During the week, for the first time ever, I found myself having sympathy for the Secretary General at the Department of Finance, Kevin Cardiff. On Tuesday, it was announced that an error in the way the General Government Debt (GGD) was calculated meant the GGD was actually €3.6bn or 2.3% less than previously thought – a significant error. The Department of Finance (DoF) is responsible for the calculation of GGD and another organ of government, the National Treasury Management Agency (NTMA) was quick to issue a statement saying that it had been harping on to the DoF since Autumn 2010 to investigate the way it was calculating GGD. With impressive efficiency, the Committee of Public Accounts convened a hearing two days after the uncovering of the error, and summoned the NTMA and DoF before it, to explain what the hell had gone on, and why had DoF been producing incorrect statistical information for a year after the NTMA had raised concerns. And the sympathy? Well Kevin Cardiff had the cojones to turn up at the hearing to account for his own, and his department’s, actions and faced a three hour grilling that was unrelenting and frequently “up close and personal”. The NTMA, on the other hand and to the chagrin of the Committee, fielded Oliver Whelan, the director of funding and debt management at the NTMA rather than CEO of the NTMA, John Corrigan; whilst the Committee did summon the NTMA and DoF, it did not specify the individuals to attend and part of me thinks that Kevin turned up, saw John Corrigan wasn’t there and thought “shoite! I could have sent someone in my place”
And who is Kevin anyway? Well, since the start of 2010 he has been the Secretary General at the Department, he’s a civil servant with a broad range of responsibilities in overall control of 700 employees, reportedly (not that you’ll find much information on the role or the Department in the 13-page application pack for the job – out of 13 pages, just over a page is given over to a threadbare description of the role and the Department, compared with more than two pages of description of pension arrangements!). Kevin was reported last year to be earning €228,466 per annum, though recent reporting claims he is now on a (very slightly) more modest €200,000. And Kevin was recently nominated by the Cabinet to a lucrative new role at the European Court of Auditors which he was scheduled to take up in February 2012. There are some who say the Department is glad to get rid of him, though Governor of the Central Bank of Ireland, Patrick Honohan has spoken highly of him in the past. Minister Noonan however, is quoted as giving him a less than ringing endorsement in today’s press – “I have found him satisfactory to work with”. Kevin is a bit like Forrest Gump, in that he was in attendance (“the helmsman” as Kevin grandly claimed during the week) at some of the extraordinary events in this country’s recent history
(1) the night of the bank guarantee on 29/30th September 2008 when he was Second Secretary to the Department of Finance, reporting to David Doyle, the then-Secretary General
(2) the conception and creation of NAMA in 2009
(3) the bailout of the country by the IMF and EU in November 2010 (in fact he was the unrecognised one arousing curiosity at the press conference which announced the bailout, seated alongside Taoiseach Brian Cowen and Minister for Finance, the late Brian Lenihan).
Kevin said at the Committee hearing that if a Secretary General resigned every time an error was unearthed in their departments, you wouldn’t have any Secretaries General or if you did, only lucky ones. Which seems fair enough but the size of the error must also be a consideration, and you’d logically expect an error of sufficient size to put an end to any Secretary General’s career in public service. What about the error uncovered last week? Although the quantum, €3.6bn, was jaw-dropping, remember it was a statistical error which didn’t have any direct collateral financial impact. It wasn’t real cash that was found, it didn’t even affect the national debt which the NTMA correctly calculates but the more specific “General Government Debt”, it didn’t affect the calculation of interest repayments in coming years we were told, it certainly doesn’t affect the ongoing deficit (difference between Govt tax-take and what it spends) and there is no suggestion whatsoever of fraud or deceit. So the quantum was headline-grabbing but the financial effect less so. The culture in the Department which prevented the error being referred to the top for over a year seems worthy of investigation, as does the apparent lack of “belt and braces” checks on statistical information released.
At the Committee hearing during the week, it seemed to me that Kevin lost his temper at Shane Ross and to a lesser extent at Mary Lou McDonald. Shane had suggested that Kevin remain in his post at the Department of Finance and to put on ice his move toEurope, until the error and the systems which gave rise to it were investigated and dealt with. Mary Lou suggested that not only would the move toEuropebe inappropriate but that Kevin should even consider the tenability of his present role at the Department of Finance (code for “you should resign”).
But regardless of whether he stays or goes, the Committee might consider recalling him whilst we still have him; he might be called on to
(1) Provide a detailed account of the proceedings of the night of the bank guarantee in September 2008, proceedings which he is understood to have attended alongside the then-Secretary General David Doyle
(2) Explain what he is claimed to have hinted to the USambassador to Irelandwith respect to NAMA, namely that Kevin understood in early 2009 that NAMA loans would suffer a 50% haircut on acquisition rather than the 30% which was set out in the first NAMA business plan in September 2009. This claim of Kevin’s “hint” came from the Wikileaks publication of Irish ambassadorial cables and its significance is that, if verified, it might have led to a different strategy to deal with the banks – if we knew earlier on that the banks were nursing greater losses and that NAMA would have foisted unsustainable losses on the banks then we might have wound up Anglo and INBS earlier, and correctly imposed greater losses on those two banks before the complication of promissory notes even arose.
(3) Provide a detailed account of the events leading to the decision of Irelandto seek a bailout from the IMF and EU in October/November 2010, and specifically to describe any threats or intimidation on the part of the ECB. Remember there is supposed to be a letter from former ECB president, Jean Claude Trichet on Friday 19th November 2010 which apparently threatened Ireland if a bailout was not accepted, and accepted on the terms offered which implicitly included a commitment to honour the repayment of bondholders at all Irish banks, including the two zombies, Anglo and Irish Nationwide Building Society.
By the way, in terms of the performance of the Committee, it was indeed impressive to see a speedy convening of the hearing just two days after the error was revealed, and the questioning at the hearing was rigorous and unpartisan – it actually inspired pride in our democratic organs. However, although the Committee rightly challenged the appropriateness of the DoF setting the terms of reference for any internal inquiry and also of its role in selecting an external reviewer, the Committee didn’t pursue the matter. Surely the Committee should be writing to the Cabinet with the specific request that the reviews be managed by hands who are not themselves under investigation.
UPDATE: 23rd November, 2011. Breaking news that the panel of European MEPs considering the nomination of Kevin to the European Court of Auditors has rejected his nomination. This may be a first and might reflect the intense media scrutiny to which the current Secretary General at the Department of Finance has been subjected. What now for Kevin? In the normal course of events his contract at the Department of Finance might have been expected to expire in seven years from his appointment in 2010. Relations between Kevin and the Minister for Finance Michael Noonan are said to be okay if not fantastic, so he may stay but where does that put the recruitment already set in train for a new Secretary General. There has been no word on progress of the two reviews into the accounting error which saw GGD (see above) overcounted by €3.6bn but we were told the reviews might have been completed by the end of November 2011.
Couple of observations for Cardiff’s sparkling CV.
Cardiff headed the banking section from 2006. One of his responsibilities was ensuring the State had an adequate legal framework for the banking sector. To say that Cardiff failed in this responsibility is an understatement. In 2006 Ireland was clearly going to have issues with its banks: the only question was how big the problem would be. Cardiff should have introduced legislation to provide for the winding up of banks. As the law stands, a bank must be wound up in precisely the same way as any other company. Hence the ‘bondholder EQUALS depositor’ dead end. Most countries allow depositors to be treated differently. It is not a complex concept. Cardiff either was too stupid to know the legislation was needed, or he knew it was needed and failed to introduce it. Which is it? Either deserves a sacking.
Cardiff presided over the banking section of the Department from 2006 to 2010. The section was later found to be staffed with lads who ‘done a great Leaving cert’ rather than anyone qualified and experienced. How many had worked in banking? How many had practiced as lawyers? The statistics on the % of PhDs in the Department compared with other countries was profoundly embarrassing. Again, either Cardiff was too stupid to know that he needed to do some recruitment, or he knew but did nothing. Either deserves a sacking.
Cardiff met with officials from Irish Life and Permanent before the ‘back to back’ arrangements with Anglo. IL&P officials say he gave the scheme his unequivocal imprimatur. Cardiff can be expected to maintain that he did not. If IL&P was given comfort by the Department of Finance, we can forget any prosecution for those back to back loans and ‘balance sheet management.’ It would be impossible to prosecute. Knowing Cardiff is in the middle of that row (without expressing a view as to where the truth lies) how could be possibly maintain his position? How could he possibly be suitable to send to Europe?
Or, as Michael N. might have said once the decks were cleared for passing the parcel to the Court, one less thing to worry about.
@NWL
Perhaps the government need to set up a Limoge system for ‘outstanding’ DOF and government officials that have stood out for all the wrong reasons.
When replacing officers (several of them), in the first world war, the French Le Marechal Joffre used to retire them to a ‘quarters’ in Limoges far from the front. Enter the verb ‘limoger’ in the French language.
The French army under Le Marechal Joffre showed no such kindness to retreating soldiers. They were courtmarshalled and shot in their thousands. A whole batallion even went into battle one day bleating like sheep. It didn’t bother the French elite one iota.
Kirk Douglas starred in a movie called Colonel Dax that was a very mild version of reality.
Ireland is no different. The elite get limoged or better. The grunts get an passport if they are lucky. The elite lose no sleep.
Plus le change.
If they can’t add in the DoF, then there is no chance of them understanding five letter words. Because the only word that will extricate us from the mess we are in and close the fiscal gap is spelt GROWTH.
But, no banks, no capital, no commercial politicians, no brains in the DoF = NO GROWTH
@jr cest la vie
I think the Nama Wine Lake analysis is missing something big. – the standard and manner of accounting in government organizations – . Nama Wine Lake is wrong to call the error a ‘statistical error’. It is an accounting error. Regardless of what type of error it is, it is a very significant error indeed.
Just because it is not a cash figure does not mean it can somehow be dismissed. Let me illustrate this by reference to the banking crisis. The crisis they found themselves in was not really a cash crisis. They still had money. The problem was a balance sheet crisis. The assets turned out to be worth far less than the value they had been accounted for at. The result was that the banks’ counterparties lost confidence and would not advance further finance. The requirement for government funding arose because the balance sheet position became untenable. Again, this was not an immediate cash issue. But it was still very real. Any entity with significant bank debt needs to manage its balance sheet almost as carefully as it manages its cash.
Government’s accounts in Ireland are a total mess. They account for things basically the same way you would if you were running a school sweet shop. It is very informal and not done according to any particular rules. What’s more, there is clear ducking and diving, particularly in the Department of Finance. Issuing estimates and the like as rasterized PDFs in order to make it harder to analyze the figures (as DoF has frequently done) is the behavior of an organization which knows that it is in danger of being found out.
The particular problem here related to the ‘consolidation of balance sheets’. This is an issue where you have a group of related organizations under some sort of umbrella (i.e, the State) and you need to ‘consolidate’ or bring together all of the financial information into a single set of statements. The ‘balance sheet’ is the statement of what the organization owes, and what it owns. Some of the organizations are going to owe money to the other organizations in the group. This means that you cannot calculate total debt simply by adding up all the debts. You need to work out what is just book debt between the organizations and what is external debt.
The good news is that there is a standard way to consolidate balance sheets. It is described in International Accounting Standard 27 (IAS27) (Sections 24 onwards), and elsewhere.
The bad news is that the Department of Finance, in common with many other government organizations all over the world, does not follow this practice. Instead they basically take a back-of-envelope approach. They try to figure it out as best they can and hope it is OK. There is no meaningful way to audit the figures, because the assumptions are always unstated. Screw-ups can easily be swept under the carpet.
Now, I am not saying for a minute that IAS27 is perfect for governments. Governments are different from private organizations in many ways. However, the principals are there, and there are closely allied standards that could be followed. For example, Brazil is adopting the IPAS standards. (http://blog-pfm.imf.org/pfmblog/2011/10/for-the-first-time-brazil-publishes-consolidated-general-government-financial-statements.html)
It is also a general failing that there are almost no accountants working for any government department. By ‘accountant’ I mean a person who is qualified in that field, not just someone who adds numbers in a spreadsheet for a living. One government department, Communications and Energy, to its credit, has accountants on secondment from Big-4 accounting firms. These are mainly supposed to deal with the accounts of the big semi-states, however, rather than the government accounts.
The Department did screw up. This was not a slip of the pen. It was the result of a deep systemic problem. The Secretary General was in charge and he is responsible for the system. The DoF personnel are supposed to be the best. That is why they (together with Department of An Taoiseach personnel) are paid a ten percent premium over employees of a similar grade elsewhere in the Service. But we got second-best. Someone has to step up and take responsibility.
More importantly, the systemic problem also needs to be dealt with. We need to follow the likes of Brazil and have a proper, consistent system of public accounts. We also need to bring accounting expertise into the Civil Service.
That the cash wasn’t out of place, only the accounting of the cash. Matters not one iota. It is their business, first, last, and always, to hold the handle on the State finance. They may be up a bit, down a bit, within a margin. But they cannot miss account for it, ever. It is Cardiff’s job to know where every sou of the States monies are AT ALL TIMES. If he cannot do this, then the job is beyond him. But not only is the job beyond him but the top 50 that sit as head of section should follow him out the door. Or failing that, then each and every off-shore island is in dire need of administrators. I see an opening for the development of a Rose & daffodil industry on them.
Ludicrous, is the only word that can be used about this episode. And planning to dig in heels and send him to the Court of Auditors. What sort of diplomatic gobshitery is this.
@Vh
if there is indeed such thing as “gobshitery” then I take it the epicenter of this pheneomenon (the Dail) can be called “le Gobshiterie”. Oh la la c’est chic.
Do Irish accontants use the word accountability ever?
Aw, come on guys…… did no-one pick up that growth is a six letter word? No wonder we are not known for our mathematical ability.
@wstt yes but I was getting accounting 101.Most regular readers passed that point a while ago.
silent ‘h’,, we’re only paying for 5
I might have been tempted to have sympathy as well, up to the point where Deputy Shane Ross asked Cardiff whether he was going to leave the DoF for the job in Europe before he had dealt with this issue to the satisfaction of the Minister, the Department and the Committee.
Cardiff basically said in so many words “Yes, I am going to leave without resolving it; No I have no comment.”.
In that instant, my sympathies evaporated. I don’t think this particular General Secretary should be allowed to fail upwards any longer.
‘Speaking on RTÉ’s Morning Ireland, MEP Marta Andreasen, who represents UKIP, said Mr Cardiff’s nomination should be withdrawn’
http://www.rte.ie/news/2011/1107/finance.html
I was especially amused by this gem, printed in 16 point bold on page 10
There are no words.
The Peter Principal.
“Can I quit now? Can I come home?” Brown wrote to Cindy Taylor, FEMA’s deputy director of public affairs, the morning of the hurricane.
A few days later, Brown wrote to an acquaintance, “I’m trapped now, please rescue me.”
http://articles.cnn.com/2005-11-03/us/brown.fema.emails_1_international-arabian-horse-association-marty-bahamonde-e-mails?_s=PM:US
Great word – ‘SYSTEMIC’ – absolves all Depts/Units from accountability!
Nothing changes under this new administration.
Why was Cardiff nominated for a job he didn’t seek?
@Ivor to get rid of him I suspect.
[…] who held a top position in our disastrous Department throughout the boom and bust. A man who was actually present when the inexplicable bank guarantee was […]
[…] of a €3.6bn (later put at €3.719bn) error in the calculation of the country’s debt. He was summoned before the Committee of Public Accounts on 3rd November, 2011 (transcript here), where he attempted to bat away criticism with the […]