The €41bn public money pumped into Ireland’s banks during the worst days of the economic crash risks never being fully recovered, a new report has warned.
State financial watchdog the comptroller and auditor general revealed the situation on Monday, saying costs linked to the investment and other issues mean not all of the money spent on individual banks will be repaid.
In his annual report on how public money is being used, C&AG Seamus McCarthy said the total net cost of the 2008 bank bailout has reached €41.7bn.
While State investments of €8.4bn and NAMA returned earnings of €4.2bn lowered the cost from €54.3bn, Mr McCarthy said other issues mean the full sum paid over by the public to banks risks never being fully recovered.
“By the end of 2018, the estimated cost to the State of measures taken to stabilise the banking system was a net €41.7bn, after taking account of the value of the State’s remaining shareholdings in AIB, Bank of Ireland and Permanent TSB and NAMA’s retained earnings.
“The net costs will continue to rise due to the ongoing cost of servicing the associated long-term debt... The State is not expected to recover further significant funds from its investment in IBRC, which had a net estimated cost of €36.4bn at the end of 2018.
“It is unlikely that the State will generate a surplus on its investment of €22.2bn in AIB. At the end of 2018, this investment has cost the State an estimated €9.5bn, after taking account of the €7.1bn value of the State’s remaining shareholding in AIB.
“Projected outcomes that the State might recover the full investment do not appear to take account of the estimated cost of servicing the debt associated with the investment - €6.2bn by the end of 2018,” the C&AG said.
The official confirmation it is highly unlikely all of the money paid by the taxpayer to bail out Ireland’s banks at the worst point of the recession is expected to cause fresh problems for both the Government and Fianna Fáil.
While the bank guarantee was almost universally supported across the political spectrum when it was initially instigated as a way to protect the country’s finances, serious concerns have repeatedly been raised about the decision over the past decade.
Throughout 2015, the Oireachtas launched a lengthy and in-depth bank inquiry into the full reasons for what happened due to the political and economic fall out from the decision.
Separately, in recent months Sinn Féin finance spokesperson Pearse Doherty has been vocal in his criticism over the level of tax being paid by some of Ireland’s largest banks, saying there is a clear need for pay back for the help given to them by the public.
The 16-page C&AG section on the cost of bailing out the banks included a specific focus on a number of individual institutions, including the €9.5bn price for help AIB - a figure calculated after the State’s AIB shares were taken into account.
It also said the IBRC price stands at €36.4bn, with the C&AG saying it does not expect to make any more “meaningful” recoveries.
The C&AG report also confirmed the State is still facing debt service costs as a direct result of the bank bailouts a decade ago, and that total debt-related repayments reached €22bn at the end of last year.
For 2019 alone, the likely debt costs are likely to reach €1.6bn, a figure opposition parties have warned should have been made available for extra funds for next week’s budget.
[h2]Report reveals big overspend at Office of Public Works[h2]Elaine Loughlin, Political CorrespondentThe OPW has gone more than three times over budget each year on maintenance services and minor building works.A Maintenance contract for OPW buildings was awarded on the basis that it would cost in the order of €3 million each year, but a total of €39.4 million was spent between 2015 and 2018 - an average of €10 million a year.The Comptroller and Auditor General (C&AG) has now ordered the OPW to carry out a full review of how it estimates contract values taking account of the public procurement requirement for accurate estimations.Under the rules of the contract, individual minor works carried should not go over €500,000.However, the C&AG examination identified six projects that all went above the limit, which had a combined expenditure of €7.4 million. The value of work undertaken on these six projects ranged from €600,000 to €2.5 million.While the amount of work carried out each year was costing significantly more than had been expected, no ongoing reviews were carried out.The annual report of the C&AG has now recommended that the OPW should prepare periodic comparisons between contract expenditure and the estimated value, split between the various activities undertaken.The C&AG said the OPW has processes in place to monitor works carried out under the contract but it did not have a detailed view on the level and different types of activity being undertaken under the contract, which included pre-planned preventative maintenance, new capital works, conservation projects and routine reactive day-to-day maintenance."This is an important element of contract monitoring, allowing the OPW to assess the cost pressures of the different activities and works being commissioned under the contract," the report stated.Responding to the report the OPW agreed to refine its internal procedures to ensure that comparisons are made between the contract estimates and contract expenditure, split between the various activities undertaken.The C&AG pointed out that when the OPW re-tendered the contract in December 2017 it advertised the new contract with an estimated total value of €15 million (excluding VAT) for a three-year duration. This put the value of the contact at €5m a year even though double this was being spent on an annual basis in the previous years.The agreement with a private contractor which was first awarded in 2010 and has been renewed twice since, covers around 600 buildings in the Dublin region. Many of the buildings are occupied by other government departments and offices, to whom the OPW also provides building maintenance services.The on-going contract covers both urgent and planned maintenance works that are identified from routine inspections and surveys of buildings, and routine day-to-day demands.Responding to the C&AG, the OPW said it undertakes to ensure that the most accurate estimates for contract values are published at the tender stage.It said it has commenced reviewing its procurement strategy."The accounting officer also stated that, traditionally, organisations like the OPW employed direct labour to carry out maintenance and minor capital work.However, the previous experience of maintaining a workforce of over 250 people in the OPW was demanding and introduced risks and inefficiencies, which were difficult to fully eliminate. The challenge for the OPW was to deliver on this work with a contract that was flexible and adaptive.The private contract was therefore deemed to be "a cost effective practice, providing value for money".
The Government could be forced to pay out an additional €100m in fines as it struggles to meet its environmental targets.
More than €120 million has already been spent on carbon credits, with the country now facing a bill of up to €14 million to cover further shortfalls on emissions targets by 2020.
A further €100 million in costs could be incurred as the country tries to meet mandatory targets on renewable energy.
The 2018 Annual Report of the Comptroller and Auditor General (C&AG) detailed the full extent of the costs associated with greenhouse gas-related financial transactions.
It noted that €367.3 million was spent on transactions related to the EU's Emissions Trading System from 2013 to 2018, while the country also took in €431 million in 2018 in carbon taxes.
Ireland met its greenhouse gas emissions targets under the first commitment period of the Kyoto Protocol from 2008 to 2012, though this was mainly due to the economic downturn resulting in an unanticipated contraction in economic activity. The EPA projects that Ireland will not meet its emissions targets for the 2013 to 2020 period.
A total of €121 million was spent on acquiring carbon credits as part of Ireland's strategy to meet its targets under the first commitment period of the Kyoto Protocol and 35% of these were retired to comply with obligations.
The remaining carbon credits are available for use in the second commitment period from 2013 to 2020.
The Government's much vaunted forestry programme has failed to meet its targets and has been consistently underspent since it began in 2014, the Comptroller & Auditor General's report reveals.
The Department of Agriculture, Food and the Marine set a target of just over 27,000 hectares extra forestry from 2015 to 2018 but the programme never reached that figure. Over that period, less than 22,500 hectares was afforested — a shortfall of around 17%.
“Up to the end of 2018, there has been a consistent underspend on the Forestry Programme 2014 – 2020,” says the report. “The shortfall in 2018 between the annual estimate and the actual spend was €11 million or 10.6% of the amount provided. The underspend was mainly due to the lower than anticipated take up of grants by land holders.” Although the target was exceeded marginally in 2015, each subsequent year saw a shortfall. “For 2018, a shortfall of 44% was recorded. Since 2015, the total shortfall against target was 4,651 hectares,” the report concludes.
Noting that Ireland has one of the lowest levels of forestation in the EU, the report notes nonetheless that the sector employs 12,000 people and contributes an estimated €2.3 billion annually to the economy.
In 2017, 11% of the total area of the State was forested, compared to an average of 38% for the EU (2015).
The C&AG report shows that increasing the amount of land forested provides opportunities for diversification from farming, employment opportunities in local associated industries, such as timber processing, and potentially enhances environmental and recreational benefits to citizens.
In addition, forests are increasingly recognised as a means to sequester carbon and help reduce the State’s greenhouse gas emissions, says the report.
Earlier this month, the Government unveiled an ambitious target of planting 22 million trees every year over the next two decades as part of a plan to tackle climate change.
The C&AG's report recommends that, where significant programme changes are being considered, a revised and updated cost-benefit analysis should be undertaken. “The analysis should take account of any revised targets and consider the alternative methods to achieving those targets,” it says.
The €14.3 billion in back-taxes which Ireland received from Apple is set to decline in value by €70 million each year in the current negative interest rate environment.
That figure is being provided for “illustrative” purposes, says the Comptroller and Auditor General in its latest accounts of Ireland’s public services.
If, for example, Ireland’s legal challenge to the EU’s Apple ruling were to take three years the value of the overall fund would therefore drop by €210 million.
The August 2016 ruling by the European Commission, that Ireland was guilty of providing illegal State aid to Apple by allowing it to incorporate many of its businesses here without also requiring them to be tax resident, was promptly - and controversially - appealed by both the Government and Apple itself.
Nevertheless, the €14.3 billion was subsequently collected by the State from the tech giant, pending the results of those appeals.
In a chapter devoted to the actual fund itself, the 12th and final installment of which was received in September 2018, the C&AG outlined the complicated structure agreed regarding the administration of the fund between Minister for Finance Paschal Donohoe and Apple itself.
While the payment of €13.1 billion in back-taxes and €1.2 billion in interest has been received in full, the figure has not impacted Ireland’s exchequer in any way.
Instead the funds are being held in an escrow - or holding - account with the Bank of New York Mellon, and the fund is invested in low risk, short term assets for the duration of the State’s appeal. This is being done in order to “preserve the fund’s capital to the greatest extent possible”, the C&AG report says.
As at end 2018 the fund had decreased in value by €14 million over the three months since the final payment was received.
The C&AG said the performance of the escrow fund will be determined by the prevailing interest rate environment and the credit quality of the assets invested in, the vast majority of which are Europe-based.
In the current negative interest rate environment, the value of the fund would decrease by roughly 0.5% per annum, or roughly €70 million per year on a €14 billion fund, according to the National Treasury Management Agency (NTMA), the delegated manager of the fund on behalf of Minister Donohoe.
Noel Baker, Social Affairs Correspondent
The C&AG has recommended a review of welfare schemes where the rejection rate is high to find out the common reasons for refusal after 17% of claims processed by the Department of Employment Affairs and Social Protection last year were refused.
They include 41% of claims for Disability allowance, 35% of claims for invalidity pension and 34% of applications for the Carer's Allowance.
In general, the C&AG report highlighted improvements in how DEASP dealt with applications for payments and the speed with which they are processed. But it recommended that people should be able to apply for more schemes online.
It noted that a May 2018 review found five criteria were not being met when it came to making the application process for Disability allowance easy to understand, much more than any other scheme similarly reviewed.
It highlighted the benefits of an online system versus a paper-based scanned form process in which, the report said, "several thousand forms may be received each day" and paper forms contain illegible writing or have missing details that take longer to rectify.
Comparing schemes where there is an online application option, 44% of applications for paternity benefit were made online versus just 5% for maternity benefit, 11% for child benefit and 2% for Jobseeker schemes. The C&AG said there was "significant scope" for further rollout of online application options and these could increase accuracy and efficiency.
The Department's Communications and Customer Service Unit (CCSU) monitors customer feedback and for the first six months of this year it found that 18% of more than 1,000 submissions related to disruption of payment. Another 16% related to the time taken to process a claim and 15% were with regard to fairness and courtesy. Almost one-third of all submissions related to illness benefit.
The report on 'Regularity of social welfare payments' found a "wide variation" in the level of excess payments found by the surveys, peaking at 12.7% of those surveyed in receipt of the Farm assist payment. Control surveys are planned next year for Jobseeker's Allowance, the state pension (contributory), Jobseeker's Benefit and Disability allowance. In the case of the latter two payments these are the first such reviews since 2012.
As for the 'Timeliness of income support claim processing', the C&AG noted that processing time targets vary across different payments, although the average number of weeks to process a payment to its award has decreased significantly. The prime exception has been carer's allowance, where 27% of claims were processed in 12 weeks versus a target of 70%. Some people had to wait more than 22 weeks for the payment.
Cormac O’Keeffe, Security Correspondent
The Government should exercise its power to conduct audits of its funding of specific overseas humanitarian programmes, the State’s financial watchdog has said.
The C&AG said that “given the level of humanitarian assistance expenditure” provided by Ireland and the “acute needs” of its intended beneficiaries that “robust controls and assurance procedures” were key to ensuring funds were used for their intended purpose.
The Comptroller’s 2018 report shows that Ireland, through the Department of Foreign Affairs and Trade, provided almost €186 million in humanitarian assistance in 2018.
Provided in response to emergencies, such as earthquakes, droughts and wars, it accounts for almost a quarter of Irish official development assistance (ODA).
The report noted that the UN target, set in 1970, of countries spending 0.7% of their Gross National Income (GNI) on ODA has been reached by Ireland over the last three years, after dropping below the target between 2010 and 2015.
Some €792m was provided in 2018, compared to €724 in 2016 and €615 in 2015.
Ireland was ranked number 12 (jointly with Iceland) among 29 European states for its shared of GNI contributed as ODA.
In relation to humanitarian assistance, Ireland has provided more than €118m to the Syrian crisis, since 2012. It has provided just over €25m each year to the crisis over the last three years – this country's largest ever response to a single crisis.
This money is largely spent in countries neighbouring Syria, with €9.5m going to Lebanon, €5.9m in Turkey and €3m in Jordan in 2018. Some €5.3m went to Syria itself.
The report noted that Ireland opened an embassy in Amman, Jordan in 2019.
The C&AG had a site visit to Jordan in April 2019 and reviewed three funding areas: ‘unearmarked’ (no restrictions) funding of €750,000 to a UN agency supporting Syrian refugees; ‘softly earmarked’ (for a specific crisis) funding of €500,000 to another UN agency for education projects and an ‘earmarked’ funding of €233,000 for an NGO working with children.
The team found that the majority of controls had been appropriately applied.
A full national network of primary care centres may not be on the cards for another 20 years.
The Comptroller and Auditor General said the Department of Health had a plan for the centres at 350 locations but only 127 had begun operating up to March 2019, with only 57 centres introduced since 2013.
“At the rate of progress since 2013, it will take a further 20 years or more to develop the full network of primary care centres,” the report of the C&AG said.
Primary care centres are designed to be the first and ongoing point of contact in the health care system and include health assessment, screening for disease, assessment, diagnosis , treatment and rehabilitation along with personal and social services.
Although modern, well equipped accessible premises are considered essential to the establishment and effective functioning of primary care teams, the report said there is no quantified definition of what a primary care centre should be. It said the centres range from standalone purpose-built centres to health centres or those in community hospitals and some are operating without direct GP involvement.
The Department of Health, it said, should set a goal for when the full network of centres is intended to be in place. Centres developed in the last five years, according to the report, do not closely reflect the ranking order with two thirds of the new centres being developed in locations at the top of the ranking list.
The HSE, the report said, attributed this in part to the interest expressed by developers or lessors in some locations and not in others.
The HSE, it said, should undertake a cost-effectiveness review of the different delivery methods used to develop primary care centres to date.
It should also set a goal for when the full network is intended to be in place and determine how future delivery is to be prioritised.
The Department of Health, in its response, said it would have no objection in principle to the recommendations to set an indicative timeline for the delivery of the network but that could only take place after consultation.
In its response, the HSE said it will complete “an overarching review” relating to primary care centres. This, it said, will encompass an update of the rankings of the target locations and a determination of how further delivery is to be prioritised. It will also review delivery methods to date.
Childcare providers who were found to be majorly non-compliant with the terms of grants they were receiving continued to receive the funding after unannounced inspections due to a lack of formal sanctions.
The annual capital programme and funding for early learning and childcare is administered by Pobal on behalf of the Department of Children and Youth Affairs.
Pobal's remit includes a compliance audit and risk section that carries out unannounced visits to creches and childcare providers to check they are adhering to each programme's rules.
As detailed in the Comptroller and Auditor General's (C&AG) report, an absence of effective sanctions led to some service providers continuing to receive funding even after they were found to be majorly non-compliant with the terms of their grants.
Pobal advised the C&AG that it was not uncommon for service providers to remain non-compliant on the second and subsequent visits from its inspectors.
"A new framework has been implemented by the Department of Children and Youth Affairs, from 2017/2018, but it is too early to assess its effectiveness," the report states.
A number of Early Childhood Care and Education (ECCE) services in receipt of higher funding for staff with higher qualification levels were also found to be 'majorly non-compliant' as staff did not have these qualifications, or children were not being taught by staff members with those qualifications, the C&AG noted.
The Department of Children and Youth Affairs should look at collating the results of all inspection types to identify service providers who are persistently non-compliant, the C&AG also found. "Such information sharing could support more informed risk-profiling by the different bodies."
The C&AG was also critical of the low number of audits of childcare and early years service providers, given that they receive annual payments of some €410 million.
While Pobal undertook a large number of unannounced visits focusing on the contractual agreements of each programme over the last three years, less than ten audits of these providers were carried out per year.
Tusla's Early Years Inspectorate carried out 2,513 inspections in 2018, according to the C&AG report. Two services were deregistered for failing to meet requirements.
"The Department has stated that a further three service providers have been deregistered to date in 2019."
Based on the numbers of children availing of childcare last year, the estimated average cost per child was around €2,300 for the ECCE programme, and around €1,600 for the other programmes.
Settlement payouts by State bodies have increased to three times their corresponding amount in 2012, according to the latest Comptroller and Auditor General report.
The State Claims Agency, which is managed by the National Treasury Management Agency, had paid out €3.15 billion by the end of 2018 — a 300% increase on the same figure as at end Dec 2012.
The SCA handles personal injury, property damage and clinical negligence compensation claims on behalf of 146 separate State authorities.
As at end 2018, 90% of that €3.15 billion, or €2.8 billion, was made up of claims against Ireland’s public health service providers — the HSE, the Department of Health, and child and family agency Tusla.
Since the advent of the cervical cancer scandal, which saw 221 women being wrongly told that their smear tests had returned negative results, the State has made a number of high-profile payouts to women such as Vicky Phelan, who settled a High Court action with the HSE for €2.5 million late last year.
The next largest total grouping for payouts was justice and defence — comprising the prison service, the gardaí, the Defence Forces, and others — with 8%, or €242 million.
The ballooning claims payouts are a direct result of a decision by the Court of Appeal in 2015 to reduce the real rate of return — a method of evaluating the investment potential of claim payouts — from 3% to 1% or 1.5%, according to the C&AG.
Overall awards and associated claims costs at the agency were €354.6 million for 2018, compared with €316.8 million in 2017, a hike of 12% year on year.
The overall number of live claims under management has also increased significantly over the past six years, with 10,658 claims outstanding at the end of 2018, compared with just under 6,000 in 2012. Just under a quarter of those live claims pertain to mass actions, that is, where a number of clients are represented in the same action by the same counsel.
While the number of claims successfully resolved increased by 17% year on year to 2,623 by the end of 2018, that rate of increase has not been sufficient to reduce the overall outstanding number of actions materially.
The operating costs of the SCA have also jumped significantly over the past four years, from €15.7 million to €25 million at end December 2018, a jump of 66%.
However, the number of staff at the agency has not risen at the same rate, with 39 additional employees listed at end 2018 compared with 2015, an increase of just 36%.
One area where the SCA has seen better returns is via its third-party legal costs unit, which was first set up to deal with those costs accrued by historic State Tribunals.
Last year the SCA settled 556 bills for legal costs, with claims of €90.6 million settled eventually for €53.7 million, a 41% reduction dominated by reduced Tribunal costs, the C&AG said.