C&AG Report: €661m ‘collectable’ tax not recovered; Fresh concerns raised over Garda College

The Irish Examiner news team look at the findings in the Comptroller and Auditor General Report.

Comptroller and Auditor General, Seamus McCarthy

Revenue: €661m ‘collectable’ tax not recovered

- Stephen Rogers

Revenue has not taken action to recoup €661 million in tax debt which should be available for collection, the report from the Comptroller and Auditor General has found.

As of March 2017, the gross value of outstanding tax debt was €2.29bn, 9% more than the €2.1bn which was outstanding a year earlier.

Of the total due in March of this year, almost €1.2bn was classed as “not available for collection” because it was either under appeal or because there had been an insolvency.

That left just over €1.1bn which could be classed as “available for collection”. Of that total, €328m was the subject of enforcement action and there were payment agreements in place for a further €116m.

However, €661m — or the majority — of what should have been available for collection was not subject to either enforcement or payment agreement. And of that debt, €271m was more than one year old.

The C&AG said at least once a year, Revenue should be reviewing debt classed as collectable and which is more than 12 months old. It also said that where Revenue has not initiated enforcement action, it should determine what actions might be taken to collect the debt.

In response, the Revenue accounting officer agreed, saying its debt management units hold regular monthly arrears meetings to discuss the progress of more “entrenched” cases and to consider next steps.

The C&AG also reported that in 2016, the value of debt written off as uncollectable was €211.2m. Of that, €209m was written out on a case-by-case basis. The most frequent reason for debt write-offs was liquidation and businesses ceasing to trade.

Meanwhile, the C&AG’s report also shows that 13 of the top 100 companies ranked by taxable income paid an effective rate of corporation tax of less than 1% — well below the statutory rate of 12.5%.

The report put that down to the use of “significant tax credits and reliefs, in particular, double taxation relief and research and development tax credits”.

In fact, the C&AG referenced a study by PwC and the World Bank which found that while Ireland has the lowest statutory rate of corporation tax in the OECD, 12 OECD countries have a lower effective corporation tax rate. The C&AG pointed to a concern expressed by the Department of Finance that there is a reliance on a small cohort of large corporations for income from corporation tax.

While the tax was paid by more than 44,000 people and institutions in 2016, receipts were dominated by a small number of taxpayers, mainly multinationals.

“37% of 2016 corporation tax receipts were paid by the top 10 taxpayers, and 70% by the top 100 taxpayers. By comparison, around 7,000 companies in the UK, accounting for just under 1% of all companies paying corporation tax, are responsible for the payment of 54% of all corporation tax collected in 2015-16,” said the C&AG. Its report shows that three sectors of the economy account for around 70% of the total corporation tax receipts — financial and insurance activities; manufacturing (including pharmaceutical manufacturing); and information and communications.

For 2016, 37% of corporation tax receipts were paid by the top 10 taxpayers and 70% by the top 100 taxpayers.

The C&AG also pointed out that corporation tax receipts are difficult to forecast. In 2011, the receipts came in at 13% below Department of Finance forecasts, while a year later they came in 5% above the forecast.

Worker paid over €65k in overtime

An employee at the newly-formed Tax Appeals Commission was paid €65,400 in overtime in 2016, which equated to 10% of the total wages paid out there last year.

The Comptroller and Auditor General pointed out that Government guidelines require overtime is authorised and the nature of the work involved makes overtime unavoidable.

Yet, it said there was no record in this case that the overtime hours in respect of which the payments were made had been authorised by a more senior official.

“The records that are available from the commission are insufficient to substantiate the overtime payments,” the C&AG said.

“The commission has hand-written summaries of hours worked compiled using the employee’s work diaries over a number of years, and copies of emails issued during a small number of the claimed overtime periods. The commission has no other records or evidence to support the claims.”

In November last year, Revenue contacted the commission — which was formally established in March 2016 — querying the amount of overtime being processed on behalf of it.

By that stage, the €65,400 had already been paid to the employee. The commission decided that no further overtime payments would be made and, in the meantime, a May 2017 overtime claim was not paid.

Garda training: Fresh concerns raised over Garda College

- Cormac O’Keeffe 

The State’s financial watchdog has raised fresh concerns over the running of the Garda Training College, criticising the actions of the Garda Síochána and the Office of Public Works.

The C&AG said the management of State-owned lands at Templemore College did not achieve “good value”, mentioning issues with the golf course adjoining the college and a large farm 6km from the town.

The report also revealed that Revenue wrote to the gardaí in 2011 and “directed” it to discontinue the payment of a living allowance to trainees as a subsistence allowance during a particular phase of the training and to make payments compliant with tax rules.

However, the C&AG said the gardaí are still in the process of seeking the views of the Attorney General regarding the legal status of the living allowance.

The report said the State, through the OPW, spent €4.3m in 2006 in purchasing Dromard Farm which was supposed to be earmarked for a “centre of excellence” in tactical training.

A so-called “master plan” was finalised in May 2007. By that stage, the OPW had let out the property through a local auctioneer for grazing.

The report said there was no record of a reply when Gardaí contacted the OPW in November 2008 for advice.

The only actual development on the site was the construction of a building for tactical training, which is used “periodically”. Garda management said that, with austerity measures, there was no further development.

While recruitment restarted in September 2014, the report said the OPW has arranged further letting of the site until 2020.

The C&AG said there is “no evidence” that the purchase of Dromard or the transfer of its control to the Gardaí was underpinned by any formal agreement or clarification of responsibilities. The report also said there was no evidence the OPW ensured Dromard farm was utilised for its intended use or that its value was “protected or optimised”.

The OPW told the C&AG that the purpose of the farm “dissipated” with the onset of the financial crisis and the consequent termination of the development project.

The Department of Justice told the C&AG they are looking at a new “master plan”, including a new education and training facility and new residential accommodation.

The report said that Sportsfield Ltd — which has senior gardaí among its directors — agreed in 2000 to allow use of the land by a local golf club for an annual fee of €12,600. It said payment has fallen into arrears and that around €88,000 is outstanding, equivalent to seven years’ money owed.

The C&AG said there is no evidence that Gardaí involved the OPW in advising on the granting of a licence to a local club to use the lands.

The report said the gardaí have no clear framework for the college restaurant setting out its governance structure and accountability arrangements, and the use of surpluses generated. A comparison of the restaurant to similar services in other public bodies showed key differences: There is no contract between gardaí and the operator; the status of the staff is unclear; there is no internal audit; and public procurement rules do not apply.

The Department said it is in discussion with gardaí about changing the structure for financing the college to give a transparent picture of the total costs and income, which should be reflected in this year’s estimates.

Foreign aid: €300k astray from Irish Aid projects

- Caroline O’Doherty

Irish Aid has agreed to begin making public the amount of money lost to theft and fraud in projects it funds in developing countries each year.

The agency’s internal fraud register reveals that 12 suspected frauds were detected in eight countries in 2016, with sums totalling €312,262 misappropriated from official development assistance (ODA) from Ireland.

A total of €126,306 was recovered but the Comptroller and Auditor General has warned further work is needed to tighten checks on organisations in developing countries before funding them, as well as better controls on the ground once funds are handed over.

Overseas aid from Ireland, for both emergency relief and development projects, totalled €724m last year. That’s the highest level since 2008 and the Government has made a commitment at EU and UN level to increase it substantially by 2030.

Minister Simon Coveney: Department of Foreign Affairs will publish the figures.

The C&AG said: “Given the level of expenditure involved, and the needs of developing countries, robust control and assurance procedures are key to ensuring that funds are used for the purposes intended.”

Roughly half the ODA is in the form of multilateral assistance — money donated to international organisations such as the World Food Programme, the World Health Organisation and UNICEF (United Nations Children’s Fund).

The other half is channelled directly into selected countries through NGOs, missionary societies, and other agencies working in those countries, and through their governments.

In 2012, €4m in Irish Aid funding to the government of Uganda was misappropriated and while the money was repaid by the Ugandan government, new controls were developed to prevent a repeat of the incident.

A review by the C&AG found that while significant progress was made on implementing 11 of the 14 controls, sufficient progress had not been made on identifying what skills were needed on the ground; ensuring senior staff have the skills to manage significant budgets and risks; or providing formal management training for staff being posted to partner countries.

The review also found that while any weaknesses identified during pre-funding checks of organisations applying for financial support were recorded, memorandums of understanding and contract documents used in subsequent agreements with those organisations did not adequately emphasise the need for them to take action to strengthen their controls.

In 2016, 12 suspected frauds were reported in Irish Aid-funded partner organisations amounting to potential losses of €312,262 or 0.043% of ODA. When recovered amounts were accounted for, the potential loss was 0.026% of ODA, a figure on a par with losses reported by the British aid programme (0.03%), Australia (0.026%) and the UN 0.03%). The US reports annual losses of just 0.0055%.

The C&AG said the figures should be made public as a matter of routine: “In line with good practice amongst other donor countries, the department should consider estimating and publishing on an annual basis, the value of suspected frauds, both in euro terms and as a percentage of ODA.”

The Department of Foreign Affairs agreed and said it will find a way to publish the figures, probably through Irish Aid’s annual report. It also agreed to stipulate in contract documents the measures necessary to safeguard against risk of fraud or other losses.

Property: Rates for more than 50% of properties based on 1988 values

- Catherine Shanahan 

More than half of commercial properties are paying rates based on 1988 property values because of the snail-like pace of implementation of a national revaluation programme.

In Limerick, where revaluation has taken place, the annual rate payable increased by €474,000 to €490,000 on one property and reduced by €558,000 to €2.4 million in another case.

The figures are contained in the Comptroller and Auditor General’s (C&AG) Report of the Account of the Public Services, 2016, in which he points out that revaluation “can have a significant impact on the rate payable for individual properties”.

The C&AG is critical of the slow pace of rollout of the National Property Revaluation Programme. Although introduced by legislation in 2001, it was the end of 2005 before the first revaluation was carried out. By September 2017, revaluations had been completed for just 15 local authorities, accounting for 43% of all rateable properties (78,000), at an estimated in-house cost of €41m.

The C&AG is critical of the slow rollout of the National Property Revaluation Programme, which can have a big impact on rates.

This means properties in 16 local authorities have yet to be revalued, but the agency responsible, the Valuation Office, says the programme will be completed over the next five years. This will have to be done in tandem with revaluing properties in already completed local authorities, because of a requirement that no more than 10 years elapse before valuations of all properties are updated.

The C&AG is also critical of the lack of a costing system in the Valuation Office to allow it “accurately identify the costs attributable to the revaluation programme”.

“Except for a contracted out revaluation for Carlow and Kilkenny [€2.4m], the costs of the revaluations are not known,” he said.

The C&AG said the office should “review its approach to the recording of costs”.

The office blamed a deficient IT system and said addressing the shortcoming was a priority.

The slow roll-out of the programme — two-and-a-half years to complete revaluations in a local authority prior to 2015 and 22 months since — is in stark contrast to the year it took private company CBRE to complete revaluation in Carlow and Kilkenny, where the cost is cc€525 per property.

The revaluation process redistributes payment rather than increasing income for local authorities; after revaluation, some ratepayers are expected to pay less commercial rates, while others pay more.

A separate chapter in the report looked at the impact of the local property tax (LPT), which has replaced “general purpose grants” to local authorities since 2014.

It found 12 local authorities were better off to the collective tune of €171.2m. The remaining 19 were worse off. No local authority increased the LPT in 2016. Five decreased it by the maximum 15% at a cost of €30.9m. Another six reduced it by between 1.5% and 10%, at a cost of €5.1m.

Justice: Department spent €4m on property it cannot use

- Cormac O’Keeffe

The Department of Justice spent almost €4 million, including a €1.8m legal settlement, on a property that it was not able to use.

The building, in Dublin’s north inner city, was intended for use as a community-based project run by the Probation Service.

The State’s financial watchdog said that the department signed a lease agreement in relation to the offices on Wolfe Tone St after it had received legal advice that everything was in order.

“Subsequent to the lease being signed, it transpired that no planning permission was in existence,” said the C&AG.

“Legal proceedings which subsequently ensued were settled in late 2016 on the basis of strong legal advice to do so, thus avoiding any further costs accruing to the State.”

The C&AG said the total cost was €3.89m, comprised of:

  • €1.8m settlement paid by the department.
  • €1.1m write-off spent on fit-out of leased premises.
  • €1m incurred in rental of the premises and other related costs.

The C&AG also reported that prison-related compensation costs almost doubled last year, from €3m in 2015 to nearly €6m in 2016.

This involved 129 cases taken by prison officers; 221 actions by prisoners injured by other inmates; and 29 cases by members of the public.

The €5.9m bill involved €3.2m in legal costs and €2.7m in compensation.

The C&AG warned that current court cases could result in further liabilities for the State and that there were almost 1,900 such actions outstanding at the end of 2016.

This includes cases in relation to the ‘slopping out’ of inmates, following a landmark case earlier this month.

The report said that €6.4m had been paid out in compensation and legal costs to gardaí and employees in 151 actions, compared to €5m in 2015.

A further €6.7m was awarded in 445 cases taken by civilians in 2016, compared to €5.6m in 2015.

The Prison Service saw an actual reduction of prison staff numbers in 2016, with 93 fewer staff by the year’s end.

The report said that despite a recruitment campaign, no one was recruited during the year, while a greater number of staff than expected had retired.

The report said there was a saving of €3.2m in payroll costs in the Probation Service because of delays in recruiting staff, with only six posts out of a minimum of 39 filled by the end of last year.

Social welfare: State owed €480m in welfare overpayment

- Joe Leogue 

The State is owed €482m from overpayments on social welfare, the Comptroller and Auditor General has found.

The spending watchdog’s annual report has found that the Department of Social Protection recorded overpayments of between €100m and €120m annually from 2013 to last year.

The six largest over- payments detected in 2016 were for amounts in excess of €200,000, and all were due to fraud or suspected fraud. The two most significant overpayments arose from cases involving fraudulent or suspected fraudulent claims due to impersonation.

The largest case involved an overpayment of €333,463, and the claimant was convicted and received a five-year custodial sentence. However, none of this overpayment had been reclaimed, as was the case in three more of the top six cases.

Overpayments are due to four factors — fraud and suspected fraud; inadvertent errors by claimants in the information they gave to the department; an error by the department itself; and ‘estate cases’ where the department learns after a claimant has passed away that not all their means had been disclosed.

The C&AG found that the level of overpayment due to fraud dropped from nearly half in 2016 (49%) to 37% last year. The number of overpayment frauds was 16,225, 1,305 of which had values above €5,000.

Last year a total of 222 cases were considered by the department’s Central Prosecution Unit for criminal proceedings.

However, between 2013 and 2016 there were increases in the level of overpayments attributed to claimant error, which rose from 34% to 42%.

Departmental error accounted for just 2.1% of overpayments last year, according to the C&AG.

The C&AG’s analysis of the department’s debt recovery found that almost one-third of debt recorded is recovered “quickly”, but recovery is slower thereafter, and that between 50% and 60% is recovered three to four years after detection.

Some of the debt is written off for a number of reasons — a debtor has died and did not leave behind enough to repay the debt, or the department failed to act within a reasonable timeframe on information provided by the recipient, or if the overpayment debt was because of a mistake by the department, and the claimant could not be expected to know that the error had occurred.

While €2.7m was written off last year, the C&AG found that the level of write-off of overpayments spiked in 2014, when a total of €14.1m was written off.

This was due to a review of overpayments following the introduction of the department’s new Debt and Receipts Accounting System (DRAS) in November 2014, which was brought in to manage debt and cash receipting.

It also found that a small number of debtors account for a majority of the amount of money owed.

There is €482.5m owed by 191,834 individuals. However of these people just 10,970 — 5.7% of the total — account for debts of €289m. This is 60% of all the money outstanding at the end of last year.

The department’s Central Debt Unit manages cases involving debts of €50,000 or more. It has 1,156 debtor cases, with an average debt of €78,500.

The C&AG also found that the level of excess payments found by the department’s fraud and error surveys are “material”.

It reported that there were excess payments of 18.4% on gross payments on Disability Allowance; 13.4% on Illness Benefit; and 10.6% on Farm Assist.

Payroll errors: Delay notifying sick leave a factor as €4.6m overpaid

- Niall Murray 

Delays of weeks and months in government departments notifying employee sick leave are a major factor in centralised payroll system recording €4.6m in over- payments due back at the end of 2016.

In one case highlighted by a Comptroller and Auditor General report on the Payroll Shared Services Centre (PSSC), it came to attention in August 2016 that a public servant had been overpaid €38,000 due to “a process” error.

But the C&AG’s examination found there was no repayment plan in place because the person was on zero rate of pay. The case was put on hold the next month, and arrears of around €10,000 due to the employee were offset against the overpayment.

PSSC runs payroll and pension payment services for 43 government departments and agencies, processing payments worth €3.2bn for more than 102,000 employees last year. At the end of 2016, the €4.6m in overpayments outstanding included cases worth €2.8m in which there was no repayment plan in place.

The report shows that around 400 new over-payments arise out of around 13,000 pay runs processed every month. Late notification was the cause for overpayments to 50 people examined by the C&AG.

“This mainly occurred because PSSC were only notified weeks, and in some cases months, after an employee was put on ‘zero rate’ of pay or reduced rate of pay due to sick leave,” the report says.

Of the 1,378 cases without a recovery plan at the end of 2016, 388 or 28% had been on hand for over a year, and the €3,000 average outstanding was much higher than in fresher cases. The €1.1m due back from those workers was worth 41% of the €2.8m owed on all overpayments.

But the amount due back from employees could be as much as €650,000 higher, as it had not been calculated in nearly 650 cases where overpayments were identified. In a quarter of them, it was six months since the overpayments had come to light.

The C&AG examination found there was no effective way to measure changing levels of overpayments, or to determine how well they are being managed. Because its systems can only report information on amounts outstanding on the day they are requested, but not relating to a past date, those amounts can only be calculated by staff carrying out extensive manual intervention.

The PSCC’s sister human resources service People Point, used by 39 departments last year, has a target of putting a repayment plan in place in 90% of cases within 10 days of notification. But the C&AG found this was rarely achieved in sample cases his office examined.

State bodies left €643m of their budgets unspent

- Caroline O’Doherty 

Government departments and agencies underspent by 0.6% of their collective budgets last year, leaving €643m of their allocated money unused.

The Department of Agriculture left the biggest amount unspent — €253m — but the vast majority of the 41 spending bodies examined by the C&AG underspent to some degree.

As a proportion of its budget, the Policing Authority had the greatest underspend, using less than half its €2.64m budget and having to return €1.56m to the Exchequer.

The Department of Agriculture did not spend €253m of its allocated money.

However, that pales beside the €48m surplus recorded by the Department of Children and Youth Affairs and the €32m left unused by the Department of Communications, Climate Action and the Environment.

The Department of Housing had €10m to spare at the end of the year; while Arts, Heritage, Regional, Rural and Gaeltacht Affairs had €3.12m. Even the office of the C&AG itself had €1.7m left over out of its €6.7m budget.

Several departments overspent, including Education, which spent €121m more than anticipated, and Transport, which went €82m over budget.

The Departments of Jobs and Social Protection also overspent, while spending on the Courts Service also went over budget.

Supplementary budgets also had to be provided for the gardaí and for army pensions.

Variations between monies allocated and monies spent happen annually, but there is no pattern. In 2015 and 2014, there were overspends of 2.3% and 2.2%, but from 2006 to 2013, an overspend one year was followed by an underspend the next year. Where spending came in under budget last year, most of the money had to be returned to the Exchequer. Just €74m was approved for carry-over to this year.

€4.6m extra for tunnel firm due to less traffic

- Niall Murray

An over-estimation of traffic through the Limerick Tunnel meant €4.6m extra had to be paid to the contractor in the public-private partnership (PPP) build last year.

The payment was, however, lower than a previous €7.7m estimate on traffic guarantee payments likely to fall to Transport Infrastructure Ireland for 2016.

The contract between Transport Infrastructure Ireland (TII) and Direct Route (Limerick) Ltd for the €382m tunnel continues until 2041. It includes a stipulation for payments to be made to the company if traffic levels do not meet those set out in the deal.

More than €30m has been paid since it opened in 2010, but last year saw the lowest annual cost to date, as economic recovery helped boost toll income on the tunnel. Comptroller and Auditor General Seamus McCarthy’s report said the current traffic estimates show that payments would continue to be made for the duration of the contract.

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