How did the Department of Finance allow the trifling sum of €3.6 billion to slip down the side of the sofa?The answer is a little more complex than nodding off while watching The Late Late Show.
The Government regularly supplies statistics on Ireland’s debt figures to Eurostat, the EU agency that compiles data on member states. It gives a figure known as general government debt (GGD), and it is a broader measure than the exchequer deficit because it includes borrowing by Government agencies such as the Housing Finance Agency (HFA).
What is the HFA, and what was the problem?The HFA was set up in 1982 to finance the construction of local-authority housing. It raised money from the private market that it then lent to local authorities. In 2007 the format of HFA borrowings changed, and they became part of the GGD figures. When the economic crisis hit, a decision was made to fund the HFA from the exchequer and not from the private sector. The money lent to the HFA was therefore drawn from sums already borrowed by the State, so the agency added nothing to the national debt.
So how did the discrepancy arise?There was a breakdown in communications. The statistical unit of the Department of Finance, which was staffed by one statistician at that time, was unaware of the change in borrowing status and continued to add the HFA debt to the GGD figure. In essence, it was double-counted. Instead of the overall debt figure for 2010 being €144.4 billion, it was incorrectly stated as €148bn. It was merely a statistical error, and the net result made the country no better off.
How did it escape attention for so long, and how was it discovered?Two reviews were carried out. Three agencies were involved: the Department of Finance, the National Treasury Management Agency (NTMA) and the Central Statistics Office (CSO). The emails from NTMA referred to the change but didn't spell it out. However, the reviews concluded that the statistics unit of the Department of Finance ought to have known by 2010. The reviews blamed the complex nature of the work, the burden on a single overworked statistician, the absence of double-checking and the duplication of work by the Department of Finance and the CSO. Both reviews concluded the CSO should take sole charge of it.
The error was discovered on October 19th, 2011, but neither Minister for Finance Michael Noonan nor the general secretary of the department, Kevin Cardiff, was informed for a fortnight. Cardiff had been nominated for the EU Court of Auditors but came under fire at the Public Accounts Committee once the story broke. The controversy enabled his critics to criticise other aspects of Finance, but despite the campaign against him he was selected for the Court of Auditors.
And was the Public Accounts Committee happy with the reports that were published this week?Not for a second. The chairman, John McGuinness, branded the reports a whitewash, as neither referred to Cardiff or to senior management. He said the €61,500 paid to Deloitte for its review was "an appalling waste of taxpayers' money". He said Cardiff should have explained to the committee why he did not staff the statistics unit adequately.
