PAC Meeting | May 28, 2015
Department of Social Protection called and examined
Deputy John Deasy:
Regarding rent supplement and fraud, I will refer to the different schemes and payments. Every now and then there is a news story about the Department tackling fraud and saving hundreds of millions of euro.
I believe that gives people an impression that there is a massive amount of fraud taking place but, to be clear, when we compare some of our schemes to the fraud levels in the United Kingdom rent supplement schemes it seems they are higher, not by much but they are higher.
Those are the figures I have seen. How does Ms O'Donoghue respond generally to the notion that there is rampant fraud in the social welfare system? She knows the corresponding figures for different jurisdictions.
Is it a fair statement to say there is rampant fraud in the social welfare schemes? There will always be a certain percentage of it but is the fraud in some schemes worse than others?
Ms Niamh O'Donoghue [Secretary General, Department of Social Protection]: I would absolutely disagree with any suggestion that there is rampant fraud in the social welfare system.
It varies from scheme to scheme depending on the nature and type of schemes involved. One of the things we do in the Department is categorise schemes into high, low and medium risk, and the high risk schemes are the ones on which we wish to spend most attention.
But in terms of international comparisons, there is no evidence to suggest that the level of fraud in Ireland is out of kilter with the level of fraud anywhere else.
I refer back to my opening statement. The evidence points to the fact that the vast majority of social welfare claimants are receiving the payments to which they are entitled, so fraud is not an issue. What we are looking at is a very small number of people who are engaged in activity, and it is our job to try to minimise the opportunity for that.
Deputy John Deasy: With regard to rent supplement, the figure I have for estimated fraud is 2.9%. The rent supplement survey established that cases paid directly to the client had an 18% rate of fraud and error while those paid to a nominated person, in other words, the landlord, had a 10% rate of fraud and error.
Has the Department considered making that payment directly to the landlord to minimise that differential as a condition of the scheme?
Niamh O'Donoghue: This is something that has surfaced on many occasions and the view of the Department always has been that the contract for rent supplement is with the claimant.
The rent agreement is between the claimant and the landlord, and it is only at the request of the claimant that we would directly make the payment to the landlord.
The real issue is a control issue for us in terms of following people through, getting communication in terms of change of circumstances or change of address, and tracking whether people are in particular locations or not.
Rent supplement was never intended to be a long-term scheme. The intention is that, over time, people who have a long-term housing need will move, in the first instance, into the housing assistance payment, HAP system, which is now up and running, and then, prospectively, into other social housing if that is a better option for them.
That is an entirely different contractual arrangement and method of payment, which probably offers better security to the State.
John Deasy: I think all Deputies got this literature in their pigeon holes this morning.
Niamh O'Donoghue: Yes.
Deputy John Deasy: What motivated Ms O'Donoghue to print this?
Niamh O'Donoghue: It is to make people aware that there is such a protocol in place and that if there is a danger of homelessness, there are arrangements in place to deal with that. It seemed, certainly from recent publicity, that this may not be as widely known or understood as we would wish it to have been.
Deputy John Deasy: Is the Department coming across that? Obviously, there was a tangible reason within the Department for this-----
Niamh O'Donoghue: We now have almost 2,000 people who are in rent supplement arrangements under this tenancy sustainment protocol, which allows for particular circumstances to be taken into account in determining the rent to be paid.
That has been a hugely effective operation in working with the local authorities and Threshold. Obviously, however, there is still publicity concerning people at risk of homelessness and calls for rent supplement ceilings to be improved or increased.
We really just wanted to make people aware that this facility, this flexibility, does exist where those circumstances prevail, and 2,000 families have already availed of that.
John Deasy: I have one final question, on the Department's definitions with regard to customer error and fraud. I read the definitions. The specific difference, I suppose, is that where somebody provides information, it is deemed fraud if there is in the opinion of the Department an intention to provide false information.
Consider the customer error rates in the various categories. With regard to the jobseeker’s payment, customer error was identified in 119 of the cases assessed. That is quite a large figure. Fraud was suspected in 21 of the 987 cases assessed.
When it comes to rent supplement, that figure is down to 55. Someone might play devil’s advocate with regard to the Department's definitions and its interpretation of those definitions when it comes to the question of fraud versus customer error.
It is a fine line, in many respects, and the interpretation involves a judgment call by the actual social welfare officer. Are there increases across the board in customer errors based on the Department’s assessments? Does the figure remain the same? Are the ratios stagnant?
"Has the rate of customer error gone up? It is subjective. One man's customer error is another man's fraud."
Niamh O'Donoghue: The trend in recent years is that the proportion of overpayments raised due to suspected fraud has been increasing rather than customer error. Thankfully, the proportion attributable to departmental error has been decreasing, which is also welcome. Obviously, it is not something we can be complacent about.
The Deputy is absolutely right that it is a subjective judgment, but it is a judgment made by a deciding officer having regard to the entire set of circumstances by which something arises. The level of previous engagement with or the case history of the individual concerned is also taken into account before the judgment is made.
Deputy John Deasy: Has the rate of customer error gone up? It is subjective. One man's customer error is another man's fraud.
Niamh O'Donoghue: Yes.
John Deasy: Across the board, has the rate of customer error in the various schemes increased?
Niamh O'Donoghue: Perhaps I could give the Deputy some figures. In 2013, of the overpayments raised, 34% were considered to be attributable to customer error. In 2014, it was 40%. So far this year — this is very preliminary stuff to the end of April 2015 — it is 38%.
We have significantly improved our investment in the training of deciding officers, and we have also put in place a fairly sophisticated new system of debt recovery and assessment, which means we are raising overpayments in a much more timely way.
Decisions are being made much closer to an event occurring rather than at some time prospectively. That probably improves the consistency with which things are defined.
John Deasy: We have invested and are proposing to invest an awful lot more money, €17 million or €18 million, in the public services card. Has that made an appreciable difference with regard to fraud, as Ms O'Donoghue sees it?
Niamh O'Donoghue: Absolutely. There is a fixed cost associated with the public service card. We are in a contract, the value of which is €24 million. That is based on a presumption that we will issue 3 million cards by the end of 2016. To date, we have 1.4 million cards issued.
Obviously, this has been a progression in terms of ramping up our capacity to issue public service cards. What has happened is that somewhere in the order of 62 cases of fraud have actually been identified through the face-matching software that is associated with the public service card.
Equally, the public service card has contributed very significantly by virtue of us engaging with customers and inviting them to come in to be registered-----
John Deasy: Is Ms O'Donoghue saying that those 62 cases would not have been uncovered had the technology not been introduced?
Niamh O'Donoghue: I cannot say definitively that they would never have been uncovered, but let us say that the technology allowed us to uncover them very quickly. Very serious cases were identified that have gone through the courts, and custodial sentences have been handed down.
It also has a secondary effect. We have been inviting people to come in, and we now have the legislative power to suspend or stop a payment if somebody does not engage with us. On foot of that, somewhere over 200 payments have been stopped by virtue of people not attending, having gone through a whole range of natural justice processes to enable them to attend to be registered.
We really feel that it has contributed enormously on the fraud side, as well as the customer service side. Close to 400,000 people now have a public service card with the free travel badge on it, which provides much greater security to transport providers in relation to providing a service to people who are actually entitled to it.
John Deasy: With regard to the money we have invested and are proposing to invest, I believe Ms O’Donoghue said 3 million cards are to be issued by the end of 2016.
Niamh O'Donoghue: Yes.
John Deasy: Is this going to save an appreciable amount of money?
Niamh O'Donoghue: I would think so. I could not quantify precisely the fraud impact but the evidence to date is significant. The figure is certainly in the millions. Obviously, it has an ongoing effect and a huge preventative role.
Since people have to go through the registration process, they may be less inclined to try to perpetuate identity fraud. They may be less inclined to try to make multiple claims when they know we now have the infrastructure to check who they are.
Obviously, the card also has the potential to be of far greater use in a public service context. We are working with a range of Government Departments and organisations to make sure that becomes a reality, too, particularly in terms of online services. This is because we have the infrastructure to allow identity to be authenticated through the card.
John Deasy: I thank Ms O’Donoghue.
PAC Meeting | May 28, 2015
Dept of Social Protection called and examined
Deputy John Deasy: I turn to a broad issue within the Department which is the turnaround time from application to payment. I know from my own office that it is taking a great deal of time.
The one we point to most is the invalidity payment. These are people who have made contributions and worked and we estimate that in some cases it takes approximately 18 months from the time an application is made to payment. It is too long.
Obviously, there are a range of waiting times for the different payments that the Department has figures on. It knows the averages. It is not getting much better in our opinion from our anecdotal experience in the office with regard to the people we deal with when it comes to applications, assessments and the wait to final payment. It is something I have raised before but we have not seen any improvement.
Ms Niamh O'Donoghue [Secretary General, Dept of Social Protection]: I am sorry to hear that. It does not accord with what the data are telling us in the Department. I would be very happy to explore the particular issues with the Deputy or to give him more detailed information on this rather than to take too much time on it.
I accept entirely that the figures here are average processing times, but on invalidity pension the average processing time currently is 10.7 weeks.
We should bear in mind that invalidity, in common with a number of other schemes where there is a medical component, has an additional processing time. As the Deputy has correctly stated, invalidity is an insurance-based scheme and is based on a person having a contribution history but who also must meet the medical criteria.
Currently, 10.7 weeks is the average from application to what we call a "clean award". What I mean by that is the first decision to award. There is no doubt in relation to quite a number of medical schemes that initial decisions might be negative and reviews or appeals might then be looked at through which in most instances additional information is provided which, in turn, often allows for a positive decision to be reached.
There are many instances of that. The experience of the Deputy seems to out-lie what the national figures are telling us and I would be very happy to look at it for him.
John Deasy: It is fair enough that those are the Department's data. I am just saying it is not our experience. I will collate the instances I have and give them to the Secretary General. I understand what she is saying, which is that outside of the appeals process, it is two and a half months, whereas my estimate is a great deal longer.
Niamh O'Donoghue: There are a number of things we have done. In the last two and a half years, we have placed a huge focus on dealing with backlogs, which were very significant in a number of different scheme areas, including carer's allowance, disability allowance, invalidity pension and FIS.
We put a great deal of effort into trying to improve those processing times and made huge inroads. Very significant inroads were made such that the level of service has improved dramatically from what I will be the first to admit was an unacceptable level.
If the Deputy's experience or the experience of the people he is hearing about constitute significant outliers to the figures I have mentioned, it means there is some issue at play. It may be in relation to the information being provided, but I would be very happy to have a look at it and come back to the Deputy.
John Deasy: As far as the different payments and schemes are concerned, where are the largest backlogs and the worst delays from the time someone makes an application to payment?
Niamh O'Donoghue: I can let the Deputy know that in one moment. In terms of average times, the latest processing figures we have indicate that some of the most significant areas are widow's contributory pension and child benefit where the child benefit is being claimed under EU regulations.
John Deasy: How long is it for widows?
Niamh O'Donoghue: That is showing at 28 weeks currently. There can be issues in regard to that, ranging from people not completing forms correctly, not responding to requests for further information, not providing all the detail we ask for and, particularly in the context of the illness payment, not giving us sufficient medical information that allows for a decision.
John Deasy: A person has to wait six or seven months for widow's contributory-----
Niamh O'Donoghue: Yes, but as I said, that is an outlier. It can be as much to do with the circumstances of the particular scheme.
John Deasy: Fair enough. Every application has its own peculiarities in many respects. Looking for financial or medical records can get very complicated. Has the Department had any success in improving the wait times when it comes to widows? Is it getting worse or better?
Niamh O'Donoghue: That is one that is currently flagging as a problem area, so we will be looking at that. In all the other scheme areas where we have problems we have made significant improvements. That has been the trend over the past number of years.
Mr. Seamus McCarthy: Can I make a comment on that, and it might be something the committee could look at? There is a notification for people. It is a widow's contributory pension, so it occurs after an event when somebody becomes a widow.
Niamh O'Donoghue: Yes.
Seamus McCarthy [Comptroller and Auditor General]: There is not any conversion from other schemes, or does that arise in many of those cases?
Niamh O'Donoghue: It can arise. Obviously, if the person who died was a recipient of a primary social welfare payment, once we are aware that the person has died we would then initiate contact with the spouse for application, but I can have a look at that specifically and furnish information showing the reason for that.
It is flagging as a problem at the moment. It would not previously have flagged as a problem so there is obviously a particular difficulty at the moment for us there.
PAC Meeting | May 28, 2015
Dept of Social Protection called and examined
Deputy John Deasy: Ms O'Donoghue and her officials are welcome. I will start with the post office network and the Department's interactions and relationship with it.
This has received some media attention recently, specifically because the Department has begun writing to recipients of social welfare inviting them to consider a transfer directly to their bank accounts.
As Ms O'Donoghue is aware, there is a current political issue with regard to the post office network and the estimate of how many post offices will be shut down within the coming years. As more social welfare payments are made electronically, the throughput reduces for post offices as does the associated financial bottom line.
Those of us on the committee are in a funny position. I am asking Ms O'Donoghue about this, but it is really a balance. Those of us on the committee are in a situation where we must ask and expect Departments to find cost cutting or savings within their budgets and value for money for all citizens.
At the same time, there is considerable political rhetoric when it comes to saving post offices, particularly in rural Ireland. On the one hand, we are constantly trying to save money in an environment where there is not as much money going around as there was five or six years ago, but, at the same time, there is a constant campaign to preserve post offices throughout the country.
Having said all that, I have looked at the figures when it comes to cash payment versus the electronic payment. The ratio is approximately 10:1. I can understand why the Department would go down that route if it was simply based on finances alone and the cost savings involved.
Is there not a balance to be met, however, when it comes to Government, on the one hand, looking for those savings but, at the same time, having a responsibility to ensure that post offices are maintained and the network is maintained as much as possible, for obvious reasons? I will start with that.
Ms Niamh O'Donoghue [Secretary General, Department of Social Protection]: There is a balance to be struck. The balance is to be struck in looking at the interests of all participants in the transaction. This includes customer preference, the agencies through which we provide the service and the service delivery itself. The Department has a long-standing relationship with An Post and the post office network. It is a valued relationship and works remarkably well.
We signed a new contract with An Post at the beginning of 2014. However, that contract had been tendered for and was advertised in the context of a Government and departmental payment strategy that very much reflected the tendency in customer preference and the need for greater efficiency in the economy of moving towards electronic payments.
In fact, the contract we have with An Post is predicated on envisaging a move towards electronic service delivery. However, in a context where that also meets customer preference it has been our experience that, certainly for new entrants to schemes right across the board, where the customer has an option in respect of how to be paid, that option is predominantly exercised in favour of electronic payments rather than payments through An Post.
Of the payments we make, a sizeable proportion are made to a group of people who actually do not have an option. In other words, for other purposes we demand that they exercise their payments receipt through the post office. That is to do with control reasons as much as anything else.
That relates to a decision we made in 2009. There was a windfall benefit to the post office system in terms of delivering that level of service on a mandatory basis. However, in respect of any other payments we make it is very much on the basis of customer preference.
It is in a context where Government has recognised that there is security aspect, a safety aspect and a customer trend moving towards electronic payments, and we have to recognise that as well.
Deputy John Deasy: All that makes sense. Again, it is logical from the cost savings. However, someone from a post office or the Irish Postmasters Union might make the case that we all believe in choice but that an active campaign or system is under way within the Department to contact people on these schemes to remind them that there is this option.
The postmasters are asking whether we can slow it down until they can work something out with a new system they have proposed, because it is having quite an effect on the bottom line of post offices.
I understand where the Department is coming from as far as choice is concerned, but there is an active system within the Department to contact people. I have before me a news report from March stating that 7,000 letters were sent out reminding people or pointing out that this new system of payment was available to them. The spokesman said the Department would send out hundreds more letters. This is going to continue.
Ms O'Donoghue has outlined the policy but I am unsure whether it deals with the public interest balance that we are trying to meet. There is political rhetoric about saving a post office network while, understandably, at the same time there is a cost savings imperative on the part of the Department and the question of giving people a choice. At the same time, it is concerning when it comes to the post office network.
Niamh O'Donoghue: There are two points I can make on the matter. The letters Deputy Deasy referred to were part of a small pilot. Actually, only 2,800 letters were issued.
Deputy John Deasy: Okay.
Niamh O'Donoghue: The pilot was to try to establish what might be a better communication system with our customers. Different forms of letters were used to see how customers would engage or would not engage with us.
It was very much about trying to inform our approach in a context where, as Deputy Deasy has said, An Post has gone to the market for a different type of payment solution. That will be coming on-stream later in the year.
That, coupled with other measures we are taking, potentially gives us an opportunity to look again at offering options to people to whom, historically, we have not offered options. It was very much to inform our communication strategy with our customer base and it was very limited. There were 2,800 letters. The actual response was low enough, in fairness.
Deputy John Deasy: That is interesting. Of the 2,800 letters, what was the take-up?
Niamh O'Donoghue: I can give the committee the actual figures. The response to the trial was low, 14% responded to us. Of the 14%, a total of 31% indicated a preference to migrate to electronic funds transfer.
We are talking about small numbers. It was more to see what kind of communication would generate a response. The critical aspect of this exercise is that nothing would happen to anyone who did not respond. In other words, it was an entirely voluntary engagement with us.
John Deasy: That is fine. A total of 14% responded and of that figure 31% opted for the electronic payment system.
Niamh O'Donoghue: Yes. The second point I would make is that even in a context of Government having a payment strategy which rather looked at moving into the digital economy the Department went to the market for cash-based service delivery in 2013. We contracted with An Post, recognising that there is an issue around retaining services of that type and meeting customer preference in that area.
John Deasy: The Department has done the modelling exercise with 2,800 people. Are there plans within the Department to expand on that at present?
Niamh O'Donoghue: Not at the moment. It is in a context of when we have a look again at the service offerings available to us post the An Post developments. I would say it is part of the An Post contract that we are moving in that direction and An Post is working with us to do that.
John Deasy: Fair enough. Is there any other area in which the Department could potentially work with An Post in the future to give it more business? The Department is the big spend. An Post was relying on those transfers. Is the Department talking to An Post about anything else that is potentially coming out of the Department or is that it?
Niamh O'Donoghue: We talk to An Post all the time about a whole range of different things, but, obviously, if we have a service offering on which we want a face-to-face engagement, which is what An Post could potentially deliver for us, we would have to go to the market and go through a tender process to offer that.
Deputy John Deasy: If not, the Department would have the Comptroller and Auditor General down its back.
Niamh O'Donoghue: Indeed.
Seamus McCarthy: Or worse, the Department could have a claim against it.
PAC Meeting | May 28, 2015
Chairman [John McGuinness TD]: Item 3A.5 is correspondence, dated 25 May 2015, from the HSE and is a follow-up to our meeting on 23 April 2015, which is to be noted and published. This issue relates to the procurement of investigators and the use of former staff of the health services. We are due to consider a report on this shortly. Has that report been circulated?
Clerk to the Committee: It has, yes.
Chairman: Can we determine that it is the final draft?
Deputy John Deasy: It is a short report but it is very strong. The work the clerk has put into this is excellent. The kernel of it boils down to chapter two and the recommendations at the end. What we have discovered is that when it comes to individuals it is not possible to put a specific ban on former employees of the HSE.
However, the step that needs to be taken is that authority to appoint investigators should be taken away from the HSE. That should be put to one side. That is effectively where we have gone with this.
Therefore, even though one cannot ban former employees specifically on a personal basis, taking these investigations away from the HSE, particularly the ones that are extremely sensitive and actually involve potential conflict of interest, is probably the appropriate step. I think that is what the Minister should consider.
I have spoken to the Minister of State, Deputy Kathleen Lynch. She is looking at this entire area, including the idea of putting panels together. The work of her office is working in tandem with the report that we have put together. There is an understanding that this area needs to be dealt with once and for all.
Chairman: In line with that report, I wish to raise an issue that was brought to my attention by way of correspondence, although I do not have it with me. An investigation took place concerning Kilkenny.
When the report arising from that investigation was sought, it was not released and neither were the details of the procurement process. Before finalising the report, we might ask that question of the HSE and determine the details surrounding it.
Deputy John Deasy: What is the next step with regard to that report? Will we issue the report on a certain date?
Chairman: We can do the final report in the week after next when we are back. We will publish it then.
"The public is listening to us and everything in the country has supposedly changed. However, while we have not concluded our banking inquiry into what happened seven or eight years ago... technically, what is worse in governance terms is that we are holding an inquiry into a bank that we owned."
PAC Meeting | May 14, 2015
Department of Finance called and examined
Mr. Derek Moran [Secretary General]: With me today are Ms Nolan, second Secretary General and head of the banking directorate; Mr. John McCarthy, chief economist; Mr. Declan Reid, shareholder management unit, and Ms Cep Carty, finance unit.
Deputy John Deasy: I welcome Mr. Moran and his officials. I understand he was only appointed in July 2014, but I wish to refer to some historical issues on which we need answers because this is the first opportunity Department of Finance officials have had to respond to parliamentarians directly on these issues - Siteserv, in particular - the timelines involved and the issues that have arisen.
Mr. Moran may delegate as necessary to provide responses to the questions. Although he may not have been the person involved in the meetings, we need clarity on the issues involved, notwithstanding the written responses we have received from the Department in recent days.
I will start by asking questions about the Siteserv shares. Media reports in the past couple of months have suggested there was a sudden spike in Siteserv share activity between November 2011 and February 2012.
I find it curious that it took a request from a Member of the Dáil to the Office of the Director of Corporate Enforcement to initiate a potential investigation into issues that might have arisen from the sudden spike in share activity.
When the Department read media reports on an organisation, of which it had oversight through IBRC, which was in effect sold by the State, what did it do? Did it make inquiries about the share prices and activity reported in late 2011 and early 2012?
Derek Moran: I have brought with me Ms Nolan and Mr. Reid who are more familiar with this issue. I would preface any comment by saying I am anxious to assist the committee on this issue and that we provided a comprehensive background document for the committee on Tuesday evening.
I am also conscious of the review of the transaction being carried out by the special liquidators, assisted by Mr. Justice O'Neill, which needs to take its course. Therefore, we will stay away from the transaction and its details and talk around the framework and the relationship.
On the alleged spike in share transactions, the monitoring of share transactions is a matter for the Stock Exchange which does not fall under the aegis of the Department. Where there is suspicion of anything happening along the lines the Deputy has described, the Stock Exchange is obliged to communicate with the Office of the Director of Corporate Enforcement.
Deputy John Deasy: Let me stop Mr. Moran. The public is listening to us and everything in the country has supposedly changed. However, while we have not concluded our banking inquiry into what happened seven or eight years ago, we are now finding that we are conducting another inquiry into a bank we own.
Somebody might ask the question: "What is worse governance wise?" Was what happened in the 2000s in banks we did not own and of which there was no oversight and regulation worse? The answer is that that was worse, given the devastation caused to our country and people. Technically, though, what is worse in governance terms is that we are holding an inquiry into a bank that we owned. That is how I will premise my comments.
If the Department of Finance technically does not have a remit over the investigation of alleged insider trading, I am not sure whether it is sufficient to assert that that was not the Department's job. The Department had oversight of IBRC. The State owned it.
When the media reported an alleged spike in share activity, did anyone in the Department contact the Stock Exchange, the Garda or the Office of the Director of Corporate Enforcement, ODCE? If the answer is "No", we have a problem. If someone robs my house, I go to the Garda and make a statement.
A Deputy has made a request of the Director of Corporate Enforcement. His office's answer was that it wondered whether it had a remit in this area. We have an issue with the process when it comes to the investigation of alleged insider trading. The answer to my question is that the Department did not contact anyone about an alleged spike in share activity. Is that the case?
Derek Moran: It is important to get the timelines right. My understanding is that the alleged spike happened several months before the transaction was executed or during the run-up to the transaction. The Department had no visibility of that transaction until after it had happened.
Deputy John Deasy: I know that. That is fine. I am talking about what has been reported on in recent months. Does Mr. Moran have any opinion at all about what has been reported?
Derek Moran: Opinion does not matter. We are talking about a spike in a transaction-----
Deputy John Deasy: Yes.
Derek Moran: -----that happened before the Department had any sight or knowledge of that transaction. This was an issue to be monitored by the Stock Exchange and reported to the ODCE if the former saw a problem. It is alleged. I do not know what the evidence is.
Deputy John Deasy: Does Mr. Moran know what? I am talking about the process. We have a problem. Compare this with the US Securities and Exchange Commission, SEC, which is a law enforcement commission, has an enforcement division and prosecutes civil cases before courts.
It is unclear what happens in Ireland where there is an allegation or report, but the SEC acts on media reports. If it reads something about the industry in The Wall Street Journal, it acts on it. The Director of Corporate Enforcement's response in a news article was that his office "did not receive any requests from any other regulatory authority asking us to commence an investigation" into Siteserv share trading.
This begs the question of what the office needs. Is it a papal bull from the Vatican? I do not know what initiates an investigation. If the Department of Finance has no interest, we have a serious problem.
The problem with the Stock Exchange is that it is owned by stockbroking firms. Someone might ask whether it is in the public's interest for them to have responsibility and remit for initiating an investigation. Is this a fair analysis or point to make?
It is unbelievable that, if something like this is reported in the press, the Department of Finance does not have an opinion or will not ask even basic questions of the bodies and agencies that have a remit for alleged insider trading. Is this not even remotely reasonable?
"This begs the question of what the office of Corporate Enforcement needs. Is it a papal bull from the Vatican?"
Derek Moran: The regulation of the market is a matter for the Stock Exchange and, where there are irregularities, to report to the ODCE.
These do not fall within the remit of the Department. I just want to be clear on that. The alleged spike happened before the Department had any visibility on the Siteserv transaction.
The response to the suggestion that there were irregularities was to make available the share register. To date, this is still an allegation of which I am unsure there is any evidence. Do my colleagues wish to speak?
Declan Reid: We are not aware of any evidence that has been brought forward other than what we have read in the press. The share register has been made available by the liquidator of Siteserv for scrutiny.
Deputy John Deasy: Mr. Reid is the person in the Department who would deal with this matter.
Declan Reid: Now, but not at the time of the transaction.
Deputy John Deasy: Has Mr. Reid or any of his predecessors contacted the Stock Exchange or the ODCE regarding this issue-----
Declan Reid: No.
Deputy John Deasy: -----to find out whether they are looking into it? I am not asking whether Mr. Reid has evidence. I am asking whether anyone in the Department of Finance, which had oversight of transactions involving IBRC, picked up the telephone and called these organisations?
Declan Reid: We have not contacted them directly to see whether they have conducted an investigation, but they have come out in response to parliamentary questions of which we are aware and stated their positions.
Deputy John Deasy: Does Mr. Reid not have any human curiosity about a matter over which he has responsibility on behalf of the public and into which he might make initial inquiries?
Before Ms Nolan speaks, I find it unbelievable that someone from the Department of Finance would not pick up the telephone if there were several reports about a spike in Siteserv's share activity, given what has been in the media in recent months.
The response from the ODCE was equally amazing. The office made contact with "a number of other regulatory authorities with a view to seeking to establish as to whether any issues arise that might come within remit". It did not even know what its remit was in this situation.
The Stock Exchange is responsible for monitoring any suspicious trading, but we are none the wiser as to whether it has conducted a preliminary inquiry or investigation. It passes its files to the ODCE, which then investigates any alleged breach in company law. Is it not always the case of something being someone else's job? This must change.
Given what the country has gone through in the past ten years, surely the Department of Finance would have some interest in finding out whether someone or some agency or body was examining what has been reported. This is reasonable, fair and simple. Does Ms Nolan wish to respond?
Ann Nolan: The reality is that we do not have any evidence that there was a spike, never mind evidence of wrongdoing, but I agree that it is for the Stock Exchange and the ODCE to investigate such matters.
Deputy John Deasy: Does any of the witnesses have an opinion on whether the procedures in terms of alleged insider trading are appropriate?
Ann Nolan: Insider trading is in no way appropriate. A number of changes to the procedures are upcoming. We are examining the market abuse directives. We expect there to be changes in the next 12 to 18 months in that regard to bring the entire matter under the Central Bank rather than the Stock Exchange, which would be more appropriate than the current arrangements. We are working on that front.
Deputy John Deasy: I will leave it at my next comment on this aspect. The public will be amazed that the Department of Finance did not make even the most basic of inquiries of the ODCE, the Stock Exchange or the Garda into whether the issue was being examined, investigated or inquired into.
It is amazing. The witnesses might say that they were not there at the time, that this was not their job or that, statutorily, this was not an issue for them, but the public will not buy that any longer.
What Deputy Catherine Murphy asked in the Dáil was reasonable. This committee should make inquiries, as the issue relates to taxpayers' money. The Department of Finance held the opinion that there was potential for an awful lot of taxpayers' money to be lost, so a review was commenced.
It was concerned about an asset being sold for a price that was too small. The very least the Committee of Public Accounts should do is to inquire whether the Office of the Director of Corporate Enforcement has looked at the matter and whether it is inquiring into it.
We should echo what the Deputy asked for in the Dáil Chamber, if the Department is not going to do anything, and take it from there. It is unbelievable that the Department might not be prepared to make inquiries over the telephone, so the committee will have to do so.
I wish to inquiry about Siteserv. As I said earlier, this is the first time the officials from the Department of Finance have had an opportunity to respond to questions regarding Siteserv. They have given written answers to some of the questions we asked and, in many respects, the replies are comprehensive.
I will start with the date of the review conducted by the Department, which was a meeting with senior IBRC officials held on 11 June 2012. What prompted the review by the Department? What concern prompted the Department to seek a meeting on Siteserv?
Derek Moran: As I said at the outset, the timeline is important. The Department did not have visibility on the Siteserv deal. Critical to this issue is when we first had an inkling that there might be an issue.
We got a representation from a member of the public expressing concerns, and then there was a series of one or two parliamentary questions which brought up issues of concern.
A routine monthly management meeting was held in April at which the question of alerting the Department was raised.
It was agreed with the chairman and CEO on 31 May that we would do so. It was in response to an e-mail from a member of the public, some press reporting and parliamentary questions. The review took place on 11 June, and Departmental officials and officials of the bank went through the various details on how the transaction was done.
The key element of concern was the first point that Siteserv led the sale and not IBRC - it was handed off to them - which gave rise to a range of other issues. It was those types of concern.
We listened to the response, and there were five issues, all of which flowed from the fact that the company was allowed to run the sales process: not opening the sale to trade buyers, entering into exclusivity with a single bidder, the payment, the quantum of the payment to shareholders, and certainly the suggestion of not accepting higher bids. That is what gave rise to it, and it was immediately afterwards.
We have looked at the records and we have searched thoroughly in the Department. There is no record of details of Siteserv being provided by the IBRC to the Department before April 2012.
Deputy John Deasy: The shareholding management unit has responsibility for the day-to-day relationship. Is that right?
Mr. Derek Moran: Yes.
Deputy John Deasy: So, by June or July 2012, when it expressed a concern that the State had not recovered as much as it possibly should have, was that not a bit late in the day? What was it doing previous to that, at the time Siteserv was being sold? Has the Department asked the unit about what was disclosed?
Derek Moran: Yes, I have.
Ann Nolan: Under the relationship framework that was before that, the fiduciary duty of the interests of the State was held by the independent board which had been appointed by the Government after the takeover or nationalisation of the IBRC. We did not get involved. In fact, the relationship framework was designed in such a way that we would not get involved in the ordinary day-to-day activities of the IBRC.
Deputy John Deasy: We now know that that design was extremely faulty, which led to a revised relationship framework. Is that fair to say?
Ann Nolan: I think-----
Deputy John Deasy: Is there an admittance or agreement that the unit was completely ill-equipped to deal with the relationship and communications from the IBRC and the Department of Finance, and that is why it resulted in a completely revised framework document?
Ann Nolan: That would probably not be quite the full story. I want to be fair to all the people involved. At the time the bank was taken over it was a going concern, and the ordinary course of business was, of course, ordinary banking business.
It was, I think, August to September 2010 when we put the bank into wind-down. The ordinary course of business, in extent, changed because, at that point, they were then winding down. This type of transaction was not captured. It became an ordinary course of business and probably should have been captured.
Deputy John Deasy: We are getting to the kernel of the issue, which is commercial freedom-----
Ann Nolan: Yes.
Deputy John Deasy: -----and the kind of oversight that the State provided when it came to something that was owned by the public. As I said to the witnesses earlier, it is ironic that before concluding a banking inquiry into something that happened historically, we have initiated another inquiry into a bank that we did own.
I asked a question about the framework that existed initially. I understand what Ms Nolan is saying, but a lot of people have reached the conclusion that, regardless of the issue of commercial freedom, the State and the Department of Finance did not act accordingly in terms of the oversight of IBRC, and had to change the framework document subsequently. That is really what happened.
Ann Nolan: We changed the framework document when the nature of the relationship changed because the nature of the organisation changed.
Derek Moran: I wish to emphasise that point. The 2009 relationship framework was based on a company that was supposed to return to being a bank. Its normal trade was to be banking. That changed in the latter half of 2010, with a business plan being agreed with the EU in January 2011, after which it went into wind-down.
There was a provision in the original relationship framework that any material acquisition, disposal, investment, realisation or transaction other than in the course of ordinary business would be a reserved function of the Department. When it went into wind-down, such disposals became part of the ordinary business, and fell out. That meant the relationship framework was no longer the right one.
Deputy John Deasy: Fair enough.
Derek Moran: They were not required to notify, and they did not.
Deputy John Deasy: The Department had an epiphany. I will read the note issued by the Department, which reads:
We are concerned at the number of large transactions that have been poorly executed under the direction of the current CEO.
The note refers to June or July 2012. What other transactions did the Department look at? What other large transactions was the Department concerned about in terms of the disposal of assets within IBRC? What else are we looking at here?
Ann Nolan: The list of transactions is in that same document. There is the Allsop transaction.
Deputy John Deasy: Right.
Ann Nolan: There was the engagement of Blackstone on an exceptional basis.
Deputy John Deasy: Is the Department looking at anything else?
Ann Nolan: No, I think that is an exhaustive list. Looking through all our other files we cannot find a reference to any other.
Deputy John Deasy: This reference to a number of large transactions-----
Ann Nolan: That is all we can find any record of. The individual who wrote that particular note is no longer with the Department and he has no recollection of any others.
Deputy John Deasy: Mr. Moran's predecessor, Mr. John Moran, met the CEO of IBRC. There are no minutes of that meeting. Will Mr. Moran give the committee an idea as to what was expressed on behalf of the Department?
Derek Moran: There are no minutes but there is a record of what happened at the meeting and it was largely a follow-up from the meeting with the Minister a fortnight earlier about improving the relationship and getting better oversight going forward, and that culminated in putting somebody from the Department into IBRC in a specific role.
There is a record, which has been released under FOI, from Michael Torpey recording John Moran's debriefing of that meeting, and that sets it out. Am I right in that?
Ann Nolan: Yes.
Derek Moran: The key was to follow up the items that were discussed with the Minister on 25 July. The main one was to action out the improvement of the oversight and the improvement of the relationships going forward.
Deputy John Deasy: When one looks at the Anglo Irish Bank Corporation Act 2009, it is pretty specific when it comes to the flow of information that should be going from the bank to the Minister and the Department.
It talks about any material acquisitions, disposals, investments, realisations or other transactions other than in the ordinary course of Anglo Irish Bank's banking business. In hindsight, was the Act followed?
Ann Nolan: It depends on what one considers as the ordinary course of business and there was a difference of opinion at different times between ourselves and the board of the bank as to what constituted-----
Deputy John Deasy: As far as the interpretation of the Act?
Ann Nolan: The interpretation of the Act.
Deputy John Deasy: And was that made clear at the time?
Ann Nolan: The Deputy can see the documents that we had at that time. One of the other issues that has to be taken into account is the relationship-----
Deputy John Deasy: The suspicion is that it was not made clear. We will get down to the nub of this now. The suspicion is that the Act was enacted and the details within the Act were not followed through on and there was not a sufficient level of communication or inquiry when it came to the Department and the bank.
There is some reasonable evidence to suggest that the details of the Act and the spirit of the Act were not followed through on. Ms Nolan has said that she went back through the files. When it came to full access to information, does Ms Nolan believe now that there was a serious problem? I think the answer is obviously, "Yes," because the whole framework was revised subsequently.
Ann Nolan: To go back to the framework, the reason the framework was written the way it was the first time was because that is what was insisted on by DG Comp, the competition authority in Europe.
We had no option but to allow commercial freedom to the bank and to limit our inquiries, and that was insisted on by DG Comp. One of the reasons the second relationship framework took a long time to negotiate was because DG Comp was reluctant to allow us to put in the kind of thresholds that would say certain documents would have to come to us.
Deputy John Deasy: Is that the reason the revised framework was not implemented until March 2012?
Ann Nolan: That is the reason.
Deputy John Deasy: Is that the only reason?
Ann Nolan: In 2010 there were a lot of other things going on in the Department and the bank was reluctant to change it, but the main reason was that in March 2011 there was the recapitalisation of the other banks, the PCAR, and the burning of the bondholders during June and July, and there was a set of things agreed under the programme.
The question of the revised relationship frameworks came up in August when we had the other major bits done and they were discussed then between August 2011 and March 2012 and that is when they were put in place.
Derek Moran: It is very easy to forget that this was an exceptional period. We were going into a programme and a general election. All conditionality that went with that programme had to be implemented as a priority for the release of funds.
In addition, the State was locked out of the markets. As Ms Nolan has said, the rewriting of the relationship framework became a condition of the programme after the third review. It was originally to be delivered by the end of December 2011 and it was not delivered until the end of the first quarter.
There was slippage on that. That was a relationship framework negotiated between us, the bank, the three members of the troika, and DG Comp. It was not simple. It was multi-party. To paraphrase what Ms Nolan has said, I think DG Comp wanted us to be even further away and more hands-off in our relationship with the banks rather than closer.
Deputy John Deasy: At a certain point the Department made a determination that Anglo Irish Bank was not forthcoming enough with regard to its decisions and transactions. Mr. Moran has said that the Department then decided to put an official in on the board to keep an eye on things. The board did not like it.
It begs the question whether it should have occurred much earlier. That is the issue. Therefore, we go back to Siteserv and other transactions, and we now have a public inquiry into whether the public achieved what it should have achieved through the sale of that.
The public did not expect the Department to fall down so badly so quickly after what occurred. The requisite scrutiny was not there. The Department changed it, effectively, at a certain point, but I do not believe that it was there. I think the Department fell down.
"The requisite scrutiny was not there... I think the Department fell down."
Ann Nolan: I would absolutely not agree with Deputy Deasy. The independence of the banks was an absolute prerequisite of DG Comp. It remains the issue that the responsibility for the running of the banks is a matter for the boards of the banks and we appointed a board chaired by Alan Dukes, a former Minister for Finance, a very capable man.
I have no evidence, to this day, that any of the transactions were wrong, but I accept that there are many questions about Siteserv. We had questions ourselves about Siteserv. We do not know the outcome of the inquiry. We have set up an inquiry to look not only at that but all of the other deals that that board did.
Deputy John Deasy: Ms Nolan's word choice is interesting - she has no evidence that any transactions were wrong. The Department of Finance would have a very clear opinion with regard to the amounts of money that were recovered from the sale of Siteserv, and the opinion of the Department of Finance was that it was not enough and that the State did not achieve what it should have.
That was, in effect, the opinion within the Department of Finance and that is why things changed. So when Ms Nolan says that there is no evidence of anything that went wrong, there is a clear opinion that came from the Department of Finance that things were not as they should have been.
Ann Nolan: No, I think the opinion within the Department of Finance at the time, and as reflected in those documents, was that there were aspects of that transaction that it was not happy with. There were aspects of it where we felt it was possible that a different set of actions could have brought a better solution.
The board told us and assured us and the Minster that that was not the case, that this was the best possible transaction. We have now asked the special liquidators under Mr. Justice O'Neill to inquire into that and look at all of the facts and establish whether or not they agree with the board.
Certainly, there were aspects of that transaction we were unhappy with. There is a big difference between that and suggesting that everything that that board did was wrong-----
Deputy John Deasy: I am not suggesting everything the board did was wrong.
Ann Nolan: -----or that there was huge-----
Deputy John Deasy: That is very unfair. Did I say-----
Ms Ann Nolan: Deputy Deasy said that the entire position-----
Deputy John Deasy: Did I suggest that everything that the board did was wrong?
Ann Nolan: No, what the Deputy suggested was that everything that happened between the-----
Deputy John Deasy: No. Do not put words in my mouth.
Ann Nolan: I am sorry. I withdraw that completely. I apologise to the Deputy. I was not trying to challenge him in that way.
Deputy John Deasy: KPMG and former Justice O'Neill are looking into all transactions that took place over €10 million. We are aware of that. What we are delving into here is how quickly a Department acts when it actually raises concerns itself.
The answer is - not very quickly. Regardless of the regulatory body dealing with this, there was an awful long time between the raising of the initial concerns and the establishment of the revised framework document.
Ann Nolan: I do not understand. The revised document was put in place in April 2012.
Deputy John Deasy: It was March.
Ann Nolan: Sorry, it was March 2012. That was before concerns were raised.
Deputy John Deasy: My point is that concerns were raised within the Department on the operation of the bank, which led to the revised framework document. Is that a fair point?
Ann Nolan: Yes.
Deputy John Deasy: I am saying that that took too long.
PAC Meeting | May 14, 2015
Chairman [John McGuinness TD]: We were dealing with correspondence from the HSE which is a follow-up from the 23 April 2015 meeting. There are a number of other outstanding matters that the executive has to deal with but this correspondence answers some of the questions raised.
In the context of the HSE reflecting on our meeting I suggest that we forward a transcript of that meeting to the Garda Commissioner in light of the issues raised separately, relating to the home... and other matters. We are told the Garda is investigating. It is extremely lax on the part of the HSE and the Garda that this matter is not being dealt with in a more open way.
On one side there are approximately 30 young adults who have been affected by what happened there, but I get no sense from the HSE that there is an urgency about this or any desire to resolve it.
The position is likewise in respect of the investigation into the procurement process. That has not been rightly explained to us either. Perhaps the transcript may be of help to the Garda.
A protected disclosure was made, under legislation, on more than one occasion from more than one person, but nothing has happened since. The Garda Commissioner needs to understand that we have had our hearing, that protected disclosures have been made and that we would have expected a far greater urgency as a result of that meeting.
The care of these 30 or more individuals is a matter of concern to us. Given all the reports undertaken into incidents within the HSE one wonders whether the executive is fit for purpose at all. Perhaps the transcripts should also go to the Minister out of concern for the issues raised.
Deputy John Deasy: There is a good deal in this. As you have said, one of the issues the committee dealt with has to do with procurement and tendering. The Comptroller and Auditor General has carried out reports on the matter.
Across the board when it comes to the HSE it is clear that the executive is a bad actor, frankly, when it comes to tendering within public procurement guidelines. When it comes to the issue that you have just raised and what the committee has dealt with in recent weeks, the appropriateness of hiring former HSE employees to do reports for the HSE on issues as disturbing as those we have been dealing with is questionable.
When Mr. O'Brien was before the committee and questioned with regard to the process whereby the tender was awarded, he pointed to some regulations that needed to be followed. When he was questioned about whether they had been followed in that particular case and for the particular contract in question, it was clear that they had not because the procurement office said it had no communication with the HSE on the matter.
In hindsight the answer he gave was disingenuous. We have done a great deal of work when it comes to this issue as well as the tendering of contracts by the HSE and the potential conflicts of interest that arise when former employees of the HSE get these contracts.
We should put a formal proposal from the committee to the Minister to change this arrangement. Most of the work has already been done by the committee. It would be simple to do. The issues we have raised in the committee have not been raised in any other forum in the Oireachtas and therefore it is reasonable for us to do that.
. . . The Comptroller and Auditor General has done much work on procurement and HSE tendering. I will preface my comments by saying that one would wonder about value for money as far as the taxpayer is concerned when it comes to a contract being given to a former employee and individuals who were known within the organisation and who had been there for decades but it is far beyond that, frankly. The conflicts of interest that arise in these issues are incredibly disturbing and far supersede that consideration.
The premise is in place. You have done a great deal of work in this area, Chairman, as has the Comptroller and Auditor General. Perhaps you could feed into any report that the committee might do. That would be useful. Rather than simply point out the position, we should come up with a solution.
I think we should come up with a clear determination, as a committee, about what should not happen when it comes to the issuing of a contract by the HSE. This should include an absolute bar on individuals who are former employees of the HSE getting these contracts. I believe that step will need to be considered by the Minister and we should make that recommendation and consideration.
Mr. Seamus McCarthy [C&AG]: The only comment I would make in that regard is that there may be a problem in law in respect of making a restriction completely debaring people who have legitimately set up in business from tendering for work.
The complication in this case was that it was people, who had previously worked for or who had been previously engaged with the HSE, who were appointed without any competition.
Deputy John Deasy: If the Government is prepared to pass a law that prevents politicians or former politicians lobbying their former colleagues, I do not see a problem with the Government passing a law preventing former employees of the HSE getting contracts as it applies to cases like these. Anything can be achieved if enough thought and consideration is given to it. I understand Mr. McCarthy's point, but if the will is there and the potential conflicts are understood well enough by the Department, it can probably do that too.
Seamus McCarthy: I do not want to argue for or against the proposition the Deputy is making because it comes into a policy area. I am just saying there may be a restriction in terms of the contestability of the issue and excluding certain categories. However, it is a matter that can be looked into.
Chairman: We can bring forward a draft report that we will present to the Minister in a short format. We can then discuss it and members can decide on recommendations, such as the one Deputy Deasy is putting forward.
It is clear, in the context of all these reports, that there is a crisis in the management of the HSE. No political system or Minister could manage the HSE the way it is. It will appear before the Joint Committee on Health and Children this morning.
The stonewalling that goes on when one is trying to sort out a problem is just incredible. It is unacceptable and somebody will have to do something about it. My concern is that while we are discussing this and while we had our meeting with the HSE and are now going to bring forward this short report with recommendations, there are individuals out there who are suffering because of it and nobody seems to mind.
The system seems to be conditioned to a high level of acceptance of this stuff going on. It is not acceptable. That is what members are saying in the context of trying to achieve balance and a change. Somebody has to change the system in the interest of justice and fair play. It is all one side at the moment and no one seems to be paying a bit of notice to any of the public hearings that are going on.
That is not acceptable. We will have this short report as soon as possible. We will put it before the members and then we can decide what is necessary.
PAC Meeting | May 14, 2015
Chairman: [John McGuinness TD]: . . . a number of reports were given to us by a whistleblower relating to Cork Insitute of Technology. I know this is a different matter but it is still part of the third level sector.
Then there were reports on Waterford Institute of Technology, there were problems in regard to the amalgamation of Carlow and Waterford ITs and Tralee and Cork ITs. Within what was said at those meetings, there were serious issues which have not been addressed in an adequate way.
We should not just remind the Department of Education and Skills but, if necessary, bring forward the date of our hearing with it if we do not get the appropriate replies. Extremely serious allegations were made but it seems to me that the Department has not taken them seriously.
In the context of the amalgamation of institutes at both Carlow and Waterford and Tralee and Cork, significant moneys are involved and the Department has not clarified the matter yet the amalgamations continue apace.
Again, it is a question of having the information before us, being able to make a decision and not allowing a process to continue that will further cloud the financial circumstances of the colleges involved so that we will never get to the end of the matter.
We should express our concern directly to the Department about these matters that have been raised. If we do not receive a comprehensive reply to the queries raised by members and whistleblowers, then we should have an earlier than planned meeting with the Department, the Higher Education Authority and representatives from the different colleges concerned.
Deputies could deal with the issues raised in the correspondence supplied by the Department at that meeting. The allegations are far too serious for this committee to ignore.
Deputy John Deasy: We should wait until Mr. Michael Kelly finishes his report. It might be more useful to have him in when we meet the HEA and the Department. I have spoken to him and he has agreed to meet the Committee of Public Accounts once he has finalised his report.
My understanding is that he is taking a look at some of the issues you raised as well. He has had to wait until the two governing bodies in Waterford and Carlow met and until they have been put together before he issues his report.
There has been a delay because of that and I believe that is reasonable. However, if we are asking in the Higher Education Authority with the Department of Education and Skills then I believe it would be useful to bring him in and discuss his report and findings as well, because he is examining the issues you have raised.
Chairman [John McGuinness]: I have no difficulty with that, Deputy Deasy, save to say that what Deputy Costello has raised and what I have raised are almost separate from the particular issue of Waterford and Carlow ITs.
Deputy John Deasy: Yes, that's grand.
Chairman: It is a broader issue of governance and reporting between the colleges and the Department, and, in turn, reporting between the Department, the HEA and the Committee of Public Accounts. It is obvious that we are not getting the information. It is clear to me that there is almost an attempt not to give us full information, and that is not acceptable.
Deputy John Deasy: That is fair enough. He is probably the one person who has been tasked with independently reviewing the governance matters that you are talking about. Therefore, if we are going to have a meeting on the matter it might be useful to have him before the committee to talk about his findings when it comes to the governance and the stream of information between the Department, the Committee of Public Accounts and the HEA.