Standing Orders under Section 60(3) of the Northern Ireland Act 1998 have provided for the establishment of the Public Accounts Committee. It is the statutory function of the Public Accounts Committee to consider the accounts and reports of the Comptroller and Auditor General laid before the Assembly.

The Public Accounts Committee is appointed under Standing Order No. 55. It has the power to send for persons, papers and records and to report from time to time. Neither the Chairperson nor Deputy Chairperson of the Committee shall be a member of the same political party as the Minister of Finance and Personnel or of any junior minister appointed to the Department of Finance and Personnel.

The Committee Members were appointed by the Assembly on Monday 24 January 2000. They will continue to be Members of the Committee for the remainder of the Assembly, unless it orders otherwise. The Chairperson Billy Bell and Vice-Chairperson Sue Ramsey were previously appointed on 15 December 1999. The full membership of the Committee is as follows:-

• Mr Billy Bell (Ulster Unionist Party, Lagan Valley) (Chairperson)
• Ms Sue Ramsey (Sinn Fein, Belfast West) (Deputy Chairperson)
• Ms Pauline Armitage (Ulster Unionist Party, East Londonderry)
• Mr Roy Beggs Jnr (Ulster Unionist Party, East Antrim)
• Mr Mervyn Carrick (Democratic Unionist Party, Upper Bann)
• Mr Seamus Close (Alliance Party, Lagan Valley)
• Mr John Dallat (Social Democratic and Labour Party, East Londonderry)
• Mr David Hilditch (Democratic Unionist Party, East Antrim)
• Mr Donovan McClelland (Social Democratic and Labour Party, South Antrim)
• Ms Jane Morrice (Northern Ireland Women's Coalition, North Down)
• Mr Danny O'Connor (Social Democratic and Labour Party, East Antrim)
  

All publications of the Committee (including press notices) are on the internet at archive.niassembly.gov.uk/accounts.htm

All correspondence should be addressed to The Clerk of the Public Accounts Committee, Room 242, Parliament Buildings, Stormont, BELFAST, BT4 3XX. The telephone number for general inquiries is: 028-9052-1532. The Committee's e-mail address is: michael.rickard@niassembly.gov.uk.

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Members Present: Mr Billy Bell in the Chair
Mr Roy Beggs Jnr
Mr Mervyn Carrick
Mr Seamus Close
Mr John Dallat
Mr David Hilditch
Mr Donovan McClelland
Ms Jane Morrice
Ms Sue Ramsey

Mr John Dowdall, Comptroller and Auditor General (C&AG) was examined

Dr Andrew McCormick, Treasury Officer of Accounts was examined.

The Comptroller and Auditor General's report on The Rural Development Programme (NIA 19, Session 1999-2000) was considered.

Mr Peter Small, Accounting Officer, Department of Agriculture and Rural Development, Mr Danny McNeill, Principal Finance Officer, Department of Agriculture and Rural Development, Mr Gerry McWhinney, Head of Rural Development Division, Department of Agriculture and Rural Development, Mr Martin McDonald, Chief Executive, Rural Development Council were examined

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* * * *

Members Present: Mr Billy Bell in the Chair
Mr Roy Beggs Jnr
Mr Mervyn Carrick
Mr Seamus Close
Mr John Dallat
Mr David Hilditch
Mr Donovan McClelland
Ms Sue Ramsey

Mr John Dowdall, Comptroller and Auditor General, was further examined.

The Committee deliberated.

Draft Report (The Rural Development Programme), proposed by the Chairman, brought up and read.

Ordered, That the draft Report be read a second time, paragraph by paragraph

Para 1 to 3 read and agreed to.

Para 4.1 to 4.25 postponed

Para 5 to 13 read and agreed to

Para 14 read and agreed subject to amendment

Para 15 to 23 read and agreed to

Para 24 read and agreed subject to amendment

Para 25 to 30 read and agreed to

Para 31 read and agreed subject to amendment.

Para 32 to 43 read and agreed to

Para 44 read and agreed subject to amendment

Para 45 to 47 read and agreed to

Paras 4.1 to 4.25 read and agreed subject to changes to be made to reflect amendments agreed in paras 5-47.

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"A major strength of the programme has been the extent to which it has succeeded in developing rural community networks and partnerships within rural areas. This has brought various public, private, voluntary and community-based bodies together, to tackle rural deprivation through a range of structures."

I think this is a very fair assessment by the Audit Office of some of the strengths of our work.

9.

However, although there was positive feedback, I fully accept the range of criticisms. Our objective will be to hear what the Committee has to say and then to apply the lessons we learn as we move into the next round.

10.

The Chairperson: It is helpful to have that on the record and we note the assurances you have given us. However, we are here to hold you to account. I am sure you understand that as well.

11.

Mr Small: I fully accept that.

12.

The Chairperson: Part 3 of the report concludes that the Department's project appraisal process often failed to detect the main risks in projects, and also failed to address those risks properly. It also appears that the appraisal process had little bearing on decisions as to whether assistance would be given. I suggest that this is not the way to spend scarce public funds. Given the very large sums of taxpayers' money involved, why did the Department not take steps to ensure that it had a fully effective appraisal mechanism in place when the scheme was established?

13.

Mr Small: We accept that the appraisal systems were inadequate in those early days, when we relied very much on business plans drawn up on behalf of community groups. However, we were working in an innovative area and developing new processes. If the RDP was to make a difference, which was our overall objective, we had to move quickly which meant that until about 1995, when we still relied on business plans, the appraisal systems did not comply with Treasury guidelines.

14.

The Department recognised that more robust appraisal was essential. In 1995 there was an instruction stating that all projects had to have full appraisal. Since then the appraisal systems have progressively become more robust and rigorous. Although I accept that the systems were not as they ought to have been, I can assure the Committee that as we move into the next phase we will be complying in full with the Treasury Green Book as to how appraisals are carried out.

15.

The Chairperson: I will turn to Dr McCormick. How does the Department of Finance and Personnel (DFP) ensure that Departments are implementing fully the instructions on appraisal which the DFP issues? For instance, in a case like this, what type of checks were carried out to ensure that these substantial sums of money were being administered properly?

16.

Dr McCormick: The DFP fully accepts responsibility for the promotion of good practice in appraisal and evaluation as indicated in the report. We will do everything possible to ensure that the guidance which we issue regularly is being followed; we aim for continuous involvement. We issue guidance in compliance with Treasury guidelines, and we apply it in the Northern Ireland context. We issue a Northern Ireland preface to the Treasury Green Book on economic appraisal, which is currently under review. This will give a fresh opportunity in the coming year to consolidation, and for ensuring that Departments are aware of, and their staff trained on, the application of the guidance we issue.

17.

We are available to respond to questions of interpretation. My team in DFP is available if Departments have queries on how the guidance should be applied. We want to make a difference by fulfilling the role we have discussed informally with the Committee. We operate as allies of the Committee and the Assembly as a whole in promoting value for money and appropriate financial control.

18.

We can insist that satisfactory appraisals are provided before DFP approval is given. Many aspects of the programme require this. We do random checks below the delegation threshold, and ask to see a selection of cases where the Department does not have the authority to proceed without specific approval. This gives an opportunity to see if Departments are adequately and satisfactorily assessing projects.

19.

We need increasingly to examine mechanisms to evaluate outcomes. The work we are currently doing, and which we will continue to do over the coming months, to develop public service agreements will improve these mechanisms and also improve the focus on what Departments are achieving. That has been strongly promoted in the Minister's Budget Statement and in the Programme for Government. We cannot second-guess everything; it would be inappropriate and contrary to good practice if the Department is seen to be continually interfering and scrutinising.

20.

In this particular case I acknowledge that enough checks were not being applied by DFP, especially in the early 1990s. The Department knew about the programme and some projects were approved. It is fair to say that clearly there was work that could and should have been done at that time.

21.

The Chairperson: I have one more question for Mr Small but I will leave it for later, because I want to bring in the Deputy Chair.

22.

Ms Ramsey: I will examine some of the report's contents. Page 34, paragraph 2.27 states that the Rural Development Council (RDC) aims to improve the degree of social inclusion for various groups. The 1997-98 and 1998-99 operational plans included targets. The report states that the Audit Office sought to examine whether targets had been met, but the information was not available. What is the point in setting targets if the necessary information cannot be accessed? Was this just window dressing?

23.

Mr Small: I will try to answer that, and then I will ask the chief executive of the RDC to come in.

24.

That is a fair criticism. We recognise that in the early days there was an absence of clarity as to objectives and performance indicator targets. In examining the success of the programme, the Audit Office has had nothing of substance to measure it against. It would be wrong, however, to give the impression that everything was in free fall. There was daily contact between the Department and the RDC and ideas were developed as we went along. It was a learning process for all involved.

25.

The Department accepts that the rigour with which we oversaw the RDC was inadequate at that time. The relationship should have been more formal. However, there was a very strong daily relationship between Department staff and the RDC.

26.

The Chairperson: Why did we get the impression that there were big problems?

27.

Mr Small: The report brings out the point that, in many areas, plans were submitted by the RDC but they were not approved on time. Several years after reports were submitted they had still not received formal approval. I have no doubt where your impression came from. However, our relationship with the RDC has improved. The operational plan for 2000-01 was approved in December 1999. The most recent year is working well.

28.

Mr McDonald: Social inclusion or social exclusion, whichever way we define it, is an extremely difficult concept to understand and measure. From my role in the council, and in considering the early strategic period, I, like the permanent secretary, must accept the Audit Office conclusion that there were deficiencies. Originally the focus was on measuring activity, and not on measuring output and impact indicators.

29.

Over the past two years I have started to developing a measurement framework for assessing social inclusion. It is worthwhile to illustrate this with a few points. Under the Peace and Reconciliation programme the council is required to complete a six-monthly optimum monitoring questionnaire, which measures a number of areas in relation to social inclusion/ exclusion. This information is then fed to the Northern Ireland Statistics and Research Agency (NISRA) and we hope to see the outcome of that survey for the whole peace programme, although we have not seen it yet. That is one programme on which we have focused. This is more relevant under the peace programme because in addition to economic outputs, social outputs are specifically targeted.

30.

We have tried to develop a range of training for various groups. We have to teach these groups to understand issues of social inclusion/exclusion. We have developed a workbook which looks at what a group is expected to do to encourage social inclusion within their own group so that we can empower other groups on how to measure social inclusion. It is an ethereal concept. It is hard to respond to in a specific way. Unless we empower groups with the capacity and training to understand social inclusion, we as an organisation will not be able to account for ourselves in measuring outputs or impact indicators. Targeting Social Needs (TSN) action plans will now place rigours on organisations like the RDC and others in the system to be specific about objectives and outputs and report back to the system within the context of TSN. Historically, the measures have been on actions and not on outputs. I hope the measures we have taken over the past two years will provide a framework for us to report more adequately in the future.

31.

Mr Small: The programme for 2000-06 will include provision for a more focused approach to particular sectors, such as young people and women. We are aware of the need for a greater degree of inclusion but we can only include people who want to be included. One of the difficulties, over the period, was that some people did not want to come into the arrangements, but we will have a sharper focus in the future than we have had in the past.

32.

Ms Ramsey: That takes me nicely to my next point. From the outset I do not think the problem lay with the groups, but with the Department. In talking about social inclusion and targeting people who are not in the group, on page 29, paragraph 2.12, we read that a review found that

"The needs of different groups, e.g. small farmers and long-term unemployed, were not being adequately addressed within the programme".

I note that the director-general of the Ulster Farmers' Union said

"If the aim of the programme is to stimulate the rural economy, then farmers must be allowed greater participation".

I take on board what you are saying now, that this is what we hope to achieve. This is a project which has been up and running for a number of years yet these people have still not been targeted. How has this type of under- representation come about? You did touch on it, but what are you doing now to tackle this problem?

33.

Mr Small: Let me look at the past. The director- general of the Ulster Farmers' Union, Alister McLaughlin, has talked to us about this many times. I know he feels that the farming community was virtually excluded from the start. That was never the case. It was difficult to get farmers to take a real interest in the RDP because in the early days farmers saw the programme as something which ran parallel to the normal subsidy support. The Department spent a lot of time engaging groups, having public meetings, trying to draw people in, and several projects had very clear farming objectives. A major effort was made at the time to bring those groups in, but not always with success. We are definitely moving in the direction of ensuring greater inclusivity for the farming community.

34.

If I could just give you a couple of examples. Under the peace programme we have the Young Farmers' Club's of Ulster, the Braid Sheddings Sheep Association, farm machinery co-operatives, and we are also helping farmers with managing change and employment business programmes. All these things happened over the past few years. As we move forward that focus will become sharper, not only in bringing in the farming community but in focusing on women and young people. All we can do is try to encourage people to participate. We cannot force people to volunteer.

35.

Ms Ramsey: Mr Small mentioned earlier that you accepted that the appraisals were inadequate and had relied on business plans from the groups. Page 43, paragraph 3.19 states that the

"Northern Ireland Audit Office (NIAO) noted that in 8 of the 15 projects (Cases A to F, H, and O) no marketing plan had been prepared".

I wonder if the Department understands the importance of marketing, which in my view might explain some of the problems in the Department. Given the importance of the marketing plan, securing business and a new market, why did the Department not insist on a plan for every economic project?

36.

Mr Small: We should have done, but we did not. In an appraisal there must be a very specific analysis of marketing potential and a separate marketing budget must also be identified, all of which are carried into the next round. That does not answer your question about why we did not do it at the time. One reason was that we were trying to get something off the ground where nothing had existed before. While, ideally, we should have had economic appraisals, marketing analysis and proper management training, people were trying to get something moving with such speed that flaws occurred in the way it was administered.

37.

A decision to go ahead with the project might still have been taken had a complete marketing analysis shown an absence of market opportunity, and a couple of cases illustrate this. In certain circumstances a normal marketing analysis will conclude that there is no obvious market for a particular facility, yet there could be a latent market once the facility is there. This programme is working in a high-risk area. There are now successful projects for which marketing analysis would have found there to be no market, a classic example being the Creggan project. That does not excuse the fact that we did not carry out the exercise, and I am not trying to suggest otherwise. We ought to have done so, but we have now learnt so many lessons on marketing, and the concepts to ensure that marketing will play a major role in the project as it develops.

38.

Mr Beggs: I return to the issue of lack of appraisals. In many cases your Department failed to carry out the various elements of project appraisal, or appraisals were made but you failed to address the findings. I turn to page 45, paragraph 3.25, which refers to the Slieve Gullion project, the viability of which was held in doubt at the appraisal stage. Despite these concerns, over £1 million was subsequently committed to the project. The project, which sounds questionable to me, is to establish a restaurant in a forest, which at that time had 7,000 visitors. I note that in the year ending August 1998 it incurred a loss of £60,000. This clearly demonstrates that the predictions made at the appraisal stage have come to pass. How do we manage this in the future?

39.

Mr Small: We have a much more robust appraisal system for future management than we had in the past. In a sense, we are our own worst enemies. One criticism in the report is the absence of proper documentation in the Department's records, which gives the impression that concerns were expressed about a particular project on the basis of a business plan or an appraisal undertaking. This is the only impression that auditors could have. However, what is not shown is how these concerns were dealt with. Economic questions arose, and Slieve Gullion is a good example of such a case. The conclusion was that although this was a high-risk area for the Department, it was also an area where much could be achieved if we could get things moving. There was much community tension in the area. We would argue that although there were flaws in the original appraisal, and that some early doubts have been borne out, much has been achieved.

40.

Mr Beggs: How does an annual loss of £60,000 help the area's economic problems and how, in providing a tourist facility, does it tackle social inclusions? How will it be sustainable?

41.

Mr Small: There is a provision there that was not previously available and it brings activity into the area. I accept your point about a loss of £60,000. However, there is a facility, and it attracts people. Whether it is sustainable or not is another matter.

42.

Mr Beggs: I am aware that the RDC and the Rural Development Enterprise have done much positive work, particularly in establishing rural community groups and has had success with smaller-scale projects. The large projects seem to be the problem, and the Department had a clear responsibility to manage them and give assistance to them, but has failed to deliver.

43.

I turn now to paragraph 2 under the heading "costings" on page 48. The economic estimates for the four projects listed would have a net cost to the economy in sums ranging from £462,000 to £1·2 million. Is it not clear that these projects were unlikely to be economically sustainable when there is a net cost to the economy?

44.

Mr Small: If the sole objective was economic output, or at best a break-even position, then that would be true. However, when you look at those projects, while the analysis clearly showed a net cost to the economy, there are now marvellous facilities in places such as Portavogie and Kilkeel, providing jobs and activities in those towns. There are also new restaurants and bed and breakfast facilities.

45.

I accept your point about the net cost to the economy, but that does not necessarily mean that it is a basis for not taking a project forward. You have to balance costs with non-quantifiable advantages. Our system failed in that there was no documentation of that debate, and we did not have any means of capturing the non-quantifiable benefits.

46.

Mr Beggs: I hear what you are saying but you are not following your own guidance, which says there must be economic sustainability.

47.

Mr Small: Our ultimate objective is that these projects will become economically sustainable.

48.

Mr Beggs: I turn now to page 60, and the Seeconnell project in particular. The total additional funding was quite significant, almost £2 million. £126,000 was spent on an equestrian centre at Seeconnell, but my understanding is that it has not been developed. That is a sheer waste of public funds. What type of management and accountability has there been in the expenditure of that money?

49.

Mr Small: At the time, an equestrian centre, with trekking facilities through the mountains, was seen as a great tourist attraction. However, the equestrian scene had peaked and with the benefit of hindsight our judgement was incorrect. You are quite right that this large facility is now totally empty.

50.

Mr Beggs: I understand there were insufficient funds to finish the project because of expenditure on the rest of the development. Is that true?

51.

Mr Small: I will put it this way, a limited amount of resources were available and a judgement was made that it would be better spent in one part of the project than in the other.

52.

Mr Beggs: I am not questioning that. Why spend £126,000 and get nothing? Was that not through lack of management by your Department?

53.

Mr Small: I would not accept it was a lack of management in the project. What I would accept is that perhaps the original decision ought not to have included the equestrian centre. But once the equestrian centre was there, we and the community group were working within a limited resource. The community group decided that the best approach would be to develop the rest of the project and develop the equestrian centre later.

54.

Mr Beggs: The point I have been trying to draw out is that the decision to partially build an equestrian centre was crazy. With such a large project, you and your Department had a responsibility to assess carefully and to give assistance to the community group. A television programme about it showed that the Department of Agriculture failed to provide management and direction to that community group. Would you accept that as a valid criticism?

55.

Mr Small: I find it difficult to accept the criticism, knowing the amount of effort and the hours put in by the departmental staff who worked on this project. What I would accept is that at headquarters the overview of the project was not as good as it should have been. In the local area, however, departmental staff almost lived with this project.

56.

Mr Beggs: I would like turn to employment creation. In paragraph 5·21, page 69, the report notes that there are some areas of concern. Although you record the number of new jobs created, no information is held on the quality of these jobs and the impact they have on the community. Is that not an great indictment of what you have done?

57.

Mr Small: From the start we should have had management information systems in place to provide data on the quality, nature and sustainability of the jobs. We did not have that. We do now, and we will have in the future, but it was undoubtedly a flaw in the arrangements in the early stages.

58.

Mr Beggs: This is best illustrated to me in the case of Ardglass marina. Here, £1·5 million was spent and the net result was part-time jobs and an annual wage bill of £4,500. Do you accept that that is not good value for money?

59.

Mr Small: You cannot look at those two figures alone and in the context of value for money. If it was simply a job creation project, self-evidently it was not good value for money. But it was not merely a job creation project. Ardglass has expanded and has a waiting list for berths. Townspeople say there is tourism activity that was never there before. There are new bed and breakfast facilities, new restaurants and new bars, generating economic activity and jobs. At present, we have no way of capturing the precise information to measure it against expenditure. We are working on it, although it is not easy to capture that information. No one should underestimate the impact of the project on Ardglass. I fully accept the jobs emanating from the project did not give value for money, but you also have to look at the whole picture.

60.

Mr Beggs: Is the project focused on the area's social and economic problems, and on people who have been excluded from local economic development, or is it subsidising better-off people to park their boats?

61.

Mr Small: Much of this project is tourism based, and tourism brings in better-off people who will spend their money in the area. The community group will tell you that the marina has had a major impact on the village.

62.

Mr Beggs: The point I am making is that there are choices to be made on how you spend money. People who benefit from the project will be very pleased with it. In making improvements to social inclusion and economic development, it is important that there is also value for money. That is what I am questioning.

63.

Mr Small: I accept that fully. One of the flaws in the early stages was the absence of proper economic analysis. From this, we could demonstrate that the use of resource in this area was as good as, or better than, the use of that resource elsewhere.

64.

Mr Beggs: Finally, when will we receive information on the quality and prudency of the jobs that have been created through this project?

65.

Mr McWhinney: Assessment of the jobs and their impact is ongoing. All the figures in the audit report relate to the end of 1998. There is now a more formal capturing of jobs across the breadth of the programme. Over 1,000 full-time jobs have been created and another 1,000 jobs have been secured through the programme. The assessment of the jobs status will form part of the exercise as we engage in the new round of programmes. The commitment to operations under the existing round of programmes finished in December 1999. When the spend finishes in 2002 there will be a formal evaluation of that programme because the spend and the spinout of the projects, their engagement and job creation is very active at the moment. So it cannot be formally fully evaluated until 2002. Then it will be part of the new and more refined ongoing process which will be put in place for the 2001-07 programme.

66.

Mr Beggs: I would not want to wait another two years for a report on the types of job that have been created. I suggest that the Audit Office and this Committee keep a close eye on this.

67.

The Chairperson: We will do that.

68.

Mr McClelland: You have referred to the RDP as being innovative but not having past experience. While this was innovative and there was no past experience, what was missing was good management practice, a project appraisal programme, assessment, et cetera. The Department should have had the necessary management techniques and applied them to any project that was innovated.

69.

Paragraph 2.10 refers to the relationship between the Department and the RDC and how appointments to the council were filtered through your Department. Who made those appointments?

70.

Mr McDonald: As chief executive I will respond. There are 16 corporate members of the RDC; six are nominated by the Minister, through the Department of Agriculture and Rural Development. The other 10 are nominees from organisations such as the agricultural unions, the private sector or whatever.

71.

Mr McClelland: You would have received a host of nominees and someone would have selected the 10 or six nominees. Who was responsible for the selection?

72.

Mr McNeill: The Minister at the time is responsible for the six departmental nominees.

73.

Mr McClelland: The Minister is guided by civil servants.

74.

Mr McNeill: On our recommendations. Currently all those appointments are made according to the Nolan/Peach principles.

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75.

Mr McClelland: Who would have made the original decision?

76.

Mr McNeill: That decision would have been made formally by the Minister on recommendation.

77.

Mr McClelland: On the recommendation of the Civil Service Department. So the Civil Service Department nominates the members of the RDC. There is a relationship between the Civil Service Department and the RDC. Is that correct?

78.

Mr McNeill: The Department recommends six members of the RDC, not the majority.

79.

Mr McClelland: Paragraph 2.9 states that the RDC was asked

"to clearly state its targets and performance indicators and to have the means to assess its performance".

You mentioned that your Department was in daily contact with the RDC, yet no targets or performance data were given. How were you assured that the council was providing good value for money?

80.

Mr Small: That assurance could only have been given had the material arrived with the Department, in the format requested, and been assessed and approved by the Department. That did not happen, and it ought to have happened.

81.

The Committee should not have the impression that the RDC was acting in a void, because that was not so. This was a developing programme, and the Department should have had the resources and skills to provide the management techniques. The reality is that, working with community groups, trying to develop their skills, and looking at their projects (while there were generic skills within the Department), many new ideas and relationships were developing, and that was where the attention was focused.

82.

There was a relationship between the Department and the RDC, so that the Department knew what was happening. If the Department had been unhappy with what the the RDC was doing, it would have intervened. However, we did not have the formal procedures in place that we ought to have had.

83.

Mr McClelland: You must agree with me that during direct rule we knew who was responsible - the Department made the majority of appointments to the RDC. To have had a system whereby you were not asking for proper performance indicators and targets was inadequate.

84.

Mr Small: We did not appoint the majority, but the principle of your point is the same. This may get tedious for the Committee, but I accept that criticism as fair. We ought to have had a much more robust system of relationship, and we did not. We do now. This hearing is about past performance, but I must reassure the Committee that all those relationships are now robust and formal.

85.

Mr McClelland: I take you back to the same point in paragraph 4.6. We were told that the Department required groups to provide quarterly and annual progress reports and projects, and in almost every case these were not received. Similarly, many annual accounts were not received from groups, and yet there was no record of attempts by the Department to obtain the documents. As the groups are not at fault, is this not a disservice to them? It would have been helpful to the groups had they been pressed for this, because they would have better understood the problems better. This is another example of lack of management, or mismanagement, by the Department.

86.

Mr Small: We asked for formal reports that we did not get, and I accept that it would have been better had we got them. However, it was not a case of us writing to them, them ignoring us and nothing happened. All these projects had departmental staff working alongside the community group. They were closely involved in formal project-monitoring teams, and monthly meetings where all this data was exchanged. In many instances where problems with individual projects are highlighted in the report, these were addressed, and the Department recognised them and intervened. This could not have happened had we not had this good two-way dialogue of information with the groups. All of that was in place. However, the formality and the structure were not in place, and I admit that that would have given us more confidence, the group greater help, and would have given this Committee more confidence. All those systems are in place now, all the rigours that ought to have been there at the start are there now, and they will be fully applied to the next round.

87.

Mr McClelland: However, you would accept my point that if there had been more formal intervention, decisions that were made might not have been, and the required corrective measures taken earlier.

88.

Mr Small: Yes, I have to accept that, and I take your point. Again, I would not want it to be thought that no corrective action was taken, because that happens quite frequently.

89.

Mr Carrick: In relation to market research for the particular projects, I note your earlier comments in which you admitted that the appraisal system was inadequate and that you relied on business plans that were presented to you. However, I refer you to the section on market appraisal on page 42, paragraph 3.18. In six of the projects examined by the Audit Office, there was either insufficient, or no, research carried out in relation to market potential. Given the track record and the substantial experience of the Department, even throughout direct rule, do you not accept that you should have insisted on proper market research being carried out on projects involving commercial trading? How on earth did some of these projects get through the appraisal process - inadequate as it was - and subsequently receive substantial offers of financial assistance?

90.

Mr Small: We were relying on business plans produced by consultants. Clearly we ought to have indicated that these business plans had to specifically address the marketing issue, which in all cases they did. Some business plans included a marketing analysis, but I suspect that analysis was not sufficiently robust. In working on the business plans, perhaps a sharper probing of the marketing assumptions might not necessarily have led to a different conclusion about whether to go ahead with the project, but to a different understanding of the risks.

91.

One of the flaws in the early days was that the risk analysis was not rigorous enough. On marketing, for example, there was not the sort of information to enable a rigorous analysis. I can assure you, however, that in all appraisals marketing is now specifically addressed. All projects need a marketing budget and a risk analysis. Taking account of all that information is now part of the decision-making process.

92.

Mr Carrick: I refer you to Appendix 3. Given our situation, most of the projects that have been examined are experiencing serious difficulties and making little or no profit. Some, if not all, probably need additional funding and find it difficult to service their commitments. Does that not suggest that without further public funding some of these projects may go to the wall? In the light of that, does the Department have an exit strategy? Is there a point where the Department has to make a judgement about cutting losses? We are talking about not only the financial and economic benefits, but about social benefits, which have to be factored into the judgement or the process. A time must come when substantial public funds can no longer be poured into projects with no prospect of viability.

93.

Mr Small: That is right. The letter of offer in most projects includes a 10-year tied period, and the exit strategy is linked to that. That is the point at which the Department starts to withdraw. However, we continue to have a monitoring role during the tied period. In specific terms, with most of these projects we would expect our active involvement to end in two to three years. The progress that has been made over the past few years is quite exceptional, and we are confident that most of these projects will be self-sustaining. However, we recognise that some hard decisions may have to be taken, but it would be inappropriate to name names at the moment. We may be faced with cutting our losses in some of these projects and those will be difficult decisions. If at some point we do decide to cut off from a particular project, we will be severely criticised by the C&AG and by this Committee for putting resources into a project that failed. There is also the local community to consider. It will have devoted many years of voluntary time to getting a project for that community, and will be very unhappy if we walk away. It is not going to be an easy decision, but if we reach a point where we believe that a project is going nowhere and we can see no point in further investment then we would have to confront it and cut off funding. However, we hope that the vast bulk of these projects will be self-sustaining.

94.

Mr Carrick: Could I move on to business franchising, referred to at 4.21 on page 61. The Committee identified five projects where franchise fees were agreed. The franchise fee generally looked quite low when compared with the capital spend on the projects. I have four questions for Mr Small. One: do you think that the franchise fees represent an adequate return on this substantial taxpayers' investment? Two: how are the franchise fees determined and how does the Department ensure that the fees are maximised? Three: do you know if any groups have sought profit sharing arrangements with the franchisees? Four: did you or the Department examine, and were you satisfied with, the probity of the franchise arrangements and relationships? I may wish to bring Mr Dowdall in later for a comment.

95.

Mr Small: Let me talk about franchising in general. Franchising is good, because through franchising expertise is brought in which may otherwise not be there. In many cases the franchise group brings in not only its expertise but also its money. It gives a welcome measure of income flow to the rest of the project. As for the adequacy of the amounts paid, the franchise fee represents what the market will bear at that time, and is done on a competitive-tendering basis. Ideas and inputs are brought forward and a decision is taken on what gives the best value for money; we have a representative on the decision-making panel.

96.

On the question of profit-sharing, there are clawback arrangements in some of the franchise agreements, whereby if there is a windfall benefit, some money is clawed back to the taxpayer. There is also a review after two to three years with an opportunity to renegotiate. It is obvious why the point was made when you look at the raw figures against the capital investment we could get, but we are satisfied that the franchise income represented the best that could be achieved in the market place at the time.

97.

Mr Carrick: What about the probity question concerning the arrangements and relationships?

98.

Mr Small: This is not a cop-out, but as far as it is possible to be absolutely sure of anything, our staff who are involved in making these arrangements provide the assurance of probity.

99.

Mr Dowdall: We did not specifically investigate the probity of these projects. I think it is fair to say that we saw no evidence of impropriety. As you will appreciate, that falls somewhat short of giving them a clean bill of health. There is a specific worry about franchising, or the transfer of assets to private interests, particularly if those private interests have had any prior involvement with the project. These arrangements need to be handled with care and with regard to safeguarding community assets, which have been created using taxpayers' money.

100.

Mr Small: It is something we are conscious of. One example of a franchise arrangement where the successful bidder had prior involvement with the project was Seeconnell. There were seven bids in Seaconnell, and the successful one was the best bid. There is no point in hedging around this. Even the community group asks questions about the franchising arrangement. The reality is that without the franchise, I am not sure that the Seeconnell project would be in the relatively healthy state that it is presently in. The people running that part of that project are highly professional. As well as their expertise, they brought in their own resources. The income from it contributes to the whole Seeconnell project, because the cottages and the conference facilities et cetera are being let.

101.

Having said that, I take on board completely the C & AG's point. Franchise arrangements are a specific area where we must be sure that the communities' and taxpayers' concerns are taken into account.

102.

Mr Carrick: I want to raise the issue of "additionality". I refer you to 3.33 on page 49. Of the 15 projects examined by the Audit Office, private sector funding was secured for only three projects. Does that indicate a reluctance on behalf of the private sector to invest? Are private sector doubts about the viability of the programme's projects the underlying reason for that? Is the Department taking any steps to increase and encourage private sector investment?

103.

Mr Small: I will take the first part of your question. The absence of private sector input reflects exactly what you have said. We entered into this business to develop a wide range of different objectives, many of which would not interest the private sector. Certainly, the private sector wishes to be involved in projects which more or less guarantee a profit. We were trying to develop community relations, links between the community and Government, and economic development and social improvement as well. By definition, we worked in disadvantaged areas with all the downsides that that entails. Therefore it is not altogether surprising that the private sector did not view this as a money-making opportunity. Given the areas in which we worked, and the objectives that we had, it was inevitable that there would be limited private sector involvement.

104.

However, we recognise fully that the more private sector involvement we can attract, the stronger the project will be and the less demand will be put on the taxpayer. Therefore, one of our objectives for the next round will be to maximise private sector input. Nonetheless, I would not want the Committee to think that, given the nature of the projects we are involved in, the private sector will necessarily be clamouring to get in on it; but we want to maximise that input.

105.

Mr Close: You are starting to do things differently. You are using phrases like "if only", "should have" and "ought to", and it has been said that that is getting tedious for the Committee. Do you agree that what has occurred in the past, as represented in this report, was a bit of a shambles?

106.

Mr Small: No. I would not agree.

107.

Mr Close: Are you pleased with it?

108.

Mr Small: It would be a great shame if what I regard as significant achievements were not recognised because of administrative mistakes by the Department. It is important that the projects and the community groups who have put so much of their time into them are not sullied because of administrative mistakes. Therefore I accept that the Department made errors in the early days, but that does not mean that the entire thing was a shambles. A lot of good work has been done, but not as well as it should have been.

109.

Mr Close: I accept what you say, but let us return to the specifics.

110.

Paragraph 3.27 of the report says that under DFP guidelines all projects should have been subjected to an economic appraisal. However, paragraph 3,28 shows that in 11 of the projects sampled no economic appraisals were carried out. Why were DFP rules so blatantly ignored?

111.

Mr Small: They were blatantly ignored in that we did not carry out appraisals that we should have carried out. We relied on business plans, which I accept fall far short of proper appraisals. The only explanation is that we started with nothing and we had to move quickly to get these projects off the ground within the time frame of the funding available from Europe. Reliance was placed on business plans rather than on appraisal. That does not justify what happened, and I am not trying to justify it-it was wrong. I am trying to explain what happened.

112.

Mr Close: Are there not detailed guidelines on when and how appraisals need to be carried out by the Department?

113.

Mr Small: That is correct.

114.

Mr Close: Were those guidelines available to your Department?

115.

Mr Small: Yes.

116.

Mr Close: Why did your staff not follow them? This has nothing to do with a new concept or a new project - it is more basic than that.

117.

Mr Small: I accept that, and the only answer I can give is that I am trying to divorce medium-ranking junior staff from senior staff. Junior staff work under the direction of senior staff, who clearly decided that making that progress on the ground was more important than going by the book. They decided that in order to get things moving we had to rely on business plans. Although that fell short of DFP requirements and the guidelines, we had to take that approach if we were to have any chance of achieving our objectives within the time frame.

118.

Mr Close: But if we are to follow that type of procedure, then we throw away the book. And, if it can happen in your Department, it can happen in any Department, and senior staff could adopt a cavalier attitude to basic administration. That is the purpose for these guidelines.

119.

Mr Small: It was not a cavalier approach at all. A lot of care was taken in examining the projects and in talking and working with the groups, and all of that was happening on a continuous basis. It was the formal analysis that did not happen. As I said earlier, this would not happen now. There is now no risk of anyone in this Department or in other Departments thinking "This is an easy way around the guidelines".

120.

I accept fully that appraisals have to be done by the book, and that is the way they have been done since 1995. We have not changed our approach in response to the audit report. The approach was changed through recognition within the Department that we were not complying with the rules and that we needed to come into line. That was recognised within the Department.

121.

Mr Close: Prior to 1995 and aside from the Rural Development Programme, were all appraisal rules and rules of the book and also the Department of Finance and Personnel disregarded by these senior staff?

122.

Mr Small: No - not at all.

123.

Mr Close: So, I have to accept that they were followed closely and monitored in all areas except for rural development up until 1995, and that in 1995 you decided to comply with them. There was just that wee hiatus of a lot of years when senior staff decided to disregard and blatantly ignore the rules. And the rules did not change either.

124.

Mr Small: I am not sure that I can add to what I have already said. People took decisions to achieve objectives on the ground. There was a requirement to get the programme up and running. That is why they took the decision, so it was not cavalier behaviour. It was not correct, but it was not cavalier - it was not done lightly.

125.

Obviously, I cannot give you a guarantee, but I would be confident that normal business in the Department was being complied totally within the rules laid down. It was because this was new, and it was starting off trying to do different and new things, that people decided not to apply fully by the rules. That situation was corrected in 1995.

126.

Mr Close: Was any action taken against those people who decided unilaterally - which I have to assume now - to disregard rules?

127.

Mr Small: There has been no action taken, and I do not think that it would be appropriate because people were working in good faith and trying to achieve objectives. If it had been the reverse and the rules had been followed to the letter, and if we had gone through a full appraisal process, the time that that would have taken would have resulted in some of the projects, which are on the ground now, not actually happening. We were trying to achieve the development within the community - a development that was not there.

128.

Mr Close: I do not want to labour it too much but this is basic administration, and it is insufficient to get the reply back that it was because it was a new idea and venture being embarked upon. It is basic administration - some of which is fundamental. The guidelines are there, and they are considered necessary in the protection of taxpayers' money - and that is the fundamental. But some senior officials - for whatever reason - decided to disregard those guidelines.

129.

We are in a new system of Government now, and I want capital and underlined assurances that no senior official will decide to set things aside, because, for example, something new might come out from the Programme for Government that we are trying to implement. We are charged with protecting taxpayers' money, and I find it astounding that somewhere in the Department an official decided "Oh, forget about that - we have got to get on with the job". That is totally unacceptable.

130.

Mr Small: It is indeed unacceptable, but I cannot accept the way you described it.

131.

Mr Close: That is how it has come across to me.

132.

Mr Small: Then I have misrepresented the position to you. The way I have allowed you to describe it to me suggests that people were cavalier, trivialising the rules. That simply did not happen. People would have looked at the rules and made a judgement that within those rules it was legitimate to do certain things to achieve objectives. No one sits down and says that the rule originates with the Department of Finance and Personnel and that he will therefore ignore it. No one in his right mind would do that.

133.

Mr Close: The reality is that they did.

134.

Mr Small: It could come down to interpretation of the rules. Within that interpretation, there is the question of whether a business plan rather than an appraisal is sufficient. That is different from saying that one does not care what the rule is. It is saying that something will perhaps be sufficient to meet the rule in the circumstances in which one is working. It would be entirely improper if I have given the Committee the feeling that this was a cavalier, "could-not care-less" approach, for that was certainly not the case.

135.

However, I can give you the guarantee for which you have asked, particularly in reference to the Programme for Government. The rules of Government accounting and the rules as laid down by the Department of Finance and Personnel will be fully complied with by this Department. That is an absolute assurance.

136.

Mr Close: I should like to move on to the cost per job. If we turn to paragraph 5.24, we see that the average cost per job on the projects sampled was £102,886. In five of the projects, the cost per job exceeded £200,000. In the highest case, the cost per job was 699,415. The Department's view in paragraph 5.25 is that the high cost per job was "balanced by the positive social, environmental and political impacts of the projects".

137.

As an accounting officer, you are required to be able to demonstrate to us that money has been spent with proper regard to value. Since, by your own admission, you have no system to evaluate such benefits, how can you fulfil that responsibility to us and to taxpayers?

138.

Mr Small: It is generally recognised by economists that there is no easy way of measuring non- economic benefits. A good economic appraisal will set out the economic costs and benefits, but will also set out social benefits. It is then a matter of judgement whether these additional social benefits outweigh the economic cost. As long as that is clearly set out in the decision-making process, it is totally legitimate.

139.

As the report brings out clearly, the flaw in our case was that the documentation was not sufficiently rigorous on a case-by-case basis, so the decision-making process of weighing these non-quantifiable benefits against economic costs cannot be demonstrated to have been taken into account, even though it clearly was. The Comptroller and Auditor General knows this, for we discussed it with him and his staff.

140.

The figure for cost per job is obviously arithmetically correct. However, it could have taken account of the wide range of things already achieved. Mr McWhinney has already referred to over 1,000 full- time jobs created, over 800 secured, nearly 500 businesses created, 1,700 people trained, and 450 community groups in dialogue. The totality of that is the output from the taxpayers' money. We are our own worst enemies for not having the documentation and the paperwork to tell you at the outset what we took into account and why we made the decisions. The absence of that documentation is one of our problems in facing you this morning.

141.

Mr Close: You referred to totality. Totality is the sum of the different parts. I have referred to the average cost per job being £102,000, with some jobs being as much as £200,000. It would require an enormous social benefit to equate to £200,000 a job. Do you agree?

142.

Mr Small: Yes, but one could have that enormous benefit.

143.

Mr Close: Give an example.

144.

Mr Small: There is the example of the project in Ardglass based on a marina. A significant amount of money was involved, and very few jobs were created in the marina itself. The community group involved and local people tell us that the arrival of the marina has brought new people into the town. Those people have brought money with them and, as a result, new restaurants, bed and breakfast facilities and bars have been opened, and there are more people in the town than before. Because the tourists are coming in, it is a more lively place and people from the hinterland are also coming in. While it is impossible to prove direct cause and effect, that illustrates the totality of benefit. It is extremely difficult to measure, and I do not know if we will ever be in a position to put robust figures on that.

145.

At the outset of a project we can analyse what we think the non-job creation benefits will be and then judge whether it is worth doing. If it works, that is good; if it does not, then this Committee will be in a position to say to us that we made an analysis and got it wrong. At least we will be able to make the decisions on a more clearly documented basis than was applied to the projects covered in this report.

146.

Mr Close: The only documentation I have on the Ardglass project is that it cost £699,000 per job. The added value - social or whatever - would have to be even greater than the figure of £200,000. If you had gone into Ardglass and just handed the money to the people, you might have received more benefit from it.

147.

This is about the farming community and agriculture. We heard last week that the average income for a farmer is around £22 per week. Think about what the farmers must be thinking when they hear about these jobs that are costing an average of £102,000, and in some instances costing £200,000 and even £699,000. The farmers would love to say "We wish we could get our hands on that money."

148.

Mr Small: They do say it; they make that point every time I talk to them. The answer is that the instruments to create this funding were never such that the money could go direct to farmers as subsidies. It was a case of using the money for the purposes defined by Europe or not using it at all. But you are right - the farmers make the comparison all the time.

149.

Ms Morrice: I would like some clarification. In your opening remarks you said that there was no history of contact between the community and Government previous to this. What was the Department doing before this if there was no contact whatsoever?

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150.

Mr Small: I do not want to be pedantic, but we were saying that that was the case in some communities - ones that had suffered from fairly major terrorist incidents on both sides. There was great suspicion of Government and the sort of dialogue necessary to develop a community group. There was no mechanism for it, and it was not part of the Department's remit. The RDP was therefore the opening to try to develop these relationships.

151.

Ms Morrice: You said that your officials are now almost living alongside the communities. Do you accept that this is the right way to go and that the previous way was wrong?

152.

Mr Small: Dialogue with the community is the right way to go. I do not want to repeat myself but an enormous amount has been achieved through this programme.

153.

Ms Morrice: In answer to an earlier question, you said that there could be hard decisions to make and that you might have to cut your losses. I am very concerned about that. Recognising the value on the ground of the sort of work that has been going on, do you not agree that it would be totally unacceptable if community groups were to suffer as a result of administrative mistakes by the Department? Should you not be correcting your mistakes rather than cutting your losses?

154.

Mr Small: No one will suffer because of mistakes made by the Department. An analysis will also be made of the potential sustainability of a project, and that will not be the only issue looked at. We will consider the impact of walking away from a particular project and the impact that has on the community group - such as whether it can survive in some other way. This will depend largely on how much it would cost to see this project through to a level of sustainability. Does that give the taxpayer value for money? If we do walk away, the downsides will include difficult judgements to be made and stuck to. However, there will be a raft of different considerations to take into account.

155.

Ms Morrice: As a follow up, you mentioned how that the rules were not properly applied to previously but that is to change. To start to apply the rules now, what is to happen to the projects? Will there be a bottleneck as a result of this new rigidity? Or will flexibility allow the rules to be followed and the projects to work?

156.

Mr Small: Actually, we have been applying to these rules since 1995. The failing was regarding appraisal, which is one of the fundamental failings coming through this report. That occurred from 1991 to 1995. We have since started to develop appraisal systems, improving them throughout. We have developed better training arrangements in appraisal for our own staff, which has been mirrored by consultants working with the Department to improve their method of appraisals. We do not have to come to the edge of a precipice and suddenly start applying those rules tomorrow that we are not applying today. At present, we are applying those rules, and we have come to that position gradually over the last five years. Therefore, I do not expect there to be a bottleneck for that reason, but it may occur because of more groups wanting help that we cannot support - either financially or with people. There might be a bottleneck there, but it will not be because we suddenly change the rules.

157.

Ms Morrice: With regards the calibre of the consultants, in paragraph 4,10 the Department mentions how some groups are not able to afford the level of wages required to attract the right calibre of management. This could have doomed the project from the beginning. Therefore, why was this not addressed at appraisal level, and what are you doing to correct this?

158.

Mr Small: That was another of the flaws in the absence of the appraisal system that was not sufficiently acknowledged. That it is pointless to support a community group if that group did not have the expertise to make things happen. There is no doubt that management expertise did not flow through it. In some instances, we expected certain individuals in the group, given their expertise, to have performed better than they did.

159.

Ms Morrice: But they were doing it voluntarily and not being paid.

160.

Mr Small: When somebody is volunteering, you take what they can give you. It is absolutely essential to identify what management skills are required and to try to ensure you get those management skills in place. This is now built into our procedures. That can, at times, become more expensive than at other times.

161.

Ms Morrice: Such as the management skills needed to run a restaurant?

162.

Mr Small: There are examples whereby people who are supposed to have the management skills to run a restaurant could not do so, we had to intervene and put somebody else in. That is exactly how I would have put it, but there are a lot of skills involved running a restaurant. It is a very good example of one area where the economy is developing, and good managers of restaurants are becoming scarce. Therefore, if that is one of the directions in which we are moving, groups may need to pay more to get people with the skills which then means there is less money available for other things. But the point is that we need to be more aware.

163.

Ms Morrice: I want to look at the operating manual. It is normally good practice to have codified procedures in a comprehensive operating manual. Now it has been touched on, but paragraph 3.10 says that it was seven years before the Department initiated this. Why? Is it simply because the rules were being broken or not followed?

164.

Mr Small: The rules were not being broken. Rules regarding operation manuals would not be as definitive and robust as Mr Close is referring to in economic appraisal - which is a clear DFP requirement. It is good practice to have operating manuals in place, but almost by definition we could not have written operating manuals for this programme before we started because we were in new territory. Trying to engage a community group was something which nobody had done before, so how would one write an operating manual for that? Individuals gained experience, all of it was drawn together. Seven years is a long time, and I accept that we could have codified this much earlier, but it could not have been in there at the start. It was a series of procedures which had to grow with the programme.

165.

We have now got robust operating procedures and manuals which have been tested by separate EC audits and found to be first class. I do not think we could have had these in place at the start- we did it as we went along. We should have codified before we did, but we now have it firmly in place.

166.

Ms Morrice: I want to turn now to financial control failures. In paragraph 4.8 it says

"no control accounts . poor financial reporting systems . absence of a formal system of budgeting ."

It is a litany of incredible gaps in financial control. Why were they not in place? Should your own senior management reporting procedures not have detected these earlier? Was the project standing group management not given proper training in order to enable it to carry out the correct financial controls?

167.

Mr Small: As an accounting officer, I find this one of the most worrying parts of the report. Going back to what we said about the skills and abilities of the individuals who are running these groups, I suspect that we expected too much of them. Our staff had daily contact with these projects from the start. They would have been satisfied that, while a lot of the detail was not in place, the money was being used for the purpose it was being provided. We were dealing only with properly registered community groups which were limited by guarantee. The rules of propriety were explained to people and overseen by our staff. In some instances where there was particular dissatisfaction with what was happening, we took action to put new people in.

168.

Having said that, there is no doubt that in some particular projects the control systems were certainly less than they ought to have been. One of the things that we have been working on since then - and one of the most difficult areas - is trying to ensure that day-to-day financial control is in place. Unless we actually put full-time staff in to do this - which we are not staffed for - we are always going to be reliant on the people in the groups doing the job properly, whether they are volunteers or executive staff.

169.

Ms Morrice: Training could help. These community groups are in their infancy. It is like handing to a child £1 million and asking them to draw a picture of how they intend to spend it and then never checking the picture.

170.

Mr Small: That is absolutely right. At the outset, we identified that the training of the individuals in the groups was crucial - not only in respect of financial control but on a range of issues. There have been over 300 courses on a whole range of skills through which 1,700 people have gone. What we have now, and this goes back to the point that this is a learning process for many people, is a body of people outside the Department who possess skills that they did not have at the start of this project - skills such as financial management.

171.

The RDC has put a massive effort into training. Over time, they have built up their training manual and Good Group Guide. I share the concerns that you have about the particular examples drawn out by the Comptroller and Auditor General. We have moved a long way from this, and we are better placed now because of the quality of people on the ground and due to our oversight.

172.

Ms Morrice: Have any cases of fraud been detected or suspected on any project?

173.

Mr Small: I am glad to be able to say "No". As an accounting officer, the possibility of fraud is one of the things that would worry me the most, particularly given the nature of this project. However, no fraud has been identified.

174.

We find it a comfort that the Comptroller and Auditor General's staff have been through this in such detail over a number of years, and they have identified no fraud. My own internal audit staff have been over this and have identified no fraud. What I cannot say, or what would be foolish of me to say, is that I guarantee that there is no fraud. But all of the systems are in place so that, hopefully, if fraud were happening, we could identify it, and, so far there has been no such identification.

175.

Ms Morrice: With such a lack of financial control, how could you possibly determine whether there has been fraud?

176.

Mr Small: When this report arrived, one of the first words that I wrote on my copy, and on this page, was "fraud?" because it is such an obvious area to pursue. People from my Department are involved with these projects every day - skilled officers, all of whom I know personally - and I am as sure as I can be, without giving a guarantee, that if there were any reason to suspect fraud these individuals would identify it, report it up the line and have it pursued. It is the combination of that day-to-day involvement, the audit by the Comptroller and Auditor General and my own internal audit, that allows me to say that I am sure that there is no fraud. But I would be foolish to give an absolute guarantee.

177.

Mr Dallat: First, I feel like a poacher turned gamekeeper, which is an awkward way of declaring an interest in one of the projects, however, I hope that it is one that is healthy and contributing to the economy. In paragraph 2.7 of the report it says

"RDCs first strategic plan was in operation before its precise role within the Rural Development Programme as a whole had been clarified by the Department and before the Programme's strategic framework had been formulated".

In the same paragraph it says

"Neither plan received the Department's approval."

The impression given is that the Department's monitoring and control of the RDC has in many ways been far from satisfactory. Why has control been so lax over such a long period of time?

178.

Mr Small: I accept that evidence of structured control would suggest that it was lax, but, in reality, the relationship between the Department and the RDC has always been a close "hands-on" relationship, which, like everything else in this programme, has developed from nothing to what it is today. The failure of the Department to formally approve the operational plans from the RDC does not reflect that the plans came in and lay on someone's desk and that no one bothered with them.

179.

It reflects that the plans came in and were the subject of constant dialogue between the Department and the RDC. That does not mean that it was satisfactory - obviously, formal approval would have been the right way to do it - but it would be wrong to assume that there was no dialogue. In fact, there was constant dialogue. Look at where we are today compared to where we were. As I said, the plan for 2000-01 was approved in December 1999. That is the sequence as it ought to be, and that is the sequence that will be in place in the future.

180.

Mr Dallat: You have just answered part of my question. I was going to seek an assurance that things would be better today and that matters are managed in a proper and timely basis, and I think you have given that.

181.

Mr Small: I think that we can stand over what we do now.

182.

Mr Dallat: Now I move on to my favourite subject: consultants. I would dearly love to have seen some of them here but, of course, they do not have to answer to us. Paragraph 3.14 says that the project business plans are prepared by consultants who were paid very generous sums of money by the Department. Given the various failings in marketing and management, and so forth, that we have read about, do you think that consultants provide good value for money? I want an honest answer.

183.

Mr Small: I hope that the rest of our answers have been honest as well.

184.

Mr Dallat: I am aware that one set of consultants received up to £200,000 for a project that never even got into the auditor's book because it never happened. And in another case, quite recently, £40,000 was paid. That project is now likely to be successful, after- dare I say - a little bit of pressure on the Department.

185.

Mr Small: If you identify that you need a particular contribution - and it was clear that the groups needed consultancy help that we could not provide - you go to the market. You look for what is available at the best price. All the consultancy appointments - and you can correct me if I am wrong - were done by proper competition. What we got was someone offering the best price, the best value for money and the best expertise.

186.

In some cases, the output from those consultants did not necessarily match up to what one might have expected. The Department has had to spend time dealing with appraisals produced by consultants, going back on points, querying points, and almost trying to lift the level of expertise of the consultants. So, in some instances we were disappointed with the output, but we still had to pay the consultants' fee. Short of doing it ourselves - which we did not have the resources to do. I am not sure what alternative way there is of doing it.

187.

Mr Dallat: Chairperson, you know that Mr Small is being liberal with the truth. Some of these consultants have no more skills than how to operate a word processor that is a fact.

188.

Have you sought to recover any fees from these consultants, in the light of the shortcomings highlighted in this report?

189.

Mr McNeill: There have not been any cases where the consultants' reports were so unsatisfactory that we ruled them out of court. The current system is that we use the Government Purchasing Agency's select list. We go to competitive tender, and we have been doing that for some years.

190.

It is true that the accounting officer has said this in respect of other things - in the beginning there was a need to build up expertise, and therefore some consultants were unable to operate at the level that we would have wanted. The position was rectified during the earlier period of the programme's development.

191.

Mr Dallat: I accept that. It is useful to know that there were serious weaknesses among consultants in the past and that they contributed in no small way to what we have before us. Reference has already been made to marketing skills. Do you think the report's suggestion of ring-fencing a dedicated marketing budget within projects would be a useful way forward?

192.

Mr Small: Absolutely. That is now done, and we recognise that the absence of it in the past was a flaw.

193.

Mr Dallat: Finally, paragraph 5.21 highlights the difficulties with the sustainability of jobs, and I refer to the Rural College in Draperstown and the Ardboe project. What are you doing to improve the durability of jobs within such projects?

194.

Mr Small: One of the difficulties we faced in setting up the project is that there had to be assumptions made about the future demand for the services offered. Therefore assumptions were made about the nature of employment that would occur. Inevitably the forecasts in some of the projects have proved to be optimistic for a range of reasons. With some of the tourist-based projects, there is no doubt that the problems in Drumcree each summer have an impact. The foreign tourists are not coming, and this was an assumption made at the original set-up of the programme.

195.

All we can do is to keep reviewing the job figures and the type of jobs. We can learn lessons from the past, and our objective will be to continue to support projects where sustainability can be identified. Sustainability is never a black and white issue because by definition it is based on assumptions. It is, however, still one of our targets.

196.

Mr Dallat: In paragraph 3.14 it states that from 1991 to 1995 the Department's appraisal process within regional offices was conducted by staff without an appraisal background and with no formal training for the tasks involved. Surely, good appraisal is one of the valuable contributions that the Department could have made and which would have been of real help to projects. There must be plenty of appraisal expertise within a Department such as yours. Why did you not provide staff with the requisite project appraisal training?

197.

Mr Small: All staff involved in this process are now fully trained in appraisal processes. We have, therefore, learnt a lesson. The reason we did not do it at the start was that we were looking for individuals with a range of skills. It would have been highly desirable to have someone with appraisal skills, but it may not have been the number one priority. We were looking for people who had strong inter-personal skills; who could engage with other people and win their trust quickly, and who were highly committed and who were prepared to work long hours. Getting people who had that combination of skills along with appraisal skills would have been ideal, but it did not happen that way. The people we put in had those other skills, and, because we have had time now to develop this, we have that cocktail of skills available.

198.

Mr Hilditch: In the project management section, the case studies at paragraph 4.10 on project management difficulties present a disturbing and worrying collection of problems. The impression given is that matters were deteriorating for quite some time. Could the project monitoring procedures not have picked up and addressed these problems sooner?

199.

Mr Small: Yes, it should have. Had the formal procedures been in place, such as monthly reporting, we might have picked these examples up sooner. The informal involvement of area staff with the groups meant that problems were identified reasonably quickly and were corrected. To take the project at Ardboe as an example, some of the criticism in the report reflects a situation that the Department identified and moved in to solve. The Department corrected this situation, and we now have a good project in Ardboe. However, I accept your point that had we had more formal procedures in place we might have picked that up sooner.

200.

Mr Hilditch: I move on to case G on page 56. The ex-chairman of the group expressed serious concerns about that project in 1995. Two years later, consultants severely criticised the group's conduct and managerial ability. Was sufficient attention paid to the former chairman's concerns in 1995? Did anything take place in the intervening two years?

201.

Mr Small: That was a very difficult situation for the Department to deal with. The outgoing chairman's departing letter was very critical about management skills and contained his concerns for the project. Within a month, we had a letter from the new chairman, backed by the board, stating that what had been said previously was nonsense. So, the new board were distancing themselves from what had been said before.

202.

We took account of that, and of the views of our people who had been involved with the project. While there were flaws - and we were very aware of the management flaws and were trying to work on them rather than trying to extricate ourselves - the decision was taken on the basis that there was a new board and chairman to stick with it and try to bring about improvements.

203.

Mr Hilditch: Did you provide any extra monitoring staff during that two-year period when you were alerted to the situation?

204.

Mr McWhinney: Yes, we had some quite intensive work with that organisation at that time. That work is still ongoing. The management difficulties are reflected in the report. Our local staff are very aware of the situation, and an independent consultation exercise is currently examining the various management capabilities and how the programme will be finished. I say "consultation exercise" bearing in mind the last debate. It is a very focussed professional accountancy operation. The project was subject to a seven-year plan, and it is coming towards its final year of operation.

205.

Mr Hilditch: Paragraph 5.31 refers to the duplication of roles and responsibilities between providers and how that has led to great confusion, waste and overlap. Given the numbers of providers and funders and the reported level of duplication, how do you assure yourselves that there is no double funding in projects?

206.

Mr Small: It is easy to understand why people get frustrated with the number of providers. In a sense, that is outside our control. If the International Fund for Ireland wants to put money into a project, a district council or LEDU, then we have to welcome that. We need to fine-tune such arrangements, and that is something we are looking at for the next round. As long as there are different funding streams, there will be different funding organisations. We are satisfied that there is no duplication of payments because of our own audit processes and those of the other organisations.

207.

Mr Close: It is a fact of life that it is easy to spend other people's money, particularly if it can be done with apparent impunity and disregard for basic rules. Would you invest your money and your capital in any of the projects that have been subject to analysis in this report? Would you do so with confidence?

208.

Mr Small: With what I know now, the answer is yes. Clearly, there are projects here that will make money. Whether I would have done so back in 1991 when it was starting, is another matter. That is the same as my answer to Mr Carrick's question, and it is the reason why the private sector will not become involved. We would never have had a RDP if decisions to fund projects had been based on whether the private sector would put money into them.

209.

There was a clear Government policy drive to have a rural development programme and to establish links with the rural community. It was not a question of only doing it if it made money - that was not the policy. Its economic viability is one of the factors which has to be taken into account.

210.

Mr Close: The Committee must decide on how to apportion taxpayers' money. Having read the report, if I were asked to make a choice between rural development programmes and lack of control because of departmental failures - not those on the ground, but the Department's failures - I would have to think seriously about apportioning money to that, or to the health service, education or to some other venture.

211.

That is a difficulty for me. Other Committee members have mentioned potentially beneficial projects which have been put at risk because of the Department's failures. It is a tragedy that this has happened and that nobody has been called to account. Money has been spent, and rules have been disregarded. Yet it is Northern Ireland's politicians who have to make hard choices because of the Department's failures. How do we answer those questions?

212.

Mr Small: It would be a tragedy if the achievements of Northern Ireland's rural communities were put at risk because some people in the Department did not follow the rules and work the system properly.

213.

I hope that the Committee will recognise this programme's achievements and the massive £0·5 million per year voluntary effort involved in it. I hope that the Committee will recognise the blood, sweat and tears which civil servants put into running the programme and will not let its final judgement be affected by policy and decision makers - the senior people in the Department - not following the rules. It would be a tragedy if flaws in how we dealt with the programme overshadowed what it has achieved.

214.

The Chairperson: We agreed earlier that we would conclude this meeting at 12.30 pm, but I want to call three members to ask questions. I ask them to be brief. Can you, too, Mr Small, be brief in your replies. I believe that the last question was "Would you invest your own money in it?", but you did not answer "Yes" or "No."

215.

Mr Small: In 1991, that would have been quite sufficient.

216.

Mr Beggs: This question is for Mr McDonald. Given that one of the functions of this programme was capacity building and that there are agriculturally and socially disadvantaged pockets in east and south Antrim, why is there no rural development network in those areas?

217.

Perhaps Mr Small - or indeed the treasury accounting officer - can answer a question on recent investment. In March 1999, £0·8 million additional funding was paid into the Rural College on top of the previous £2·4 million. Are both parties satisfied that it was a wise investment in a sustainable project or should money go into further education colleges to provide rural development training and support?

218.

Mr McDonald: I would like to deal with the question in relation to east Antrim. First, rural community networks established themselves as a result of community activity. They then targeted funders for assistance capacity building. The problem in east Antrim has been a lack of scoring under deprivation indicators, and I appreciate the difficulties with the Robson Indicators. As the Robson Indicators are reviewed in the future, pockets of deprivation will be identified and rural community networks will emerge. A lot of the work that has been done in the council using our geographical information system goes below the ward level indicators, enabling communities to make a case in circumstances local to them.

219.

Mr Small: I would like to answer the question on the extra money. We are getting value for money. We are buying education and training services which can be best provided in the Rural College, and there are 40 people who are on either full-time or part-time courses. We think that the money is well spent.

220.

Mr Beggs: Dr McCormick, as Treasury Officer of Accounts are you satisfied with that?

221.

Dr McCormick: That would be a matter for the Department to examine as the amount involved was below the delegation threshold.

222.

Mr Beggs: Would you perhaps look into that and get back to us with your views?

223.

Dr McCormick: I will.

224.

Mr Carrick: Referring to the evaluation of benefits, particularly the non-monetary benefits, there is difficulty assessing and evaluating these benefits. In section 5.30 states that the Department called in a consultant but the Audit Office concluded that it was a superficial investigation. The report outlined the extent of concerns at the quality of the review.

225.

I have three questions. First, in view of the shortcomings noted, was this exercise not a waste of money? Secondly, how much did the consultancy review cost? Finally, did the Department make efforts to get the consultant to address the weaknesses of the review?

226.

Mr Small: The review was not a waste of money. Although the Audit Office stated clearly the deficiencies, the review moved forward in an area where little work has been done. The review was not expensive - it cost approximately £6,000 and we are in dialogue with the consultants because we do not believe that this goes far enough. We recognise that we need stronger systems, and we will be commissioning further work.

227.

Mr Dallat: I find myself in the position of having to declare an interest. Someone asked if you would put your money in to one of these projects. I borrowed some money and invested it in a similar project and do not regret it. That is not to say that I have gone soft.

228.

The Chairperson: We do not want you to go soft.

229.

Mr Dallat: I would like to pay tribute to the public auditor for the report. It is tragic that for so many years there was no opportunity for a public accounts committee to scrutinise the Government Department - that has been the real loss. Valuable lessons have been learned, and what matters most is the taxpayer and also those who benefited from the projects in the report. It should be remembered that there were a variety of funders in most of the projects, all applying pressure for decisions.

230.

While it is easy for the Public Accounts Committee to scrutinise and be tough, we should remember that there were other pressures. Based on the report and on our hearing today, we can look forward to a bright future and to the continuation of a public accounts committee to carry on this important work.

231.

The Chairperson: Is that your question?

232.

Mr Dallat: I would like a response.

233.

Mr Small: I am not going to comment on the last point about the future of the Public Accounts Committee.

234.

While this report is highly critical of the Department, we value it and there are lessons we will apply. I actually agree with Mr Dallat that an inquiry by the Audit Office and a Public Accounts Committee several years earlier could have brought some lessons out earlier. It is clear that we are bruised by this report but it has been a valuable piece of work, and we intend applying the lessons from it.

235.

The Chairperson: Some of what we heard in your answers was a bit alarming. As I said at the beginning, we will be holding you to account and following this up. Thank you very much for coming along.