it is done. No decisions can be made.

Mr. William Beausang

I think there would be huge risks in trying to move to accrual accounting without having that in place.

I am not questioning that.

Mr. William Beausang

To answer the Deputy's question, yes, financial management shared services, FMSS, will need to be in place or ready to-----

Lovely. So now-----

Mr. William Beausang

This is something that I should be clear about. FMSS will be able to do this regardless of whether Government decides it wants FMSS to report on an accrual basis. Taking the Secretary General's timeline, within a two-year period the integrative system will be there which can report on an accruals basis.

Decisions cannot be made until that is ready and it will not be ready for two more years.

Mr. William Beausang

I would expect on the basis of the work we will do under the Commission's structural reform support service that, at that point in time, we will be taking stock with a view to advising the Minister and Government in due course on the advice on whether we should make that jump in due course.

I am leaving the decision alone. I am just asking about the preliminary steps. This is a preliminary step that will not be completed for at least two years. Am I exaggerating?

Mr. Derek Moran

I think that is broadly correct. When we change from one financial management platform to another, there are big risks and we need to make sure it works.

I am not criticising, I am simply-----

Mr. Derek Moran

I am trying to help.

I am seeking to establish the facts. That is all. When the IMF set these, they were non-obligatory and the Department did not have to follow them. Did the officials accept most of them and have they gone back to the IMF to say we cannot do this? What exchange has there been since 2013?

Mr. William Beausang

When the IMF was over to do the assessment of our public capital investment system during the summer, it ran a seminar to take stock of progress in implementing its report.

Mr. William Beausang

That was last July. It concluded - in retrospect, because it is also learning as it undertakes this work - that Ireland is one of the stronger performers internationally in terms of fiscal transparency. The people from the IMF were recalibrating their understanding of the baseline. It was reassuring to us that we have not fallen behind and that we are still maintaining the pace in terms of improving tax system transparency.

It is not reassuring to me. If the IMF says this and the Department is happy to go with it, but it is not really, there must be a procedure to go back and say the IMF has set targets or recommendations the Department cannot achieve.

Mr. William Beausang

I think the IMF was painting a picture for us and certainly identifying areas in which we needed to up our game, and we have done so. It was a very collaborative and collegial exercise. When the Deputy talks about it, they made recommendations and those recommendations relate to very important parts of public financial management. However, not every recommendation that an international body makes in the course of looking at an issue over a week or two, when it is looked at further, is going to be easy to implement.

I am no fan of the IMF and I accept that. It is just the time span. At some stage - it is now 2018 - we have to say to the IMF that we are not following that because it does not make financial sense to us.

Mr. William Beausang

They know since last July from that seminar where we stand in terms of our plans, including fiscal transparency.

I think there was one recommendation on consolidating the financial statements. I forget what it was.

It was consolidation of the finance statement and the appropriation accounts, paragraph 5.21 of the Comptroller and Auditor General's report.

That is right. It comes up all the time in other situations. I thank the Chairman.

The officials were saying that requires legislation.

Do the witnesses accept that?

Mr. William Beausang

Our own Secretary General constantly highlights this point to me. He believes that the reporting is fragmented at present. In the context of updating the legislative framework more generally as we look at improving fiscal transparency, I think certainly more consolidation - our experience to date is that the more we consolidate to the extent we can, the better it is - is very much a recommendation. That financial reporting would be regarded as fragmented does not suit our purposes and certainly does not suit the accountability and transparency objectives that we have.

Mr. Seamus McCarthy

Consolidating two sets of financial statements is not replacing them. It is an extra presentation, as it were. Recommendation 1b on page 74 is to "combine the Finance and Appropriation Accounts into a consolidated central government financial statement". There are other accounts which might be comprehended in that as well, for instance, the Social Insurance Fund, Local Government Fund, National Training Fund and possibly the Revenue accounts as well, depending on the level of information required. The point is that none of these on its own gives a comprehensive picture of what the State is taking in and spending. There is scope to produce a consolidated statement, which would be subject to audit and so on. I do not think it is absolutely necessary that there would be a statutory underpinning of that. It could be done in the context of producing the Central Fund of the Exchequer. There could be other consolidated information presented with that which would be helpful and useful for the committee and others who want to get a snapshot of the position.

Does Mr. Beausang accept that?

Mr. William Beausang

Yes, certainly. As the Deputy can see from the response to that recommendation, there was an exercise carried out at a point to see on an administrative basis what a consolidated statement would look like. Against the backdrop of the ongoing work with colleagues in the Departments of Finance and Public Expenditure and Reform, we can see what scope there is for revisiting that work.

What is the timescale for giving consolidated accounts?

Mr. William Beausang

The view when we did that informal exercise was very much that the full benefit would only be realised in the context of the implementation of FMSS. However, if the Comptroller and Auditor General is saying that there is scope for looking at this issue on an ongoing basis, it is something we have to take into account, particularly in light of the work of the working group that is soon to be established to improve the presentation of the accounts and to which I referred.

The last speaker on this topic is Deputy Cullinane, after which we will move on the main business.

I will be very brief. Does the Comptroller and Auditor General agree that it is fair to say that at this point we do not have a fully consolidated balance sheet of all State funding in and out?

Mr. Seamus McCarthy

We do not have a fully consolidated account, rather than a fully consolidated balance sheet. We do not have the balance sheet, either. It is a point I will be making later when we come to talk about the Finance accounts, the account of the Central Fund of the Exchequer. There is no balance sheet or statement of assets and liabilities associated with it. That to me leaves a gap in knowledge about our position.

If I were to pick something from that chapter, that to me is the key issue. What is Mr. Moran's view on it and how and when is it going to change? I am sorry I missed some of the earlier questions. I had to do a media interview. The question might have been answered.

Mr. Derek Moran

In the context of what we are discussing, what we have is a very large investment in modernising our entire financial management framework. We will start rolling that out very shortly. The whole purpose is to get as many public service bodies into the framework as possible and have within that the capacity to generate a lot of the information-----

There is mobile phone interfering with the recording. I ask members and witnesses to ensure their phones are switched to flight mode.

The question is if, and when, we will have a consolidated set of accounts for all income in and expenditure out.

Mr. Derek Moran

I take the point. The FMSS will be a building block towards that. Whether we can work on this without statutory change is something the Comptroller and Auditor General has raised and we can look at that. As to when, I do not have an answer for the Deputy on that.

Finally, paragraph 5.15, on page 72 of the report, states, "The report also noted that there was no uniform set of accounting rules and procedures applying to government departments, extra-budgetary funds, semi-state bodies, local governments and public corporations." It goes on to state that four recommendations have been made to correct or address this. Addressing the Comptroller and Auditor General first, is it fair to say that is partly because some of those Departments and bodies are audited by his office and some are not?

Mr. Seamus McCarthy

The Government Departments, extra-budgetary funds and semi-State bodies - obviously, not the commercial State bodies - are all mine. Local government and public corporations are outside my remit.

If that is the case, is it not extraordinary then that there are no uniform rules and procedures?

Mr. William Beausang

It is reflecting there are rules and procedures in place but, just as the recommendation says, as the Deputy is pointing out, they are not uniform and harmonised. The issue of standard setting, when one is taking into account the different issues that kick in when one looks at different elements of the public finances, is the issue that we are engaging with here. That is the area we are trying to address.

Sometimes there is an inevitability to diversity because if one tries to harmonise, the one-size-fits-all means that one is losing things in terms of the financial reporting. Not being intimately familiar with the specific issues that arise in relation to those four recommendations, it is presumably the case that there is a sort of diversity there that is hard to corral under one single set of rules. The experience more generally, as we look at it in accounting standards, is that a uniform and standardised approach sometimes can cause real difficulties and there can be very significant unintended consequences from saying, "That is the rule and everybody has to hold to that rule", if that process is not worked through in a way that takes all the individual relevant factors into account.

That is not so, with respect, if uniform accounting rules and procedures in place are taking best practice across all of the Departments. If one does not have uniformity, it is difficult for those who do not have accounting backgrounds, such as myself and members of the Committee of Public Accounts, to understand what is happening and get an accurate reflection.

Mr. William Beausang

That is a fair point.

Notwithstanding my view, the report made four recommendations in this area and it states none of them has been implemented to date. Have any of them been implemented since?

Mr. William Beausang

Maybe the Comptroller and Auditor General can assist me by referencing what those four recommendations are.

Mr. Seamus McCarthy

One of the recommendations was that there be a central unit somewhere in the system that determined what are the accounting frameworks to be used and why. At present, in the Department of Public Expenditure and Reform the rules for appropriation accounting are made. It is completely a matter for the Department of Finance how the finance accounts will be structured and presented. One has the Department of Education and Skills making determinations in relation to the third level bodies we were talking about this morning and education and training boards, and one has the Minister for Health making determinations in relation to how health bodies will do their financial reporting. Anybody who does not fit into such categories comes under FRS 102, which is accrual-based accounting. We have a lot of different things happening in an unco-ordinated fashion. That was a core view of the IMF, that there needs to be more coherence around it.

One point I would make is that we have talked this morning about a cash accounting basis or an accrual accounting basis. In fact, what we have is not a pure cash accounting basis. It is a modified cash accounting. If one looks at an appropriation account, one can see that there is a statement of assets and liabilities in it. That is an accrual based concept and the aim is to provide a certain amount of information on an accruals basis. It is not as simple as saying we will do it on a cash basis or we will do it on an accrual basis; there is an intermediate space. What one really needs is a central view on what is appropriate.

My final point is we do not have that central view. We have the report which makes four recommendations. Mr. Moran was not sure whether they were implemented or not. The Comptroller and Auditor General states none of them was implemented.

Mr. Seamus McCarthy

None of those was implemented.

Why not? Whose responsibility is it? Does Mr. Moran have a responsibility to implement any of those recommendations?

Mr. Derek Moran

As Mr. Beausang has said, in terms of developing a lot, particularly on the financial side, and I do not like to keep repeating myself, we have this major project under way and the decision was taken to hold off until we got a new financial management framework put in place to build in the capacities to do all of this, including the accrual accounting, and to come back to that when that system was up and running.

I thank Mr. Moran for that answer. My question is that I am looking at a report the summary of which states that four recommendations were made to ensure that we have some level of uniformity in terms of accounting rules and procedures. We have heard from the Comptroller and Auditor General the rationale for that. It is a reasonable question and a straightforward answer would be welcome. Has he a responsibility to implement any of those four recommendations? The answer is "Yes" or "No". If he has a responsibility and they have not been implemented, why have they not been implemented? Am I correct in reading from what he is saying that he has not implemented them, if he does have a responsibility, because of lack of capacity?

Mr. William Beausang

There are two issues there that fall to-----

Sorry, I was putting the question to Mr. Moran.

Mr. William Beausang

I am sorry, it is just that two of those recommendations fall to the Department of Public Expenditure of Reform and I am happy to pick up on them once the secretary general has answered on the others.

I thank Mr. Beausang.

Mr. Derek Moran

We have to go back to the context of the report. The report gave a set of guidance, non-binding recommendations for us and the Government charged us with looking at implementation as appropriate. To date, we have implemented or partially implemented about 70% of what was in that report on an ongoing basis. To the extent that we can advance once the infrastructure is in place, we will be back to look at that.

A lot of what Mr. Beausang has referred to is the next stage of progress around it. This is never finished. One always keeps trying to improve what one is doing.

I am not sure I got the answer that I was looking for but I thank Mr. Moran for the response anyway.

Mr. William Beausang

The issue the Comptroller and Auditor General raised that is highlighted in the report is a sort of permanent Government financial reporting unit at the centre, in the Department of Finance and DPER, with a sort of technical financial expertise to drive forward the agenda in terms of financial reporting. That falls to be progressed on the basis of the professionalisation agenda that is set out in the Civil Service renewal plan. Work has been ongoing on scoping out what a chief financial officer role in Government would look like. Obviously, that person would be absolutely vital to driving forward on that standardisation, harmonisation and uniformity, that the Deputy has referred to and that is picked up on as a weakness in the IMF report.

In terms of financial reporting standards, we in DPER are engaged in the European process. There are international public sector accounting standards. Europe is looking at how they might be tailored to a European context through the development of a European public sector accounting standard. We participate in that work. The discussions are complex. I should say there are very significant issues that come through for each country in terms of translating the international standard into a workable European system and there has to be a decision at the European level as to whether there will be a standard which all countries will then have to comply with. That is work in progress. It is a project that will run over a number of years. It is not something that will come to an end in the short term, given the complexity of the issues that it gives rise to.

Finally, to conclude this particular session, there are a couple of questions I want to put to Mr. Beausang. He just touched on one of them. When the IMF was in town it was here, in partnership with the EU, as the troika.

Did they heavily consult the European Union and EUROSTAT about the recommendations?

Mr. William Beausang

It is a separate exercise.

On the IMF's report, in fairness to people here, I have to put it in context with reference to the first paragraph of the chapter. It reads: "A team from the International Monetary Fund (IMF) visited Ireland in March 2013, at the request of the Secretaries General of the Departments of Finance and Public Expenditure and Reform, to evaluate". The witnesses invited them to give us some help. There was no mandatory requirement. It is important that it was just a case of them coming, looking at it and giving us some good suggestions and help. As Chairman of the Committee of Public Accounts, I do not see any legislative requirement to implement all of them. Some might have been good; some might have been excellent; some might just not work out and some might require consultation at EU level so as not to be inconsistent with EUROSTAT and other things. It is a helpful document, but it is not gospel.

Mr. Derek Moran

It is always useful to undertake those exercises to benchmark where one is.

I have quick questions on the document before us. It is good that we have it. I am looking at page 71, but the question is not specific to it. The witnesses mentioned the National Asset Management Agency, NAMA, and that in the recent accounts the contingent liabilities for it were taken off the balance sheet. Is the expected surplus of €3 billion included in the State's balance sheet and the report the witnesses issued two days ago?

Mr. John McCarthy

No.

The witnesses can see from where the Committee of Public Accounts is coming. We know that €3 million is sitting there-----

Mr. John McCarthy

Some €3 billion.

Approximately €3 billion. It is not in the State system until such time as it comes in.

Mr. Derek Moran

To be clear, that is the estimated surplus in 2020 and 2021. It is not necessarily there now, but it will be when the various transactions are worked through-----

It is nearly there.

Mr. Derek Moran

We are getting much closer.

The witnesses have confidently said the figure will be approximately €3 million. We are taking it, therefore, that there will be approximately €3 million.

Mr. Derek Moran

Approximately €3 billion.

I should say approximately €3 billion. We were back to small figures for a few moments.

Mr. John McCarthy

For the same reason, any disposal in the banks is not included in our numbers-----

The valuation of the State's investment in the banks is not included-----

Mr. John McCarthy

It is not included in the public debt figures that we published on Tuesday.

The witnesses can see the rationale for somebody saying everything should be consolidated. They are very big figures that are not included. On specific items, is the contingent liability not recorded in the HSE accounts of approximately €2 billion for medical negligence included?

Mr. John McCarthy

I do not know if it is included.

I ask the witnesses to come back to clarify the matter.

The last point is directly related and concerns the section on financial reporting, 10a, on page 83. It has come up before. I will ask the witnesses from the Department of Public Expenditure and Reform or the Department of Finance or somebody else to give me the definitive document. A couple of paragraphs from the bottom of the page it reads: "Accrual accounting is already the norm for most of the public sector with the exception of central government, and the Education and Training Boards. Most public sector bodies prepare their financial statements in accordance with" financial reporting standard, FRS, 102. Will the witnesses prepare a list of the public bodies that do not meet the financial reporting standards? We know that some have. We know that some of them are healthy and that the HSE is the big one. Suddenly, we have a statement produced and there is a little note on one of the 158 pages referring to accounting policies as directed by the Minister. It crops up in a few places. We want the list. The Comptroller and Auditor General may have it, but the Department of Public Expenditure and Reform or somebody else should have it. Will they, please, send it to us in order that we will know when we are looking at the accounts in the future that there are gaps in them compared to the normal financial reports one would expect. We will conclude the discussion on the section on fiscal transparency. Now that we have concluded our examination of it, we will note the chapter. I thank Mr. Beausang from the Department of Public Expenditure and Reform. He is free to leave.

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