Health the chief culprit in overspend of €1bn

- Elaine Loughlin

Government departments went €1bn over budget last year with health, social protection and education all spending hundreds of millions of euro more than they were allocated.

The Department of Health had an overspend of €592m; Social Protection went €247m over its original estimate; while the Department of Education and Skills spent €166m more than it was originally allocated.

The Comptroller and Auditor General’s (C&AG) report on the Accounts of the Public Services 2015 finds that in 2015 net expenditure was €1bn greater than the original forecast.

There was a significant overspend by 6% at the Department of Transport, Tourism and Sport.

The office of the Chief State Solicitor, Department of Agriculture, the Public Appointments Service, An Garda Síochána and Army pensions were among the areas also over budget.

The C&AG found that in 2015, 13 votes — or spending areas — required “substantive supplementary estimates” to increase the overall amount available to them. This included three repeat offenders — health, An Garda Síochána and Army pensions — which have all required significant supplementary estimates every year since 2010.

Separately the C&AG found that the State has paid out almost €40bn in interest alone on its debt since 2010 — equivalent to a second bank bailout. The State paid €7.1bn in interest last year and a further €8.2bn of interest in 2014. The C&AG annual report revealed that €39.5bn has been paid out in interest alone in the five-year period from 2010 to 2015.

Chairman of the Committee of Public Accounts (PAC), Sean Fleming, said the C&AG report highlights some “serious deficiencies” in how taxpayers’ money is spent and collected. Mr Fleming said the report outlines a range of areas where the State is not meeting its objectives or providing services to the standard and with the efficiency required.

On the positive side the C&AG found that the State took in €18.9bn more in receipts last year — an 18% increase on 2014. Tax revenue was up by €4.3bn, which the C&AG put largely down to increases in corporation tax receipts which totalled €2.3bn, income tax receipts of €1.2bn and Vat receipts of €790m. Capital receipts also increased by €3.6bn while other receipts were up €0.6bn.

However, the report warned that the increase in capital receipts was mainly due to transactions of a one-off nature.

These included:

€335m from the proceeds of the sale of the Government’s shareholding in Aer Lingus;

€1.63bn in respect of the transfer from the Irish Strategic Investment Fund of some of the proceeds from the sale in 2013 of Bank of Ireland preference shares;

€1.54bn from the proceeds of the partial redemption of AIB preference shares held by the State;

€411m, including a premium on the issued value from the repurchase by Permanent TSB of contingent capital notes held by the State. In addition, the State reduced its shareholding in Permanent TSB from 99.2% to 74.9%, receiving €97m in proceeds.

The report also said Ireland made some savings by making early repayments on loans.

The National Treasury Management Agency has estimated that the early repayments will generate interest savings in excess of €1.5bn over the original lifetime of loans granted by the IMF.

Scrutiny of top medics’ tax bills

- Catherine Shanahan

Payment of wages to underage family members, nannies and housekeepers were among the expense claims made by hospital consultants to cut the tax bill of the private companies they set up to maximise their income.

An ongoing examination by Revenue of the financial affairs of 763 hospital consultants has so far yielded €48.7m, mainly in the Dublin region, in unpaid tax including interest, penalties and future uplift (estimated future tax receipt).

The yield relates to 235 consultants out of 403 cases closed at June 2016 of which 70% resulted in the identification of additional liabilities. The average agreed settlement was approximately €173,000. Twenty- nine of the cases have been published in Revenue’s list of defaulters and Revenue said additional defaulters may appear in future publications.

The figures are contained in a report by the Comptroller and Auditor General (C&AG) which examines a Revenue Review of Medical Consultants’ Tax Affairs.

The review dates back to 2010 when Revenue became aware of a tax planning strategy aimed at medical consultants which involved their setting up private companies which were used to cut tax bills by:

Availing of the cheaper corporation tax rate of 12.5% instead of the 52% rate applied to private income;

Excessive expense claims which had little to do with their business activity, eg “wages for under-age family members and non-business related employees (eg nannies and housekeepers); and personal motor expenses and travel costs”;

Capital gains charges — the transfer of the business by the consultant to the company gives rise to a capital gains tax charge which in some cases has been mitigated (sometimes in full) by the use of capital losses or retirement relief;

Inter-agency transactions — the company invoices the consultant for services provided (usually medical support or administrative services). Revenue is questioning the “commercial reality” of those cross charges.

Other professionals are also set to come under Revenue scrutiny. An internal working group set up in February to look at tax issues arising from incorporation of professional practices (consultants, dentists, accountancy firms etc) is conducting a review.

Revenue said it intends to produce some general guidance on the matter when the review is complete.

In assessing how Revenue conducted its review of consultants’ tax affairs, the C&AG looked at a sample of 37 closed cases and found a “consistent approach was taken”. However it noted significant variance in the time taken to close cases, ranging from six months to more than four years. It recommended a review to identify the causes of the delay and possible steps to avoid such delays in the future.

Revenue agreed in part with this assessment but said the nature of the engagement “meant that negotiations and settlements were particularly protracted and their duration would exceed that of a normal audit”.

One direct provision firm earns €40m

- Noel Baker

One firm running a direct provision centre for asylum seekers has earned €40m in just five years — and the direct provision system is managing procurement and contract outside formal competitive processes.

The C&AG report highlights serious misgivings with how the direct provision system is operated and monitored, noting the low levels of complaints and falling number of inspections in a network which accommodated 4,696 people as of the end of last year.

It also highlights how there are no penalties in place for contract providers who underperform in their duties, and notes how an independent appeals officer has not yet been appointed.

The chapter in the C&AG report outlines how just over half of all asylum seekers live in 35 direct provision centres located around the country. Last year, the Department of Justice and Equality spent €57m on direct provision.

Asylum seekers protesting over direct provision in Cork last month. Picture: Eddie O’Hare

The report notes that while the length of stay in direct provision is the factor over which the State can exercise most control, by last July the average length of stay of those in direct provision was 38 months, while 450 people — 10% of the total — have been residents of direct provision for more than seven years.

However, due to a change to a new IT system in 2012, processing times from before that date can’t be incorporated into a comparative analysis because of a lack of information.

The average rate of occupancy in direct provision centres between 2007 and 2015 was 86% but a 2010 value for money review recommended that the occupancy rate should be in excess of 90%.

While seven of the direct provision centres are State-owned, the other 28 centres are owned and operated by 22 commercial suppliers, who between them have been paid a total of €251m over the five years to 2015. In the same period, nine companies have each been paid in excess of €10m, led by Bridgestock Ltd, who earned €40m, followed by East Coast Catering (Ireland) Ltd and Mosney PLC, both of which were paid more than €30m.

The report said: “The department does not use formal competitive processes, as set out in public procurement rules, for suppliers of commercial centres. It uses its website to seek ‘expressions of interest’. Advertisements were also placed in national newspapers.”

It said the department did not provide evidence to show how it evaluated those who responded to the notices, although it does evaluate expressions of interest received based on different criteria before then negotiating a price with selected providers and agreeing a contract, typically for a one-year period.

However, under EU rules, negotiated procedures can only be used in limited circumstances, and according to the C&AG: “The procurement of direct provision centres does not fall within these limited circumstances. A request for tender has never been issued, there are many potential suppliers and the department has been procuring these services continuously over a 15-year period which by any reasonable interpretation gave sufficient time to hold an open competition.”

For some centres, new contracts were agreed with a different company, but in a number of those cases, at least one director was common to both companies.

Direct provision contracts require that accommodation and services must be provided “to a standard which is reasonable having regard to the daily needs of asylum seekers”, but according to the C&AG: “The contract does not define what is considered to be reasonable.

“No performance meas-ures are set in the contracts and there is no provision in the contract for penalties for under-performance, other than failure to provide the contracted capacity.”

It also notes how the total number of inspections decreased from 100 in 2013 to 89 in 2015, and that no timescales are set in the contracts for the completion of required actions.

“There is a very low level of complaints to the department,” it said — just 38 over the four years to 2015, while an independent appeals officer has not yet been appointed.

States faces €1.79bn bill for patient compensation

- Fiachra Ó Cionnaith

The Government may have to pay out as much as €1.79bn to resolve a series of high-profile hospital and medical compensation cases taken by patients against the State.

The Comptroller and Auditor General (C&AG) drew this conclusion after examining the accounts of the National Treasury Management Agency, which has overall responsibility for the State Claims Agency (SCA).

Details published by the C&AG reveal that the number of cases currently being examined by the SCA has increased dramatically in the past half a decade, from just over 4,000 in 2010 to almost 8,500 last year.

However, during the same period the number of claims to have been adequately resolved has remained “static” due in part to the “complexity” of some of the incidents involved.

While the majority of cases will not be brought to a conclusion for a number of years, the C&AG finds that the total outstanding bill facing the State is likely to be above €1.79bn — a figure that has risen from €1.47bn in 2014.

The SCA is tasked with overseeing the payment of compensation to people who take claims against the State for people who have suffered at times “catastrophic” hospital and medical incidents which have led to serious life-long and life-limiting conditions.

These cases regularly include brain injuries on children during their birth due to a lack of oxygen and other complications; incorrect surgeries; and a failure to treat a person soon enough in order to prevent or diagnose life-threatening illnesses.

Former health ministers James Reilly and Leo Varadkar have previously called for a more open approach from doctors and hospitals when mistakes are made as this has been shown to reduce legal costs, a position which is also supported by current Health Minister Simon Harris.

Last year, the SCA paid out €219.3m to people who sought compensation, a figure which is almost double the rate seen in 2014, when €141.4m was paid out.

Meanwhile, the C&AG’s examination of the NTMA’s files has also found that the group spent more than €53.5m last year on its oversight of Nama, in line with comparative figures for previous years.

A total of €46.8m was spent on staff appointments and other matters to Nama, up €2m on 2014, with a further €6.7m spent on issues such as rent and consultancy services.

Between 2011 and last year the NTMA’s staff levels almost doubled, from 433 to 781, with increases every year recorded.

No business plan for €60m Public Service Card system

- Joyce Fegan

No business plan was ever drawn up for the roll-out of the €60m Public Service Card (PSC) system.

The system, however, made way for a single card, which people could used for such things as collecting a social welfare payment.

The Comptroller & Auditor General investigated the service card and in its annual report, noted no business case for the system was located.

“There is no single business case document for the PSC, setting out at a high level all of the information needed to get the project started [scope, justification, funding, roles, and responsibilities], and which communicated this key information to the project’s stakeholders,” the report published yesterday stated.

Public Expenditure Minister Paschal Donohoe after he registered for a Public Services Card. Picture: Leah Farrell

The roll-out of this system, and therefore a provisional business case, dates back more than a decade.

“Government made a number of decisions in 2004 and 2005 which formed the basis of the PSC project. A business case or project plan was not developed at that time,” states the report.

It also found the target for card production has been missed considerably.

“It was originally intended three million public service cards would be produced by the end of 2013.

“At the end of June 2016, over 2m cards have been produced. Of the 2.06m cards produced at the end of June 2016, only 1.2m [58%] had been activated,” reads the report.

Furthermore, the C&AG looked into the delivery of the nationwide project which was tasked to the Department of Social Protection.

The C&AG discovered that the department’s capacity to roll out the card system was never assessed.

“There was no initial assessment of DSP’s capacity to deliver the project or a formal assessment of the project risks,” reads the C&AG report.

“There was no plan setting out how and when the project’s benefits would be measured, and who was responsible or accountable for their delivery.”

While the final price for the full roll-out is estimated to cost €60m, the department entered into a contract with a supplier in December 2009, at a fixed amount of €19.7m plus 21% Vat.

This was to produce the three million card target, which was not met, by the end of 2013.

The cost so far for that 2009 contract has gone over by €3m. This is due to contract changes which arose as a result of delays in the project prompted by the need to update security features.

In response to the C&AG’s findings, the accounting officer at the department said that challenges arose due to the “innovative nature of the project”.

She said “no other public or private body had undertaken anything even close to similar”, and therefore “it was not possible to properly estimate any cost until market testing via the procurement process had taken place”.

On a positive note, the department estimates savings in payments of €2.5m since the introduction of the card.

Tusla agrees to tighten oversight of guardian ad litem costs

- Noel Baker

The Child and Family Agency has agreed to introduce methods of identifying and measuring guardian ad litem (GAL) costs after strong criticism from the C&AG of the system in which GALs represent children in court cases.

Guardian ad litems are appointed by the court to represent the best interests of the child in court proceedings but while Tusla foots the bill, it does not have any other oversight regarding how GALs operate.

The C&AG highlighted a string of issues over the GAL system, including wildly varying average costs per case, ranging from €4,800 to almost €29,000.

It also details how guidelines provided in 2009 by the now-defunct Children Acts Advisory Board (CAAB) would have tightened up oversight on how the GAL system operates, but were never placed on a statutory footing.

Tusla took over the paying of GAL costs from the HSE in 2014, when €16.5m was spent. The figure dropped to €14.1m last year, but “due to cost classification methods used in the HSE, comparative guardian ad litem costs for earlier years could not be reliably isolated from other professional service costs”.

With around 65 GALs operating around the country, “there is no national management structure or body charged with oversight of the guardian ad litem service”, according to the C&AG, although there have been moves to reform the system.

Almost half of all GALs are provided by Barnardos, and the C&AG suggested he is satisfied with levels of internal oversight regarding those professionals. However, “the examination team found that there is no national panel of persons or complete list of practitioners, available to the court when selecting a guardian ad litem to be appointed. As such, the method by which persons are selected for appointment may vary from judge to judge and case to case.”

“The examination team sought data on the number of guardians ad litem appointed to child care cases. This information is not recorded by the Courts Service and could not be retrospectively collated.”

The report also outlined how the roles of Tusla, as the party initiating the proceedings, and as paymaster of the guardian ad litem costs, “may lead to a perceived conflict of interest”.

A snapshot of GAL caseloads taken between April and June this year indicated that each GAL had 10 cases on average, in the majority of which they also seek legal representation, costing €5.9m last year — again with no Tusla oversight: “The examination team found that 36 of the 79 solicitor firms received payments in 2015 in excess of the public procurement threshold for competitive tendering of €25,000, at a total cost to Tusla of €5.6m.”

While overall GAL expenditure fell last year compared with the 2014 figure, GAL professional fees paid in 2015 amounted to €9.1m — up almost €1m. Up to the end of 2014, there were no agreed standard hourly rates in place, and an analysis of changes instituted after that date indicate savings of just 2%. Although there is now a standard rate per hour paid, there is not a standard service delivered, and Tusla has no means of verifying the accuracy of the hours invoiced.

Tusla said: “The agency will seek to further develop methods of identifying and measuring guardian ad litem costs in order to identify outliers and gain assurance that costs over and above average are appropriate.”

Government jet sold for half its value

- Conall Ó Fátharta

The Government jet was sold for less than half its estimated value, while spare parts for the aircraft netted just €53,000 despite being valued at more than €400,000.

The 14-seater Gulfstream IV jet was purchased in 1992 at a cost of around €45m and was sold in January 2015 for €418,000. The decision to sell the aircraft was primarily due to the rising annual cost of repairing the jet.

The Government jet was bought in 1992 for around €45m and sold in 2015 for €418,000. Picture: RollingNews.ie

However, the C&AG report was critical of the lack of competitive sales process and as a result was unable to determine whether or not this amounted to good value for money.

“An informal valuation of the aircraft estimated that its value without repair could be below €750,000,” said the report. “The Air Corps estimated the value of the spare parts at just over €400,000. The aircraft was sold for €418,000 and the spare parts for €53,000.

“In the absence of a competitive sales process, it is difficult to conclude on whether best value was obtained. The department has stated that it is fully satisfied with the value achieved in the sale of the aircraft and spare parts, given the extenuating circumstances involved.”

The C&AG noted a total maintenance cost of €400,000 was deemed by Government to be the upper limit, but this was exceeded in 2013. In 2014, the estimate for repairs and maintenance was €1.34m.

A Government memo in July 2014 noted the aircraft would require an overhaul of both engines by 2018-19 at an estimated cost of €2.5m and that retention of the aircraft beyond that date would be unsustainable given its age.

The C&AG was critical of the fact that the Department of Defence did not conduct a formal analysis of the projected ‘remaining life’ costs and benefits associated with the operation of the jet in either 2013 or 2014, when faced with costs exceeding the €400,000 threshold.

The department said there were “particular and extenuating circumstances” as to why such an analysis was not carried out.

Fiscal Advisory Council ‘fulfilled tasks expected’

- Fiachra Ó Cionnaith

The Comptroller and Auditor General (C&AG) has given a ringing endorsement of the Irish Fiscal Advisory Council (IFAC), saying the financial group is ensuring transparency on key issues directly affecting the economy and people’s lives.

In its chapter on the independent budgetary body, the state watchdog said the IFAC has “fulfilled all the tasks that are expected from an independent fiscal institution” and that it is acting on recommendations on how to further improve its work.

The IFAC was set up in 2012 to act as an independent voice on government financial plans, and to assess whether the country’s economy is stable or over-stretching and risking another downturn.

As such, its role has meant it has clashed a number of times with Government as it has urged a prudent approach to economic matters.

In its assessment of the group, the C&AG said the IFAC has met all of its obligations, and is keeping within its own budget restrictions.

It said that, of the €823,360 provided to the group in 2015, €643,000 was used for expenditure, up marginally from €606,000 in 2014, with 62% of this figure involving salaries for the five IFAC council members and its six support staff.

The C&AG said a further €62,500 was paid in fees and expenses for council members last year, down from €64,000 in 2014, due to travel costs for events outside Dublin.

Laundered fuel business close to being cleaned up

The sale of laundered fuel is “negligible and close to being eliminated”, according to the office of the Comptroller and Auditor General.

It reached the conclusion after a random sampling exercise in January found no evidence of the marker used to identify fuel which should not be used in transport or passenger vehicles.

According to the C&AG’s report, due to its significantly lower excise duty and VAT rates, marked fuel has a much lower price — a litre at the pump costs 61 cents while a litre of road diesel costs €1.14.

The C&AG said revenue did not estimate the loss to the Exchequer as a result of fuel laundering but noted a report estimating the loss in 2015 to be €239m.

In an attempt to address the losses being incurred, in 2011 Revenue rolled out its Mineral Oils strategy which included a number of measures which gave greater oversight of the movement of marked fuel.

The introduction of a marked fuel trader’s licence which was required for anyone producing, holding or dealing in marked fuel.

“The new licensing arrangements and the electronic reporting system have made it more difficult for fuel launderers to source marked fuel for illicit purposes,” the C&AG report said.

The 197 licenced traders tested, represented 10% of licence holders.

“No evidence of laundered fuel was found. This provided authoritative evidence that the selling of laundered fuel is negligible and close to being eliminated.”

Failure to verify tax status of experts who verified tax statuses

- Niall Murray

The Revenue Commissioners failed to fully verify the tax compliance of experts it paid to help check compliance among businesses.

The five academics helped last year with ‘science tests’ to determine if research and development (R&D) activities for which tax credits were awarded fulfilled the criteria for the tax break.

As they were paid over €10,000 each, including VAT, Revenue should have required them to produce a tax clearance certificate or demonstrate a satisfactory level of tax compliance. But it was unable to provide the Comptroller and Auditor General with evidence that the tax-cleared status of the five experts was confirmed before paying them.

“Revenue stated that while some did not hold a tax clearance certificate, they would have been entitled to one, or while Revenue did not hold a copy of the tax clearance certificate, the taxpayer was in possession of same,” the C&AG annual report said.

The Revenue Commissioners provided copies of the experts’ declarations that their tax affairs were fully in order.

Arising from the C&AG’s review of how Revenue monitors compliance with the R&D tax credit, which benefited around 1,600 firms to the tune of over €550m last year, relevant tax clearance procedures are to be followed in future.

It is also to formally check the relevant qualifications of experts appointed for such work after the C&AG discovered Revenue relied on information from college websites that they had PhDs in a relevant field.

It used 18 experts at a cost of €140,000 last year on some of the 178 audits triggered by queries on R&D tax claims.

The checks led to €13.5m being collected or recouped, an average of €76,000 per case. The C&AG reviewed 17 cases in which €8.4m was collected or recouped in relation to R&D claims, with the main issues including claims for spending that did not qualify, expenses over-claims and insufficient supporting documents.

€3.2m to review EU payments issues

- Noel Baker

The Department of Agriculture spent €3.2m reviewing issues which led to the disallowing of tens of millions in EU payments to farmers.

The expenditure “disallowance” by the EU was linked to compliance issues with the European Agricultural Guarantee Fund (EAGF), which covers the single payment scheme, and the European Agricultural Fund for Rural Development (EAFRD) which supports rural development programmes.

The department had argued with the European Commission’s reasons for withdrawing the payments, and as part of the resolution conducted the review with included €960,000 in internal staff costs, €450,000 for new software, and almost €1m for the services of a contractor to review imagery. It settled on repayments to the EU of almost €68m.

Separately, the department paid €71m to the EU last year as a result of Irish milk production exceeding the national milk quota, and the recovery of those funds from milk producers.

The department paid the milk levy in November 2015, of which €35.6m had been collected from producers while the remainder was sourced from funds the department had on deposit.

Arrangements are in place for the balance to be recouped in 2016/17.

€5m of farm assist welfare payments may be fraudulent claims

- Niall Murray

Over €5m in welfare payments to farmers might be paid to fraudulent claimants, a recent survey by the Department of Social Protection has found.

The Comptroller and Auditor General’s report reveals that the August 2016 survey estimates 6% of payments in the scheme that cost €88m last year were above entitlement figures due to fraud.

Farm Assist is a means-tested payment for low-income farmers, and the department estimated that errors by itself and by claimants may have resulted in another €4m being overpaid.

Overpayments could account for 5.4% of last year’s €75m household benefits package spend but most is attributed to department error and just 1.4% to error or fraud by claimants.

The fraud and error surveys were not completed in time for the C&AG’s office to review how they were conducted or to verify the department’s figures. However, they will be the subject of a separate exercise for that purpose.

The department only examined 7% of recipients of scheme recipients for the household benefits package, having targeted what it identified as a ‘riskier sub-group’ of recipients. Other sub-groups within the scheme are to be surveyed later, which could change the overall survey or error rates.

On wider surveys of welfare schemes, the highest estimated level of excess payments was disability allowance. However, the 18.4% estimate from a 2010 survey was adjusted to just a 4.1% loss to the welfare system after taking account of cases where disallowed claims were succeeded by valid claims or dependent payments on other schemes or where appeals were successful.

After the 10.4% estimated level of excess payments from within the Farm Assist scheme, the next-highest proportion was the estimated 5.9% excess payments within the €620m illness benefit scheme. This was adjusted from 13.3% when revised claims and appeals were taken into account.

Only 12 of 31 local authorities benefit from LPT funding switch

- Stephen Rogers

Just 12 of the country’s local authorities benefitted more from funds through the local property tax in 2015 than they had in allocations from the Local Government Fund a year earlier.

Up to 2014, local authorities’ day-to-day activities were financed by the Local Government Fund through “general purpose grants”.

However, the grants were discontinued in 2015 and replaced by local property tax (LPT) allocations.

According to the C&AG report, just 12 councils found themselves with more money through the LPT payments than through the general purpose grants.

The other 19 were in deficit and had to receive additional monies to bring them up to their previous funding level.

The additional monies, which amounted to €102 million, were taken from councils who had a surplus.

It meant that those who had a surplus ended up with a total allocation of €239m while those who had a shortfall ended up with a total of €219m.

Local authorities have the discretion to vary their LPT rates in their area by up to 15%.

The report shows six decided to decrease the LPT by the maximum 15% at a cost of €35.4m.

A further eight reduced the LPT by between 1.5% and 10% at a cost of €8.2m. None of the councils opted to increase its LPT rate.

The report also shows last year Irish Water received €399m from the Local Government Fund for water-related services previously provided by local authorities. The Government also gave councils grants totalling €15m for some water service capital loans held by local authorities that did not transfer to Irish Water.