PAC Meeting | May 1, 2014
Department of Social Protection
Secretary General, Ms Niamh O'Donoghue, called and examined

Acting Public Accounts Committee Chairman (Deputy John Deasy): Expenditure on pensions totalled €6.3 billion in 2012, which is an increase of 7% on 2009. A further 3% increase was projected for 2013.I would like to shift to something in which the Department is involved intimately, that is, the Waterford Crystal pensions issue. Rather than outline the background, of which Ms O'Donoghue will be aware, perhaps she could outline the Department's involvement in this and the current position when it comes to dealing with those representing the workers. The High Court has set a date in the autumn. Many people, including me, are unhappy about that because this has dragged on a long time but perhaps Ms O'Donoghue can address the current position, the Department's involvement and, broadly, the issue of under funded pension funds in the State. What is of interest to me is how we got to this position, how the massive under funding of the Waterford Crystal pension scheme was allowed to happen, how we will deal with the numerous other under funded pension schemes that are discussed regularly, which probably amount to billions of euro, and how we deal with the governance of these schemes, for example, how the trustees acted and so on. It is a significant issue.

Niamh O'Donoghue: The Waterford Crystal case arose because of a case taken to Europe in the context of what was called a double insolvency where a pension fund was insolvent and the company then became insolvent. Workers, therefore, were caught by a double insolvency and the question arose in respect of the State's liability to protect their pension rights in that instance. The court made findings that the State had an obligation and had failed in its obligation in regard to a particular directive to establish a rate at which such protection could be offered. In terms of how that would be addressed, legislation was passed last year to address the gap that was identified by Europe. The mechanism is now in place in terms of future proofing to ensure there is some protection for workers but, obviously, a number of companies, including Waterford Crystal, are caught in that gap between the directive and last year's legislation. Given that it is the subject of a court case, I cannot comment on it except to say the court case is ongoing but the predominant group is the workers n the Waterford Crystal case. A small number of other schemes are in the same situation with a much smaller number of workers.

Acting Chairman (John Deasy): The Department has made an offer to the group representing the workers. The issue that will be decided by the High Court in the autumn is how much or what percentage of their pension they will get ultimately. The Department is actively engaged with the people who represent them. Am I correct that an offer has been made by the State to provide a particular level of payment?

Niamh O'Donoghue: It would be very inappropriate for me to comment on that.

Acting Chairman (John Deasy): Is the Department in contact with the High Court regarding the setting of dates or is that an independent function of the court?

Niamh O'Donoghue: That is handled by the Attorney General's office.

Acting Chairman (John Deasy): Is Ms O'Donoghue in contact with the Attorney General's office?

Niamh O'Donoghue (below): Yes.

Acting Chairman (John Deasy): Ms O'Donoghue, therefore, liaises with the Attorney General's office regarding its communications with the High Court. Can she understand the difficulty for the workers? I know people who have died since this process began, going back to when the court case was taken to the Europe. It is estimated 30 former workers have died since this was initiated and that is an issue for us. It has gone on too long. There is a huge issue with under funding of pension schemes but-----

Niamh O'Donoghue: It is a huge issue in the State and Ireland is not unique in terms of problems with defined pension schemes and the funding of pension schemes. A number of things have happened. There has been a restructuring of the governance arrangements. The Pensions Authority has been put in place to replace the Pensions Board, which had responsibility in this area for regulating the application of the Pensions Acts. The funding standard has been restored and engagement is going on with all the schemes in respect of their plans to meet that standard over a number of years. It is, therefore, an active space at the moment but it is challenging and difficult. That is not unique in Ireland.

Acting Chairman (John Deasy): Ms O'Donoghue has explained the nexus regarding the Government generally. The Department is in communication with the Attorney General's office and it might be in contact with the office of the President of the High Court. Some indication needs to be given by Ministers or the Department, although it does not speak for Ministers, with regard to the urgency required. It has been dragged out for too long and there needs to be some resolution regarding this scheme, notwithstanding the massive issue of under funded pension schemes. Has the Department examined the governance of the Waterford Crystal pension scheme and how that hole came to be in the first place? Has this been investigated?

Niamh O'Donoghue: The governance and operation of the scheme was subject to the regulation of the Pensions Board.

Acting Chairman (John Deasy): "No" is the answer. The Department is dealing with this perspectively or from this point on.

Niamh O'Donoghue: The Department was actively involved in the court case that led to Europe so very considerable examination was done in regard to that. However, at that point, the company and scheme were insolvent and the workers found themselves in that situation.

Deasy: When did you recuse yourself and inform everybody that you were interested in the job? You were an integral part of the process of hiring somebody to be chief executive of the CRC but you wanted that job yourself.

Conlan: It was not until I saw that the internal advertisement when the job spec-----

Deasy: You have got to be kidding me. It was not until you saw the internal advertisement-----

Conlan: The job spec.

Deasy: You were the person who was putting that together.

Conlan: Not me.

Deasy: You were part of the recruitment team.

Conlan: That was put together by Amrop Strategis. I had no hand or part in the recruitment of Amrop.

Deasy: Can someone tell me who made up the remuneration sub-committee?

Chairman (John McGuinness): Mr. Goulding, Mr. Martin and Mr. Nugent.

Deasy: Okay. At your meetings with MERC, did you discuss pay?

Conlan: No.

Deasy: You did not discuss pay at all - no salary? So you went to a recruitment company and you did not discuss pay? You did not mention the salary of the incoming chief executive at all? That is unbelievable.

Conlan: The meeting with MERC was to establish whether it would be suitable to recruit the CEO. That was the substance of the meeting.

Deasy: You did not get into pay or salary at all?

Conlan: Not that I can recall.

Deasy: What is the HSE going to do about the money that has not been disclosed to date, which found out about in its investigation with the interim administrator? What decision has the HSE taken with regard to the moneys that have been given to Mr. Kiely of which it was not aware?

Barry O'Brien: First, I want to make reference to the recruitment process and draw the Deputy's attention to a letter we previously put on the record that was dated 24 April 2013. It was a letter from the then chairman, Mr. Ham Goulding, to Ms Laverne McGuinness, national director of the HSE, stating: "In accordance with the terms of our Memorandum and Articles of Association we are commencing a recruitment programme to find his replacement." This refers to the CEO. It goes on to state: We have signed a contract with Amrop Strategis to handle the recruitment on our behalf and they have started the Executive Search process which will be carried out by reference to their contacts and database and by newspaper advertisement. We would like to have the new executive in place by the end of June[.]
The next thing we heard about it in the HSE was when the appointment was then made by way of an internal competition. So, with reference to Deputy Deasy's second question, what we are now saying is what our internal administrator stated in a letter to the committee:
At this stage it is necessary for the CRC to satisfy itself that the payments made/benefits conferred are reasonable and proper (in the context of its memorandum of association) and that any amounts paid were correctly calculated and authorised.
In the event of there being a loss to the CRC (or the Friends and Supporters of the CRC), steps to make good that loss [and deal with other consequential issues] will require to be taken.

Deasy: What is Mr. O'Brien's opinion? Were they reasonable and proper?

O'Brien: No. The Deputy is asking my opinion. Quite clearly, we already heard at a previous hearing that the then CEO was part of a private pension scheme whose terms and conditions he would benefit from. I also think it is hugely erroneous for the CRC to make reference to a package which was available in 2010 in the HSE when in fact Mr. Kiely chose to retire in June 2013 when no such package was available. To use that as a basis for calculating or as a methodology to award benefits--

Deasy: You are talking about the HSE's early retirement scheme.

O'Brien: In 2010 only.

Deasy: That is grand. Thank you very much. Again, I go back to page 2 of the minutes, which talks about the package being in line with the recommendation of the remuneration sub-committee. Could Mr. O'Brien tell me if there is any documentation as to whether a recommendation was circulated to members, or was this just brought up at this board meeting?

O'Brien: For the record-----

Deasy: Normally, when there is a recommendation, that means there is a paper trail. Normally, that means that people on the board would be notified that there was a specific recommendation and the figures would have been cited in that recommendation before people got to sit at the board.

O'Brien: As the Deputy asked the question about 20 minutes ago, I have been advised that there are only minutes of one meeting, which was the one we have provided to the committee, and that no minutes can be located for the remuneration sub-committee.

Deasy: No minutes?

O'Brien: That is to the end of March.

Deasy: So you do not have any paper trail with regard to that particular sub-committee meeting?

O'Brien: That is the most up-to-date position, Deputy. They are not available.

Deasy: And you are not aware of any recommendation in writing that was circulated to members from that sub-committee meeting?

O'Brien: No, we are not.

Deasy: When you go through page 1 of the letter and get to the last paragraph, it talks about the moneys paid by Friends and Supporters of the Central Remedial Clinic that was described in the draft internal accounts as a donation.
I ask Dr. Smith, who is an auditor, whether that is falsification of accounts.

Dr. Geraldine Smith: The wording is important. The documents states "draft internal accounts". Obviously they have not been subjected to an audit. One would expect that reference would be made in the final accounts to the purpose of the donation but it is also interesting to note that in the previous accounts the word "donation" was also used between 2010 and 2012, as well as the draft accounts for 2013. There was no reference to what the donation was in respect of-----

Deasy: Can one do that, professionally?

Dr. Smith: I always read accounts from the perspective of the man in the street. Any individual taking up a set of audited accounts should be able to assume that the accounts provide full information so that he or she can get a full understanding of the transactions involved.

Deputy John Deasy: It is misleading, is it not?

Dr. Smith: One would certainly expect more information.

Deasy: Is it not misleading?

Dr. Smith: I have been informed by the Chair that I can say it is misleading.

Chairman: It is also misleading in regard to the payments to the Mater hospital, which were described as a fee. There was not a fee.

Dr. Smith: No, there was not a fee.

Chairman: The auditors also have questions to answer in regard to the description of these sums.

Deasy: The terms are misleading. One could go so far as to say there was falsification. I am not accountant or an auditor. I do not have any great expertise in this area but, as Dr. Smith noted, the accounts should be written so that the ordinary man in the street can understand them. When I look at this and the interim administrator's account of it, I would go so far as to say it was done to deceive. That is very serious. This is the point he is making in the last paragraph, because he singles out the word "donation". It was not a donation in any sense of that word.
I ask the HSE about its guidelines on lump sums - I touched on this issue at the last meeting - and its interaction with Mr. Kiely in early 2013. Did it put the scare on him? What led to this? Was it in contact with the CRC and Mr. Kiely about his salary in early 2013? I do not know whether Ms Lawlor was involved.

O'Brien: From mid-2013 we were in contact with every section 38 agency and we asked the same questions, specifically about compliance with public pay policy, Department of Health consolidated salary scales and whether additional payments were being made.

Deasy: What contact did HSE make with Mr. Kiely and the CRC regarding Mr. Kiely's salary in the time leading up to his resignation?

Dr. Smith: Perhaps the most significant aspect was the communications from me in regard to the audit. As I informed the committee previously, I built on information provided by the CRC to the HSE in regard to various questions that had arisen around public pay policy, members of boards, fees being paid, etc. It is perhaps possible that the interaction from audit to seek clarification of the information already provided, an assurance that the information was accurate and correct and other information on directors' fees, pension payments to private funds - I do not think that had been asked previously - was a significant factor.

Deasy: It might have been a significant factor.

Dr. Smith: I do not know what factors determined Mr. Kiely's decision to reply. The audit report issued in March 2013, and perhaps that was the culmination of the issues.

Deasy: It seems to me that the audit of March 2013 put the frighteners on certain people. When people discovered they were going to be scrutinised by the HSE in regard to their salaries, they resigned. However, the deal they constructed around the resignation was incredible. I think they deceived people within the organisation with regard to how they accounted for it. I think the board members were aware of that. Certainly, some of them had to be aware of it. We are going from the attitude that mistakes were made and pay policy was breached to full knowledge of things that should not have happened. The scale of sanction with regard to how things were accounted for is something I have to question. I think it is very serious. It is not just a case of "maybe we paid him too much". If I was a member of the friends and supporters association I would have serious questions about the now resigned board members of the CRC. I do not know what steps they might take after this.
When Mr. Conlan resigned from the Mater hospital, what kind of retirement package did he receive?

Conlan: I retired under the cost neutral early retirement scheme.

Deasy: What does that mean?

Conlan: It means that someone who is over 55 years of age can avail of the VHSS retirement scheme. I retired under that.

Deasy: Are all those details with the HSE?

Conlan: Yes.

O'Brien: The distinction between retiring on a cost neutral basis and what was available in 2010 for enhanced early retirement was that in the former case an actuarial adjustment was applied to the value of the number of years an individual missed for full service, whereas there was no actuarial adjustment on the years of service in 2010.

Deasy: I said I would revisit the issue of the early retirement scheme. Earlier I used the word "deception". The interim administrator's letter makes reference to a statement that the proposed package was considerably less beneficial to Mr. Kiely than these terms and refers to the HSE early retirement scheme of December 2010, for which Mr. Kiely was ineligible. That is untrue, is it not?

O'Brien: Mr. Kiely was never eligible for that scheme because he was not a member of the scheme. He was always a member of a private scheme. He was one of the CRC staff who were in the Irish Pensions Trust scheme.

Deasy: I ask for clarification on the interim administrator's letter, which states that the chairman, in outlining the details of this package, intimated that the proposed package was considerably less beneficial to Mr. Kiely when compared with the terms of the HSE's early retirement scheme. Is that true?

O'Brien: Yes, he was not entitled to it but the proposed package was considerably less beneficial to Mr. Kiely.

Deasy: This is made up. He could not have been entitled to it.

O'Brien: That is correct.

Deasy: It is an absolute falsification. Is that not the case?

O'Brien: It is not correct, yes.

Deasy: Yes, it is misleading information, disinformation, misinformation.

O'Brien: It has no bearing on what Mr. Kiely was or was not entitled to.

Deasy: It has no bearing on any fact at all. It is a complete fabrication. Is that right?

O'Brien: It has no bearing on Mr. Kiely's entitlements in the pension scheme of which he was a member.

Deasy: We are dealing with a twisted web. We are just clipping the tip of this iceberg. I have been introduced to much of this only today. Things have been constructed by members of the board. I will use my words carefully. It seems to me that what was constructed was disingenuous at the very least. I go so far as to say that the details and reasons given for this were completely false in some cases and there is an element of deception here. The donation and how it was regarded within the accounts is a serious matter. I am unsure how we should proceed. Do we bring in members of the board again and ask them what they knew and did not know? My guess is that people will deny they knew anything. There must be some accountability here. I have asked the HSE how it intends to proceed. If Mr. O'Brien accepts what I am saying, and he seems to, the HSE administers and polices this area. I ask again, what does he propose to do regarding this entire situation?

O'Brien: Delivery of the services remains our primary focus. When we have all the facts and information before us we will take whatever steps are necessary to ensure there is appropriate probity and governance, and if that includes seeking assistance from another statutory agency in finding the best way to proceed, we will do that with the sole interest of the integrity of CRC.

Deasy: To what statutory agency is Mr. O'Brien referring?

O'Brien: It may be necessary, depending on the information that arises, to seek the assistance of the Garda Síochána.

Deasy: Fine. I thank Mr. O'Brien.