Mr. Seamus McCarthy:

The Higher Education Authority is the statutory planning and policy development body for higher education and research in Ireland. It is the primary funding authority for the universities, institutes of technology, teacher training colleges and a number of other designated education bodies. Over 90% of the HEA's income comes directly from Vote 26 Education and Skills, with the balance largely consisting of research funding from Vote 32 Jobs, Enterprise and Innovation. The HEA had gross expenditure of €1.17 billion in 2015. As shown in the figure now on screen, the bulk of that expenditure was in the form of grants to education bodies for specified purposes - current spending, including fee recoupment to colleges; capital project funding at 4%; and research grants at 9%. I have issued a clear audit opinion in respect of the HEA's 2015 financial statements.

In parallel with its role of providing funding to the sector, the HEA has an oversight and regulatory role in respect of higher education institutions. However, the Department of Education and Skills retains overall responsibility for pay and pensions policy in the sector. In light of the series of committee meetings to examine the financial statements of a number of institutions, I propose now to outline a number of common issues that have been raised on audits within the third level education sector over recent years.

In accordance with accrual accounting standards, universities recognise on their balance sheets estimated accrued pension liabilities in respect of their current and former employees - an aggregate amount of around €7 billion at end September 2015. They recognise an equivalent amount as deferred State pension funding, reflecting their expectation that funding will be provided by the State in the future when required to meet pension liabilities as they fall due. This assumption is underpinned by statutory guarantee in respect of part of the liability, but some is not covered in this respect. My audit certificates for all seven universities draw attention to the assumptions inherent in this accounting treatment.

The accounting for pension liabilities in respect of institute of technology staff is different. Institutes do not directly pay pensions to their former staff. Instead, pension payments are funded directly from the education and skills Vote and paid on the Department's behalf on an agency basis by the pension section of the Department of Public Expenditure and Reform. The institutes, accordingly, do not accrue in their financial statements for estimated pension liabilities.

All the universities and some other large third level institutions have associated foundations or trusts that exist solely to raise, and hold, funds to be applied in support of activity undertaken by the respective educational body. The HEA has previously stated its view that the results of all such foundations and trusts should be consolidated into the accounts of the related educational body. While two universities, Trinity College and NUI Maynooth, currently consolidate the results of their foundations and trusts, the majority do not. The key consideration in accounting for these funds is the degree to which the institution controls the foundation or trust. Where there is conclusive evidence of control, consolidation is required. Where the funds held by the foundation or trust are material to the balance sheet but they have not been consolidated on the basis that the institution does not control them, the audit opinion draws attention to the accumulated assets.

A key focus for our audit is the need for open competition in the award of contracts. Audit certificates draw attention to cases where bodies have procured a material level of goods and services without appropriate competitive processes. We use a flat-rate value of €500,000 in aggregate per institution as the starting point for drawing attention to such cases. Non-competitive procurement has been reported in the most recently signed audit certificates for six universities and four institutes of technology. However, I would point out that the scale of the non-competitive procurement in the sector has reduced over time, as institutions have responded to our previous audit findings.

Over recent years, my audit certificates have highlighted the financial difficulties being experienced by certain institutes of technology. In some cases, the retained earnings of institutes have been significantly eroded by successive deficits over a number of years. In more serious cases, the accumulated deficits have wiped out previous retained earnings.

Where significant financial difficulties have been identified, the institutes concerned have included a disclosure note in their financial statements referring to the financial position and confirming the governing body's opinion that the entity remains a going concern. In those cases, the related audit certificates have drawn attention to the issue.

In November 2016, the HEA published the results of a review of the financial status of the institute of technology sector. The purpose of that review was to assess the overall financial health of institutions and set out an agreed action plan to deal with the issues raised. The chief executive will be able to update the committee on developments since the publication of the review.

Funding pressures have also become more evident in recent results within the university sector. In that regard, the committee will be aware of the report produced in March 2016, known as the Cassells report, which assessed the long-term funding requirements of the higher education system and identified a number of potential future funding options. Further to one of the recommendations in that report, I understand that a review of the HEA's recurrent funding allocation mechanism is under way so as to ensure that it supports overall priorities and objectives within the system.

Last month, I published a special report on financial reporting in the public sector. In it, I identified a number of factors that had contributed to recurring delays in the production of financial statements and the finalisation of audits for universities. The report identified third level institutions that had not completed their financial reporting for the 2013-14 academic year and prior years by the end of 2015. All but one of those audits has since been completed. The exception is the National College of Art and Design in respect of 2013-14.

I am glad to report that, since the end of 2015, progress has been made in bringing forward the timeliness of third level education financial reporting, although further work remains to be done. As of today, audit certificates have been issued in respect of 13 of the 14 institutes of technology for 2014-15. The audit of Waterford Institute of Technology for that year is still in progress. Four of the seven universities have presented their 2014-15 certified financial statements. Those yet to be finalised are Dublin City University, University College Cork and NUI Galway.

At the beginning of each session, both tomorrow and next Thursday, the key audit findings regarding individual institutions will be set out in brief opening remarks.

Dr. Graham Love:

I thank the committee for the invitation to contribute at this meeting. As I hope members will be aware, I recently took up the role as chief executive of the HEA - it was 12 days ago - and I look forward to getting to grips with the many challenges and opportunities facing the higher education sector.

Regarding the HEA's financial statements for 2015, I am pleased to note that these were signed by the Comptroller and Auditor General in June 2016 with no issues arising. I understand that the committee also wishes to talk to the HEA today about a number of issues relating to funding and governance in the higher education sector.

In terms of funding, the HEA is taking a proactive approach to many of the challenges facing some of our institutions. In the case of institutes of technology, IOTs, the HEA conducted an in-depth review of the financial health of the IOT sector in 2016. This review provided evidence of the serious financial position of many IOTs and, arising from it, the HEA is progressing an action plan to address many of these issues together with the IOTs.

This year, the HEA commenced a review of its allocation model for the funding of higher education institutions. The review is designed to ensure that Exchequer funding for the higher education sector is structured in such a way as to deliver on national objectives, reinforce mission diversity, ensure sustainability and quality and drive performance.

Since 2015, the HEA has reviewed its approach to the oversight and governance of higher education institutions. This resulted in the development and implementation of a governance framework for the higher education system. The framework consists of many new elements underpinning good governance practice, for example, more detailed governance reporting requirements and financial memorandums between institutions. Another important feature of the framework is an annual rolling review of corporate governance compliance. The first of these was commenced in 2016, focused on procurement practices and drew on many of the findings and discussions that have taken place at this committee regarding higher education institutions' compliance with national procurement guidelines.

The governance framework also deals with issues relating to the timeliness of financial statements, which was addressed in the Comptroller and Auditor General's recent report on financial reporting in the public sector. The delays in institutions' submissions of their financial statements are regrettable, but can in the main be attributed to circumstances and accounting issues unique to the higher education sector. I am pleased to note the progress that has been made in recent years in reducing these delays and, on behalf of the HEA, I am grateful to the Office of the Comptroller and Auditor General for the attention it has given this matter and the constructive way that it is working in partnership with the HEA to address the issues.

I wish to touch on issues relating to protected disclosures in University of Limerick, UL. These matters have been the subject of much debate and comment, including in the media, and are clearly sensitive and serious in nature. The HEA's role has in the first instance been that of a recipient of the protected disclosures. We have met and engaged with the disclosers and the university since early 2015. This process of engagement culminated in the Mazars report published last year into the processes employed by UL to inquire into the original allegations and then an attempted facilitation process to explore the possibility of addressing and resolving the issues. It is regrettable that these issues have yet to be resolved and have resulted in hurt and distress for the individuals concerned as well as damage to the reputation of the university. As the HEA has in effect exhausted its powers in this regard, we have raised the matter with the Department of Education and Skills, which I understand has had engagement with the university recently on the matter.

I will be happy to brief the committee with an update on the IOT merger process. Four consortia are applying to become technological universities. Each consortium is at a different stage, but all have and are making considerable progress towards merging and achieving technological university, TU, designation. The HEA's briefing paper to the committee addresses this in further detail.

I am happy to answer whatever questions the committee may have. I hope that members will understand that, having only recently taken up the CEO role, I am still familiarising myself with much of the detail of the issues and will defer on occasion to my colleagues to ensure that we address the questions asked.

Alan Farrell (Dublin Fingal, Fine Gael)
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I welcome Dr. Love and congratulate him on his appointment. I thank the Comptroller and Auditor General and his team for their work on these audits.

I will start with the Comptroller and Auditor General, for whom I have a couple of questions on delays in the production of audits, particularly as regards Waterford and three universities - DCU, UCC and NUIG. Dr. Love mentioned that these delays were "attributed to circumstances and accounting issues unique to the higher education sector." Does Mr. McCarthy wish to offer a view on this?

Mr. Seamus McCarthy:

In the university sector in particular, there has been an historical issue, in that the HEA required a format of financial reporting, and for those reports to be audited, that was not GATT compliant. Accrual accounting, which gives an overall view of the universities, has been in place since 2003, but effectively the universities had to produce what was a funding statement in an agreed consistent format and a set of GATT accounts.

Historically, the universities appointed their own auditors separately from my audit.

One of the difficulties that gave rise to was that there were effectively two audits run. They were not run in parallel, historically. We did not get the financial statements until the commercial auditors had completed the issue. Additionally, we take a broader view of issues around regularity and propriety which the commercial auditors would not have necessarily dealt with.

To the extent that we can, we try to rely on the work of the commercial auditors. We have to enter an agreement with them using what is called a "hold harmless" letter that we sign and we can then examine their papers, and we try, effectively, not to repeat the work.

Alan Farrell (Dublin Fingal, Fine Gael)
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Is that independent commercial audit of benefit to Mr. McCarthy's office?

Mr. Seamus McCarthy:

It is used. We do rely on it. Each year we have to examine the work that they have done and satisfy ourselves that it is adequate for our purposes. What we have tried to do is to work with those auditors. We have a very good agreement and arrangement in place with Trinity College where, effectively, the planning is done in parallel, the audits are done in parallel, and we try to finish at more or less the same time. We are completing the audit there within six months on both sides. With others, it is more problematic.

Alan Farrell (Dublin Fingal, Fine Gael)
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Is Dr. Love's comment that there are unique circumstances in relation to reporting in the higher education sector entirely accurate on the basis of the rationale Mr. McCarthy has outlined?

Mr. Seamus McCarthy:

Certainly, the way it has been managed in the past, there are unusual circumstances. There have been changes. As Dr. Love has said, we are working together to try to bring forward the situation. I understand that the HEA has suspended its requirement for an audited funding statement. They still obviously require very timely financial reporting from the colleges and that is a help.

Separately, we have set targets because I have power under the Acts that govern the audit. I have the power to set deadlines for submission of the financial statements to me. I have done that and what I have done in setting those targets is I have planned for the things to be brought forward progressively so that we are at three to four months after the end of the reporting period for the accounts to come to me.

In one case, we have also agreed with a college that we will be the only auditors. We are working with Maynooth. We have actually very much progressed the audit there and take that, if you like, extra layer, out of the process.

Alan Farrell (Dublin Fingal, Fine Gael)
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In effect, is the Comptroller and Auditor General suggesting that the delays, while regrettable, are due to circumstances both of a historic perspective and of progressing that as he mentioned, and not specific to any particular issue in terms of the accounting practices of those facilities of which he is aware?

Mr. Seamus McCarthy:

Exactly. There are what one might call the pure technical accounting issues which we are fairly much on top of and I would like to see more co-operation and more parallel auditing, as we are doing in Trinity, with some of the others.

I would say though that there are other issues that arise that a commercial auditor may not normally deal with, for instance, things like sanction for allowances, our focus on procurement in the sector and the whistleblower issues that have arisen. Where those kind of things arise, we find ourselves needing to probe them in significant detail and that very much slows down then the completion of the financial audit. We cannot really close a financial audit until we have bottomed out all of those or at least are satisfied that there is something that we can come back to the following year. If explanations are required or if there is a particular accounting issue that needs to be resolved, that can protract the audit significantly.

I suppose we have generally a good working relationship with the finance units within the colleges but once one moves into areas, let us say, where there is more academic involvement in explaining what has happened, or it could be a HR department or whatever; the explanations tend to be more complex; there is not a system in place readily; they are not familiar with why we are asking or what we are asking; and so on. We could have several rounds of iteration in trying to get the information that we require so that we can be satisfied on the regularity and the propriety end of things, and that has given rise to delay in some cases.

One of the things which did cause a delay as well in recent years was we put a bit of emphasis on looking at how accounting for research is done within the universities, in particular, looking at sub-accounts for specific research projects. We found that there was a need for certain improvements to be made there - earlier recognition of income and surpluses being brought back and recognised as income in the universities. That has led to delays in a number of cases.

Alan Farrell (Dublin Fingal, Fine Gael)
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My last question seems somewhat redundant on the issue of delays. It was in relation to consequences. It is not necessary to go into it. Mr. McCarthy mentioned he had statutory authority to enforce certain timelines on delayed audits. Would Mr. McCarthy address that briefly?

Mr. Seamus McCarthy:

What I have the power to do is to make an order determining the date by which draft financial statements must be submitted to me. I do not have any power beyond that. I can specify the period when I expect the accounts to appear so that I can commence the audit.

Alan Farrell (Dublin Fingal, Fine Gael)
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Other than notoriety and perhaps scrutiny by this authority, is there a consequence per se?

Mr. Seamus McCarthy:

No. That was one of the reasons I undertook the special report. I felt that it was important that the information be brought to the committee so that the committee's view could be ascertained.

In some areas, there is a statutory requirement or a Department of Public Expenditure and Reform requirement that accounts be completed by a certain date. That does not apply in the third level sector. The HEA has not specified target dates for completion and submission of audited financial statements. There is scope for that to be done but I cannot do it. Obviously, on any occasion the audit has to be complete and correct before it can be finished and imposing a deadline by which it must be done can be problematic.

I would say that in the whole sector where there has been a very particular difficulty has been the National College of Art and Design and I reported separately a number of years ago on the particular problems there. That college is still trying to recover from that position and its financial statements are still well behind.

Alan Farrell (Dublin Fingal, Fine Gael)
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I thank Mr. McCarthy for that.

The financial review of the institutes has shown the funding issues. The sustainability of those institutions is really at risk, not only in terms of their academic performance but in terms of their very survival, particularly if it is not addressed. Another four have identified themselves as being at risk, either through deficit issues or limited reserves. Perhaps a to and fro approach would be most appropriate in the ten minutes or so that I have remaining. Could Dr. Love provide an overview of what the HEA is doing to address this issue in terms of working with these institutes to ensure they become more financially sustainable in both the short and medium terms, but also in terms of protecting students in those facilities where the risk of cash reserves running out is a real possibility?

Dr. Graham Love:

At a summary level, the Deputy mentioned the report that was done into the sector late last year.

In effect, the key thing from that at the moment is that a number of institutions that are at risk have been identified and we have agreed plans with them over a number of years to return them to financial viability or a better financial position, including sending in some additional financial expertise to some of those institutions. I may ask Mr. Brownlee in a moment to talk more on that. That is one level that is important.

Second, as was mentioned in the opening statement, a review of the funding allocation model is taking place at the moment by an international panel, which is also specifically looking at elements that relate to these institutions and the sector more generally. I think a working group is being set up in the Department of Education and Skills to take into account the recommendations in this report and the implementation that would be associated with that. Have I left out anything?

Mr. Andrew Brownlee:

As the Deputy will be aware, a very extensive action plan is set out within that financial review. Within the briefing paper, we set out against each action the progress that has been made. Certainly, as Dr. Love has indicated, the Department is looking at that step of establishing a working group. We have also done a number of other things to address the financial situation.

Alan Farrell (Dublin Fingal, Fine Gael)
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Is the Higher Education Authority receiving sufficient supports in order to implement those points?

Dr. Graham Love:

There are different recommendations, some of which naturally occur further up the timeline right now, such as sending in some additional expertise to help the institutions themselves return to a better financial position. That is taking place right now. We await the outcomes, obviously, of the international panel on the funding model; that is yet to come. The expectation is that it will be available in June or July. Am I be right about the deadline for that?

Mr. Andrew Brownlee:

Yes.

Dr. Graham Love:

That is on track and on schedule.

The third point is the specifics of the expert group being established at the moment in the Department. There is a staggered type set of recommendations. The light is on and some demonstrable improvements are already taking place. We are happy that things are progressing.

Mr. Andrew Brownlee:

The key to all this, as I am sure everyone will be aware, is finding some way of getting increased investment in the higher education system. The Government announced a three-year programme of an additional €160 million. There is the recent consultation process and there may be an employer investment mechanism into higher education. The Oireachtas Joint Committee on Education and Skills is looking at the wider Cassells recommendations. That is clearly a big aspect of solving these issues.

Alan Farrell (Dublin Fingal, Fine Gael)
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One of the drawbacks of the Committee of Public Accounts is that we are specifically precluded from going into those policy decisions. Ultimately, it comes down to which of the Cassells options is adopted. I understand Dr. Love's 12 days will not be sufficient to answer this question, but he may have an opinion nonetheless. On the viability of some of these facilities in the long term without significant Exchequer funding injections, is Dr. Love satisfied that the implementable recommendations of the existing report and-or whatever future funding model is determined would head off the issues that are being suffered in those institutions? Is there a particular university or institute of technology that is really struggling and might require financial injections in the medium term?

Dr. Graham Love:

Certainly at the highest level, it is clear that there is a funding gap. The discussion moved on a number of years ago and there is an acceptance that there is a funding gap. It is obviously in the political domain at the moment as to how that gap is addressed and the components, whether it be the State, employers, students themselves, etc. That gap definitely needs to be addressed in a sustainable fashion to assist in solving the problems that are mentioned in the report.

There are some separate measures that are not related directly to funding and these are quoted regarding some of the management capability and other things that are in the report. That would happen in parallel to a degree, but some of them are happening now even with the resources available to set those institutions on a path in conjunction with the resources they have currently and hopefully in time with the extra resources that we hope will come when the larger funding issue is addressed.

Alan Farrell (Dublin Fingal, Fine Gael)
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I note there was a deficit in the university funding pension schemes that required employer contributions. These schemes were subsequently closed in 2005. In order to resolve the deficit of just about €200 million at the time, a temporary mechanism was introduced which I understand is still in place. I am not sure whether that qualifies as temporary. What actions is the HEA taking to address this matter and to complete the move to the pay-as-you-go model without the need to continue that temporary measure?

Dr. Graham Love:

I am sorry. I did not quite catch the question.

Alan Farrell (Dublin Fingal, Fine Gael)
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What action is the HEA taking to stand down the temporary mechanism put in place to address the deficit in the old pension scheme? How long will it be before the HEA can step away from that temporary arrangement that has been in place for 12 years?

Dr. Graham Love:

Given my newness, I need to call on my team as much as possible here.

Alan Farrell (Dublin Fingal, Fine Gael)
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That is fine.

Dr. Graham Love:

I understand there was the transfer from the old scheme to the single scheme.

Mr. Andrew Brownlee:

Yes.

Dr. Graham Love:

I might bring in Mr. Brownlee here.

Mr. Andrew Brownlee:

The Deputy will be pleased to know that we have been addressing that issue this year. We took part in a pensions working group that involved the Office of the Comptroller and Auditor General, the Department of Public Expenditure and Reform, the pensions unit from the Department of Education and Skills, and also the higher education funding unit of the Department of Education and Skills. The Deputy is referring to a situation where, when the assets and liabilities of the closed schemes transferred across to the State, effectively the HEA, as a temporary and a prudent measure to ensure that funding remained to meet the ongoing pension liabilities, instructed institutions to set aside an amount for employer and employee contributions under the model scheme. This was the replacement scheme of the closed scheme which came into practice in 2009.

The Comptroller and Auditor General drew attention to the fact that effectively what we were doing in instructing institutions to do that was setting aside funding for one purpose, but actually using it against another purpose - the liabilities of the closed schemes. By working with the working group, we agreed that the HEA would instruct the institutions to basically net off the balances from the closed scheme and from the model schemes, and consolidate it effectively within a single pension control account.

We are also working with the Department of Education and Skills to increase the level of transparency on the ongoing pension costs for the sector. It is very important that we understand what those pension costs are and separate them from the cost of just keeping the show on the road as well. I believe we have resolved that situation and that will become apparent as we move to look at the 2016-17 accounts.

Alan Farrell (Dublin Fingal, Fine Gael)
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Would I be right in saying that there is no question of there being a deficit in an individual's pension on the old scheme?

Mr. Andrew Brownlee:

Absolutely not for individuals.

Alan Farrell (Dublin Fingal, Fine Gael)
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There is no issue then. I wonder-----

Seán Fleming (Laois, Fianna Fail)
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The Deputy may ask a final question.

Alan Farrell (Dublin Fingal, Fine Gael)
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I will stay on the pension issue because the next one would probably require a long preamble. For the Comptroller and Auditor General, this is probably not a dissimilar question in terms of the accumulated balances in the pension control account. We have been provided with a briefing note which is quite thorough. My knowledge of pension law is not great. Mr. Brownlee has outlined that the HEA expects the temporary measure to be eradicated shortly - in a couple of years perhaps. Would that be accurate?

Mr. Andrew Brownlee:

From 30 September of this year, the universities have been instructed to net off the model schemes.

Alan Farrell (Dublin Fingal, Fine Gael)
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I see.

Mr. Andrew Brownlee:

I guess that is the beginning of the financial year. Sorry, I mean last year.

Alan Farrell (Dublin Fingal, Fine Gael)
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Last year.

Mr. Andrew Brownlee:

Or 2016-2017. I would expect that when the audits are conducted for 2016-2017 that the Deputy will see the issue resolved.

Alan Farrell (Dublin Fingal, Fine Gael)
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It will be a year. In other words, it is done.

Mr. Andrew Brownlee:

Yes.

Alan Farrell (Dublin Fingal, Fine Gael)
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Does that cover the accumulated balances in the pension control account as well?

Mr. Andrew Brownlee:

It should do. It does not cover the issue of the State guarantee that the Comptroller and Auditor General would have mentioned.

Alan Farrell (Dublin Fingal, Fine Gael)
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Yes.

Mr. Andrew Brownlee:

There is an issue with the model scheme. As I understand it, unlike the closed scheme and unlike the single scheme, which has now been introduced across the public sector, there is no State guarantee for the liabilities incurred under the model scheme. That issue remains to be addressed. It has been discussed at the pensions working group but as yet it has not been resolved. I think it would require either a ministerial direction or new legislation in order to address that.

Alan Farrell (Dublin Fingal, Fine Gael)
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Presumably with that would have to come financial support from the State given demographics, etc.

Mr. Andrew Brownlee:

Yes. The assumption is that they are State liabilities anyway. The only difference is that there is no specific legislative commitment within the model scheme that the State will make those allowances.

Alan Farrell (Dublin Fingal, Fine Gael)
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I understand, Mr. Brownlee.

Seán Fleming (Laois, Fianna Fail)
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The next sequence of speakers is Deputies Cullinane, Connolly, Madigan, Cassells and Aylward. I call Deputy Cullinane and he has 15 minutes.

David Cullinane (Waterford, Sinn Fein)
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Mr. Love mentioned in his opening statement that a review of oversight and governance was carried out on the higher education sector or institutes generally. He mentioned there was a review of governance in a number of areas. Was the intellectual property one of the areas reviewed, specifically the commercialisation of intellectual property?

Dr. Graham Love:

No, Deputy. It was not specifically one of them.

David Cullinane (Waterford, Sinn Fein)
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Why not?

Dr. Graham Love:

My understanding is that the responsibility for intellectual property, the setting of guidelines and the way the system operates lies principally with Knowledge Transfer Ireland, which is a component funded by Enterprise Ireland. The latter set down, through KTI as it is called, the IP guidelines on local implementation for the operation of IP policies, protection and exploitation at our third level institutions and higher education institutions. Another piece of the State has a responsibility for that and it is why we kept it out of the provision.

David Cullinane (Waterford, Sinn Fein)
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I understand that the organisation has a responsibility. I am interested in how the interests of institutes are protected and how we ensure there is good practice and best practice when it comes to the commercialisation of intellectual property. Is Dr. Love telling me that his organisation plays no role in governance and oversight when it comes to intellectual property? I understand the role played by the other agencies. I want to learn about the role played by the Higher Education Authority.

Dr. Graham Love:

Yes.

David Cullinane (Waterford, Sinn Fein)
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Does the HEA play a role?

Dr. Graham Love:

I suppose we are responsible for overall governance.

David Cullinane (Waterford, Sinn Fein)
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Yes.

Dr. Graham Love:

Therefore, at times like the procurement review that has been mentioned, we would pick specific instances that may be, in our judgment, worth a specific probe or review. To answer the Deputy's question directly, I could imagine that if that became warranted we could do so.

David Cullinane (Waterford, Sinn Fein)
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I shall ask a number of questions that will suggest that the authority should does so.

Dr. Graham Love:

Okay.

David Cullinane (Waterford, Sinn Fein)
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When the Secretary General of the Department of Education and Skills was here last week we discussed spin-off companies and how revenue that accrued from them would go to institutes. This is one of many revenue streams that are open to institutes of technology and universities.

Dr. Love acknowledged in his opening statement that some organisations or institutes are in deficit. Some of them have significant deficits. If there is a potential for revenue to accrue then we need to make sure that the institute is protected at all costs.

Dr. Graham Love:

Sure.

David Cullinane (Waterford, Sinn Fein)
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I conducted cursory desktop research into this matter. If I managed to do so then I am curious to learn why the HEA has not done so. I examined the national policy in the first instance. I also examined the policy of various institutes of technology and I have not got to the universities yet. I discovered that policies had big gaps and varied greatly in terms of their robustness, who was accountable for what, decision-making and how conflicts of interest were managed. I shall give some examples in a second.

Dr. Graham Love:

Yes.

David Cullinane (Waterford, Sinn Fein)
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Can Dr. Love confirm whether the HEA considered the potential differences in institutes that the HEA is responsible for-----

Dr. Graham Love:

Yes.

David Cullinane (Waterford, Sinn Fein)
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-----in terms of how they manage conflicts of interest? When was the last time the HEA conducted a review? When did the HEA go to the trouble of getting all of the intellectual property policies by all of the institutes and measured them to see which ones were the most robust?

Dr. Graham Love:

I shall defer to my colleague, Mr. Andrew Brownlee.

Mr. Andrew Brownlee:

Obviously there is a national IP protocol. It is the institution's responsibility, as the Deputy pointed out, to develop its own IP policy. The HEA seeks, as part of its governance of the sector, an assurance that those policies are in place and are robust. We also seek to ensure, and it is part of the requirements of the codes of governance, that the institutes have codes of conduct for employees that cover conflict of interest and limits outside activities.

David Cullinane (Waterford, Sinn Fein)
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Is Mr. Brownlee aware of an institute that is conducting a review on the way it managed conflicts of interests?

Mr. Andrew Brownlee:

A review of the management of conflict of interest in relation to what?

David Cullinane (Waterford, Sinn Fein)
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In terms of intellectual property.

Mr. Andrew Brownlee:

Yes. We are aware of one at present.

David Cullinane (Waterford, Sinn Fein)
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Can the witness name the institute?

Dr. Graham Love:

We are aware that there is a review taking place in Waterford at the moment.

David Cullinane (Waterford, Sinn Fein)
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How was the HEA made aware of the review?

Dr. Graham Love:

I understand from my colleagues, and in the Department, that the Chair of the governing body instigated a review, I think on foot of some conversations here and elsewhere to make the review happen.

David Cullinane (Waterford, Sinn Fein)
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The review would have been instigated before there was a discussion at this committee.

Dr. Graham Love:

Okay.

David Cullinane (Waterford, Sinn Fein)
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What was the purpose of the review? This is the first time that the following detail has been relayed to this committee. I understand that Dr. Love believes it was the president of the institute who instituted the internal review. Am I correct?

Dr. Graham Love:

The Chair of the governing body, I believe.

David Cullinane (Waterford, Sinn Fein)
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I thought that Dr. Love said it was the president.

Dr. Graham Love:

No. I said the Chair of the governing body.

David Cullinane (Waterford, Sinn Fein)
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Was it the Chair of the governing body?

Dr. Graham Love:

Yes.

David Cullinane (Waterford, Sinn Fein)
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Has the Chair of the governing body commissioned a review?

Dr. Graham Love:

As I understand, yes.

David Cullinane (Waterford, Sinn Fein)
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Representatives of the institute will attend here next week. The meeting will afford us an opportunity to find out precisely why the review was commissioned.

We also heard from the Secretary General of the Department that the president of the institute is not in a position to play a role in the review because he is part of the review.

Dr. Graham Love:

Okay.

David Cullinane (Waterford, Sinn Fein)
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I would see that fact as problematic.

I want to discuss policy. I had signalled that the HEA should be represented at all of the meetings that take place with the institutes that will attend here within the next week. Somebody from the HEA should attend our meetings, and it is standard practice.

Seán Fleming (Laois, Fianna Fail)
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Will the HEA supply a representative to attend the meetings tomorrow and next week?

Dr. Graham Love:

Yes.

Seán Fleming (Laois, Fianna Fail)
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That is agreed.

David Cullinane (Waterford, Sinn Fein)
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The intellectual property policy at the Waterford Institute of Technology was last reviewed on 23 February 2010. The review identified the authors of the report. The policy owner is the office of the head of research and innovation. That suggests to me that the management of conflicts of interest rests with the head of research and innovation or at least the person would have a very clear role. Is that correct, Dr. Love? If Dr. Love cannot answer then I ask Mr. Brownlee to do so.

Dr. Graham Love:

I shall answer. I do not know the specifics of this particular case. Therefore, I am wary of commenting on specifics until the commissioned report has been published. Can I make a point, Chairman?

David Cullinane (Waterford, Sinn Fein)
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No. I shall stop Dr. Love there because this is what I was trying to avoid.

Dr. Graham Love:

Yes.

David Cullinane (Waterford, Sinn Fein)
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I shall not be stonewalled by a person saying he or she cannot reply because a review is ongoing. I have asked questions about policy and not an ongoing review. I shall outline a point about the policy at Waterford Institute of Technology.

Dr. Graham Love:

Sure.

David Cullinane (Waterford, Sinn Fein)
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The policy owner is the office of the head of research and innovation. What I have asked Dr. Love is not specific to any institute.

Dr. Graham Love:

Okay.

David Cullinane (Waterford, Sinn Fein)
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Does the head of research and innovation in an institute play a governance role in terms of policy oversight for intellectual property?

Dr. Graham Love:

This would not be unusual in these types of institutions either nationally here in Ireland or internationally. That is what I wanted to say. Bringing this out to policy and sectoral levels, one will often have a case where IP policy, in the main, may be managed or controlled by a head of research and innovation. Most of these institutions, internationally and here, will have a system or process available where, if that particular individual is involved in a particular decision, he or she needs to step aside. There is a very specific process or set of rules that govern the management of potential conflicts of interest.

I guess it is quite normal in certain scenarios for leaders in research fields - I worked in this field for a number of years - to get into management positions and ergo be in a position to make decisions that might relate to particular pieces of research and intellectual property.

David Cullinane (Waterford, Sinn Fein)
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From my perspective, a distinction is to be drawn. We may have a disagreement with the departments and Dr. Love, but a choice should be made between innovation and being involved in the commercialising of intellectual property and being head of a department in an institute.

I will again refer to the policy in Waterford IT. It has in place what is called a commercialisation office which manages the interests of the institute. It is to ensure the institute will be protected when there is commercialisation. The policy states the commercialisation office reports to the head of research and innovation. It goes on to state the commercialisation committee is made up of the financial controller and the head of research and innovation. Not referring to any specific institution, but I put it to Dr. Love that there is potential for ongoing conflicts of interest if the head of research and innovation is a director and shareholder in spin-out companies, the owner of the intellectual property policy, the person to whom the commercialisation office reports and a member of the commercialisation committee. I am not satisfied that there is an arm's length separation between the interests of an institution and those of individuals. I accept that there is a review taking place in one institution and we will see what comes out of it. However, before he answers the question, is Dr. Love satisfied that the person who is conducting the review had no role in the past in decision-making related to the commercialisation of intellectual property, as it would be a review of himself or herself? I am not sure if he is aware of the person concerned, but is he satisfied that the person conducting the review does not have a potential conflict of interest?

Dr. Graham Love:

I am not aware of the person having a potential conflict of interest. With his permission, I will relate it to the Deputy's earlier question-----

David Cullinane (Waterford, Sinn Fein)
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Yes.

Dr. Graham Love:

Let me put it this way. This is a common challenge in research institutions, universities and institutes of technology in Ireland and across the globe. We must have processes that can manage potential conflict of interest. In the scenarios mentioned by the Deputy, where the head of innovation might also be the researcher, there are well established processes. This is catered for in the IP policy we have in place in Ireland. The person steps aside and someone else takes the role or makes the decisions that might affect the exploitation of the particular piece of intellectual property. This is a well established process, both internationally and here. I am not aware of the specifics in the individual case, but, more generally, it is not unusual to have a situation where there is a potential conflict of interest for a researcher who is then in a management position.

David Cullinane (Waterford, Sinn Fein)
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I am trying to draw a distinction between researchers who have no role whatsoever in governance, management and oversight and those who do. If a person has a role in governance, management and oversight, that should be his or her role. In other words, the role of the head of research and innovation should be exclusively to protect the interests of the institute. Some of that person's time should not be invested in personal interests in private companies that benefit from institutional resources and so on. We can fundamentally disagree on that point, but we will get to the bottom of what happened in this institution. If the person were to go on to become president of the institute, would he or she, when applying for the job, have to declare at interview stage that he or she was a director and shareholder in a number of companies co-located in the institute? Would that have to be declared as part of the interview process?

Dr. Graham Love:

I imagine it would.

David Cullinane (Waterford, Sinn Fein)
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Do not imagine; I am asking if it is a requirement. Does Dr. Love know if it is? If he does not know, that is fair enough.

Dr. Graham Love:

I do not know, but I stress that this is not uncommon. I apologise if I am going back to it, but, having ten years experience of seeking research funding and innovation, it is not uncommon. In fact, it happens quite regularly that individual researchers who have got to the point where they have some intellectual property which their home institution wishes to exploit for the good of the institution and people involved in the area find themselves in management positions. There is a potential conflict of interest which they openly declare and that it is managed by an exception process in the institution. This process often involves the person concerned stepping to the side and another senior person stepping into the decision-making process-----

David Cullinane (Waterford, Sinn Fein)
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We will find out if that happened-----

Dr. Graham Love:

I do not know, but that is very much the-----

David Cullinane (Waterford, Sinn Fein)
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I accept that I am putting a number of questions cold to Dr. Love. I was only asking questions in policy terms. I wish to move on to the financial statements of institutions and the timeliness of accounts being presented and audits being carried out. How many institutes of technology are in deficit?

Dr. Graham Love:

I will ask Mr. Brownlee to confirm the number, but I think it is six. Is that right?

Mr. Andrew Brownlee:

Six.

David Cullinane (Waterford, Sinn Fein)
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Of the six, which would be the more serious? Has the HEA carried out an analysis? Which one would trouble it most?

Dr. Graham Love:

I think we have indicated that the two at the upper end of the scale are Waterford IT and GMIT. Have I got that correct? I apologise. I am continually checking my facts.

Mr. Andrew Brownlee:

I will comment briefly. In the financial review we identified six that were particularly vulnerable. Encouragingly and because of additional investment for institutes of technology provided for towards the end of the year, three of them are back in the position where they have a balanced budget. It is still a long-term challenge for them, but there are positive signs. However, there are three, in particular-----

David Cullinane (Waterford, Sinn Fein)
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I will concentrate on those three. It is welcome news about the three that there is encouragement. I asked for examples of the ones in most difficulty. Dr. Love mentioned two, of which Waterford IT was one. What was the other?

Dr. Graham Love:

GMIT.

David Cullinane (Waterford, Sinn Fein)
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Mr. Brownlee said there was a third one.

Mr. Andrew Brownlee:

The other vulnerable institution that has not yet been able to get back into the position where it has a balanced budget is Tralee IT. We have a meeting scheduled with it.

David Cullinane (Waterford, Sinn Fein)
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Of the three, which would be of most concern in terms of the scale of the deficit and the levels of adjustment that may be required?

Mr. Andrew Brownlee:

WIT.

David Cullinane (Waterford, Sinn Fein)
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It is interesting that this is also the institute where there are concerns about spin-out companies and whether the institute is being properly protected. That is why there is a focus on it. The witnesses have now said Waterford IT is possibly the one that concerns them most. In 2008 its core funding was €40,134,000. In 2016 its core funding was cut to €26,460,000, which was a substantial drop. When the Secretary General of the Department was here, he said it was being offset by a rise in fees and the student contribution. Student fees in 2008 were €10,203,000. In 2016 they were €6 million; therefore, they, too, had decreased. The overall contribution from the State in terms of fees and the core grant to WIT was €32,682,000 in 2016, as opposed to €50,338,000 in 2008. If its funding has been cut so substantially, is that, in the first instance, the reason it is in deficit?

Dr. Graham Love:

I will ask Mr. Brownlee to comment.

Mr. Andrew Brownlee:

It is a major contributory factor. We are talking about six vulnerable institutions and another four that are at risk from further financial decline or shock. Absolutely, the decline in funding has been a contributory factor.

David Cullinane (Waterford, Sinn Fein)
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Who-----

Mr. Andrew Brownlee:

Let me expand slightly. We have also seen a significant decline in student numbers in WIT in recent years. I believe there is also an issue in the retention of students at WIT. The institute has a plan in place by to try to address these issues.

David Cullinane (Waterford, Sinn Fein)
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I have the students numbers and they do not chime with what Mr. Brownlee stated. Let us look at them. In 2007 the student enrolment was 7,539. In 2015-16 it was 7,792. That does not seem to be a substantial-----

Mr. Andrew Brownlee:

When it is broken down, we see it go up and then go down, from about 2013-14-----

David Cullinane (Waterford, Sinn Fein)
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Yes, but we have to look back over a reasonable period. My starting period is 2007-08. It went up a little, but it maxed at 8,302 and went down to 7,792. There was a decline, but it remained static over an eight or nine year period. Is that correct?

Mr. Andrew Brownlee:

That is correct, but the serious financial issues would align with the drop-off in enrolments and, as the Deputy pointed out, the decline in funding per student, which is a very real problem for all institutes across-----

David Cullinane (Waterford, Sinn Fein)
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I have two remaining questions. We have acknowledged that the core grant and the fees paid to the institute were quite substantially reduced. We have acknowledged that over a reasonable period of seven or eight years the enrolment figures have stayed pretty much static. We also know from the institute and the Department that the percentage of pay versus its funding is 87%, which is above the threshold. Is it the case then, that it is essentially departmental cuts to the institute that have led to it being in such a significant deficit, which Dr. Love has said is the biggest concern to the HEA?

Regarding a transition to a technological university - Waterford and Carlow constitute one of the four consortiums - what funding model is being examined for technological universities in respect of, first, their ability to borrow and, second, baseline funding for research and development, in comparison with existing universities? Will this help all these institutes' deficits?

I will leave it at that to be fair to the other members.

Dr. Graham Love:

I will take the Deputy's last question first. That matter is being examined very specifically by the international panel examining the funding model. The capacity to borrow, for example, has been a central feature of some of the submissions the panel is considering. The matter is therefore on the cards for the report, which I hope we will have by the end of June.

In answer to the Deputy's first question as to whether it is lowering of financial input that is causing the deficit while student numbers are static, it is undoubtedly a significant contributor. We cannot step away from that. That is a statement of fact.

Mr. Andrew Brownlee:

The other bit of context I should have brought to the Deputy's attention, although I am sure he is aware of it anyway, is that student numbers across the institute of technology, IOT, sector over that period increased by about 24%. If an institute's numbers are relatively static or declining, it is essentially obtaining a smaller and smaller share of the funding pot for institutes of technology.

David Cullinane (Waterford, Sinn Fein)
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I want to be clear to the witnesses because I am at pains to point this out, with respect to the Chairman. Regarding the issue of intellectual property, spin-outs and so on, I completely understand the need to incentivise researchers to engage in the commercialisation of intellectual property and the benefits of same to the institute and to the regions in terms of jobs. At no point in any of the meetings have I alleged or would I allege any wrongdoing by any individual. However, there is a need to make sure the systems, processes and policies in place are robust enough to protect the institution at all times.

I do not know whether the comptroller is aware of the figures, but it seems to me from the records I have that, in respect of one of the spin-out companies, FeedHenry, which was sold for €64 million, the institutes started off with a shareholding of approximately 10% and ended up with a shareholding of approximately 2% or 3% and that individuals working for the institute ended up getting more personally than the institute itself. On examining the policy, it seems to suggest that the institute should have a minimum of a 15% shareholding. All I am saying is that in all these circumstances we must make sure, especially if we are being presented with the information ourselves, that in respect of all the revenue streams of an institute with a serious deficit, which is of concern to the HEA, the institute's interest is being protected at all times. That is my only concern. I ask the witnesses to take those points on board, and I will leave it at that.

Dr. Graham Love:

Regarding the system issue to which the Deputy referred, again, it would not be at all unusual internationally for an institution's benefit, or shareholding, to be diluted through the process of external money coming in to try to get a technology out to market, employ people, etc. I have had quite a bit of experience of this. There would be plenty of examples internationally of a shareholder starting at 10% or 15% and then coming down to 2%, 1% or lower. What is really important for the system and for Ireland - and I say this as someone who has worked in Science Foundation Ireland and the Health Research Board and who now works in the HEA - is to grow the number of instances of this so that there are many more shareholdings of 1%, 2%, 3%, 4% and 5% helping the institutes in question and their areas in employment, etc., at a policy level.

Catherine Connolly (Galway West, Independent)
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I wish Dr. Love the best of luck in his new job.

Dr. Graham Love:

I thank the Deputy.

Catherine Connolly (Galway West, Independent)
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Was there a gap between his coming into his position and the departure of the previous holder of the position?

Dr. Graham Love:

There was an interim CEO for about six or seven months, Dr. Anne Looney, who held the post until two weeks ago.

Catherine Connolly (Galway West, Independent)
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Who is the current chair?

Dr. Graham Love:

The chairman is Mr. Michael Horgan.

Catherine Connolly (Galway West, Independent)
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Was there a gap between his appointment and the departure of his predecessor?

Dr. Graham Love:

I do not believe so. I think his predecessor was John Hennessy. I do not believe there was a gap in the chairmanship. Am I right?

Mr. Andrew Brownlee:

There was a gap. There was a short period-----

Dr. Graham Love:

A short period - excuse me.

Catherine Connolly (Galway West, Independent)
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Does the HEA have enough-----

Dr. Graham Love:

Stephen Kinsella, who is a member of the authority, was acting chairman for a period of a few months.

Catherine Connolly (Galway West, Independent)
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The HEA has huge responsibility under a number of Acts, does it not? This has been set out for us very clearly by the Comptroller and Auditor General. It has responsibility under the Higher Education Authority Act, the Universities Act, the Institutes of Technology Act, and then there is the national strategy for higher education published in 2011. This huge responsibility has even been added to. The HEA now has responsibility for strategic development plans; quality assurance procedures; equality and access policy, in which I am particularly interested; and frameworks for salary departures, borrowing, payments to staff by institutional corporations and acquisition of land. I will come back to some of those if I can. Does the HEA have enough staff to carry out its work?

Dr. Graham Love:

That is always a tough question for a CEO, who would always like more staff, but-----

Catherine Connolly (Galway West, Independent)
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I will put this in context. I do not expect Dr. Love to comment on Government policy but I do on the matter of student fees and student loans because the university and third level sector is in trouble. I see report after report and huge problems holding the system to account on the part of the HEA and the heads of the universities. In that context, the HEA has a very important role to inform us of what is going on, is that not right? The witnesses are representing the Higher Education Authority. The HEA has all these roles. Does it have enough staff?

Dr. Graham Love:

We do have a very wide remit and, to pick up on one of the Deputy's points straight away, the system of accountability is growing in respect of expectations and standards. I stress that the sector is making significant improvement. I say this within 12 days of getting familiarised with this brief and I have some experience in this regard from my previous roles. The sector is moving along and responding accordingly.

Regarding the Deputy's point about staff, I have been passed a note to the effect that we currently have 61.65 posts out of our ceiling of 63 under the employment control framework, ECF, as it is called. We feel we are generally in the right zone regarding the staff we have. If additional responsibilities become apparent to us - who knows what the funding review implementation will reveal in terms of our responsibilities - we will not be shy about looking for additional staff.

Catherine Connolly (Galway West, Independent)
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However, at this point, the HEA is not looking for additional staff.

Dr. Graham Love:

At this point, we have what we need.

Catherine Connolly (Galway West, Independent)
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Has the HEA contacted the universities that have not come forward with their financial statements - NUI Galway and another two were mentioned - to ask them why they have not done so?

Dr. Graham Love:

I will comment generally and then invoke Mr. Brownlee, if the Chairman does not mind. I believe we are in regular contact with them over this-----

Catherine Connolly (Galway West, Independent)
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My question is whether the HEA has contacted them and, if so, the answers received.

Dr. Graham Love:

I ask Mr. Brownlee to step in on the specifics of this matter.

Mr. Andrew Brownlee:

We absolutely have. We are in constant contact with-----

Catherine Connolly (Galway West, Independent)
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Let us take the HEA's last contact. What were the three universities with financial statements outstanding? I forget them. One was NUI Galway, which is easy for me to remember as I represent Galway.

Mr. Andrew Brownlee:

The NUIG audit for 2013-14 was signed off on in November 2016; in the case of DCU, the 2012-13 and 2013-14 audits were signed off on in April 2016; and in the case of UCC, the 2013-14 audit was signed off by the Comptroller and Auditor General in December 2016.

Catherine Connolly (Galway West, Independent)
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I understood the Comptroller and Auditor General to say there were three audits outstanding, or were they just late?

Mr. Seamus McCarthy:

They are the 2014-15 audits.

Catherine Connolly (Galway West, Independent)
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Are they still due?

Mr. Seamus McCarthy:

They are still outstanding.

Catherine Connolly (Galway West, Independent)
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My questions are why they are still due, what the HEA has done about it and what its last response was from these institutions, given the HEA's responsibilities, the fact that it has enough staff and the importance of learning lessons in this regard. The HEA has been in existence for 42 years. Over that time, I understand the Comptroller and Auditor General, from listening to him and reading his statement, has worked closely and collaborated with the HEA. It is therefore the two bodies' role to get financial statements, presumably, and to question the institutions. What have they said? What is the delay?

Mr. Andrew Brownlee:

As the Comptroller and Auditor General pointed out, there are a range of reasons for the-----

Catherine Connolly (Galway West, Independent)
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What has the HEA been told by the three universities with financial statements outstanding?

Dr. Graham Love:

We have an agreement, or in effect a request, at the most senior level of the university, our annual financial memorandum, that expects the HEA president to sign off on timely provision of accounts to the Comptroller and Auditor General. We are very clear on that and we set it effectively in our-----

Catherine Connolly (Galway West, Independent)
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There are so many plans here, including action plans, strategic plans and so on, one would need years to read them as well as the review of Limerick, the Mazar's review and all these things which I hope to come to. Dr. Love has said he has enough staff. The HEA has a role. Why are they late?

Mr. Andrew Brownlee:

In University College Cork, UCC, we would have spoken to Mr. Dermot Collins, who is the bursar, last week.

Catherine Connolly (Galway West, Independent)
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Why are they late?

Mr. Andrew Brownlee:

They are late because of a range of complex issues in UCC. It was one of those institutions named in the special report on time limits so there is a legacy issue to deal with. It has to certify 2013-2014; 2014-2015; 2015-2016-----

Catherine Connolly (Galway West, Independent)
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It is a legacy issue and it is complex. What about the other two?

Mr. Andrew Brownlee:

The National University of Ireland, Galway, NUIG, is also one of the ones-----

Catherine Connolly (Galway West, Independent)
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Is it a legacy issue that is complex?

Mr. Andrew Brownlee:

There are issues around consolidation of trusts and foundations, treatment of research income, I think, and treatment of assets.

Catherine Connolly (Galway West, Independent)
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That is the type of openness I would like when the HEA comes in here. I would like it to set out the problems it is encountering. Statements that it is improving are not good enough. Of course, it has to improve. We all have to improve. It needs to set out the problems and say why the institutions are late.

Let us take another issue not mentioned in the opening statement, namely, the foundations and the consolidation of accounts. NUI Galway would be one of those. Mr. Brownlee mentioned it. Can he elaborate for me please?

Dr. Graham Love:

We have requested that the institutions consolidate its accounts. We require it to produce both at Exchequer level and more broadly. We have asked it to consolidate its accounts across the institution and its foundation. In some cases, Maynooth and Trinity College Dublin-----

Catherine Connolly (Galway West, Independent)
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They have already done it. I am asking about the ones that have not done it.

Dr. Graham Love:

In some cases they are indicating that they have had a difficulty with that because they believe that the governance structure of the foundation is separate from the governance structure of the board. We have been very clear and I gather from the Comptroller and Auditor General that where it is not material that can be consolidated a note can be attached to the accounts. We are certainly pressing the institutions to do this.

Catherine Connolly (Galway West, Independent)
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The HEA has communicated in writing to them that it wants consolidated accounts.

Mr. Andrew Brownlee:

We have indeed on several occasions.

Catherine Connolly (Galway West, Independent)
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They will appear before us. When was the last time the HEA communicated with them?

Mr. Andrew Brownlee:

It was actually within the past few days because we sent out our grant allocation letter to the institutions and made clear, as we did in last year's letter and in specific correspondence in the summers of 2015 and 2016, that institutions must consolidate their trusts and their foundations.

Catherine Connolly (Galway West, Independent)
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They have not done that and they are indicating that there are problems for them in doing that. A separate stream of funding is going into these universities from the State funding and anything else raised in respect of intellectual property. Is that correct?

Dr. Graham Love:

These foundations can be philanthropic or have other sources.

Seán Fleming (Laois, Fianna Fail)
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If the HEA can get those which have not consolidated yet, and there are quite a few, to consolidate in 2017-2018 because due to governance issues they cannot do it retrospectively, it will be 2020 before we see those accounts that are ultimately consolidated for the 2018 audit and brought before us.

Mr. Seamus McCarthy:

We have been pushing this for several years and the HEA has agreed with the principle that these are resources that are likely to become available to the university. In respect of several universities, and NUIG is a case in point, the strict accounting standard allows them not to consolidate.

Seán Fleming (Laois, Fianna Fail)
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I understand that.

Mr. Seamus McCarthy:

In the interests of ensuring that the committee and the public have a full awareness of the resources that are there we have drawn attention to the fact that there are substantial additional resources.

Seán Fleming (Laois, Fianna Fail)
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Where they are not consolidated, and Mr. McCarthy says they are different structures, can the audited accounts for those non-consolidated foundations be included by way of an appendix in the annual report notwithstanding that they may not be consolidated? They will be in there. When the Comptroller and Auditor General sees the annual report, there might be an appendix dealing with the foundation that covers the full issue, notwithstanding it may not be financially totally costed. Does Mr. McCarthy get my point?

Mr. Seamus McCarthy:

The foundation accounts are publicly available anyway. They are normally in the form of companies.

Seán Fleming (Laois, Fianna Fail)
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They do not appear in the annual report.

Mr. Seamus McCarthy:

No, they do not appear with-----

Seán Fleming (Laois, Fianna Fail)
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That is something we might consider making a recommendation on. If they are out there, it would make understanding of the annual report of a third level institution more complete to have an appendix referring to that issue.

If any business went to its bank seeking funding for next year, by way of an overdraft facility, and told the bank that its last audited accounts were three years old it would not get it. It would be told to come back with its current account, a more up to date audited account. Is the HEA being soft?

Dr. Graham Love:

I do not believe we are. There were some legacy issues. Mr. Brownlee outlined five or six very specific reasons that have driven it. With the Comptroller and Auditor General, we have brought this down hard on the institutions. Many of them are progressing this and there is a catch up taking place as we speak. We will be in a much better place within a short time. They are responding and we are applying the pressure. I do not believe we are being soft.

Seán Fleming (Laois, Fianna Fail)
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When is the end of their financial year typically? I know it covers the academic year.

Mr. Seamus McCarthy:

It is 30 September for universities.

Seán Fleming (Laois, Fianna Fail)
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Will the HEA give us an update by the end of this calendar year? Will it make a note of it now? We might ask for it in the meantime but in case we do not and we move on, will the HEA put in its diary that it will give us an update on the position when we head into the new year?

Catherine Connolly (Galway West, Independent)
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I asked those questions because as a politician I have to have my statement in by the end of this week. No excuse will be accepted. I must hand it in to show what I did with the money I received. I had to do it in a previous life in respect of value added tax, VAT. We got letters very quickly to take us to court if we did not do it, and rightly so. Third level institutions are shouting that they do not have enough money yet their financial accounts are not up to date. They also have a separate stream, and there is a separate complex problem, which I will not have time to come back to, in respect of the commercialisation of research. I will park that for the moment and ask specific questions.

Which part of the Galway Mayo Institute of Technology, GMIT, is in trouble, Mayo or Galway?

Mr. Andrew Brownlee:

GMIT is a single institution.

Catherine Connolly (Galway West, Independent)
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It is the Galway Mayo Institute. There are two institutes.

Mr. Andrew Brownlee:

There is one institution with three campuses.

Catherine Connolly (Galway West, Independent)
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Which of the campuses is in trouble?

Mr. Andrew Brownlee:

GMIT has underlying financial problems.

Catherine Connolly (Galway West, Independent)
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In Galway city.

Mr. Andrew Brownlee:

GMIT as an institution has underlying financial issues. The HEA does not believe it is an issue confined to a single campus.

Catherine Connolly (Galway West, Independent)
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Mr. Brownlee has acknowledged that a serious problem has arisen from lack of core funding and the numbers of students going up. He is not telling me which campus today. He is taking it as an overall problem. I understand that Mayo is in serious trouble and that the number of courses has been reduced to a minimum and indeed one course has been cut this year in mid-stream. Is that correct?

Mr. Andrew Brownlee:

I do not know about that specific example but I understand that the Central Applications Office, CAO, demand for some of those courses in the Castlebar campus was too low to justify the running of those courses.

Catherine Connolly (Galway West, Independent)
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I have difficulty with that kind of accountability. Mr. Brownlee should be able to tell me what is the position in Mayo. It affects students' lives and families. I understand that courses have been reduced to a minimum. Is that correct or not or does Mr. Brownlee not know?

Mr. Andrew Brownlee:

I understand a small number of courses have been withdrawn. However, I also understand that the president has been very clear that he is committed to a long-term sustainable development strategy for the Castlebar campus.

Catherine Connolly (Galway West, Independent)
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Is the HEA happy with that sustainable plan? Has it examined it? Does it have oversight?

Mr. Andrew Brownlee:

I understand that is still in development. We are insistent that any strategy for GMIT has to include a sustainable development plan for the Castlebar campus.

Catherine Connolly (Galway West, Independent)
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When will it be ready? When will the HEA get sight of that sustainable plan?

Mr. Andrew Brownlee:

I understand it is being worked on and I would expect we would see it in a matter of months.

Catherine Connolly (Galway West, Independent)
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Does the HEA not know if there is a deadline for the plan? This is integral to Galway. It has a proud history of providing a different type of education which the HEA is undermining now by going forward to universities and ignoring why they were set up but that is for another day. That is just my comment. It has a proud tradition of looking after people. The HEA is not able to tell me what the sustainable plan is or when it will be completed.

Mr. Andrew Brownlee:

There is a very significant process under way. Our review of the funding model, which the CEO referenced, is looking at the multi-campus issue and how institutions with more than one campus, particularly regional campuses, are funded in the future.

Catherine Connolly (Galway West, Independent)
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Mr. Brownlee is telling me the sustainable plan will be out in a few months.

Dr. Graham Love:

I will come in at this point. It is not a case of a plan with some far off deadline. We work with these annually as part of this. There is a financial expert assisting the institution. They are looking at things such as course provision and student demand. Things such as the teaching hours framework are in there. There are several elements involved in trying to bring GMIT to a better position notwithstanding the overall financial challenges of the sector.

Catherine Connolly (Galway West, Independent)
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It is important to repeat, given the very bad headlines over the past number of years, that there are serious issues concerning the management of GMIT but not surrounding the lecturers or students. I would have expected the witnesses to tell me when the review will be complete but they have not told me there is a date when the plan will be published.

Mr. Andrew Brownlee:

There is an ongoing-----

Catherine Connolly (Galway West, Independent)
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There is on ongoing saga with GMIT in Galway and in Mayo.

Dr. Graham Love:

I should have been clearer. I apologise. Perhaps my newness does not help at times. There is an ongoing intervention and support of the local management team and the president with the HEA to address the underlying issues identified in the review of the entire IT sector and GMIT in particular. I do not want to give the impression to the committee that we are standing back waiting for some report to come in three or six months. We know about some of these things now.

Catherine Connolly (Galway West, Independent)
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Will there be a report, going back to what the witness said originally, in a few months' time? Will there be a written report?

Mr. Andrew Brownlee:

Yes.

Catherine Connolly (Galway West, Independent)
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Good. I will finish off with a number of practical questions. There is a consultation process to look at where the technology colleges are going. Has there been feedback from the companies where the graduates have gone in Galway and elsewhere? Has there been written or verbal feedback from the company? The witnesses talk about stakeholders in the consultation process.

Mr. Andrew Brownlee:

Have we had direct-----

Catherine Connolly (Galway West, Independent)
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Are the witnesses aware that the process of consultation includes getting feedback from the companies to which the graduates have gone?

Mr. Andrew Brownlee:

The president of GMIT has indicated that he has been talking to local political and industry representatives. We have not had direct-----

Catherine Connolly (Galway West, Independent)
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It is something I am raising because I believe it has not happened. I believe the companies have been very happy with the graduates that have come from GMIT and those courses are being undermined and underfunded and huge difficulties are being created for something that is theoretical. Nobody is actually looking at the practical situation on the ground.

I will ask some final questions on Limerick and the Mazars report. I will touch on issues relating to protected disclosures in the University of Limerick which Dr. Love referred to in his opening statement. The HEA was in receipt of protected disclosures. Dr. Love outlined the Mazars report. The words "Mazars" and "bizarre" come to mind. Dr. Love referred to "a facilitation process to explore the possibility of addressing and resolving the issues" and stated "It is regrettable that these issues have yet to be resolved". What did the Mazars report cost?

Mr. Andrew Brownlee:

It cost €69,000.

Catherine Connolly (Galway West, Independent)
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Then we had a facilitator come in on top of that.

Mr. Andrew Brownlee:

Yes.

Dr. Graham Love:

Yes, Jane Williams.

Catherine Connolly (Galway West, Independent)
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How much did the facilitator cost?

Mr. Andrew Brownlee:

It was €7,000 excluding VAT.

Catherine Connolly (Galway West, Independent)
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Despite her best efforts, it was not resolved.

Dr. Graham Love:

Correct.

Catherine Connolly (Galway West, Independent)
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Is this a situation in which we had whistleblowers coming forward to indicate there were problems with travel claims?

Dr. Graham Love:

That is part of it.

Catherine Connolly (Galway West, Independent)
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It is part of it. A number of whistleblowers came forward in good faith.

Dr. Graham Love:

Yes.

Catherine Connolly (Galway West, Independent)
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We had this report and the facilitator and nothing has been resolved.

Dr. Graham Love:

What the Deputy stated is correct. There have been a number of initiatives. There has been the Mazars report. There have been meetings between the chief executive of the HEA and the disclosers with the institution. It then reached the point of the Mazars report to which the Deputy refers. It was then followed up by the attempt at a negotiation through Jane Williams. Unfortunately, the two sides have become quite entrenched, as we mentioned in our report.

Catherine Connolly (Galway West, Independent)
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The whistleblowers have raised issues. Those issues were substantiated. The issues raised were about claims and not the actual money paid out because the money was caught in time. The issues raised in terms of claims being made for travel were substantiated.

Dr. Graham Love:

Aspects of them were. Inappropriate claims were initially made but then they were appropriately challenged.

Catherine Connolly (Galway West, Independent)
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Where are those whistleblowers now? Are they still in the system? Were they rewarded or punished? Did they leave?

Mr. Andrew Brownlee:

Two of the whistleblowers are currently suspended on full pay. There is a WRC process ongoing to deal with their issues. One of the whistleblowers, person A, left the university in 2010 so that person was an ex-employee of the university.

Catherine Connolly (Galway West, Independent)
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Two of the whistleblowers have been suspended.

Dr. Graham Love:

They are currently suspended on full pay pending a Workplace Relations Commission process.

Seán Fleming (Laois, Fianna Fail)
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Since when?

Dr. Graham Love:

Does Mr. Brownlee have that information?

Mr. Andrew Brownlee:

Since early 2015.

Dr. Graham Love:

Since early 2015.

Seán Fleming (Laois, Fianna Fail)
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They were suspended before the Mazars report and the mediation.

Dr. Graham Love:

There were a number of other claims and instances in the institution and allegations from staff that became the subject of this WRC process.

Seán Fleming (Laois, Fianna Fail)
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Was the protected disclosure made before or after their suspensions?

Dr. Graham Love:

After.

Seán Fleming (Laois, Fianna Fail)
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I do not know anything about this. I am just asking that question.

Catherine Connolly (Galway West, Independent)
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I will come back to that. The witness might not know this because it refers to the consolidated report and financial statements for Limerick on page 6. The university paid a former service provider €209,000 in connection with the termination of its appointment to the university. Are the witnesses aware of that or will I leave the question for witnesses from Limerick?

Dr. Graham Love:

I am not aware. I cannot say. Do we have any information?

Catherine Connolly (Galway West, Independent)
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I will leave it for Limerick.

Dr. Graham Love:

My view is that if extra investment was to come into the sector at this stage, given the considerable work that has been done in recent years around defining very clear strategies for the sector at individual institutional level and in the governance arrangements, there would be a good degree of confidence that any extra funding would result in the outcomes we are looking for. We are much clearer now about the outcomes we want to get from the sector rather than it simply disappearing into an unproductive inflation of salaries or anything else like that.

Dr. Graham Love:

We understand that but with the national strategy for higher education, the so-called Hunt report, and a number of other issues such as access, it is very clear what is expected.

We have a much tighter hold on what is expected of the system and what it needs to return for the Exchequer funding that it receives. In my ten years in the broader sector, I have seen a sophistication growing on the part of the institutions, in that they are becoming clearer in what they are aiming to do under their goals and we in the HEA and the broader system can have a reasonable expectation and hold them accountable for the good use of putative additional funding.

Dr. Graham Love:

I will make a comment, give a few answers and call on some of my colleagues. We recognise that the challenge the Deputy mentioned about the number of people not being retained in the system represents in a clear way a lost cost to the system. It requires more resources to assist in retaining many of these students. They need additional supports. We have particular access programmes, as I stated, but the funding situation in general and the pressures within the institutions undoubtedly make providing supports to assist these students in progressing through the years challenging. By definition, students from certain backgrounds require greater levels of support. Due to reduced resourcing, many institutions have struggled with this. We have identified such instances. This would be improved by a better funding situation, which we discussed with the report-----

Dr. Graham Love:

More funding would assist in providing supports, but it is not the only element and I would not want to create that impression with the committee. Other pathways and options are more suited to certain cohorts in our society.

Mr. Andrew Brownlee:

The Deputy raises a valid point. As a government and a society, we need to consider how further education works with higher education to try to get the most appropriate route to a career for all young people. That is to the fore in the Department's mind. The national skills strategy, which was launched at the end of last year, addressed more integrated pathways between further and higher education.

Key priorities for the HEA are access and retention. They comprise one of the main objectives within the performance compacts that institutions have to agree with us. There are always strong retention targets within those. We challenge the institutions and hold them accountable for these targets, but there is a resource implication to supporting those types of student through higher education.

Dr. Graham Love:

Yes. That is a fair comment. It relates to a tighter and better link between further and higher education that results in people going to the right places. We accept that there may be examples of people entering higher education who are not best suited to it and do not have the right supports. We need to focus on this matter with the Department.

Dr. Graham Love:

I will be careful because I do not want to make a strong statement in one direction or the other on how to solve the funding gap, which I respectfully suggest is implicit in the Deputy's question. The Cassells group identified for consideration three basic sources of funding to fill the gap. There is conflicting information in the international evidence, as far as I understand it, about the success or otherwise of recovering loans over the longer term and the degree to which that motivates a decision to emigrate. I am not in a position to answer that knowledgeably.

Dr. Graham Love:

Higher defaults than-----

Dr. Graham Love:

I have no evidence to believe that it would be different for an Irish graduate with a loan than it would be for graduates from Australia or other countries that operate similar systems. At this moment, I do not know where that bottoms out.

Dr. Graham Love:

The budget for this year included the first increase in six or seven years, €160 million, which is only a portion of the greater problem. We absolutely accept that. The first thing to do with a system that has been cut year on year and is reaching a problem point is to stop cutting. I think that has stopped and I really welcome that. Those, albeit limited, resources are welcome in the system and can help us prepare the ground for what it is hoped will be a significant further funding injection. It is needed. I understand it is open to debate as to what the sources for that will be. I believe, however, that we took a very important step in the right direction. Although it was relatively small in the context of the gap the Deputy referred to, the first injection of additional funding in six or seven years sent a very important signal to the system. Obviously, that will need to accelerate. We have been talking about deficits and issues of retention and everything else here today. It is absolutely acknowledged that the system is under strain.

Mr. Andrew Brownlee:

If the Chairman will allow me, I also think that the consultation process on the employer investment mechanism for higher education, which is ongoing, is another positive step. It would also align with one of the recommendations of the Cassells report on future funding. That is another positive step alongside the Exchequer commitment.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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I will just take up where the Deputy finished. The downturn, or the recession, had an effect on our investment in third-level institutions. My own party recognises this. As has been said, the Cassells report identified a need for €600 million of an investment up until 2021. We have slipped somewhat in the world-wide rankings. Some of our universities have slipped. It is a pity to see that happening. What kind of investment per annum do the witnesses feel should be made up until 2021 to put us back up to the status that we want to achieve, where we were before the recession? What moneys and what otherwise is needed?

Dr. Graham Love:

I think the gap identified by the Cassells group, as has been mentioned, is €600 million or so. Probably about a third or so of that is currently going in. It is quite a significant amount. We have obviously been taking a stepwise approach, beginning with the additional €150 million to €160 million the Government announced for this year. I accept that is small. There is no side-stepping that.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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We need that every year.

Dr. Graham Love:

Obviously we would like more. In terms of what the Cassells report-----

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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I mean we need to increase funding by that much every year.

Dr. Graham Love:

We need to step it up, exactly. Was the Deputy referring to rankings in his question?

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Yes, our position in the worldwide rankings. Some of our universities have slipped in the worldwide rankings that come out every year. I would like Dr. Love to comment on that.

Dr. Graham Love:

The higher education system has definitely been struggling. That is reflected in our standing in the rankings, although I feel obliged to say that those rankings come with their own problems in terms of what they measure, etc. Leaving that to one side, the system is under strain and has been struggling to deliver. This is evidenced by everything we have heard here today - retention rates, the retention of support for people from economically disadvantaged groups in institutions, research budgets and a 13% reduction in staff at a time when we have a 24% increase in demand, one going down while the other goes up. The system has responded very well to that kind of challenge but, very much akin to what we have heard about the health service in recent years, when there is a certain amount of cutting, we eventually go towards the bone. I think we know we are at this point. There is no denying that.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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I will move on to proper governance, oversight and procedure of third level institutes. I am particularly speaking about Waterford because I am from the south east. We hear rumours on the grapevine about Waterford and the financial situation there. We hear that moneys are going into servicing loans instead of being invested in the students, teachers and the facility in general. There is a need for oversight and proper governance in Waterford Institute of Technology, WIT. I will speak later on about it amalgamating with the Institute of Technology Carlow to attain university status.

I do not know what are the deficits in WIT or the other institutes that have been mentioned, but I would like to know, if the procedure is in place, why and how were these deficits allowed to get so high, or get so out of control, that they are now affecting the day to day operation of the colleges? Are the proper procedures there? Is the proper governance there? Is the HEA strong enough in its oversight to make sure that individual colleges are not allowed to go awry?

Dr. Graham Love:

On the general question about our oversight, I think the fact that this information is out and to the fore is as a result of processes that we undertake, particularly the institute of technology review published at the end of November last year. That is the first comment I would make, which outs the situation clearly and openly. We have been strengthening our processes. There are particular circumstances in Waterford's case. We are very clear that the institute of technology sector does not have a borrowing framework generally. I think Deputy Connolly asked about this earlier. The funding model review group is looking at the question of whether they should, in certain circumstances, be allowed to borrow if appropriately financially controlled. Do we have the particular deficit to give the Deputy a figure?

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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If the HEA sees something going wrong - as a stitch in time saves nine - does it have the powers to move into an institute or college to say that things are not going as they should and demand proper oversight? What powers does the HEA have to intervene? With such powers these situations would not arise at all, the HEA would be there before it happens. I refer, in particular, to Waterford because we are hearing on the grapevine that there are financial problems there.

Dr. Graham Love:

I will make a comment and then I will ask Mr. Brownlee to follow. We do have those powers, particularly in the institute of technology sector where our empowering legislation is stronger. We have the capacity to go in and commission reviews, etc. A lot of what we are discussing is a system under strain in the main, as opposed to a system that has actively sought to do something wrong. We have identified quite explicitly in the documentation some of the issues being experienced in these institutes, but also the interventions we are making to help them get back on track. We have sent in financial expertise that helps these institutions to design their recovery plans and get them back to a balanced budget by a particular point in time. We have provided other assistance. I do not know if Mr. Brownlee would like to add to that.

Mr. Andrew Brownlee:

The CEO has very much summarised the situation. We have a very clear policy framework for engagement with institutes of technologies, IOTs, in deficit. Stage 1 of that project requires them to produce a three-year financial plan to bring them back to a balanced budget. If they cannot show a way out within three years, then we agree the appointment of an external financial expert with them. We have a financial expert working with WIT and a number of other vulnerable institutes at present to do a real deep dive and to report to the governing authority around any remedial action that can be taken to address the financial situation. We also have the power, unlike in the universities, within the Institutes of Technology Act, to ask the Minister to appoint an inspector to look at a particular situation in an IOT.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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I am afraid that could be one of the problems in Waterford. The borrowing is so high that a lot of the money that should be invested in students, teachers and the college itself, now goes towards funding borrowing. The college is suffering because of that. As the witnesses have said, student numbers have dropped. I wonder who decides when the institute wants to borrow? It is easy to borrow, but it is hard to pay back. We all know that in our own lives. It is the simplest thing to get money, it is paying back that is difficult. Is there someone there to make sure that the institute is not over-borrowing and that it does not stretch its case out too far, causing problems afterwards?

Mr. Andrew Brownlee:

That circumstance is completely unique to WIT within the IOT sector. IOTs do not have the capacity to borrow. There is no borrowing framework for them. There are fiscal issues that prevent the Government from implementing that at present. The previous inspector's report in respect of WIT dealt with the issue of campus companies there. There was a situation where WIT had used those companies to borrow and there is a legacy to deal with as a result of that.

Dr. Graham Love:

To be clear, institutes of technology cannot borrow.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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They cannot borrow themselves?

Dr. Graham Love:

They are not permitted to borrow directly under the legislation.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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So the money will be borrowed through companies rather than the institution itself?

Dr. Graham Love:

Which was the reason-----

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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That is news to me. That is interesting, that it was borrowed through companies and not the institute itself. The institute itself was not able to borrow. Who was responsible for paying off the deficit if it was borrowed through companies? Am I getting this wrong?

Dr. Graham Love:

There were companies associated with the campus in Waterford Institute of Technology, WIT. Those companies were used as a vehicle to undertake borrowing, which has contributed to-----

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Who is responsible for paying off the loans if it was borrowed through the company? The company is the responsibility of the institute.

Dr. Graham Love:

I will ask Mr. Stewart Roche, our management accountant, to speak on this. As a result of previous endeavours, many of those companies were either closed or brought into the institution in general.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Who carries the debt?

Mr. Andrew Brownlee:

The institute carries the debt. There was a very serious-----

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Let me get this straight. It was borrowed was through companies. No one has said that it was not borrowed through companies. Some companies folded or went into liquidation - whatever word we use, they went down - and now the deficit is left with the university. Is that correct?

Mr. Andrew Brownlee:

An inspector was sent in by the Minister to look at the issue of the campus companies in WIT and he produced a comprehensive report. The finding was that WIT was wrong to use the campus companies as a vehicle to borrow, because institutes of technology do not have the capacity to borrow. Those campus companies were campus companies of WIT. The inspector, Mr. Dermot Quigley, made a range of recommendations. We undertook a review recently of how those-----

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Is this of use now?

Mr. Stewart Roche:

On the Diverse Campus Services, DCS, campus companies, there was a student accommodation village, Manor Village, where there were student residences and an opportunity at the end of the period of the build of those student residences for them to be bought out. A sinking fund had been built up and it was felt, based on the surpluses that student residences were making, that it would be opportune for the DCS campus companies to borrow the money to purchase those student residences. The other issue is the fact that there was a Carriganore sports complex, which was for the students-----

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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That is an excellent complex. I go there regularly.

Mr. Stewart Roche:

It is an excellent complex. It ran into a position where the DCS campus companies could not finish that particular sports complex. Certain sections were mothballed. The Department of Education and Skills-----

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Explain "mothballed" to me.

Mr. Stewart Roche:

They could not open part of the sports complex. They opened some of it but could not fully open it.

Seán Fleming (Laois, Fianna Fail)
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DCS is being referred to. Who is being talked about?

Mr. Stewart Roche:

They were the campus companies.

Seán Fleming (Laois, Fianna Fail)
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What is "DCS"?

Mr. Stewart Roche:

The first campus services-----

Seán Fleming (Laois, Fianna Fail)
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Was that the name of the company?

Mr. Stewart Roche:

It was the name covering the subsidiary companies within DCS.

Seán Fleming (Laois, Fianna Fail)
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Who had the shareholding in the companies?

Mr. Stewart Roche:

DCS would have had the shareholding when it was bought out.

Seán Fleming (Laois, Fianna Fail)
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Who had the shareholdings in DCS?

Mr. Stewart Roche:

DCS has now been consolidated into Waterford Institute of Technology, so it-----

Seán Fleming (Laois, Fianna Fail)
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What about before consolidation?

Mr. Stewart Roche:

Before consolidation-----

Seán Fleming (Laois, Fianna Fail)
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The questions are about who borrowed the money and what bank provided it. Was it a college subsidiary?

Mr. Stewart Roche:

It was not a subsidiary of WIT until after the inspectorate report, when it was recommended that the DCS group of companies should be consolidated.

Seán Fleming (Laois, Fianna Fail)
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Why would they state that if they cannot borrow?

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Is DCS a group of individuals? Who are they?

Mr. Stewart Roche:

I will have to revert to the committee on the DCS campus company.

Seán Fleming (Laois, Fianna Fail)
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We are being told that the taxpayer was asked to bail out this DCS campus company. WIT had no power to take on debts and seemingly did so.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Waterford Institute of Technology is carrying the debts and is trying to pay them back now. The college is suffering as a result. Moneys that should be going into the college, students and teachers is now going into repaying debts. This is what I am trying to get at.

Mr. Stewart Roche:

There was previously an arrangement between WIT and the DCS campus companies where WIT would pay over moneys to DCS for services provided by DCS to WIT. The situation is that moneys were being paid by DCS to build up the sinking fund to purchase the student residences. The situation since the consolidation of DCS into WIT is that WIT is no longer paying that money over to DCS and the moneys that are being used to repay the loans are now coming from DCS to WIT. The loans are being repaid.

Dr. Graham Love:

I would like to ask Mr. Andrew Brownlee to make a comment here, because this was the subject of a detailed report that produced very detailed published recommendations that we have followed up to help to try to-----

Catherine Connolly (Galway West, Independent)
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What publication or published report?

Mr. Andrew Brownlee:

In 2013, Mr. Dermot Quigley was a-----

Catherine Connolly (Galway West, Independent)
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My question was on published recommendations or a published report.

Mr. Andrew Brownlee:

He published a report with recommendations in it. We undertook a follow-up review which was published in January of this year, where we looked at the implementation of all those recommendations by WIT. We would be happy to furnish the committee with a copy of that report.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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We would appreciate that.

Seán Fleming (Laois, Fianna Fail)
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We want that this afternoon in advance of our meeting with WIT. My first questions are who are the shareholders in DCS campus company, what bank gave them the loan and why the bank was not told. WIT is guaranteed to repay the debt. I will ask the Comptroller and Auditor General if somebody can help us here.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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The witnesses say that DCS gets the money to pay to the university. Where is that money to pay off the loans being created?

Mr. Stewart Roche:

It is generating surpluses in the student residences that allows it to-----

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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That is where it is coming from.

Mr. Stewart Roche:

It is no longer paying off the debt to put into the sinking fund, so the surpluses generated by the student residences are being used effectively.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Is that servicing the debt now?

Mr. Stewart Roche:

Yes.

Mr. Seamus McCarthy:

As I understand the matter of the companies, there was an informal committee in the college in the 1990s, which dealt with such things as canteens and societies. A company was formed around 2000, which started a set of companies to perform individual services on campus. A letter of comfort was provided by the college to banks which funded some of the companies.

Seán Fleming (Laois, Fianna Fail)
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Was that legal?

Mr. Seamus McCarthy:

While it was not a subsidiary, and not a formal guarantee, it was a letter of comfort and there would have been litigation had the college not respected it. These matters were dealt with by Mr. Quigley in his report. Subsequent to the Quigley report, the individual companies became subsidiaries of the college and then were consolidated for the first time in the 2013 to 2014 financial statements.

Seán Fleming (Laois, Fianna Fail)
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Did the college take on net debts in the consolidation?

Mr. Seamus McCarthy:

Yes. It seriously and significantly affected it.

Seán Fleming (Laois, Fianna Fail)
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The college did not borrow and yet was effectively allowed to take on bank debts.

Mr. Seamus McCarthy:

It also received a loan from the Department which is now a debt due to the Department.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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What kind of money is involved? It was to be identified a while ago.

Seán Fleming (Laois, Fianna Fail)
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What was the scale of the debt?

Mr. Seamus McCarthy:

It is about €10 million. There was an initial figure of about €7.5 million, then it took a further €2.5 million to finish the project at Carriganore. There was discussion of that at a recent meeting of this committee.

Seán Fleming (Laois, Fianna Fail)
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Send us the finished report and Quigley report and we will go from there.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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I have two more questions. On the scope for research, innovation and development, there is potential for private companies that want research done to be involved. What percentage of funding for universities or institutes would come from research and development? Would it be big? Would it be part of the overall consideration? Is there room for more improvement on that and to do more research?

Dr. Graham Love:

Is the Deputy talking about income from grants and such? This is something that I am reasonably comfortable with, given my past jobs. It varies significantly across institutions.

Some are much stronger research performing institutions, but in some cases institutions would be realising one quarter of their turnover-----

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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It is 25%.

Dr. Graham Love:

I think so, in some cases. One of the larger universities would be bringing in grants of €50 million, €60 million or €70 million from sources like Science Foundation Ireland, Horizon 2020, which is the European project, my old organisation, the Health Research Board, Enterprise Ireland etc. That is one of the areas we have been trying to develop over the past 15 years, not just the Higher Education Authority, HEA, but Ireland in general, to push our institutions and our system to be better and do better at research and development. I understand Ireland invests about 1.6% or 1.7% of our GDP in research and development, and about one third of that is publicly invested. Two thirds come from the private sector. That is a good ratio by international standards, and it relates to the earlier item about intellectual property. The exploitation, and I use that word in the best possible way, of intellectual property is a central objective of our investment in research and development for the State and for the individuals concerned, both in terms of private incentive but also generating jobs etc. That is in addition to excellent scientific output citations in the international scientific press and linkages with industry, which was another part of the Deputy's question. Good companies either start or come to places that have excellent researchers with particular nous in terms of particular technologies, some of which was discussed earlier.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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How do we compare with Great Britain, Germany and other countries in terms of attracting big industries into research?

Dr. Graham Love:

By international standards for developed countries, we are probably about average in terms of what we invest. I would countenance, from a number of years in Science Foundation Ireland and in the Health Research Board, that we are quite good at getting a return on that in terms of our standing. We are in the top ten countries in the world for scientific citation, relative to our size, and maybe even in the top six at this stage. We are doing well in this space. We have excellent collaborations in terms of some of our universities and big companies like Intel, HP etc., which are helping those countries to stay competitive in this country, retain the jobs we have and be ready for the next wave of investment. It is working quite well, but like everything else, we would like to see more investment into the space. That would allow us compete more effectively with very advanced countries like Denmark and Sweden, which are of a similar size, Israel, the United Kingdom, the United States and so on.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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My last question is a general one on pensions. Universities are responsible for their own pension funds and their future pension funds but the Department is responsible for the institutes of technology. What is the reason for that variation? Universities must build that into their future costs yet the institutes of technology are the responsibility of the Department? Why is that?

Dr. Graham Love:

I will ask Mr. Brownlee to comment on that.

Mr. Andrew Brownlee:

There is no real explanation other than legacy. The universities were always autonomous bodies with their own pension schemes in place. The institutes of technology used to be directly funded by the Department and their pension arrangements were-----

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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They are funded by the taxpayer.

Mr. Andrew Brownlee:

Yes. I understand they were part of the local government scheme. That was changed and they are part of an education superannuation scheme, and now the single scheme.

Mr. Seamus McCarthy:

That is correct. It is a very old legacy issue. It probably goes back to the origins of the colleges and their association previously with the vocational educational committees, VECs. The pensions for VECs and the colleges used to be paid at local government level. In the past three or four years they have been brought together into the Department and they are administered centrally by the Department of Public Expenditure and Reform's pensions section.

Seán Fleming (Laois, Fianna Fail)
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Does Deputy Connolly want to ask a final question?

Catherine Connolly (Galway West, Independent)
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First, educational procurement services, EPSs, are part of the research grants. What are educational procurement services?

Dr. Graham Love:

I will ask Mr. Brownlee to comment on that.

Catherine Connolly (Galway West, Independent)
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Second, capital investment is extremely low at approximately 4%, which is a point I meant to make. On capital, we have an extraordinary situation in Galway where a hotel remained derelict for a very long time. It would have been ideal accommodation for the Galway-Mayo Institute of Technology, GMIT. It was never bought. It has been bought now. That was an absolute scandal. A building there is still referred to as a new building 20 years later, such is the dearth of capital investment. Will Dr. Love comment on that and the reason the hotel was not purchased? It is right beside it. It was absolutely perfect. It does not make sense that it went from a State institution to a private person, and into NAMA at some stage.

Finally, what has the authority instituted as a result of Waterford and the two different issues we have heard about? Have the witnesses instituted a review of all the third level institutions to see if there is a conflict of interest and determine what is going on with private companies? Are alarm bells going off in that regard? We have been through this in the Dáil with different issues. An issue was confined to Donegal and then we realised it arose in Cavan with the Garda and so on. It is the same with universities. Nothing is confined to one area. It would be extraordinary for these issues just to be in Waterford. What review has the authority carried out in that regard? Those are the three questions.

Dr. Graham Love:

Taking the last question first, in the past two years in particular we have implemented much tighter control and oversight of the institutions, possibly on foot of some of the examples we discussed here today. I hope we are a self-learning organisation and system, but we would have a much tighter account of the facts and oversight of the range of investments, the manner in which they are controlled and accounted for and who is accountable for them, even some of the issues mentioned earlier around research, companies and so on. I believe there is much tighter control of that. Notwithstanding our comment, things can radiate out and there can be an expectation of that but the Waterford one we discussed earlier was a very particular example-----

Catherine Connolly (Galway West, Independent)
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No. My question is what the witnesses have carried out as a result of what the Waterford case taught them? Have they looked at all the other third level colleges in the country?

Dr. Graham Love:

I will pick Waterford first. Mr. Quigley was sent in and he did the report. We have followed up with our own report on the implementation of the recommendations of the Quigley report and found that largely to our satisfaction. It has been a case that has moved from a bad situation to-----

Catherine Connolly (Galway West, Independent)
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Is Dr. Love happy that this is not happening in Mayo, Galway, Dundalk, Limerick or Cork?

Mr. Seamus McCarthy:

I think the Deputy is asking about research and intellectual property.

Catherine Connolly (Galway West, Independent)
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No. I am asking about two issues. I am asking about what the Deputy raised in regard to Waterford separately from the other issue. There are issues of conflict of interest.

Dr. Graham Love:

Yes.

Catherine Connolly (Galway West, Independent)
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I am specifically asking Dr. Love what he has learned or is he saying that this just arose in this area and it is not in any of the other third level institutions?

Dr. Graham Love:

No. I believe that arising from the particular issue raised earlier, there is a strong national protocol on this, and if the question is about the appropriate implementation of that at individual institutions-----

Catherine Connolly (Galway West, Independent)
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Has Dr. Love checked that? That is my question. We have many protocols, in fairness-----

Dr. Graham Love:

We do check in our-----

Catherine Connolly (Galway West, Independent)
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Has Dr. Love checked? I am sorry but I will be stopped shortly. Has Dr. Love checked the other third level institutions in regard to conflicts of interest or other matters arising similar to what has arisen in Waterford?

Dr. Graham Love:

We ask the institutions specifically about their adherence to the codes of conduct etc., which take in those very points. We actually check that. Have we gone out and performed a specific adherence check on the intellectual policy framework? The answer to that is no, not on that specific one. I think it is something we would consider.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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That is something somebody should examine.

Seán Fleming (Laois, Fianna Fail)
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Some of the senior people in these organisations have shareholdings in companies and positions in the public bodies. I presume they are required to sign some statement under the ethics legislation.

Dr. Graham Love:

Correct.

Seán Fleming (Laois, Fianna Fail)
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Do the witnesses check-----

Dr. Graham Love:

We check that as part of our governance. On top of that-----

Seán Fleming (Laois, Fianna Fail)
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Will Dr. Love explain what the authority does in that regard? We have just uncovered it with regard to Templemore Garda training centre this morning in that people with shareholdings in an organisation did not comply with ethics legislation. We are asking the witnesses what they do to ensure all the people with shareholdings who have positions in these organisations that come under the remit of the-----

Dr. Graham Love:

To be clear, we do not go after that specifically. In our assessment of the governance arrangements in place at each of these institutions, we ask the president effectively to sign off on all those aspects. I guess that gives us some level of assurance.

Catherine Connolly (Galway West, Independent)
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Have the presidents of the various colleges signed off that there is no conflict of interest among any of their staff and that there are no issues arising in companies? Has Dr. Love got that confirmation?

Dr. Graham Love:

I do not believe that we have it on the specific-----

Catherine Connolly (Galway West, Independent)
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Would Dr. Love not think that would be his top priority in view of what has emerged from Waterford?

Seán Fleming (Laois, Fianna Fail)
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This needs to be dealt with. There is ethics legislation reaching down to local authority level and people have to find those in positions of authority in all State bodies. Dr. Love needs to examine the matter and ensure that he can be satisfied that all the ethics legislation is covered.

Dr. Graham Love:

I take and accept the Chairman's and Deputy's points.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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We are talking about proper governance and oversight. That is another topic.

Seán Fleming (Laois, Fianna Fail)
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There is the governance issue.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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And oversight.

Catherine Connolly (Galway West, Independent)
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On the education procurement services, EPS, there were two-----

Dr. Graham Love:

I will ask Dr. Brownlee to comment on the EPS.

Mr. Andrew Brownlee:

The education procurement service is essentially a shared service procurement vehicle. It was born out of the Shannon consortium, so Limerick Institute of Technology, University of Limerick, and Mary Immaculate College, as their shared service resource. It was considered successful and it has now been given formal status as the education sector hub as part of the Office of Government Procurement framework. It now performs procurement on behalf of the education sector and indeed other sectors under a remit set by the Office of Government Procurement. It is based in Limerick.

Catherine Connolly (Galway West, Independent)
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What about the capital?

Dr. Graham Love:

We acknowledge that capital investment really needs to improve. We did a report on that ourselves and that is feeding into the various bodies. There is the Cassells report and also the funding model allocation to consider. It is low by international standards and it undoubtedly needs to improve.

Seán Fleming (Laois, Fianna Fail)
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We are concluding now and one thing I have to say-----

Mr. Seamus McCarthy:

There is one matter on conflicts of interest. All institutes of technology, universities and public bodies would be expected to have a code of practice for members of governing bodies and for employees. We check that that code is in place. It should be dealing with conflicts of interest.

Seán Fleming (Laois, Fianna Fail)
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It is in place but nobody has checked if it is implemented.

Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Is it being adhered to? That is the problem

Seán Fleming (Laois, Fianna Fail)
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I think the witnesses get the point. We are used to hearing that the Department of Public Expenditure and Reform sent out protocols directives and policy statements. Does anyone ever find out that it is not our function to do that?

The last point is that the set of financial statements on the Higher Education Authority's website that was presented today is not complete. The witnesses have to send something to us and put it up on their website. I look at the contents. All of the page contents are "Xs". There is no page content. There is no data on which the reports were signed off. When we come to the section on the financial report statement of responsibilities and report of the Comptroller and Auditor General, his report is not in the document. There is a page missing. It looks to me as if this was a final draft. We googled the website in the last few minutes, so what we have received from the witnesses during the week is the one on their website. It is not the signed-off version of the Higher Education Authority's financial accounts for 2015. We need it to be up on the website pronto, and sent on to us.

Dr. Graham Love:

Absolutely. I offer my apologies.

Seán Fleming (Laois, Fianna Fail)
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I will say no more.

Dr. Graham Love:

There will be action straight away.

Seán Fleming (Laois, Fianna Fail)
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There would normally be a date of the signing of the accounts. That is not in it either.

Dr. Graham Love:

Indeed.

Seán Fleming (Laois, Fianna Fail)
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It looks to be the final draft.

We have concluded our business at this stage. We expect to see a representative of the Higher Education Authority with us tomorrow. Who is coming?

Dr. Graham Love:

It will probably be me.

Seán Fleming (Laois, Fianna Fail)
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We will be here next Thursday.

Dr. Graham Love:

I understand.

Seán Fleming (Laois, Fianna Fail)
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I welcome Dr. Love to his new post and I hope he finds the next two days with the different institutes educational from his point of view, if he will pardon the pun. We are all in a learning process. I thank the witnesses.