MARTIN FRAWLEY
An internal audit of payments made to companies under the first round of the Employment Subsidy Scheme concluded that it was “unable to ascertain whether a formal financial assessment had been carried out to determine the eligibility of applications received to the fund in all cases”.
The report by Deloitte & Touche for Enterprise Ireland, the State agency which ran the €185m scheme for the Department of Enterprise, Trade and Innovation, said that from the review “it appears that there was no formal guidance set down in relation to the review of the financial information submitted by the applicant, to determine if they were in financial difficulty and therefore eligible for support”.
The ESS scheme was set up last year to support the retention of jobs in viable but vulnerable exporting companies, which might otherwise be made redundant as a result of the economic crisis.
In applying for the subsidy, which paid up to €9,100 for each worker over 15 months, the company had to supply evidence that it was in financial difficulty at the time of the application, but was not in difficulty before July 2008 when the economic crisis began to affect businesses.
Other strict criteria on the first round of the scheme were that the company: had to be in the manufacturing/export sector; have at least 10 employees; commit to maintaining a number of jobs for every one supported; and show that the company is viable in the long term, but currently in difficulty with jobs under threat.
The scheme required and secured EU approval.
Over 450 companies received €70m in grants for 7,700 jobs, while also guaranteeing to maintain 36,000 vulnerable jobs, the then Enterprise Minister and Tanaiste, Mary Coughlan announced following the closure of the first round of the scheme.
Following criticism from employers that the scheme excluded too many businesses, a second less restrictive ESS was launched earlier this year, which was open to all companies employing 10 or more employees. However, companies still had to prove they were viable long term, but vulnerable in the short term.
€135M PROVIDED UNDER SCHEME
The government allocated a further €65m under the second round scheme, or a total of €135m over the two rounds. A total of 2,590 companies applied under the second round and 1,241 were successful.
The Deloitte & Touche report concerned the more restrictive first round of the scheme. While the report did not find many major significant issues with the subsidy scheme, it stressed that it was unable to find out what assessment was made of the applications in order to ensure they were eligible for support.
The impact of this key finding, the report said, was that there was a “risk that payments may have been made to companies which are not in need of emergency support”.
“Formal policies and procedures in relation to the assessment process were not followed. The key control checklists which were set down did not address the key scheme eligibility criteria”, the report added.
“Going forward, a rigorous financial evaluation should take place in order to ascertain the eligibility of companies for funding under the scheme. Formal evidence of this review should be maintained on file for future reference”, the report recommended.
ELIGIBILITY CRITERIA
While the eight-page report, which was released under a Freedom of Information request, said it found no “significant” issues with the 29 applications for funding it reviewed, it did find one “important” issue.
“The important issues identified are as follows; potential non compliance with scheme eligibility criteria”, the audit reported.
Deloitte and Touche graded the issues identified in three categories. ‘Significant’ or grade 1 issues concerned failure of processes that may materially affect the financial statements or result in extended loss of key systems or; significant disruption of service to a customer group or; result in censure by a public body (e.g. Revenue, Comptroller and Auditor general, Public Accounts Committee); or result in the highest rank risks not being effectively managed and controlled. Significant issues would need to be reported to the board, said the report.
‘Important’ or grade 2 issues were matters requiring a plan of action to resolve. The matters are “potentially significant and would; include loss of key systems for 36 hours; or extended loss of a key system; poor service to a customer group; or weak segregation of duties; or conflict or adverse comment from a public body; or other significant risks not being effectively managed or controlled. These items would require to be brought to the attention of a Director, said the report.
‘Procedural’ or grade 3 issues concerned items of operational importance which require attention and which, if not addressed, would potentially damage the normal control environment.
In response, Enterprise Ireland said it “noted” the findings. “EU definitions are not specific in their definition of a firm in difficulty, so following internal discussions with the policy department, investment services division and the company solicitor, a working definition was developed to meet the EU criteria and to provide guidance for assessors”, added Enterprise Ireland.
The agency also said a different process was put in place for the second round of the scheme, “in that it was outsourced”.
The Deloitte & Touche report looked at the funding applications of 29 companies who received funding of just over €3m, ranging from a low of €18,200 to a high of €291,200. However, details of the companies’ application, including their identity, were withheld.
