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PAC chair blasts “whitewash” report into €3.6bn accounting error

Both internal and external reports on the accounting mistake were discussed at the Dáil’s Public Accounts Committee.

THE CHAIRMAN of the Dáil’s powerful Public Accounts Committee has blasted as a “whitewash” an external report into how Ireland’s government debts for 2010 were overstated to the tune of €3.6 billion.

John McGuinness slammed the Deloitte report – which cost €61,500 – as being largely based on the outcomes of the Department of Finance’s own internal report, but said neither adequately dealt with the series of events that led to the error.

McGuinness also heavily criticised the former secretary-general at the Department of Finance, Kevin Cardiff – who was in charge of the Department when the error was made, and who is now a member of the European Court of Auditors – for not arranging to be present when the reports were presented.

The two reports were formally presented to the Committee by Cardiff’s successor, John Moran, this morning. The reports outline shortcomings with staffing arrangements within the Department of Finance, which meant there was insufficient scrutiny in compiling the national accounts.

The reports recommend ending the current arrangement where the Department of Finance and the Central Statistics Office are responsible for compiling Ireland’s national accounts, leaving the responsibility with the latter.

Moran described the error as “wholly regrettable” and giving the CSO sole responsibility for the area in future would be the “first step” in ensuring such errors did not occur again.

‘It’s always a systems failure’

“The manner in which the report seems to have been compiled is that the internal report was completed, and it was that internal report and its findings that Deloitte dealt with, and hence the other second external report,” McGuinness complained.

What’s missing from the report is – it’s similar to any other report issued by the Department over the years – it is always a systems failure, it always comes across the desks here at the Public Accounts Committee as being the failure of some system or other. Some IT system, some mid-ranking to junior staff member in the Department. It is never a senior person standing up and taking responsibility.

He continued:

I figure, Mr Moran, that if senior civil servants are taking their pay cheques, with their names on it, alongside that pay cheque comes a responsibility.

The responsibility in that case, of line managers, was to stand up and say, ‘We left that statistician on their own – we didn’t put around him the appropriate supports that were necessary to complete their job.’

It was the failure of your department that caused that to happen, and yet there’s no mention of management in either of the reports. That’s what I find so shocking, and so unacceptable, about the reports.

McGuinness lambasted the reports as a “whitewash of the critical issues that needed to be examined but were not explained,” and said the cost of such a report in that light was “shocking”.

‘Don’t tell me that’

Moran was unable to confirm whether a procurement process had been followed to find a firm to undertake the audit, but said he could remember that there was “difficulty actually finding people willing to do the work”.

Evidently frustrated, McGuinness sighed, “Don’t tell me that,” demanding an explanation as to how Deloitte had been chosen to compile the report – which was written “in a language that’s almost not English” – if there had been no competition in seeking to do so.

“All we asked for was a report that would be independent enough to tell us what happened in the Department around this particular error,” he said.

“In fact, having listened to the CSO, we [the committee] could have made a recommendation that they be given the task to record those figures.”

He further complained that the circumstances around the €3.6 billion error were not unique, saying the reports outlined how similar – though significantly smaller – errors had arisen in 2004, 2005 and 2006.

The CSO has previously explained that the error arose when the Housing Finance Agency (HFA) borrowed €3.6 billion from the National Treasury Management Agency, instead of from the bond markets as would have been the case before Ireland’s EU-IMF bailout.

Two related errors

The loan was erroneously treated as if it had been borrowed in the usual way, however, meaning the HFA’s debts – and therefore those of the government – were overstated by €3.6 billion.

Similarly, the NTMA’s loan to the HFA was incorrectly labelled as a bank deposit – meaning it was treated as an ‘asset’ – instead of correctly being labelled as a loan from one State agency to another.

The outcome of the dual error was that the government’s assets and liabilities were both overstated by €3.6 billion – meaning there was no material change in the government’s financial position.

Ireland’s debts were overstated when described in proportion to Ireland’s GDP, however, which could have had an impact in the measures undertaken by the government to meet its EU-IMF targets.

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Gavan Reilly

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