Official Report: Minutes of Evidence

The Chairperson (Mr Swann): I welcome Dr Andrew McCormick, accounting officer for the Department for the Economy; Heather Cousins, deputy secretary responsible for higher education and investment in the Department; and Alison Clydesdale, head of energy renewables division. Folks, you are very welcome here today.

Just to kick off and set the scene, could you remind us of the financial implications of the scheme for the Northern Ireland Executive if it were to remain operational in its current form?

Dr Andrew McCormick (Department for the Economy): Yes, indeed. It is difficult to project exactly the cost because it is a 20-year scheme and the precise implications for the block resources will depend on how the approved budget from the Treasury rolls forward. We can make certain assumptions about that. The Audit Office report has a table that shows that, over a five-year period, there was a cost of £140 million. Further extrapolation takes you to the larger figures in the Audit Office report that show the total cost of the scheme, including all that is good about it. There is some good about it; it was a good incentive. Taking the eligible and approved bits of it and then the bits that are not approved and difficult, we see that the total comes to over £1 billion — £1·18 billion, if I recall correctly.

The Chairperson (Mr Swann): Is that £1·18 billion?

Dr McCormick: That is the total value of the scheme, yes.

The Chairperson (Mr Swann): That was just so we could get perspective on the scheme. Do you want to make a few opening comments at this stage?

Dr McCormick: I would appreciate the chance to do so, Chair, because part of what is happening is that a lot of work is in progress at this time, and that will limit a little what we can say today. I want to make sure we answer everything as fully as we can, but I will maybe just draw out a few issues and limitations.

First of all, I will introduce my colleagues. Alison has been with us as the acting head of renewable energy since the formation of the new Department for the Economy in May and is just leaving us to go to another Department on promotion. That is the nature of her role. She was involved in renewables before, working on the renewables obligation in electricity rather than on renewable heat, but she was over this area for the period from May this year until now.

Heather is the deputy secretary covering finance and governance issues in the new Department for the Economy, but she came to us from the old Department for Employment and Learning. She was not involved in the Department of Enterprise, Trade and Investment (DETI) at any stage, but she can help me cover the implications of how this works now in our current oversight and governance arrangements. That was just to explain the make-up of the team here this afternoon.

I appreciate very much that there is a lot of new information coming, especially the PricewaterhouseCoopers (PwC) findings. I am very appreciative of your willingness to take delivery of and handle this in the way that has already come out. We are happy to share it and to talk about it. We are happy for some discreet quotations to be made from it, if that is necessary to make a question make sense. There is a fair bit that we do not want to be in the public domain at this stage, given the detailed documentation that is there, and I want to say a little about the reasons for that. In particular, there are the category 4 cases, and they need to be followed up. They have all been referred to Ofgem. If Ofgem agrees with PricewaterhouseCoopers that there is evidence of a breach of the scheme, it has the power and responsibility to act on that, from asking further questions through to stopping payments and imposing enforcement action if the standard of proof is available.

You cannot rule out that there could be fraud. There is no prima facie evidence of fraud, but we have to make sure we do not lose any evidence or lose any trail of evidence. If we said too much in detail about the nature of those cases, they are small enough in number that an individual might be able to say, "That's me" and start to protect information or whatever. Clearly, we want to avoid that, and that is why we would be grateful for the recognition that, if at times we are saying, "I cannot answer that", it is not unwillingness; it is purely to protect that aspect of the public interest and make sure the way is clear for follow-up action that is proportionate and effective. It is also possible —

The Chairperson (Mr Swann): We accept that, Andrew, but, if I get a feeling that there is maybe something we could tease out in the questions in this session, you will be expected to expand a wee bit more, rather than rely on that defence.

Dr McCormick: We will do the best we can, absolutely. We are here to answer as fully as we can. Even categories 2 and 3 are still under consideration as to whether there is something wrong with them. The advice is that they are probably eligible, but there are still aspects that need to be investigated. We need to have further detailed discussions with Ofgem and PwC about that, so, again, I will be a bit careful. Obviously, the kind of thing that is happening is more widespread; therefore, there is less risk, so that is easier to talk about.

We have a responsibility to see whether there is action we can take to bear down on the future and secure better value for money from the existing payments going forward. Again, work is in hand on that, but I cannot talk about it very much because there are some important policy discussions to be had on it, including legal advice. All I want to give is an assurance that we are doing what we can in looking at the problem of the high forward-year expenditure. If there are ways to bear down on that we will, but I cannot go into detail on it this afternoon as it is very much work in progress internally.

I am sorry to have to make those disclaimers, but our undertaking is to answer as fully as we can. I should say up front that I recognise entirely that apologies from accounting officers do not mean very much — I am not going to pretend that this carries any great weight — but I think we owe an apology to the Committee and others for the things that have gone wrong. A lot has gone wrong in this case; there have been some serious mistakes and failings. We need to acknowledge that, and we are going to be very upfront in acknowledging it. The responsibility is first of all to understand, secondly to correct and thirdly to prevent recurrence. We take all those things very seriously. That is all I intended to say up front.

The Chairperson (Mr Swann): I appreciate that, Andrew. You refer to the PwC report, which deals with the fraud side of the Northern Ireland Audit Office (NIAO) report. It is a part of what we are here about today. We will reserve the right, if we need to call you back on further evidence, to do so.

From the evidence presented to the Committee, it seems that the non-domestic renewable heat incentive (RHI) scheme was about helping the environment, renewables and reducing harmful emissions, but, from what we have seen from the outworkings of it, it is nearly the opposite of that. The scheme has not only been bad for the environment but has been a waste of public money, which I think you have acknowledged. Would you agree that the scheme has been set up for applicants to obtain money and encourage wasteful use of natural resources?

Dr McCormick: I acknowledge that the effect has been wasteful to far too large a degree. Absolutely the intent was to incentivise the use of renewable heat instead of existing conventional heating, especially oil, and to encourage a switch from oil to renewable heat. Things went fundamentally wrong in the design. That led to opportunities for abuse and overuse, which is eligible within the terms of the scheme but was not the intention of the scheme.

The intention was good, but the execution and design were seriously wrong.

The Chairperson (Mr Swann): With regard to the intention and the design, did DETI officials meet their GB counterparts prior to introducing the scheme in Northern Ireland to gain an understanding of what went well and what improvements we could make before it was implemented here? The scheme was already up and running in GB.

Dr McCormick: There was routine contact. I do not know entirely the extent of dialogue or meetings, but to an extent we were following on from the approach taken by the Department of Energy and Climate Change (DECC) across the water. One of the key decisions was to use Ofgem as the agent. Again, they were operating their scheme, which was a couple of years ahead. All that information was available. In fact, the key decision was to not follow it more precisely. The logic behind that was that the heat market in Northern Ireland is distinct from the norm across the water, in that there is much more widespread availability of natural gas in the GB market. That became the natural comparator, whereas the main area of heat we were seeking to incentivise people to change from in Northern Ireland was oil. That meant there was a difference. That is why we then sought consultancy advice on how to proceed and to consider the options. There was the options appraisal, consideration of the issues and then the business case and the consultation on how to go forward. I do not know the extent of dialogue, but I am not sure there was any direct discussion on the kind of issues that have now arisen and are root cause issues behind the problem. I do not think those were discussed with DECC at the time.

The Chairperson (Mr Swann): PwC's assessment in its draft interim report in paragraph 3.24 is that:

I think that was something that was learned from the GB scheme. Why did the Department ignore the public consultation, which also recommended tiering?

Dr McCormick: The decision not to have tiering was fundamentally based, as the Audit Office report brings out, on a misinterpretation of the economic analysis. The consultants at one stage said that, because the incremental cost is always higher than the tariff available, it was not necessary to introduce tiering. That was a fundamental mistake. Almost all the serious aspects of this case flow from that issue. The focus in the analysis that gave rise to that decision was on a set of assumptions that would give rise to an acceptable rate of return, so the focus was not even so much on the tariff itself but on what tariff would provide a rate of return.

The point is that people would not invest in this unless they could deal with the substantially different costs of the boilers for biomass. We are focusing here on biomass as the technology that was most used. There are others eligible under the scheme, but all the attention and all the problems are in the context of biomass. There was a need to set up a system that would incentivise people to invest. If you adopt the assumptions in the central case in the consultants' report, you see that the tariff as proposed was what was necessary to give people a reasonable level of cover for the capital expenditure they would need to invest to get going. That was the main reason for the tariff and why it was increased following consultation between July 2011 and April 2012.

The advice came through, but, as the Audit Office drew out, the statement that tiering was not required was not thought about sufficiently. It was not reconsidered, and it was not reanalysed. Using the set of assumptions on a 50-kilowatt boiler and 17% usage, the rate of return was calculated to be 12%, and that looked OK. I cannot sit here and say I understand why further analysis was not done to test those assumptions and establish "Well, what if it's a bit different from that? What if it's a different size of boiler or a different rate of usage?". Now, today, we can look at this, and the Audit Office has done good work in looking at what went wrong. You do not need to look at a much different size of boiler or a much different rate of usage to get to a place where the rate of return goes to a very high number. I have to say that we do not understand why that happened. We do not understand why those working on it at the time did not ask further questions, analyse it in more detail and notice that tiering was needed. In a way, it was needed all the more in Northern Ireland. The way it worked across the water, where the comparator was gas, which was cheaper than biomass, was that you needed an ongoing incentive to buy the fuel, whereas in Northern Ireland at the time — not now — biomass was cheaper than oil, so you did not need an incentive to use the fuel. You needed the incentive to buy the boiler. Getting over that barrier — that inhibition on investing — was the reason for needing the incentive. The tariff calculation has gone badly wrong. All the issues we are face today flow from that.

The Chairperson (Mr Swann): Who was responsible for that tariff calculation?

Dr McCormick: The tariff calculation was originally done by the consultants who advised the Department: Cambridge Economic Policy Associates and EEA. A consultancy firm provided the advice, but it was then the responsibility of the energy directorate in the Department to test it, and it was then the responsibility of our governance procedures to question it and establish whether it was appropriate. It went to a casework committee before approval. It then went to the Department of Finance and Personnel. It went to a lot of people to check it, all of whom had the responsibility to consider it. The question before us was this: is this value for money? Again, the thing I find surprising and disturbing is that there is no evidence of anybody saying, "Actually, have we checked why we're not proposing to have tiering?". That question does not seem to have been asked in the period between July 2011 and the initiation of the scheme.

The Chairperson (Mr Swann): That is quite a damning indictment, and I think it will be extended in some of our other questions later, Andrew. That is the crux of the problem.

Paragraph 3.25 of the PwC draft report states:

That has given rise to over-subsidised participants from the start. I accept you are saying that it passed through a number of hands and was not picked up. The scheme also had a number of opportunities to be reviewed. The PAC's interim report states that the GB scheme has been amended 11 times. The Department has failed to do anything up to this stage. What is your explanation for that?

Dr McCormick: There is no good explanation. It appears that that was not noticed. It appears that there was not sufficient awareness, but we are having to look into exactly what record we have for when people were or should have been prompted to think about the level of the tariff or the nature of tiering or not tiering. That was identified at an early stage as a risk. It was on the risk register when the case was considered: the risk of the tariff being too high was on the risk register. But, again, the record does not show any evidence of it being actively pursued as an issue around the time of the introduction of the scheme or, as you say, at the various stages when there were planned reviews. When the scheme was approved, a commitment was given in the casework for there to be a review in January 2014. That did not happen.

Even before that, there was the consultation in the late summer/early autumn of 2013, which was mainly focused on the proposals to introduce the domestic scheme but also addressed aspects of the non-domestic scheme. At any stage in that process, there were opportunities for people to say, "Is this going as we meant it to go?". We were getting information from Ofgem about the early level of applications, and even that was beginning to show that the applications were not in line with the assumptions underlying the decision on the tariff, so it was not 50-kilowatt boilers but 99-kilowatt boilers, funnily enough, and not 17% usage but much higher usage up to 24/7. There was information on that, but there is no evidence of it being grasped as an issue or a realisation at the appropriate levels in the Department that it was a serious issue that needed to be acted on. We are still examining the records on it. There is no good explanation. I do not understand why this was not acted on at this point in time.

The Chairperson (Mr Swann): Just to clarify, in your opening statement, you said that this is a scheme worth £1·1 billion. That is the total expenditure.

Dr McCormick: It was always expected to be on the scale of about £660 million. That was the initial estimate of the likely expenditure over 20 years. It was always known to be a big element of expenditure; it has turned out to be significantly more than expected.

The other point that has been made repeatedly to us in the context of preparations is that, for a period, all the focus was on the introduction of the domestic scheme. That has been put to us as a matter of fact. To me, that does not remotely begin to explain why there was no proper analysis of the issue with the tariff around that period.

The Chairperson (Mr Swann): Just before opening it up, I want to touch on Ofgem's responsibility in the scheme. Did the Department delegate all responsibility and functionality of the scheme to Ofgem?

Dr McCormick: No. It is natural for us to make use of Ofgem as the agent to deliver the scheme, given that it had responsibility for delivery in the rest of the UK. It is a non-ministerial Department, so it is an agent of government with the resources and the technical knowledge to operate the scheme. It was providing a flow of information about the scheme, I think. I accept that there was plenty of scope for more detailed and more active questioning and dialogue about what was going on — you could probably argue that in both directions — but the responsibility we have is to answer for the Department, and the Department did not ask enough questions or formalise the whole process. If we had formalised the process under the well-established principles of project management, it is likely there would have been more formal reassessments of risk, including engagement with Ofgem because, as the delivery agent, it would have had a major part in all that.

The Chairperson (Mr Swann): Paragraph 7.6 of the draft PwC interim report states:

Is there a problem with communication between the Department and Ofgem at the minute?

Dr McCormick: No, there is no problem; it is just process. It requires detailed dialogue. In the short time PwC has had, it has been focusing on site inspections, especially giving us a read-out of the direct findings of those. There just needs to be a further number of days of work and dialogue to make sure that the description of scheme processes and so on is thoroughly analysed and that what is then represented back as its report to us is fully accurate and gives a fair reflection of all the different views. I think I can say that it is not as if we do not already know that there are significant issues with the scheme oversight and processes through the work of the Department's internal audit. The internal audit report that we have and is with the Audit Office as well draws out quite a number of issues about the oversight processes, mainly as a result of the lack of sufficient focus on and attention to the scheme. Of course, the other major factor that left us misjudging the degree of risk in the scheme was the fact that, for the first few years, the big problem with it was that nobody wanted it. There were very few applications, and demand was very low. For most of 2014, the rate of applications was way below what had been hoped for and expected, and the question was how to accelerate it. That was seen as the problem, not the risk of it running away.

The Chairperson (Mr Swann): On Ofgem's involvement in the process of assessing applications, my understanding is that no application was made until the boiler was in place. Then you applied to access the scheme. Paragraph 5.58 of the PwC report referred to "parasitic wood drying", where boilers were being run to dry wood that went back into the boilers to dry more wood. Does the Department consider grant funding that type of scheme appropriate?

Dr McCormick: No. The question is whether it is technically eligible. We need to look at that carefully, and that is why we need to establish whether there are sufficient grounds to challenge that activity. PwC put that into category 2 in its assessment, because, again, it goes to the weaknesses in the design and in the definitions that are used in the regulations. We have to acknowledge that there are issues there we need to look at. If it is possible to pursue that and enforce action against that practice, which is clearly not the intention of the scheme, we will do so. We need to steady our heads carefully to make sure we take the right steps and do not lose any opportunities. That is absolutely on the agenda to pursue. It is not acceptable.

The Chairperson (Mr Swann): If it is not acceptable, why was that application not rejected when it was initially made to either Ofgem or the Department?

Dr McCormick: There probably was not sufficient clarity in the application that that was what was happening. That is a clear reason why securing a programme of inspections, especially those that were not pre-announced, was an important part of the process. That has been found out, and we acted on the allegations of abuse to ensure that we pursue that information.

The Chairperson (Mr Swann): Thanks. I want to open it up to other members.

Mr McMullan: Thanks to the panel. Why did the Department not have a system in place to identify the need to reapply for scheme approval from DFP in April 2015? If that had been identified at the right time, could the issues that arose later not have been prevented?

Dr McCormick: By the time we reached the early months of 2015, the scheme had begun to accelerate, although not to the extent it did later. We have to acknowledge that that was, indeed, a missed opportunity, which it may not have been had a proper process been followed and had there been effective project management to look at the deadlines and the expiry of approval. The DFP letter was very clear in saying it was approved only up to the end of March 2015. The reason for that was that that was the only period for which there was a definite confirmed budget from the Treasury, although there was obviously an expectation of further budget going forward. That should have happened and was, indeed, a missed opportunity when some of the issues could and should have come to light.

Mr McMullan: Can that missed opportunity be identified within the Department?

Dr McCormick: It is always much harder to identify omissions. When there is a definite act, there is usually a record of it, be it a communication, a request for approval or something else. When something is omitted, it is much harder to track down.

It is also harder to relate it to any individual responsibility. You can say that the team was responsible; ultimately, the Department was responsible for seeking approval from DFP in that period. One thing we have learned from this case is the need to make sure that we are very, very clear on where DFP approval is required, where it may or may not have expired and where it may or may not have been obtained in the proper way. We are making sure that we are getting this right now in present-day analysis. Going forward, we are making sure that there is a proper system that reminds, prompts and ensures that there is collective memory and is straightforward. This is not complicated; there are reminders to say that you need to reapply for DFP approval.

Mr McMullan: Would it be fair to say that you could hide behind the system?

Dr McCormick: As accounting officer, I have to come here and give account. The ultimate responsibility lies with the Department collectively and, therefore, with me as accounting officer. The investigation of individual responsibility is something that we need to take very seriously. We need to consider whether we can more clearly establish if there are issues that need to be pursued and identify things that need to be drawn to individuals' attention. As a minimum, I can draw it to everybody's attention and say to the senior management team that here is a major lesson that we need to learn, as a Department. We need to then establish if there are also individuals who need particular reminders, and that could become an issue of performance management. That is part of what we need to do as an ongoing responsibility.

Mr McMullan: Given the potential cost of the scheme, are you satisfied that the Department is regularly reviewing the performance and risks of the scheme? If not, why not?

Dr McCormick: During the early days of the scheme, we were not. That is partly why opportunities were missed to intervene and correct. Once the issue came to light, in the period between March 2015 and February 2016, we were then acting on the scheme. It was right on top of the agenda because we realised that we had a big problem. After that it was closed, so the issue now only concerns ensuring proper oversight of the existing payments, which are committed. We still need to pursue the issues that we touched on. There is a whole range of issues to investigate further, but the issue of ongoing monitoring is gone because the scheme is now closed. It is very unfortunate that it had to be closed, because the initial objectives were good and worthy. However, there was clearly no alternative but to close it in a fairly hurried fashion in February just past.

Mr McMullan: Chair, can I ask a question of DFP?

The Chairperson (Mr Swann): Certainly.

Mr McMullan: DFP initially approved the operation of this scheme in 2012. Why did DFP staff not identify the potential weaknesses in the scheme?

Ms Alison Caldwell (Department of Finance): In 2012, when the business case was provided to DFP, it was reviewed by our Supply teams. In reviewing it, they looked at the research that had been undertaken by the Department and the Department's consultants. They carried out a review of that. They sought some assurances from the Department that it was indeed content with the assumptions that had been made in the business case. They also took into account some of the additional information in the business case that referred to how ineligible or wasteful energy would be dealt with. Also, substantially, the issue that the tariff could be either too low or too high was a key risk within the material provided, but there was, built into the business cases, the provision for regular and ongoing review. Indeed, the conditional approval that was given to DETI at that time was that it was up to 2015, which allowed the scheme to be operated and for such reviews to be carried out during the period of operation.

Mr McMullan: Did your staff not see any weaknesses at all?

Ms Caldwell: In the detail of the scheme, they knew that one of the issues was that this was a new scheme and its outworkings would need to be thought through to see how it operated in practice. In terms of the conditional approval that was provided, yes, approval was given.

Mr McMullan: No weaknesses were identified at all.

Ms Caldwell: It is fair to say that we did not pick up the particular weakness that, I suppose, has led to the situation. That was on the basis of assumptions made by the Department, which, to the staff who reviewed the business case at the time, seemed to be reasonable based on the information that had been provided. Again, I would just go back to the fact that DFP was relying on the Department putting in appropriate oversight and monitoring arrangements as part of the project.

Mr McMullan: Would it be safe to say, then, that DFP took the word of the Department without looking for weaknesses?

Ms Caldwell: There was quite a high level of review of the business case. It is a very detailed business case, set out over a large number of documents and pages. I do not want to give the impression that it was just approved for the sake of it; it certainly was not. There was review done by Supply colleagues. Given the fact that it was an incentive scheme and that the risk that the tariff could be too high or too low was clear in the business case, but that was going to be subject to review, approval was given on that basis.

Mr McMullan: Why did DFP not identify the need for reapproval of the scheme until its approval had expired in April 2015?

Ms Caldwell: First, it is not particularly common that when DFP gives approval there will be a specific, time-bound element to that approval, but in this case there was. Setting that aside, our view would very much be that it is up to the individual Departments that are operating these schemes. They are the people on the ground, and they know how the schemes and projects are running. It is up to them to carry out the review, and, indeed, it is up to them to come back to the Department of Finance, as it is now, at an appropriate juncture, to seek reapproval.

Mr McMullan: After what you have said, would I be correct in thinking that if DFP found a weakness it was not really up to it to say so and it would be down to the Department? It seems to be a very individual way of working.

Ms Caldwell: No. When the conditional approval was given by DFP, it was then up to the Department to take that scheme forward. It was up to DETI to take through the outworkings of the scheme and to put the appropriate monitoring and oversight arrangements in place. Ultimately, it was up to DETI to come back to DFP before the DFP approval expired, so to speak.

Mr McMullan: Would you have seen that as a weakness?

Ms Caldwell: In terms of us allocating that responsibility to Departments, it is recognised that all NICS Departments have a responsibility to ensure that DFP approvals are kept up to date and are renewed, if required, which is not always the case. For us, the fact that this responsibility lies with Departments does not in itself represent a weakness. I think that all accounting officers would be aware of that.

Mr McMullan: OK, thank you.

I want to come back to Dr McCormick. Has there been a review of other projects currently run by the Department to ensure that the issues raised in the report do not apply to them?

Dr McCormick: Yes. We are still completing that work. We are acting to ensure that the normal requirements of governance and approval are in place. There is action on that point right up to the present day to make sure that that is identified. Where anything is found to have slipped through without having gone through the process, we will take the appropriate corrective action and ensure that these things are handled properly. That is a major lesson learned, and we are making sure that our internal governance arrangements have a primary check and a primary responsibility so that people are aware of the necessity of keeping this up to date and aware of the obligations to have DFP approval. Of course, we work on the basis that everything is subject to DFP approval unless the delegation of approval is already clear and documented. The onus is on us. I accept the points that Alison made that the onus is on us, as the Department, to monitor this and to ensure that we comply. It is very regrettable that this major one was missed, and, if there are others that we need to act on, we will act on those and get towards full compliance. It is absolutely vital.

Mr McMullan: Has the Department any current plans to seek to regularise the irregular expenditure from DFP?

Dr McCormick: As the Audit Office report makes clear in paragraph 2, there are two different grounds. One concerns the absence — on the face of it, the correct absence — of retrospective DFP approval. As you know, the condition for retrospective approval is that DFP can give it if the position had been correct at the time of application and value for money can be demonstrated. We are not in a position to do that as we speak. If it is possible to find ways to get to a place where, going forward, the expenditure can be brought into line with value for money, we would then consider seeking retrospective approval, but, as we stand, it is not possible. That deals with the first of the two grounds for irregularity in the first page of the Audit Office report.

The second one concerns the oversight arrangements and the controls that are in place. Again, regularity also has to do with adequacy of control. We need to assess the implications of the report from PwC and establish what steps we can and must take to improve oversight and control. That should be possible to secure going forward. To be honest with the Committee, at this point, it does not look very likely that it will ever be possible to get that dealt with in relation to past expenditure and hence clear the irregularity completely.

Yes, in short, we will do everything that we can to secure the restoration of regularity and, ultimately, possibly some retrospective approval, because we recognise that this is absolutely unacceptable and needs to be fixed in every possible way, but we also recognise the limitations and difficulties that are inherent in that as we speak.

Mr McMullan: You talked about the Department and said that any blame ultimately lies with you. Are you happy that it cannot be laid anywhere else other than with you?

Dr McCormick: The process is ongoing. The role of accounting officer means accepting ultimate responsibility for the oversight of the Department's governance systems and financial control. That is required in relation to an accounting officer appointment and in the annual accounts. An integral part of the accounts themselves and the governance statement is signing to accept that responsibility. That also involves being clear that all the senior team and, indeed, everyone who works in the Department is held to account for playing their part. The internal system involves assurance statements to me on behalf of budget holders and those who have responsibility for different aspects of the work of the Department.

They are required to sign assurance statements that are a part of the way that our governance system works. Those are regular and specific, and they require positive statements that due diligence has been carried out on the oversight of the areas of risk that are delegated to those individuals. The particular point then is that, if we were to find evidence that an individual, at whatever level in the Department, had consciously let us down by claiming to give an assurance when there were no grounds for that assurance or by not fulfilling in some other way their obligations in the system, it provides grounds for action on performance management or, conceivably, discipline. We take it all very seriously, and we are not at the end of any examination of this issue as we speak.

The Chairperson (Mr Swann): Are those assurance documents new?

Dr McCormick: No. There has been an ongoing system. We recently introduced some further elements in light of what happened in this case. It is an aspect of governance that needs to be continually refined, because we have a responsibility to read this Committee's reports and the memoranda of reply that are circulated by the Department of Finance. There are quite often conclusions of general application in your recommendations as a Committee, or the comments given by the Executive through the Department of Finance in response to your reports require that all accounting officers take notice. Therefore, the governance statements and systems of internal governance are regularly reviewed. I have people in my team who are responsible for reading the reports — even if a report has nothing to do with us as a Department — and if there are lessons of general application, we take those very seriously and consider them to make sure that they are reflected in our governance systems.

The Chairperson (Mr Swann): I have a number of members who have supplementaries on this section, but I will ask this question first. In response to Oliver's question to the Treasury Officer of Accounts, it was said that the time-bound nature of the scheme was not normal. It is a scheme worth £1·1 billion. Why was someone in the Department not aware that it was time bound and would need to be reapproved after five years?

Dr McCormick: There is no good answer to that. We should have been. The people concerned should have been. There should have been a system to check and ensure that. Had we adopted the routine disciplines and procedures of project management from the outset in this scheme, that would have been picked up. There would have been an issues log requiring regular oversight of what needed to be done and a risk register. There was a risk register in relation to the casework approval, so there was an initial assessment of the risks inherent in the project, but it was not translated into ongoing oversight. Since the creation of DFE in the spring, and following on from the difficulties in this scheme, we now have a steering group, a project manager — all those things are now in place —

The Chairperson (Mr Swann): For every project?

Dr McCormick: Yes, for everything that we call a project. The difficulty is that we did not call this a project at the outset and we should have.

The Chairperson (Mr Swann): Members, just supplementary questions. Declan, then Trevor and then Trevor.

Mr Kearney: Thanks, Andrew. You are very welcome. I was taken by your opening remarks when you pointed out that Heather and Alison were either on their way out or relatively new. I understand the disclaiming point that you were making, but what came home to me was that we had a team in the room who were not in a position to provide the answers because they were not in post when all of this was happening. That raises a question about the depth and quality of your investigative process in finding out who was behind the wheel at the different levels in the organisation when the flaws took place. So, my question, to begin with, Andrew, is this: what is the quality and depth of your investigative process and what stage is it at?

Dr McCormick: There are a number of things that I can refer to in response to that. The PricewaterhouseCoopers work is ongoing. We have the interim report, which looks at what is going on with the individuals in receipt of payment under the scheme and with the overall processes and oversight — which affects both us, as the Department, and Ofgem — and at how it is operating. That is not complete, but I am very confident that it involves a team with the appropriate skills and experience to investigate. We are then considering further what investigative process is required in relation to the issues that have come up already in the questioning this afternoon of where responsibility lay and how that was exercised. That is still under consideration.

Mr Kearney: What does "under consideration" mean?

Dr McCormick: It means that we have not set it up yet, because we have yet to identify the full range of issues that might need to be covered in further follow-up. That is because a number of things have just come to our attention in recent months. They all need to be looked at. The position is that staff turnover is normal practice. It happens in every part of the Civil Service, and there are clearly risks and issues around that process, which we are sensitive to, and the risk register will identify where there is a need to handle issues of handover to ensure corporate memory.

Mr Kearney: At most, we are talking about a six-year period here. We are not talking about 10, 15 or 20 years.

Dr McCormick: There were several changes of personnel at senior level in that time, and indeed, on this particular issue, there was a turnover in people down the full chain of command from permanent secretary to deputy principal. Quite a lot of the turnover coincided in a period of months in 2014. The convention in relation to these hearings is that the accounting officer in place at the time answers, whether he has been in post for weeks or years; that is our responsibility. Then I look to those who have come with me to offer evidence and who are currently responsible for the relevant areas. Just because of the changes that have happened in the last number of months, it turned out that there were a couple of people who might have been available and were not, just on this day. Certainly, if there are others that you as a Committee wish to take evidence from, that is entirely your prerogative, and we would cooperate fully.

Mr Kearney: Just to be clear, is there a possibility that you may not get answers to questions in relation to what happened because others have moved on? Is that what you are saying about the turnover in the chain of management?

Dr McCormick: There is some risk of that, because it is sometimes too difficult —

Mr Kearney: Can you quantify the risk?

Dr McCormick: I do not think that I could quantify the risk. This is absolutely foundational to why we spend a lot of time and effort on record-keeping and making sure that we do not rely on the vagaries of human memory. We spend a lot of time and resource on keeping good records and having good record systems. There are still further things for us to examine on the record.

Mr Kearney: On the basis of your record-keeping, it ought to be possible to identify, from 2011 through until 2015, who was where on an ongoing basis, even though they may not be within your system.

Dr McCormick: Absolutely. That is right.

Mr Kearney: The corollary to what you are saying would suggest that it makes them out of reach were they in fact culpable of negligence in the processing of the scheme.

Dr McCormick: There are a number of degrees of culpability, to use your word. There could be issues of performance and competence, where the individual would be dealt with through our performance management system. The further possibility is of misconduct, which is much more serious. Disciplinary action can be considered only if there is prima facie evidence of misconduct. We are not closing off anything at this stage. We do not at this point have prima facie evidence of misconduct. If that comes to light in the course of the work that we are still doing, we would probably have to have a preliminary investigation to establish fuller and better particulars around the issue. Obviously, the standard of proof required in relation to misconduct is quite high; it requires something potentially very serious. Issues of performance or omission are harder to enforce but equally important. Sometimes, the best we can do is to convey general reminders and ensure that our training systems draw on the lessons learned and say, "You must do better. Here's how we can ensure we don't miss these things and make these mistakes". There is a whole range of different aspects of personnel practice. We want to make sure that that is as tight as we can make it in this context. We need to look at some particulars in this case before we are clear about exactly what steps to take.

Mr Kearney: I will finish briefly on this point: when we are talking about a quantum in the region of £1·18 billion, we need to get our perspective right in relation to what is incompetence, misconduct and negligence. I would have assumed that, leaving aside misconduct, someone who was centrally involved in the management of a project dealing with that quantum and that consequence would have needed to meet a very high level of competence and ought to have ensured that they were not indirectly or directly, by omission or commission, involved in any form of negligence. It is the job of management to make sure that that is kept right. These issues become relative in terms of performance appraisals when we are talking about senior people dealing with very significant amounts of public money.

The Chairperson (Mr Swann): Andrew, those levels of competence and misconduct can be investigated even if those individuals are no longer in your Department but are still civil servants.

Dr McCormick: Yes. That would require us to engage with the current employer, but it is possible. We have had experience of dealing with that kind of thing before. It can be done. For people who have retired, that is a different issue.

Mr Lunn: Thanks, Andrew. I seek a bit of clarification, although it seems a long time ago now. In your answer to Oliver, you talked about a period between March 2015 and February 2016 when the alarm bells started to ring. The Audit Office account refers to the missing of the review date, as has been referred to, of 1 April, which was not picked up until May.

Dr McCormick: April 2015. That is right.

Mr Lunn: Are the two things mutually exclusive?

Dr McCormick: To be clear, I mentioned March 2015 because that was the earliest date at which the team began to notice that the rate of applications, which had been very low, had begun to accelerate. The first issue that that gave rise to was concern that the spend might go above the anticipated approved budget, in the sense of the likely money to be available. Frankly, as soon as that happened, attention should have come onto the issue of approval. In fact, on the point about DFP approval, May 2015 is the correct date for that, as you say.

Mr Lunn: That is really what I mean.

The team began to look at this in March 2015 as a matter of urgency because it could see that a spike was developing in applications and wondered why. At the same time, nobody noticed that a review was due, anyway, from 1 April until the middle of May: two months. The whole thing was a full year from March to February, so you could have knocked two or three months off that.

Dr McCormick: The clear mistake was that, initially, the focus and attention in March, April and May 2015 was on the fact that the rate of spend was higher than expected, which was going to cause a problem against the approved budget. I do not understand why the attention was only on that. I can understand that being one reason for concern, but I accept what you are saying: people should have been looking at this as well. We were seeing the beginning — not a spike by any means — of an upward trend in the rate of applications.

The Chairperson (Mr Swann): Trevor, do want to come in?

Mr Clarke: I will hold off.

Mr Butler: I have a question for the Department of Finance witness. Oliver asked a question about the initial operation of the scheme in 2012. He asked about the identification of weaknesses, and you stated that the initial business case allowed for regular review of the process and sight of the regulation process. I assume that part of the business case review for you would have involved looking at the processes of reviewing regulation. Would it have been part of your process to measure the effectiveness and the likely impact that those reviews would have on the performance of the scheme?

Ms Caldwell: No. In looking at the business case, supply would look to see what sort of arrangements had been put in place, or were intended to be put in place, by the Department in question to satisfy themselves that at least the Department had taken account of the need for them. Those assurances were built into the business case that supply was looking at, but, ultimately, once approval was given, it was up to the Department to ensure that those actions were taken appropriately. Supply colleagues would not have any oversight of the scheme, project or whatever has been approved at that stage; it would then be over to the relevant Department to deliver the scheme or project on the ground.

Mr Butler: So the answer is yes. The Department would have been satisfied that the scheme of regulation and the process for review were adequate if they were followed through in their entirety for the life of the scheme.

Ms Caldwell: That is a fair comment. It took assurance from what was in the business case on those points.

Mr McMullan: Was Ofgem involved from the start of the project?

Dr McCormick: It was the delivery agent from the beginning. It was not involved in policy decisions on what the scheme should be, but, once the decision had been taken to proceed in the way that was agreed, it was commissioned to provide some inside advice on the options. It was not involved in the policy decisions from the beginning.

Mr McMullan: Did it take over the scheme at a stage?

Dr McCormick: I would not use the phrase "take over". It became our agent to deliver it. The responsibility lay with us.

Mr McMullan: When was that?

Dr McCormick: From the beginning of the operation of the scheme in November 2012.

Mr McMullan: Is the Department the right body to carry out the investigation, considering that it is, as you said, time-consuming etc? Were the people in charge up to delivering a project that was initially worth £660 million but that increased to £1·1 billion?

Dr McCormick: There are aspects that are natural for us to pursue. As accounting officer, I need to consider the option that some process that is independent of the Department might also form part of it. As a first source of investigation, I have internal audit. Internal audit is distinct and separate in the Department and reports directly to me as accounting officer. That is a fundamental part of how I secure assurance that, if something is going wrong, it has the right to investigate and pursue on my behalf. I think that it is important not to rule anything out at this stage on what might be the appropriate process going forward.

The Chairperson (Mr Swann): Members, the next questions will be on structural weaknesses in the scheme.

Mr Dunne: Thanks, Andrew and your staff, for coming in. We appreciate that you were not in post when all this started. Paragraph 32 of the Comptroller and Auditor General's report states that, when the scheme was first considered in 2011, the Department decided that the GB scheme could not simply be taken across to Northern Ireland because of significant differences between the two areas. It mentions "the Department". Can you clarify which Department is being referred to?

Dr McCormick: That is DETI.

Mr Dunne: Did DETI make that recommendation on its own strength, or did it have consultations with DFP in making that decision?

Dr McCormick: I do not think that there was consultation. That will have been a policy issue within the responsibility of the Department directly. As you said, it will have been put forward with options to the Minister at that stage. It is a different decision. The option of being part of a UK-wide scheme was considered, but it was not possible to pursue that, and, as I said, there is a significant difference in the heat market. There is a rationale for a separate scheme. With hindsight, we have deep regret. Had we stayed closer to the GB scheme or even been a subset of it or a variant on it rather than a separate scheme, that might have been better.

Mr Dunne: Do you reckon that that was when the initial risk was taken?

Dr McCormick: It is inherently a greater risk when you are going to a smaller organisation. DETI is a much smaller organisation than DECC, which will have had tens or scores of people working on this kind of scheme while we had a handful. That is replicated across the Northern Ireland public sector. We are a small Administration. When you have devolved responsibility at this Assembly, it is natural to have at least the capacity to do things differently.

Mr Dunne: Moving away was an even greater risk when you have such a small team with limited resources.

Dr McCormick: Yes, and that was known as a risk, but the processes should have ensured that appropriate attention was being given to it. We certainly sought external advice in drawing up the nature and detail of the scheme. When it moved to implementation, we were able to call on the resources of Ofgem as a much larger UK-wide organisation.

Mr Dunne: The Department recommended that we go down a separate independent route. According to the Comptroller and Auditor General's report, the consultants of 2011 recommended that the Department should consider following the GB rates.

Dr McCormick: There was an initial report, an initial economic appraisal by the consultants and then a consultation process. This was during the latter part of 2011. Even that was preceded by some research leading into the initial economic appraisal. That was research into the market and the nature of what market behaviour it was reasonable to expect. In the consultation, those involved in that market were given an opportunity to comment on the proposed tariffs and the proposed structure of the system. Paragraph 34 brings out that there was a review of the rates, which led to the final decisions on the process in February 2012.

Mr Dunne: We moved away, at risk, from the GB set-up. Can you explain the difference between the two schemes? I understand that the GB scheme was a tariff, while the Northern Ireland scheme was in units of energy.

Dr McCormick: They are both denominated in the same units of pence per kilowatt-hour of usage. There are other dimensions to it in the precise definition of the system. Focusing on the tariff — tariff is the central issue here — the denomination is the same, but the key difference was tiering. The heat market in England was dominated by gas, so there was a need to provide a larger incentive. Its rate in pence per kilowatt-hour for the first 1,300 hours was higher than it was for us, and it then slipped down to a 2p rate. It is a fixed cost/marginal cost type of argument. The first tier is to deal with something to incentivise people to incur the fixed costs. Once the fixed costs have been sufficiently incentivised, the second tier is to deal with the ongoing marginal costs. That was the rationale in the rest of the UK.

In Northern Ireland, it was known that biomass was cheaper than oil, so the comparative was different. The main thing that needed to be incentivised was the upfront capital investment. The calculation was done based on assumptions about the size of a boiler.

Mr Dunne: Who did it?

Dr McCormick: It was done by Cambridge Economic Policy Associates (CEPA) on our behalf.

Mr Dunne: The consultants?

Dr McCormick: Yes, the consultants.

Mr Dunne: They made assumptions.

Dr McCormick: They put together reasonable assumptions based on comparisons.

Mr Dunne: Assumptions are very risky, are they not?

Dr McCormick: Yes.

Mr Dunne: In relation to controls or the lack of controls, I have a short version of the consultation document on phase 2 of the Northern Ireland renewable heat incentive scheme, which went out in July 2013. The executive summary refers to setting standards, managing costs and improving performance, which has been very much lacking in this whole process. It states on page 5:

Why was that not acted on?

Dr McCormick: This consultation covers a number of aspects of RHI, and the main focus of attention in that period was the development and introduction of the domestic RHI scheme. That aspect of the consultation was followed up and led to the introduction and initiation of the domestic scheme during 2014. The rest was not acted on, but it should have been acted on. As I have said a number of times this afternoon, there is no good explanation. I find it hard to understand why these totally reasonable points —

Mr Dunne: These points were part of the consultation document, and yet they were not acted on.

Dr McCormick: As a matter of fact, we do not understand why. That is not acceptable as far as I am concerned.

Mr Dunne: As part of your review as accounting officer — to be fair, you have carried out a number of reviews — have you looked at the processes of how the project was managed internally?

Dr McCormick: The fundamental point is that it was not managed as a project, and it should have been. There should have been a project manager, a senior responsible owner and all the routine dimensions of a PRINCE2-based procedure. That was not done. It is not clear why it was not done, but a lot of the things that have gone wrong flow from the absence of those straightforward aspects of governance.

Mr Dunne: Have you looked for any evidence of internal audits in your Department on the management of this project?

Dr McCormick: The way internal audit operates, as a system, is by looking at a number of criteria that are designed to ensure the best possible use of the audit resource. That is heavily based on risk registers and a judgement about risk. I want to see internal audit regularly investigating the systems and processes that operate in the higher risk areas of the Department.

Mr Dunne: Was this one of them?

Dr McCormick: This was not identified as a risk. It was not sufficiently identified in the context of corporate risk management and did not get onto the register. Obviously, there is always a reserved power for internal audit to go anywhere and make sure that it does not leave any part of the Department out forever. You cannot always say that something is low risk and, therefore, never gets audited; everything has to be done sometime. In prioritising activities, it is based on an assessment of risk. The weakness that we have to recognise is that, when there is not sufficient consciousness and awareness of risk, the audit resource is not devoted. Internal audit has looked at this and the domestic scheme recently, and a report is nearly complete. When things became difficult on the non-domestic scheme, a major part of the work was to get an internal audit report on it, and that has been shared with the Audit Office in the conventional way. I have to acknowledge that it was not done at the right time.

Mr Dunne: That is a major non-compliance.

Dr McCormick: It is not directly a non-compliance; it is an unfortunate circumstance. We were complying with routine procedure in prioritising the use of internal audit resources, but this slipped through.

Mr Dunne: The fact is that management did not identify this move away from the GB scheme as a major risk to be put on the risk register and to take appropriate measures to manage that risk. That is a major non-compliance.

Dr McCormick: I accept what you are saying. I acknowledge your point about a sense of responsibility at divisional and corporate level to scan and identify risks.

Mr Dunne: It comes back to the point about introducing controls that will ensure budgets are not overspent. That was a key thing. The point was made across the Table about the budget levels that we have now reached, but, had that been put in place, it should have been flagged up early. It never was flagged up.

Dr McCormick: The position from November 2012 until the end of 2014 is that a very serious risk was being looked at regarding the scheme, which was that it was not working. Nobody was applying, and the rate of spend was way below what was expected. I am not saying that this is right but, falsely, as a matter of fact and circumstance, the perception was that the scheme was underperforming. We were handing money back to the Treasury that we could have been spending, which was very unfortunate. What were we going to do about it? Action was taken to try to stimulate. It was not very extensive, but we did some advertising to try to draw attention to the scheme. We had a strong and desirable policy objective to improve the usage of renewable heat but uptake was low, and we did not understand why. That is partly why the other risk — the risk of overspend — was not seen because why would somebody worry about overspend when you cannot get people to apply. The problem was that it happened quite quickly, and, through significant design flaws, there was no quick way to turn the tap off when it began to flow.

Mr Dunne: You mentioned the design. Other people will probably come up with this, but is it fair to say that the design was not fully qualified and proved before the system was released?

Dr McCormick: Again, that is a fair point. The assumption was made that the tariff was correct and that tiering was not required. Those are documented assumptions. The risk about them was recorded at the time of the economic appraisal of the business case, during the discussion of casework and, as Alison said, aspects of it were identified in DFP's interrogation of the Department before it gave approval and were not followed up. That is why we find ourselves with very little evidence of anything worthwhile to say on that.

Mr Dunne: Thanks, Andrew.

Mr Clarke: Gordon touched on something, or, rather, your response touched on some of the stuff that I wanted to ask about. It goes back to the weaknesses of the scheme and how it was designed. Paragraph 3.1 of the PwC report mentions the eligibility criteria and suggests that it was loosely defined as ambiguous. That was a weakness.

I suppose that the direct question to you, Andrew, is that one of the requirements was that the heat load should not otherwise be met:

How did the Department check that that would be the case?

Dr McCormick: The procedure was to ensure that applicants demonstrated that in the application process and the material that they had to submit. They were also subject to questioning from Ofgem. We understand that, before accrediting an application, Ofgem asked a range of questions that were designed to test whether applicants complied with the obligations within the regulations. People were required to commit to that and provide a degree of evidence. As we can see from the work of PricewaterhouseCoopers, it is clear that there were weaknesses in the definitions and in the way that it was operated. As I said, further work is ongoing to establish the detail of that, and I think that I want to reserve judgement on exactly what to do about it. We have to do something, but exactly what —

Mr Clarke: Andrew, we are reasonably far down the road. I have to say that I was disappointed with your opening comments; they were so loose. This is a scheme that we are very familiar with. I will not rehearse the costs of it; you have heard numerous times today how much it will cost. As we go forward, one of the things that we need is confidence. I am not picking up confidence from you that you have grasped the nettle and found out what has gone wrong and prevent this from happening again. It took 55 minutes for you to claim some sort of responsibility, because, as you said, you are the accounting officer. However, my interpretation of your opening remarks is that you cannot or do not understand why this happened. It is not coming across that we will try to get a resolution and have the confidence to stop the stem of the problem. That has not come across since you sat down today.

We are all familiar with the weaknesses, but I want to familiarise myself with how they came about and what is being done. In response to the Chair, you talked about holding people to account. You are the person who will be held to account, because, as you described it, you are the accounting officer. Try to give us some confidence that you have done something and that we are not going to get any more woolly nonsense about what you will do in the future. I want to know what you have done up to now and what sort of actions will come forward.

I have a script with lots of other questions. Who is responsible for the decision not to tier the subsidy rate? Maybe you want to answer that one, Andrew.

Dr McCormick: The decision was made on the basis of a misunderstanding of advice —

Mr Clarke: Misunderstanding again.

Dr McCormick: Misunderstanding of what the consultants said. The responsibility for that lies initially with those in the energy directorate who drew up the business case, but it has to be said that that responsibility is shared by everyone who was a participant in the approval. That includes the casework committee, DFP and everybody who was involved. The primary responsibility was with those who wrote the business case, but everyone who approved it also missed it. To me, that is not acceptable.

What we have done about it is, first, to close the scheme. We have turned off the tap. That was necessary to stop things getting worse. We then investigated to establish the facts, as far as possible, of what was actually happening in the world of applicants and installations. We have a lot of new information on that, some of which is not all that surprising. I acknowledge that we have been aware of lot of things about the scheme for quite a number of months now, but we can act only on firm and clear evidence that is coming through. Our determination is to complete the work with PricewaterhouseCoopers to see whether there are further points that need to be investigated: is there prima facie evidence of underperformance, misconduct or fraud? If any of those are there, my assurance to you is that that will be acted on without any let or hindrance. We will pursue those things insofar as it is possible within the law and within proper governance and procedures. We will do all that we possibly can to enforce the regulations and to make sure that individuals are pursued.

Our problem is that the scheme existed for all those months and committed, very consciously and deliberately, that what was put in place for 20 years would stay for 20 years because we were asking people to invest in new technology that cost a lot of money. Therefore, the principle of what is called "grandfathering" — in other words, that the tariff would be sustained, which is analysed fully in the business case — means that we have a difficulty, but we are looking to see what can be done to address that: are there ways in which to secure better value for money in the future to bear down on the figure of £1 billion?

Mr Clarke: You talked about the difficulties within the Department, the slow uptake and work that was done because you felt that the scheme was not going to be taken up. Would you be surprised to hear that those who went out to sell the scheme were familiar with the flaws in the system and were telling people how good it was? That is no secret.

Dr McCormick: I know.

Mr Clarke: You are supposed to have a level of expertise within your Department. Salesmen who were out selling the scheme and trying to encourage people to convert from one fuel to another were telling people about its benefits. They could see the flaws, and they were only salesmen.

Dr McCormick: I know. I recognise and accept that. Another weakness was not connecting with the industry or the applicants on market intelligence. I had several meetings with suppliers in the renewables industry after the scheme had closed. It became very clear that they had seen exactly the opportunity and had also seen some very positive scope for investment and for Northern Ireland to do very well in a totally legitimate and very productive way.

Mr Clarke: That has been totally overshadowed.

Dr McCormick: I know. That is the unfortunate thing about the scheme.

Mr Clarke: There was real benefit through the scheme for renewable energy, pollution reduction and everything else, but that has been lost, which is unfortunate. People saw it as having real benefit that would add value to their businesses, bring about profitability and the advantages of that rather than using other fuels. We have lost all that in this scheme because it is lost in the £1·19 billion. What we should have been talking about was the success of the scheme and what it really should have meant in converting people to using renewable energy.

Dr McCormick: I accept what you say. That is entirely correct. That is why this is so deeply unfortunate.

The Chairperson (Mr Swann): Andrew, I will pick up on Trevor's point about who is responsible and the different layers. Will you go down the line of this being collective responsibility and therefore no single individual will be held to account?

Dr McCormick: If there is evidence of issues that relate to an individual, we will act on those. Evidence would be required that would stand up in relation to misconduct, negligence or underperformance, followed by the appropriate application of procedure to that case.

I have said this before — I know that it does not go down well with this Committee or its predecessors — but I believe strongly that collective failure is more serious and more difficult than individual failure. You can cut out individual failure; you can ultimately get rid of a person if they are the problem. However, if the problem affects the wider organisation, it is harder to fix and is more serious, and it is absolutely not a cop-out or a soft option to say that this is a collective issue. As Civil Service leaders, we are required to attend to collective issues and to establish what is going on and whether there are cultural and behavioural failures in attitude or whatever. To me, it is essential that the leadership of the Civil Service conveys an attitude that says that the responsibility for public money is fundamental and requires us, at times, to be suspicious and, at times, intrusive. A lot of management theory is about the delegation of responsibility and making sure that you do not micro-manage. I am saying that, at times, I did not micro-manage that enough, but everyone says, "Do not micro-manage". However, we have to be a little bit counter-cultural and say that responsibility for public money overrides that and that, if you are not satisfied with the answer to a question, do not stop asking it until you are satisfied. That is where we failed.

The Chairperson (Mr Swann): A scheme that has financial implications for our block grant needs more than micro-management. That is a bit of —

Dr McCormick: It is only an element of what I am saying.

Ms Lockhart: Thank you for coming to the Committee. I have a couple of points on the back of Gordon's questioning about the consultation. I am fairly new to the Assembly, but my understanding is that if there is a consultation there will be a process that flows from it in which the Department will bring forward its recommendations and present them to whomever they need to be presented to. I want to tease out why that was not done. When you came into post — I know that you came in in the middle of it — surely there would have been a handover or something and you would have realised that such a consultation had taken place and that there was a need for the consultation to be collated. I could not find the details of the consultation or the report on it. What is your analysis of that?

Dr McCormick: The fact, as I understand it, is that there was no consultation report. What you said about procedure is entirely correct and conventional. Most consultations are followed by the publication of a formal consultation report that gives the response and advice to the Minister, following the consultation, on all the issues to do with the subject of that consultation. In this case, the focus and priority of the Department and the Minister in the period — we are now talking about the second half of 2013 into the first half of 2014 — was to get the domestic renewable heat scheme operational. The attention was on that. Therefore, the other aspects of consultation, including the very important points that Gordon drew out in his questions, were not acted on. There is no document, there is no submission to the Minister and no consultation report, and we cannot find anything on the record in that period.

I came into post on 1 July 2014. That outstanding issue was not on the top list of issues highlighted to me in the transition. Energy was one issue, and I had initial briefings from the energy team when I came in. There are a lot of different, highly complex areas of work in that domain. Maybe part of it is that there was too much for the team to do. Generally, in my position of accounting officer and permanent secretary, I normally adopt a primary scepticism when people come to me and say that they do not have enough resources, but I have to be sensitive and thoughtful about it. It is possible that I got that wrong as well. You are asking straightforward questions, and the answers are that there is no consultation report, that there was no advice to the Minister on those aspects of the consultation, and that there is no good explanation for that.

The Chairperson (Mr Swann): For a scheme worth £1·18 billion?

Dr McCormick: Which at the time was underspending, so that £14 million —

The Chairperson (Mr Swann): But for a scheme that was estimated to be worth £660 million, there was no consultation or responses.

Dr McCormick: That figure is an estimate for 20 years. Of the initial £25 million allocated up to that point, we were handing back £14 million to the Treasury as money that we could not spend.

The Chairperson (Mr Swann): Because of the panic to spend £14 million, we will now be liable in our block grant.

Dr McCormick: There is more to it than that. It is cause and effect. The fundamental problem, and the most important mistake, was in not setting a tiered tariff. Actually, I would argue for a capped tariff from the outset. If we had done that, I do not think that any of this would have happened. That is fundamental and bizarre, actually.

The Chairperson (Mr Swann): It was bizarre. Fair enough.

Ms Lockhart: I assume that that relates to your initial comments on the calculation. That was carried out by consultants, and really it was not right at that stage. Have we talked to the consultants? Have we approached them and told them that they gave wrong advice in the first instance?

Dr McCormick: How it worked out is drawn out in the Audit Office report. The quotation came from the economic appraisal of July 2011, at paragraph 6.7.1, which said that, drawing on a certain set of assumptions, tiering would not be needed in the Northern Ireland scheme. That quotation was transcribed into our documents. The responsibility for the mistake, therefore, lies with us, not with the consultants. There are some questions that could be asked, and I would say that our difficulty was much more with making sure that we understood and thought about what they were saying to us. I do not think that there is a prima facie case that they misled us in any way; the failure to comprehend what was going on lay with us, to be honest.

Mr McMullan: Where does the Treasury come in on all of this? Was there no limit on what you could have spent? Were you ever told?

Dr McCormick: Again, the material is there in the auditor's report. Although we were told from the outset that this was classified, technically, as annually managed expenditure — normally associated with expenditure such as benefits or things that are demand-determined — the Treasury gave clear indications in the early days — I am now talking about spring 2011 — that there would be budgetary limits. Our assumption was that the Department of Energy and Climate Change (DECC) would get an allocation for renewable heat for GB and that we would get a Barnett consequential of that. That was known and understood in the Department. There is a clear email trail between the energy and finance directorates in 2011, showing that it was known and understood that there was a limit. Somehow that was forgotten, to the extent that we were actually quite confused between May 2015 and January 2016 on what to do about the budget. We had to engage with the Department of Finance and Personnel, but we also discussed it with DECC.

DFP talked to the Treasury, but there was a period when it was not clear who was going to deal with the issue and whether, for example, we could have access to a budget for this purpose for the whole of the UK, which, obviously, would have been much larger. The argument was that when we had growing demand, that entitled us to a bigger share of the budget. The record now shows that that was a blind alley. We went up a blind alley, and we should have seen that at a much earlier stage. We relied on this term "annually managed expenditure" and everything normally associated with it, which is that it is possible to get — It should do what the words suggest: it should be managed and reviewed annually, and, if need be, increased or decreased. The Treasury's position from the outset was that you get a Barnett consequential of the GB allocation. What crystallised it absolutely and finally was the letter from the chief secretary to the Treasury in January of this year, saying, "We know you've got an exceeding on renewable heat. All of that has to come from the resource DEL."

Looking at the background papers, we should have known about that. It was known in the finance directorate and in the energy directorate, but, somehow or other, it got missed. I was told repeatedly in the summer and autumn of 2015 that this is AME and that we should be able to get more from Treasury on this, but that was a mistake.

Mr McMullan: Who was telling you that?

Dr McCormick: The energy directorate.

Mr McMullan: No matter what else we say here today, are we now saying that there is such incompetence in the system that clear advice from the Treasury was not listened to, accounted for, and that this went the whole way through the Department right to the Minister?

Dr McCormick: The advice was on that basis —

Mr McMullan: Right to the Minister's desk. Are we now saying that that was known right to the Minister's desk?

Dr McCormick: Sorry, the initial information about control was known to a small number of individuals in DETI, and, indeed, in DFP, at the time because the emails were copied in. They were Treasury emails copied to DFP and us. That memory was either not passed on or was forgotten about. The advice that went to the Minister in July of last year certainly did not say, "It is absolutely necessary for us to contain this expenditure in the Northern Ireland block". It did not say that. It referred to it as annually managed expenditure. There was an expectation that there was the possibility of securing more resource, which was false.

Mr McMullan: Who took that advice to the Minister?

Dr McCormick: That advice came from the energy directorate, but this was talked about and known by all concerned in the Department at that time. I regret, personally, not asking earlier for the evidence: "Show me your proof that this is the way it's going to be". When I saw that proof ultimately, that was the point at which I realised that it did not stand up — and it did not stand up.

Mr McMullan: So this had been known since 2011.

Dr McCormick: It was known in 2011. At some stage, the conscious focus on it was lost. That should not have happened, but it did happen.

Mr McMullan: "Conscious focus on it"? Do not think that we are being disrespectful to you, doctor, but "conscious focus" means there has to be a paper trail.

Dr McCormick: Yes, agreed.

Mr McMullan: The Treasury does not do things without a paper trail, so there has to be a paper trail to say in 2011 that this was not without limit; that there would be a limit on it. In other words, there will be consequences for the block grant if this limit is exceeded, and that was not adhered to. No matter how we put it, that is the problem.

Dr McCormick: Yes, you are correct.

Mr McMullan: Surely it should not be too hard to go back on a paper trail to find out who was responsible because this now goes right to the Minister's desk; it opens the whole thing up even further. We went from £660 million to £1·1 billion — an overspend of £400-odd million. I think that one of the members here said that, clearly, the public had a better grasp of the scheme than those who were charged with administrating it.

We now face a deficit in the block grant because of incompetence in the Department, and that now has to be clearly and quickly brought out. The Treasury warned you all in 2011 — no matter what else is said today — and that advice was not heeded.

The Chairperson (Mr Swann): Andrew, you used the words, "forgetful", and, "confused", in regard to your own Department and non-Civil Service responsibility. In not informing the Minister of the liability that was coming, are you sure that you can hold somebody accountable for that? I would like a yes or no answer.

Dr McCormick: If we possibly can, yes. It requires an examination of the records to establish whether there is clear evidence of omission by one or more individuals. If evidence is there, we will pursue it and act on it.

The Chairperson (Mr Swann): I am conscious of the team in front of me. Alison, you have been there for 10 years with regard to energy renewal, renewable energy generation, and policy development. How would you respond to what Andrew said about the collective responsibility for the Department at that stage?

Ms Alison Clydesdale (Department for the Economy): I have been involved in renewable energy for 10 years, but the focus of my experience has been mostly on renewable electricity not on renewable heat. The fact that there was a known limit to the expenditure would have meant that the cost controls should have been built into the business case from the outset.

The Chairperson (Mr Swann): Did you had no direct involvement in this scheme through your tenure?

Ms Clydesdale: In my 10 years, I was involved in the very early days, in 2009, in commissioning research to look at the potential for renewable heat. That led to an economic appraisal being commissioned. I was not involved in the outworking of the economic appraisal or the business case.

The Chairperson (Mr Swann): Why did Andrew bring you here?

Ms Clydesdale: Why did Andrew bring me here today?

The Chairperson (Mr Swann): What is your role here?

Ms Clydesdale: In May 2016, I was appointed, on a temporary basis, as head of the new energy renewables division, which was set up in the new Department.

The Chairperson (Mr Swann): Currently, what is your responsibility in this scheme?

Ms Clydesdale: From May 2016.

The Chairperson (Mr Swann): From May 2016 only, so just a couple of months.

Ms Clydesdale: Yes. That is after the scheme closed. When I came in in May, the focus was on working with the Northern Ireland Audit Office and internal audit to identify the issues and how we would move forward.

Mr Clarke: Coming back to Oliver's point in response to Andrew. You talk about the advice from the Treasury. In what form did that advice come?

Dr McCormick: Emails.

Mr Clarke: It came in emails. How specific was it? There seems to be some ambiguity even in your response, so I want to tie the ambiguity down.

Dr McCormick: One Treasury email was particularly ambiguous, and people rested quite a lot of weight on that quite ambiguous email. The Audit Office has seen this —

Mr Clarke: Is this 2011?

Dr McCormick: Two thousand and eleven. It refers to a possible penalty on the resource DEL for any exceeding on the budget for renewable heat of 5%. It is relatively vague; it suggests that this might be of the order of 5%.

Mr Clarke: This is a stage when the uptake was poor?

Dr McCormick: It is before the scheme even started; it is at a much earlier stage. The email from the Treasury was copied to both the former finance director at DFP and was seen by the finance director in DETI. The finance directorate in DETI specifically drew it to the attention of the energy directorate and said, "This is vague, but what you should plan for is that this will have implications for resource DEL from the beginning". Therefore the need for cost control was clear in that email exchange, even though the Treasury email itself was quite vague and ambiguous and absolutely was not a final and authoritative statement of Treasury policy. It was a clear indication that cost control was needed.

The Chairperson (Mr Swann): Andrew, that is your answer in response to the 2011 email.

Dr McCormick: Yes.

The Chairperson (Mr Swann): The Comptroller and Auditor General for Northern Ireland's report, point 51, says:

Dr McCormick: Yes.

The Chairperson (Mr Swann): There is no record of subsequent attention to that point. Are you telling us something different from what you told the Comptroller and Auditor General?

Dr McCormick: No, I am not. I was referring, first of all, to the Treasury email from April 2011.

The Chairperson (Mr Swann): May 2011.

Dr McCormick: May; sorry, I mixed them up.

Mr Kieran Donnelly (Northern Ireland Audit Office): I want to provide clarification on the exchange of emails. There has been reference to the Treasury position being vague. I have in front of me an email from DFP to DETI — to Alison, in fact — that is anything but vague. It says:

That email from DFP is crystal clear that there will be a consequence if you overspend and that there is no open-ended funding by the Treasury. The date of that email is 3 May 2011.

The Chairperson (Mr Swann): Who is that exchange between?

Mr Donnelly: Bernie Brankin and Alison Clydesdale.

Dr McCormick: Yes, Bernie Brankin was in the DETI finance directorate; she was not part of the Department of Finance and Personnel.

Mr Donnelly: Yes. The situation seems pretty clear at that stage.

Mr Clarke: Is it not the one from the Treasury that we are talking about?

The Chairperson (Mr Swann): That is from the full email from the Treasury.

Mr Clarke: I thought that you said that it was from —

Mr Donnelly: There is a separate set of emails from the Treasury.

Mr Clarke: I thought that it was the Treasury we were talking about.

The Chairperson (Mr Swann): Are you saying that there was no ambiguity in the Treasury email, Kieran?

Mr Donnelly: There was enough concern raised at an early stage to make it clear that the scheme would not have open-ended funding. It might be helpful if the full exchange of emails was before the Committee.

Mr Clarke: Whilst that is helpful, it is also unhelpful, because we are trying to get into the detail of who in the Treasury that came from, who it went to, and what the content was. I respect what Kieran has just told us, but that is different detail; it is about interdepartmental stuff. I am more interested in what has been coming from the Treasury because, ultimately, it was, allegedly, the paymaster of the scheme, and if there was ambiguity over its withdrawing funding, we need to get to it. The correspondence that we have just heard quoted is more interdepartmental.

The Chairperson (Mr Swann): That is the Comptroller and Auditor General's interpretation. We need to look into the email trail.

Dr McCormick: I agree entirely with what is in the report. There was an informal statement by the Treasury, but, as paragraph 51 states, the position was understood at the time. In May 2011, there was a clear understanding that this was limited. Somehow or other, that consciousness was lost, which is unacceptable. It was first brought to me as an issue in May 2015 when I was on my way to a meeting with the Department of Energy and Climate Change on another issue. The question put to me was, "While you're there, would you ever ask them for some more money, would you?" That is because the expectation was that more money might be available because the clarity that was expressed in the email that Kieran quoted, as is recorded here, had been lost. It should not have been lost, and there is no acceptable explanation for that.

Going back to the Comptroller and Auditor General's point, we need to examine the trail of evidence to see whether there is anything further that can be found to establish how that happened and why this was not —

The Chairperson (Mr Swann): You are saying that it was lost, but Alison was included in that email trail. Alison, you were involved in that discussion.

Ms Clydesdale: Yes, I was involved in those initial discussions.

The Chairperson (Mr Swann): Why, in any subsequent handover, did you not explain or relay the concerns that were there?

Ms Clydesdale: I did. The email trail came, and I sought advice from finance branch, which was very clear that cost controls needed to be built into the scheme. The information on that risk was recognised by myself and passed on to the team that was drawing up the business case.

The Chairperson (Mr Swann): It was or it was not recognised by you?

Ms Clydesdale: It was recognised by me; there is a trail of emails saying that it represented a significant risk. That information was passed on to the team, who were then moving forward with the design of the business case, which I was not involved in.

The Chairperson (Mr Swann): That was your piece done.

Ms Clydesdale: Yes.

The Chairperson (Mr Swann): You had no more involvement or responsibility —

Ms Clydesdale: No.

The Chairperson (Mr Swann): — to ensure that those risks were identified.

Ms Clydesdale: I had moved across to look after renewable electricity matters then.

A Member: From what date?

Ms Clydesdale: From May 2011.

Mr Easton: Who was in that team —

The Chairperson (Mr Swann): Alex was just wondering who was in the team that you were referring to.

Mr Easton: That you were grafted on to.

Ms Clydesdale: I am sorry.

Mr Easton: You recognised that there was a fault or an issue, and you passed it on to the team. That is fine. OK. Who was in the team that you passed it on to?

Dr McCormick: As is conventional, I am happy to give in open session the names of senior civil servants. Alison was, at that stage, a grade 7, and the person who took over and was responsible for the detailed work on the business case was at grade 7, or deputy principal level. I am happy to supply the names in confidence. At that stage, the senior officers involved were Fiona Hepper, as the grade 5, David Thomson, now retired, as the grade 3, and David Sterling as the permanent secretary.

The Chairperson (Mr Swann): You are confident, Alison, that you passed on your concerns about the risk.

Ms Clydesdale: Absolutely, yes.

Mr Easton: How many people were in the team?

Dr McCormick: The total team in renewable heat would have been between six and 10 throughout the period.

Mr Easton: Did you pass that on to one person, or would the whole team have known?

Ms Clydesdale: I passed it on to some of the people in the team and copied in the director.

Mr Easton: Several people would have received it.

Ms Clydesdale: Yes.

Mr Kearney: A couple of my questions have been picked up on, so I will not revisit the detail. I was conscious that, before Kieran's intervention, Andrew, you were talking about lack of clarity and misunderstanding. All of a sudden, the situation crystallised. We are now clear; we are no longer unclear.

Dr McCormick: There was a period —

Mr Kearney: There was a change in the meeting within the space of five minutes.

Dr McCormick: There was a period when we were unclear, and that is because —

Mr Kearney: We were unclear in this meeting.

Dr McCormick: Apologies for that if I have been unhelpful.

Mr Kearney: Until Kieran stepped in and it was clarified.

Dr McCormick: I will maybe recap the sequence of events.

Mr Kearney: What are we now agreed that we are clear about?

Dr McCormick: The chief secretary's letter made the matter finally and absolutely clear in January of this year. The actual exceeding had materialised, and we, through the Department of Finance and Personnel, had sought to secure cover for it from the Treasury. The Treasury said no: it all had to be covered by the resources available to Northern Ireland through the resource DEL. That crystallised the issue, absolutely and finally, in January of this year. We were anxious about that from the moment that the budget began to appear to be under pressure from early 2015, but we did not know. We asked. It was a matter of discussion between the energy directorate and the finance directorate in DETI and with DFP. DFP engaged with the Treasury; we engaged with DECC. For a while it was not clear where the resolution had come from. There was a period when the Departments involved were not clear. I do not think that anybody recovered or found those crystal-clear emails from 2011. They had somehow been put to one side; they just had not been found.

Mr Kearney: By whom?

Dr McCormick: By everybody.

Mr Kearney: The point here is one of viable cost controls.

Dr McCormick: Yes, I agree.

Mr Kearney: That is at the heart of this. A few times, you mentioned the energy directorate being responsible — anonymised. What is the energy directorate, and who is on it? Alison left her position, having given clear direction to her peers. We need to know who was left in order to get a bit more clarity on who was in the know, and we need to know, from when Alison left, the direction and information passed on to the unnamed or anonymous team. The energy directorate appears to be the common denominator.

Just before you come in on that, I would like you to pick up on another point.

In the C&AG's report — Robin referred to this — paragraph 51, at the end of the first bullet point, states:

In bullet point 1 of paragraph 59, the C&AG concludes that the concerns include the point that the scheme:

We are agreed that control limits are a big issue, but that bullet point in the conclusions indicates that there would not be funding without limit by Treasury. Can we deal with the points about who has left the team, the energy directorate and so on and so forth and then come back to the issue of April 2011 and May 2011?

Dr McCormick: Again, staying with the convention of giving the names of those in the Senior Civil Service, the energy director between June 2010 and December 2013 was Fiona Hepper. John Mills replaced her and took up post in January 2014. He stayed until the reorganisation and moved to DAERA in May this year. We then reorganised the directorate at that point. They were the grade 5s. At the next level up — grade 3, deputy secretary level — the officer responsible was David Thomson between January 2010 and the end of June 2014, when he retired. The permanent secretary concerned in that period was David Sterling. Again, David moved to DFP also in June 2014, which is when I arrived. I took up position on 1 July 2014. There was a month's gap between David Thomson leaving and Chris Stewart arriving. So, from August 2014 onwards, Chris was, and is, the grade 3 responsible for all these issues. Again, I am happy to supply the fuller organisation chart and the names of more junior people, as long as those are retained as private information and in accordance with the convention that they are not made public.

Mr Kearney: Along with all the emails exchanged?

Dr McCormick: Yes, the emails are entirely available. Several of them were provided to the Audit Office when the draft report came to our attention in June this year. Some further documents have come to light since then, and, again, we will make sure that all those are provided. Again, I know how unfortunate this is, but the trail does run cold. There is no mention of the essential requirement to have cost control in the further documentation. There is a glaring gap there that is not explained. We need to continue to pursue that until we can get to a best possible explanation of it and understand what happened.

Mr Kearney: Can you speculate for us on what has happened? Have the emails been deleted? How have they fallen out the system? I assumed that there would have been a very assiduous approach to, particularly, electronic and digital record-keeping in what has become your Department.

Dr McCormick: Yes, they are quite hard to get rid of, thankfully.

Mr Kearney: What does that suggest to you?

Dr McCormick: I do not have any evidence that anything has been deleted. I think that the more likely reason, if you are asking me to speculate, is that, at some point, the importance of the point was forgotten about and then not reflected. That does not make sense to me. I do not see a good explanation. We have to pursue this further, including some direct discussion with the individuals we have mentioned and all who are involved in the team.

Mr Kearney: That has not started yet.

Dr McCormick: We have not pursued that to completion yet.

Mr Kearney: OK. Thank you.

The Chairperson (Mr Swann): Andrew, are any of those individuals that you mentioned, who have "forgotten about" this important aspect, in positions of responsibility at the minute?

Dr McCormick: David Thomson has retired, and the others are in one role or another in the Civil Service as we speak.

The Chairperson (Mr Swann): Senior roles?

Dr McCormick: Yes.

The Chairperson (Mr Swann): So, people who, in your words, have "forgotten about" the importance of this issue.

Dr McCormick: That is speculation. They will have to answer for themselves as to what happened, given what Alison passed on and other issues of record or memory as to what was transferred from one individual to another. We need to pursue all that with great rigour.

The Chairperson (Mr Swann): We will help you to do that, I can assure you.

Mr Kearney: Alison, would you say that you red-flagged that issue as something of significance that needed to be carried through the system?

Ms Clydesdale: I noted that it was a significant risk.

Mr Kearney: You noted it as a significant risk.

Ms Clydesdale: I noted it in my email that it was a significant risk and it needed to be incorporated into the business case going forward.

Ms Gildernew: This is extremely worrying. You said, Andrew, that no evidence had been found that emails were deleted. Was evidence looked for?

Dr McCormick: Not yet. We need to do a lot of further work on this.

Ms Gildernew: Is that a matter for you or for an external agency? Is it a matter for the police?

Dr McCormick: Again, there is no prima facie evidence of something approaching fraudulent or criminal behaviour. If that were to come to light, we would act in that way, as you say, but there are qualified and experienced investigators who can pursue that. We can do the right thing on that very urgently, and we will.

Ms Gildernew: If there is no prima facie evidence now, or if that evidence has not been sought or if there have been attempts to cover up evidence or to hid it, delete it or whatever, it is important that that is looked for.

Dr McCormick: Absolutely. We need to look at it with a totally open mind as to what might or might not have happened and not make any prior assumptions about what may or may not have been either behaviour or motivation. We have to allow for all possibilities. That is what we need to do now.

Ms Gildernew: As a supplementary to that, I just think of my departmental experience and schemes that were brought to my attention by officials and the thoroughness and seriousness with which they took the issue of public money. This is a massive scheme. The mind boggles that this would have been so hands-off and that it was not flagged properly. Well, it was flagged by you, Alison, but people did not take it seriously. I just cannot understand how that could have happened.

Ms Caldwell: Chair, may I add that it may be useful to the Committee to know that the business case that came to DFP flagged up that the AME requirement over the first five years was £25 million, and there was no dispute about that figure at that time. Indeed, it was on the basis that the funding going forward was uncertain that the approval that was given at that time was time-bound by DFP. So, the business case seems to fully recognise that it is £25 million at the outset.

The Chairperson (Mr Swann): Andrew, who are the qualified investigators?

Dr McCormick: There are a range of options available. I need to consider that further, if I may, because we need to make sure that we secure the right combination of expertise and experience. We are looking at HR expertise because these will potentially be issues of performance, negligence or misconduct that need to be considered very carefully by someone experienced in the HR field. I am also in discussion with Alison and colleagues in the Department of Finance.

The Chairperson (Mr Swann): So how you investigate that side of the NI Audit Office's report has not been looked at yet.

Dr McCormick: Not fully. There is further evidence coming out —

The Chairperson (Mr Swann): When the C&AG's report was issued in June, there were implications that fraud might have been involved. The Minister and Department moved very quickly to appoint PwC to investigate the applicants; in fact, they moved so quickly that the draft report is in front of us. You are now telling the Committee today that you have not taken account of the considerable implications of potential staff involvement and that you are only now considering how you will investigate their responsibility.

Dr McCormick: The key difference is that we had allegations that had come in and needed to be investigated. We still, at this point, have no presenting prima facie evidence of misconduct. There are concerns, some of which have become clearer, even over the past few weeks, than they were in June about transmission of information. They need to be pursued, but we have sought to fulfil the responsibilities reasonably and proportionately. The undertaking to you today is that — all the questions that were asked were very reasonable; I totally accept the concerns expressed by members — we now need to pursue matters further and make sure that what may be available from the record is available when those concerned are given an opportunity to provide their side of the story. Alison has given her perspective; others need, in a proper process, to do the same, and I accept that we need to conduct it with exactly the same urgency that you referred to.

Mr Clarke: Andrew, I will just go back to the email that Alison flagged up. I accept that at face value, because I have not seen it. Where did that fit within your internal audit? Why did it not pick the email up?

Dr McCormick: I am not sure if they saw it.

Mr Clarke: Do they not see everything?

Dr McCormick: They certainly have access to everything.

Mr Clarke: Alison flagged up in 2011 that she had identified a risk, and there is no reason not to believe what Alison says. I am concerned that internal audit did not pick that up subsequently, given that there is an issue with this type of scheme.

Dr McCormick: I would need to discuss that with the head of internal audit.

Mr Clarke: I would like you to do that.

Mr Kearney: Can I ask a supplementary question?

The Chairperson (Mr Swann): Sorry, Oliver wanted —

Mr Clarke: I am not finished.

The Chairperson (Mr Swann): Go ahead, Trevor.

Mr Clarke: I want to correct Michelle. She was in charge of a Department, but there is a culture in Departments of promoting people when they make mistakes. The now permanent secretary, who was the head of finance, made a mistake of £245 million and got promoted. There is that culture in the Civil Service.

The Chairperson (Mr Swann): That is not what we are on.

Mr Kearney: I will stay on the point about the email. It would have been helpful for you to have presented that Alison, in fact, drafted that email and left it when she was moving on. It took us more than two hours to dig out the fact that Alison, in her previous capacity, wrote that email, left a flag, shared it with her peers and put it into the system. It has just occurred to me that it is a bit strange that we had to find that out, rather than have you indicate to us that it happened. That is quite revealing. Is there any reason you did not decide at the outset to tell us that Alison had written that email before she moved on to a new role?

Dr McCormick: Obviously, in preparing, we considered a range of possible —

Mr Kearney: Did you consider that one?

Dr McCormick: Not specifically.

Mr Kearney: Did you have any discussion about Alison's email?

Dr McCormick: Not directly, no.

Mr Kearney: Why not?

Dr McCormick: What I have focused on was the exchange of emails that Kieran referred to, which showed that —

Mr Kearney: Those are all emails that we cannot now trace. The trail went cold in May 2011.

The Chairperson (Mr Swann): The emails are there.

Dr McCormick: Those emails are there.

Mr Kearney: But we did have a very significant email. In fairness to Alison — I have not seen it, but I am taking what she said at face value — it was very noble, correct and appropriate in her capacity to indicate that there was a problem and put a flag in the system.

Yet and all, that was not part of your preparation for this hearing.

Dr McCormick: As I said, there was a range of different dimensions to the issue. As a matter of fact, this particular point was not part of our detailed specific preparation, but I think that it is still clear that the important point of fact has come to the Committee's attention.

The Chairperson (Mr Swann): We move on the issue of inability to respond to the changes in demand.

Mr Lunn: I have a couple of small things to talk about first. I want to go back to how this scheme ever got off the ground in the first place in the format that it did. We were there a couple of hours ago, but we still need to chase it a bit more. Alison, at the time, you were the departmental expert on renewable electricity. We are talking about this scheme costing hundreds of millions of pounds. Was there a departmental expert on renewable heat at the time, or was there a lack of technical commercial expertise in the Department?

Ms Clydesdale: The consultants were commissioned to provide that expertise in renewable heat, but, prior to the consultants being commissioned, a detailed piece of research was commissioned to look at the potential for renewable heat in the whole of the Northern Ireland market. That brought to light at that time, around 2009-2010, that there was potential to develop renewable heat in the market and identified that it would need a support mechanism. The economic appraisal was then commissioned, and the economic appraisal considered a number of different types of support mechanisms, ranging from an RHI to a grant to a biomass type of challenge fund. At that point, September 2010, the then Minister had committed to bringing in a form of renewable heat support, subject to a positive economic appraisal. The economic appraisal was then consulted on, and an RHI type of support mechanism was decided on.

Mr Lunn: So, there was intensive research, consultants were appointed and there was departmental input. What Andrew referred to as a casework study was done. There was more departmental input and, finally, input from the Minister. We still came up with a scheme that was so badly flawed that you have spent most of the day, Andrew, in fairness to you, detailing the failings of the Department and the whole system. That is why we are here. Chair, can we get a copy of the actual regulations of this scheme? We have seen comment on them in both of these reports, but I would like to see the actual detail. Will all of this have been subject to internal or external legal scrutiny? This is a contract between the Department and various — I was going to say users — beneficiaries. Was there proper legal scrutiny, and, if so, who was that from?

Dr McCormick: Our solicitors helped with it. There was legal advice, through the Departmental Solicitor's Office, on the preparation of drawing up of regulations. That is a routine process.

Mr Lunn: We have had a good go at just about everybody involved here, but this is the first time that we have mentioned so-called legal experts. This contract appears to be so full of holes that, in fact, when you come to the question of enforcement or potential fraud, in my humble opinion, it has to come to light that this is the first time that we have ever looked at a scheme that actually legalised fraud. I am not trying to be funny here. The people who have scammed the system had the potential to make hundreds of thousands of pounds, and they have not broken the rules. It defies belief. Are you satisfied with the quality of the legal advice that you got?

Dr McCormick: The normal convention is that the solicitors advise on the policy intent that is drawn up by the Department, so the responsibility for commissioning the drafting of the regulations was back to us, as a team, and back to the energy directorate, as the specific agents to put that into practice. The responsibility is primarily with them, and that is part of what we are having to accept and own up to this afternoon. It goes back fundamentally to the fact that the understanding of what was implied by the tariff in particular was not grasped totally. There is an issue here that we need to very thoughtful about. It is one thing to commission experts, as in consultants, to give advice, but there has to be sufficient understanding and clarity and conventional procedures, such as sensitivity analysis, to test that. Again, we have economists and lawyers working in the Department who can help to a degree, but it is that bridge between specialism and generalism where things seem to have gone wrong in this case.

Mr Lunn: Yes, specialism and generalism. You had two schemes running here, one for commercial and one, subsequently, for domestic. In the commercial scheme, as I understand it, it referred to the fact that the heating should not be used for domestic purposes, but it uses the word "mainly". It says that it should not be used mainly for domestic purposes. Why in the world would you put that in if there was another scheme for domestic uses? This is the type of thing that I would have thought lawyers would have flagged up for you.

Dr McCormick: In fairness, there are a range of premises where there may be a business with a dwelling alongside it and where it would be quite sensible economics to allow a certain amount of heat to be used from a mainly commercial installation. That might be more cost-effective in the greater scheme of things than separating them. The key word is "mainly". What arises from the PwC study is the need to look at the extent to which that has been adhered to in pursuit of the aims of the scheme.

Mr Lunn: OK. When the Department set up the scheme — I dare say you have already answered this — how did it plan to manage demand in the event that it was very high, or was that simply not considered?

Dr McCormick: The possibility of demand going higher was identified as a risk. The possibility that that might arise from a tariff that was set too high was identified as a risk, but it was thought at the time to be quite unlikely. Clearly, that has not proved to be the case. On the contrary, once the industry saw what was possible and invested their preparatory resources, which presumably took them a little bit of time, it turned out to have been too generous. That goes back to the fundamental misreading and misunderstanding of the consultants' advice. Had we looked at a larger boiler or, especially, a larger usage rate than the 17% that was assumed in deriving the proposed tariff of 5·9p, which was possible, that could have been done relatively straightforwardly. Clearly, however, this was not sufficiently thought about, and we have made a very significant mistake.

Mr Lunn: OK. You have explained the question of tiering. I must confess that the degression system absolutely baffles me. You have an English model to draw on, and you have intense research and a consultancy, which probably got a fat fee for providing the advice. Yet, you managed to go ahead with a scheme without degression. I understand that, as has already been mentioned, that scheme in England has already been operated something like 17 times, but we do not have it. Why was it not implemented in Northern Ireland?

I will just preface this by saying that I think we are talking to the wrong people here. I do not mean any disrespect whatsoever, but this baffles me: why can we not get the people, if they are still working for the Civil Service, in front of this Committee to explain in some detail their past actions when they were —

The Chairperson (Mr Swann): We have the option, Trevor, to have a further evidence session. The names and the tenures have been brought out here today in the conversations with Andrew. It is something that we can follow up on.

Mr Lunn: We know who they are. You talk about trails going cold and unexplained discrepancies. You are not in a position to explain those discrepancies because they happened before your tenure, but perhaps David Sterling is. I go back to the question: why was this not, as far as you can answer the question, implemented in Northern Ireland? Who was responsible for that major decision?

Dr McCormick: Degression was introduced in England when they found that, even with their tiered tariff, there was a need to make sure that they had the right balance of incentive and control in their way of doing things. It was considered, but, to go back to the context of the period when it was being considered, the rate of uptake was very low, and it was seen, for that reason, as low risk. That was clearly part of our mistake in the whole context of this: the recognition that, even in a period of low demand, that could change and that, if it changed, we had to be able to respond more quickly. So, in the initial enabling legislation, we should have had the ability to adjust the tariff, to close the scheme or to change the tariff. The primary point is that, had we had tiering, we probably would have had much less of a problem across the whole thing. We will never know whether we would have needed degression as well, because that it is in a parallel universe where we started with tiering. In England, they started with tiering and then found that they needed degression as well. Maybe that is what would have happened. By the time we reached the stage of having a problem, the necessary intervention, as in the change made in November last year, was to belatedly introduce tiering and a cap, but the issue of degression was never really the point.

Mr Lunn: OK. What was the sequence of events? When did the English produce a scheme that included degression?

Dr McCormick: That was during 2013.

Ms Clydesdale: They introduced degression in April 2013.

Dr McCormick: That was after our scheme had been initiated.

Mr Lunn: That was after our scheme had started.

Dr McCormick: Our scheme began in November 2012, and during 2013, GB introduced degression. That was covered in correspondence from the Secretary of State for Energy and Climate Change explaining what they were doing. So, there was communication; we knew that was happening, but the advice going back to the Minister, following that correspondence from DECC, did not address the issue. I have seen the submission, and it does not even comment on whether degression is to be considered or not.

Mr Lunn: Did the intense research or the consultant's report even mention degression?

Dr McCormick: The initial economic appraisal?

Ms Clydesdale: Not at that early stage because that was in 2011, and degression had not even been introduced in GB and, indeed, was not particularly known at that time. Degression was not introduced in GB until April 2013. Our scheme was already up and running before degression was introduced in GB.

Mr Lunn: Yes, our scheme was up and running in December 2012.

Ms Clydesdale: November 2012.

Mr Lunn: November 2012. So, the UK had not introduced degression at that stage.

Ms Clydesdale: They introduced it in April 2013. Their scheme actually started a year before the Northern Ireland one as well, so it had been running for quite some before they seemed to discover the need for degression.

Mr Lunn: So, they were able to amend their scheme to include degression? Why did we not do that? Could we not do it?

Dr McCormick: We could have done it.

Mr Lunn: But we did not.

Dr McCormick: There is no evidence of the issue being addressed. There is no advice or analysis in the period after April 2013 when England did it. Degression is not covered in the consultation on phase 2. There is a reference to cost control, as I said earlier, in that consultation, but it is not proposing or considering degression at that time. I do not know why. I think that the most obvious possible explanation is, as I said earlier, that because uptake was so low, it was seen as low risk. That was a false conclusion.

Mr Lunn: I will never understand — I do not want to badger you about this — why we could not have included a degression section in the contract, just as a safeguard.

Dr McCormick: Which was entirely possible.

Mr Lunn: There are not any safeguards in the contract, as far as I can see. Is there any reference to clawback in the event of fraud?

Dr McCormick: Not specifically, but I think a general power exists, covered only in the regulations, that, if it emerges that a scheme is ineligible, there is opportunity. I think that that is possible.

I have already given the undertaking that we will seek to maximise the application of that. We will need to stay with what is sound legal advice on how we go forward.

Mr Lunn: The process took about 17 months, from the middle of 2011 to when the Minister finally sanctioned it in November 2012. I am not that familiar with the time that it takes the Civil Service wheels to grind, but that seems like enough time for a really thorough examination of all the facets of this. How on earth could there be so many unexplained deficiencies after that level of scrutiny from the various organisations involved? Are you satisfied that, if something similar came before your Department again, there would be sufficient expertise and technical know-how in your Department to give the Minister proper information on which to make a decision?

Dr McCormick: I shall certainly approach cases of any nature in relation to new proposals for programmes and projects as, to borrow Coleridge's phrase:

We recognise that, because this has gone wrong, there is the risk of recurrence. We can ensure that there are additional checks and requirements to make sure that we not only secure expert advice but understand what it means and interpret it properly. At the heart of this is the mis-transcription of an element of a consultant's report, despite the context having changed. The requirement is always to be thoughtful, always think, always consider, always challenge and not to adopt conventions or groupthink. I need people who are the grain of sand — the irritant. To be honest, I need people who are irritating in terms of challenging everyone, including me, by saying, "Don't just think along the conventional lines. Ask the daft question". No question should be ruled out, and we should never dismiss anybody who asks, "Why are you doing that?". I think back to my early days in the Civil Service, when it was beaten into me never to accept what I was told and to always ask another question until I was really satisfied.

The Chairperson (Mr Swann): Andrew, you did accept what you were told.

Dr McCormick: In this case, we did.

Mr Lunn: You, Andrew, and all your contemporaries at your level in the Civil Service and even slightly below have been around for long enough to know how many times you have explained to Committees like this that you need to learn from something. It just keeps rolling on and on. That is why I ask whether you are satisfied that the Department has the expertise to ensure that, within reason, something like this could not happen again.

Dr McCormick: It would be wrong to give a blanket undertaking that something can never go wrong, but we have learned some very significant lessons. We are all shocked by what has happened, and we are, therefore, all the more alert. There are several different omissions. We need to look at all of those assiduously, faithfully and rigorously.

The Chairperson (Mr Swann): Andrew, you mentioned the level of risk a number of times when you were answering Trevor's questions about whether it was set too high. You said that you did not take that into consideration. Paragraph 3.14 of the Comptroller and Auditor General's report states:

That highlights those two concerns. Are you aware of that?

Dr McCormick: I am aware of that RIA. It is another document that we studied carefully in preparation for the hearing. It is exactly as you say: the risks are recorded and identified. The onus was on us at that time to ensure that action was taken, questions were asked and procedures were in place to manage those risks.

The Chairperson (Mr Swann): Was that RIA ignored as well?

Dr McCormick: As we have not completed all the possible questions, there may be an explanation, but I do not have one today. We need to pursue that in the same style and with the same urgency as I outlined in previous answers.

The Chairperson (Mr Swann): What is the document flow for the RIA? It is stated that it is a requirement for the Executive. Who sees it?

Dr McCormick: The RIA is copied in as part of the submissions to the Minister. It is fully on the public record.

The Chairperson (Mr Swann): The Minister would be aware of it.

Dr McCormick: Yes.

The Chairperson (Mr Swann): That was in 2012.

Dr McCormick: Yes.

Mr McMullan: I am still confused about the whole thing. After it was found that the costs were starting to spiral, at what stage did Ofgem raise the red flag? There has been no mention of Ofgem, so I wonder when it raised a flag and to whom.

Dr McCormick: We had a continuous flow of information from Ofgem from the beginning of the scheme. It sent us details of all the individual applications in a weekly return. I do not recall the precise date, but, at a relatively early stage, Ofgem flagged it up to the directorate that things were not following the pattern that had been predicted in the economic appraisal. I have to give credit to Ofgem for raising that. I want to understand and pursue what happened when that question was asked. More recently, we have instituted a more formal, regular and minuted flow of information from Ofgem, but the truth is that it also highlighted this as a concern to us.

Mr McMullan: Going back to 2012, things were not right. Whose fault was it that that was not acted on? There has to be a blame game somewhere. Somebody must have known that they should have raised a flag that there was a problem. Maybe I am wrong, but I think that the Department relied far too heavily on Ofgem.

Dr McCormick: I do not today understand the misunderstanding of what the tariff — the 5.9 — meant. The consultants' report said that we should increase in the tariff from 4.5, as in the July 2011 appraisal, to their revised appraisal. I do not understand why that was not subject to sensitivity analysis and testing of whether it supported the argument that we should not have tiering. That was the primary mistake, and that is where it all went very badly wrong.

Nobody asked the questions. There is no evidence of anybody asking, "Are you sure? Why not?" or "Have we looked at tiering again. GB's doing tiering. Why are we not doing tiering?". There is no visible record of anyone asking those questions. You can always look harder — maybe there is something there — but there is nothing to show that anybody asked that. A lot of people omitted something, and they are all, in that sense, responsible for failing to spot an issue and notice its significance. They thought that a single sentence — it is quoted in the Audit Office report — saying that tiering was not needed in Northern Ireland because, for all cases, the subsidy was lower than the incremental cost of fuel was a sufficient basis for saying, "We don't need tiering". That was wrong. I do not know whether we will ever find anything further that convincingly shows —

Mr McMullan: From that point of view, surely somebody would have thought about the cost, given that, because of the formula, we were getting only 3% of what Britain got out of the Treasury.

Dr McCormick: Yes.

Mr McMullan: At that time, did nobody — not even DFP — think, "Hold on, this will exceed expenditure. We are going into a red position on spending, which will affect the block grant"? We cannot keep on saying that a mistake was made or that somebody had a bad day. There has to be something else behind it. In the Assembly, I have seen the earth being moved until we found out why we spent £20,000 or £30,000. After the first five years of this scheme, we are liable for £140 million because of the overspend, and that will come out of our block grant. Where, at that time, did it all go wrong? Everybody knew it. The Minister, Ofgem and everybody else involved knew it, but nobody raised a flag.

Dr McCormick: From the point when the budgetary issue began to emerge in March 2015, right through to when the scheme closed this year, we were rushing around trying to solve a problem, but the actual root cause issue — the point about the tiered tariff — was not crystallised. Personally, I did not get the point until the Audit Office report in June, but my internal auditors had asked the energy division. Internal audit phoned a supplier, using a secret shopper-type approach and asked how much it would cost to install a boiler and what would be the cost of the fuel. They got the information and sent it to the energy directorate and asked, "What do you think of this?". They did not get a satisfactory answer. That was in March this year. It was after the event and does not change anything. Internal audit and external audit are the people who finally, finally realised that there was a root cause issue, which was that the tariff was too high. There were some warnings at earlier stages, but, somehow, those were not brought into the centre of focus, where they should have been, and acted on. Everybody who missed that shares the culpability.

Mr McMullan: With due respect, you say that it was not brought to where it should have been, but it was. Those who were running the scheme knew about it. There was nobody else to know but them.

Dr McCormick: What they did not realise was that the tariff was providing too good an incentive. They should have, but they did not.

Mr McMullan: The man in the street knew that he was on to a good thing, but the people in the House did not know that. You set out to find out the cost of fuel and a boiler in 2015 —

Dr McCormick: It was 2016.

Mr McMullan: It was only in 2016 that you set out to find the cost of fuel and a boiler, yet the man in the street knew that he could heat his henhouse and even his house. People sitting in here, earning maybe £80,000, £90,000 or £100,000, did not know that, and we are paying for the consequences of that from the block grant. Heads should roll. It should not be too hard to bring this back to when the flag should have been raised and it was known that it was a problem. If we are not definitive, we will end up with another inquiry to find out how the first inquiry went.

The Chairperson (Mr Swann): We will finish this one.

Mr McMullan: It is so maddening when you look at it —

The Chairperson (Mr Swann): I can assure you that, with this level of money, the Committee will finish the inquiry. Should it take further sessions, Andrew, I guarantee that we will come back to it a number of times before we sign off on it.

Trevor, briefly —

Mr Clarke: No, I will let it go. It was a supplementary to one of Trevor's points, but it was too long ago.

Mr Butler: Thank you for your input so far. Before I ask any questions, I want to say that I am deeply concerned about the corporate memory and how information is passed from person to person and Department to Department in the Civil Service. You three are sitting there: you are pretty new to your roles or may be moving on to other roles. Is that the custom and practice in the Civil Service? Is it an endemic weakness that corporate memory is lost? We have a case of some significance, which, as you said, should perhaps have been managed as a project using PRINCE 2 methodology, which most of us are au fait with. Somebody decided that it did not warrant that. On the back of that, how was the detail that was captured acted on and transferred from person to person, when that project management system had not been established?

We have heard a lot about emails and different forms of communication, but where did they go? Some went to the Minister; others seemingly did not. Will you outline that for me, please?

Dr McCormick: The norm should be a resilient and sound governance system, whereby information, especially key information about aspects of control, is retained and always on the dashboard, so to speak, so that it can come to our attention. Most of the time, when there is a change in staffing, one person in a team moves on and then, six months or a year later, somebody else moves on, so that there is not too much change at any one time. Part of what happened in this case was a number of changes in the team at the same time, which created greater vulnerability. That was obviously a very big issue for us.

In the reorganisation in May, when we were merging two Departments — DETI and DEL — to form the Department for the Economy, a big part of our attention was focused on making sure that, in changing the structure quite fundamentally, we had some retention of expertise so that there was continuity from the old Departments into the new divisions. Where it simply was not possible to do that, we made sure that there was provision for a transfer of information. This is a known risk and one that we are having to manage.

For as long as I have been in the Civil Service, that has happened. You either look for an overlap, where two people cover the same job for a week or two and work together, see what is going on and what the issues are, or you have a transfer of information through a handover note of some sort. That is entirely conventional and entirely normal. Of course, we also rely on the fact that, in lots of cases, although a person may have changed job, they have not gone away and you can always get in touch. If you are in doubt about something, give your predecessor a ring. I have done that many times in my career. They may have faithfully transmitted what they were conscious of as the most important information, but you then are stuck with something and do not know what to do, so you ask for help. That is entirely conventional and entirely normal, and it should be resilient. The breakdowns here were so significant and serious that they defy explanation and require us, as I said, to make sure that there is further scrutiny and investigation of what we can do.

Mr Butler: You say that the weakness was perhaps due to the amalgamation of Departments. Earlier, you said that at no time was there a senior responsible officer on this. That being the case, would I be naïve in thinking that it really falls on the permanent secretary at the time to assume that responsibility and report directly to the Minister?

Dr McCormick: Ultimately, that is what any permanent secretary has responsibility for. In this case, I do not know whether the option of setting up a project management structure was considered. It is not addressed in any documentation that I have seen. It was not necessarily a conscious decision not to have a project management structure; maybe it was not thought about in those terms.

Mr Butler: If you were in that position, given the unknowns in a project like this — as new business, it was relatively unknown, so the risks were greater — would you not —

Dr McCormick: I suppose that it is hard —

Mr Butler: — have seen the need for greater control and greater project management?

Dr McCormick: It seems self-evident. What I have to ask myself is whether that is purely because we are sitting here today knowing what we know now — is it purely hindsight? I would like to think that, if this was to be done over again, even without the knowledge of all the difficulties that have arisen, prudence would say, "Set up that structure".

Mr Butler: I accept that, but, going back to what Oliver said, we have had discussions here about £15,000 or £20,000. The scale of this is rather unprecedented. We know that a demand-led scheme poses greater risk; we are all singing off the same hymn sheet on that. That being the case, would it not have been proper, given the email from Alison in 2011, to introduce more checks and balances, even setting aside the fact that it was not put into a project format? That would be a given, I take it.

Dr McCormick: Yes, that is what should have happened. That is entirely right.

Mr Butler: Did the Department think that there was no real risk of the demand being too high? We talked earlier about assumptions and about a lot of this going back to the fact that the early uptake was low. Ignorance is no defence —

Dr McCormick: There is no issue there. I have used that point a lot this afternoon, and I think that it is of considerable significance. However, it does not take away from the routine responsibility to consider the possibility of things changing, so it is not good.

Mr Butler: Once the increase in demand became apparent, why was the Department so slow to react? With hindsight and because we are sitting here now, would anything have been done differently? Do you agree that the Department was slow to react?

Dr McCormick: Yes, we were. March 2015 was the first indication of the beginning of budgetary pressure. We should have done more sooner and moved more radically. I am very clear on that, and there is no good answer there.

Mr Butler: Will you confirm for me again — I will go over the numbers because they are incredible, with upwards of £400 million over the next 20 years coming off the block grant — whether the need for emergency legislation was considered?

Dr McCormick: A legislative change made in November last year proved insufficient. I have been looking carefully at the papers and at the advice we gave and thinking back to the discussions I was involved in in that period, especially between May/June 2015 and it coming to the Assembly in November. There were several factors. The sheer scale of acceleration was not apparent. It was an acceleration, but what was not foreseen was the significant spike in applications in October and November of last year when, just before the deadline, a lot of people submitted applications. That was not foreseen, and a very substantial proportion of the overspend arises from that spike. There was a concern, and we were looking to move as quickly as we could, but we definitely could have been more urgent at that point.

The other thing is that that was the period when we were uncertain of the budgetary rules, and there was too much mythology around that there might be money coming from the Treasury. Therefore, this was seen as AME, not routine expenditure and not necessarily displacing other things. We recognised that we had underspent in the previous years, but the failure to be clear on the budgetary rules affected the urgency that we adopted and made us less urgent than we should have been. If we had been clear on those things and clear on the budgetary rules and foreseen the spike, we would have pushed earlier for sharper legislation.

When the time came, in February past, action was taken very quickly. Lots of stages in the process, including engagement with the ETI Committee, as it then was, and consultation, were just not done because Ministers decided that it was essential to close the scheme immediately, and they did.

Mr Butler: I am particularly interested in the spike. Have you given any thought to your modus operandi and what you want to find out about why the spike happened? Who was championing the uptake of the scheme? The scheme had been running for a number of years with a low uptake, so I am really concerned to know who was driving the information and pushing people into it. Perhaps there was knowledge that the scheme was coming to a close quite rapidly. Perhaps the Committee will look at that, and maybe you, Andrew, will consider it in your investigations.

Dr McCormick: Yes, we will certainly reflect on that point. Thank you.

The Chairperson (Mr Swann): Members, I suggest a 10-minute break because we have still a wee bit to go.

The Chairperson (Mr Swann): We will make a start again. Members, we are only touching the start of the inquiry, and a lot of stuff has come out in the first couple of sessions. I intend to run this session until 6.00 pm. We have asked Andrew and his team to come back on 12 October. At that stage, it will give us scope to take in the email correspondence. Andrew has said that individuals not here today will possibly be available then. Are members content with that?

Ms Gildernew: Robin, I might not be able to stay until 6.00 pm. I am supposed to be in Dungannon at 7.00 pm.

The Chairperson (Mr Swann): Michelle, I do not think that we will get to your section by 6.00 pm anyway.

Ms Gildernew: Do you think not?

The Chairperson (Mr Swann): No. If we are not there, we will maybe —

Ms Gildernew: If I were to leave shortly, you could defer it until the next time anyway. Would that suit you, Alex?

Mr Easton: I am happy enough.

Ms Gildernew: I will stay a while anyway.

The Chairperson (Mr Swann): I am keen for members to stay on for as long as possible at this stage. We will go forward in this way: we will finish this session of the inquiry at 6.00 pm and then spend 10 or 15 minutes tidying up some other Committee business.

The next section is on excessive returns for applicants.

Ms Lockhart: People have a lot of interest in this area, and I think we have all heard the stories of where empty houses had windows and doors left open and where there was excessive use. We want to tease out how the Department was monitoring this. The size of the returns available to applicants shown in the examples in the report are quite significant. I want you to let me know whether anyone in the Department noticed it at any point. I know that this was not managed as a project, but, surely, as it was a general scheme, people would have been looking at the rates.

Dr McCormick: The foundation of the decisions was the assumption that, with a typical oil boiler operating at 17% usage and on a tariff of 5·9 pence per kilowatt, the rate of return would be 12%. Several things need to be said about what might have given rise to concern about that.

We were getting weekly updates from Ofgem showing tables of figures including on applicant numbers. Among the columns in the table was information on the size of the boiler and the rate of usage. For example, one table that was shown to me for August 2013, in preparation, shows that there were quite a few 99 kilowatt boilers at that time indicating a proposal — at application stage, not monitored and actual but as things were being approved by Ofgem — for 24/7 usage. In some contexts, 24/7 usage is entirely legitimate and reasonable and there is a business need for it. In the poultry industry, or whatever, it is absolutely fine. The point is, as you are drawing out and as the Audit Office paper draws out, this was not expected and not intended.

From the get-go, there was a flow of information to the Department showing that these things were happening, as Ofgem sent details through of the individual applications. The other numbers in there were the projected expenditure figures; so, part of this was to allow the Department to look at those figures. The point remains that there was a relatively small number of those applications, so the expenditure, when added together, did not ring an alarm bell. What should have rung the alarm bell was that the boilers and rate of usage were bigger than expected and that, therefore, the fundamental assumptions underlying the decision were not being borne out by experience. This is just stuff that we are looking at now. There are further indications that Ofgem drew this very point to the attention of staff in the Department; but, again, I have seen no evidence of people saying, "My goodness, something is happening that we did not expect and this is not as intended". I also do not see that they were saying that there was a vulnerability then.

The potential vulnerability had been identified. Alison raised it in the email that she talked about earlier. That was in May 2011. The business case had identified the risk. The casework committee had discussed the risk and DFP approval had said that you have to be aware of this risk. In the transition from decision-making to implementation, cost controls were not put in. Sensitivity to the possibility of a higher rate of return was also not put in and we ended up with potential rates of return as drawn out in the examples in the report. Again, it does not take too much examination of the actuality to identify the rates of return that are being achieved by beneficiaries of the scheme, some in a way that is entirely compliant with the intention. Those in category 1 in the PwC report have all been inspected and it has been found that the applicants are fully compliant with every aspect of the regulations and intention of the scheme. However, we then have a very substantial category in which this is not the case. It includes rates of return that are several times above the 12% intended. In some cases, it gets into three-figure rates of return, which is not remotely acceptable.

The Chairperson (Mr Swann): Who had sight of the weekly reports from Ofgem that you mentioned?

Dr McCormick: They would have been sent to the deputy principal and more junior staff in the branch.

The Chairperson (Mr Swann): So, those weekly reports would have —

Dr McCormick: They would have come to the team.

The Chairperson (Mr Swann): But as regards any action, they were just another churn; more tables.

Dr McCormick: There is some evidence that those individuals drew attention to emerging issues but, again, we need to get be very careful to get to the bottom of who saw what, who told whom what, and where alarm bells were sounded. Absolutely clearly, it was not sufficient. Action should have been taken; there is no question about that.

Ms Lockhart: So, you are very clear that there was a flow of information to the Department. However, in the Department, given the staffing issues, or whatever, that you mentioned, this was never brought to your attention —

Dr McCormick: No, and it was not brought to David Sterling's attention, because this was in his time. I am not aware of any reason to believe that this was brought to his attention.

Ms Lockhart: Is it normal practice for permanent secretaries to have regular updates and meetings with those director levels?

Dr McCormick: Yes.

Ms Lockhart: I am not totally au fait with the levels in the Department, but did you have regular meetings, even bimonthly or quarterly, to look at this issue?

Dr McCormick: Not specifically to look at this issue. As this was not seen as being high risk, the issue would not have come regularly to that kind of collective discussion. We have a number of manifestations of governance in DETI, as was, and in the new Department for the Economy, as is. We have regular meetings with the senior management team where all directors, grade 5s and grade 6s, meet the grade 3s and me. That is an opportunity for any issue to be raised. There is an opportunity, a tour de table as we call it, where anyone can raise anything that is of concern. The agendas of those meetings tend to be led and dominated by the HR and finance directorates because there are a lot of corporate issues there. There is an opportunity for the finance director to highlight any issue of concern to the wider team. We talk about budgetary issues and any emerging issues of that nature. That is a routine internal management discussion. We then have a formal departmental board —

Ms Lockhart: Sorry for cutting across you. The email came to the director in 2011 noting that it was of high risk or that there was a risk involved, and that director obviously did not feed that to the next level. That is where —

Dr McCormick: Yes, we have no evidence of that at this point.

Ms Lockhart: So there was never an issue raised with the permanent secretary or the chief accounting officers about the problem. Given the significance of the scheme, would you never have thought, "Maybe we should look at this and investigate it"?

Dr McCormick: The other thing that should help us in this kind of situation, systematically, is our governance and risk management procedures, which require all divisions to keep and update risk registers. Risk registers are managed. There is a corporate one for the Department as a whole, in which the top departmental-level issues that are known to be risks are recorded.

Then, there are the divisional risk registers. We have been looking at the risk registers for energy division during the period from the inception of the scheme to the present day. There are mentions of different aspects of the issue, but the risk that actually matured was not recorded. We need to complete our checking of that, but we have not seen a clear record of it being recorded. That feeds into the departmental board and the audit and risk committee, which is chaired by an independent board member and, in fact, comprises independent members — two people from outside the Civil Service — and someone from another Department. Usually, in most cases, a qualified accountant to the audit committee of that Department gets regular information on risk issues. This particular point does not seem to have got on to those registers and therefore has not featured. Again, I am giving you the information as I have it today. It is not the complete information, because we have some further checking and examination to do.

Ms Clydesdale: Can I just add something to the context at that time? From looking at the records that Ofgem sent then, it was clear that, because there was such an underspend in the scheme and such low uptake, the information received from Ofgem at that time was being used purely to monitor budgets; so, the information was being fed through to the budgeting process in the Department. It was not raising any flags because, of course, this was underspending. I think that that was the context at that time.

Ms Lockhart: Well, OK. I suppose I go back to this: when you manage, or roll out, a scheme, surely there have to be regular checks for so-called abuse. Did you never take a scattergun look at different projects throughout the time from 2011 to 2014? Were there no checks at all?

Dr McCormick: Again, it goes back to the fact that the vulnerability was not identified and therefore the levels of protection that would have been applied were, somehow or other, lost. They should not have been lost, but, as a matter of fact, they were not brought in.

Other things can sometimes help, but, in fact, did not in this case. There is a procedure called "test drilling". Where an issue is not something that would routinely come to the higher level for consideration and approval and is a delegated function in the Department, so to speak; then, on a random basis, the governance people could ask for and see a number of examples just to allow them to assure senior management that routine procedures are being applied properly. That is part of the way in which we try to manage risk. Obviously, the risk was not picked up in this case, but that is the kind of thing we do. It is not the case that there is simple delegation and undiluted trust that everyone will do everything right: you have to ensure that there are different degrees of oversight. Again, the attempt would be to ensure that the oversight is proportionate and appropriate. A key criterion is risk, but, in this case, the risk was not grasped and brought in. That is where it went wrong and where the appropriate degree of attention was not given.

The Chairperson (Mr Swann): Carla, just before you move off that point; with regard to the level of audit and inspection that is proportionate to risk, Ofgem carried out an inspection level of 0·86% of applicants. Does the Department think that that level was acceptable?

Dr McCormick: That was at a certain point. The standard arrangement we had for inspections was to work with Ofgem in a way that was proportionate across the UK. In the early days, the percentage inspection rate in Northern Ireland was 4%. That was because there was —

The Chairperson (Mr Swann): There was such a low uptake.

Dr McCormick: Four per cent of a small number is a very small number. There was a very small number of inspections, but that was guided by the distribution of Ofgem's inspection resources across the UK. So, it has to look at this and deploy resources according to risk. The missing point here was that Ofgem applied the same principles here as it did in the rest of the UK. What should have happened was that there should have been a separate risk assessment for Northern Ireland because the Northern Ireland scheme was different. There should have been a recorded commitment at the approval stage of the scheme so that the casework approval would be that Ofgem would do a separate risk analysis and, therefore, look at the separate management of that, including if that risk analysis said that because Northern Ireland is different, it would need to do the following different things. It was our responsibility to prompt that and it would have been Ofgem's responsibility to have done it. That was not done.

The Chairperson (Mr Swann): So you did not prompt them, and they did not do it.

Dr McCormick: It did not happen. The total explanation is not clear.

The Chairperson (Mr Swann): Was there an onus or responsibility on Ofgem?

Dr McCormick: There is a responsibility there, but there is a primary responsibility with us to make sure that we follow through on things that we have agreed to commission. Therefore, the reason it went down to 0·86% is because Ofgem was still planning its activity based on 3% being the Barnett share of its activity going to Northern Ireland; but, for a period, the number of applications in Northern Ireland was way above 3%. There are more applications in Northern Ireland, and the way that the mathematics work out means that, in the period from April 2015 to February 2016, its inspection rate was, as you said, 0·86%.

The Chairperson (Mr Swann): The Department did not see that as a concern.

Dr McCormick: We had not realised that it was an issue. On receipt of the whistle-blower allegations in January 2016, we had to move towards ensuring that there was a proportionate and effective inspection regime.

The Chairperson (Mr Swann): Remind me when the whistle-blower allegations were received.

Dr McCormick: They were received in January.

The Chairperson (Mr Swann): So, before that, the Department was not concerned about the level of audit.

Dr McCormick: Before that, as members have already mentioned, there was awareness of potential abuse. The possibility of potential abuse had come to attention earlier but was not acted on. That cannot be denied. It was not a specific allegation.

Ms Lockhart: That is interesting. So, there was a general awareness in the Department that there was abuse.

Dr McCormick: There were comments made. We got the document, which came into the First Minister's office in January and was sent to me by the head of the Civil Service, and there was nothing of that nature. It is all caught up in the fact that the focus of attention in the latter part of 2015 was on the crisis we had with the budget for the scheme and the fact that we had been caught out with irregular expenditure that we could not fix. That was the presenting crisis.

Ms Lockhart: The harsh reality is that everyone sitting here has constituents who are struggling to heat their homes and feed themselves, and then we have people throughout the country who are set to benefit from in and around £1 million from the implementation of this scheme. That just brings a wee dose of reality on how severe this is and how our elderly population, in particular, struggle to heat and eat. That is where I am coming from on this.

We have heard a lot today around, "Hands up, it was the Department", etc, and I appreciate the fact that you did say that. What can we take away from this? Over the next 20 years, the Government are set to lose a lot of money. What is being done to try and redress this? Are changes going to be made so that we can redress it?

Dr McCormick: I touched on that at the beginning and there is a possibility that we want to explore, but we need to be sure of where we stand legally. I would rather not talk about it at this stage, as premature exposure of what we are thinking about may actually stop it working. I ask for the Committee's indulgence that I do not answer in detail, if I may. I assure you that we are looking for a way. As you have said, and as the Audit Office report states, we have unreasonable rates of return. They are far higher than anybody could reasonably expect, so if it is possible to move them to a more reasonable rate, that is what we will do.

Ms Lockhart: I appreciate that, because I cannot fathom how this could continue as it was not in the spirit of the scheme. I will leave it at that.

My other point is that paragraph 5.45 of the PwC report states that, in some cases, third-party businesses have provided boiler equipment and fuel for free in return for being allowed to claim the RHI grant. The fact that it is still profitable for a third-party company, which does not benefit from any of the heat generated, shows how poorly the whole scheme was set up, and it goes back to the fundamental issue that it was not managed properly. Do you agree?

Dr McCormick: Obviously, that is a point of concern. In its analysis, PwC has put those into the second category, which means that while there is an issue to be pursued, it is not as acute or direct as those in category 4. It is still significant, but the fundamental point is, as you say, that commercial opportunity should not exist. We need to rigorously test whether it is even technically eligible, and see whether there is further action we can take. There is some legitimacy around this kind of approach.

Ms Clydesdale: It is a model that exists in GB and it is allowable in that scheme. It is generally referred to as an Energy Services Company (ESCO) model. Some of the visits have shown that those particular installations are of quite high quality, so it is a model that is permissible under the regulations as they stand.

The Chairperson (Mr Swann): Declan, do you want to come in on some of the points that Carla raised?

Mr Kearney: Very briefly. Andrew, while I was listening to you explaining to Robin that there had been no prompt by the Department to Ofgem and vice versa, I wondered where this is going. If the question "Why was there no prompt?" is asked, am I right in assuming that this is another scenario for which we just do not know the answer?

Dr McCormick: At this stage, yes, and I do not know whether there will be sufficient evidence to establish exactly why. The general theme seems to be that the team's attention was elsewhere. Its attention was on establishing the domestic scheme — the level of anxiety about the scheme was low because of the low uptake. So, to go back to your point earlier, the default speculation is not that anybody thought about it and decided not to do it; they were just too busy thinking about other things. For me, that is totally unsatisfactory, because of where it ended up.

Mr Kearney: Can I suggest that we do not know that either?

Dr McCormick: I acknowledge that, yes.

Mr Kearney: Rather than assume that people were busy, distracted or preoccupied with other things, if we do not know the answer to a question like that, we are certainly not in a position to speculate or assume that they were otherwise engaged or distracted by other important matters of state.

Dr McCormick: I accept that, and we need to see whether we can find a substantive answer to that point.

The Chairperson (Mr Swann): This is still on topics that Carla raised.

Mr Dunne: Did Ofgem have anyone based in Northern Ireland to carry out monitoring and inspection work?

Dr McCormick: No.

Mr Dunne: No one?

Dr McCormick: At no stage, no.

Mr Dunne: How was it carried out?

Dr McCormick: The small number of inspections that they do involves people coming across to do them. They would have an agent operating on their behalf.

Mr Dunne: Contractors?

Dr McCormick: Under contract, yes.

Mr Dunne: Is it possible that that was a risk as well?

Dr McCormick: I have seen the risk analysis and the statements of procedure that Ofgem adopted. There is rigour about its process, which was satisfactory from DECC's point of view, for the operation and inspection of the GB scheme. The missing point is that, after this unfortunate further unknown, there should have been a separate risk analysis, because the Northern Ireland scheme had different vulnerabilities. For Ofgem to operate a system and to employ an agent to carry out its wishes is entirely routine as far as I am concerned. There is no inherent vulnerability in that.

Mr Dunne: Between agencies such as DETI and Ofgem, would it be the case that you have regular meetings to progress the project, monitor how things are going and to discuss issues such as the readings and the range of readings? Is there any evidence of that having taken place with Ofgem, even at a lower technical level, or any minutes to show some monitoring of work being carried out?

Dr McCormick: There was an ongoing, very informal process of engagement between the Department and Ofgem from the inception of the scheme. It was pretty informal, but, again, I guess that a lot of people saw that as proportionate to the perceived risk. At later stages, that was formalised, and we now have minuted meetings and regular, more formal engagement. It is part of the general pattern, and there is nothing different in that point from the general pattern of activity that you have established this afternoon.

The Chairperson (Mr Swann): Andrew, this is from the C&AG's report:

To be clear, when you are talking about that engagement with Ofgem, apart from the weekly meetings, prior to August 2014, were the meetings informal?

Dr McCormick: Yes.

The Chairperson (Mr Swann): The formal meetings that started in August 2014 were not minuted until November 2015: is that normal practice in your Department?

Dr McCormick: It would not be the only case. If something is seen as being routine and under control, where you have regular contact with a partner body of whatever nature, that would not be so unusual. Clearly, what makes this a problem is that we did not have project management. Had it gone well, it would still have been a very large amount of money for which we were accountable. Clearly, something was not appropriate.

The Chairperson (Mr Swann): It was not appropriate. How much was the value of the contract from November 2015?

Dr McCormick: The contract with Ofgem?

The Chairperson (Mr Swann): The project, as well as the contract.

Dr McCormick: That is part of the total delivery of the scheme, which is a total figure of £1·18 billion over the 20 years.

The Chairperson (Mr Swann): Nobody in the Department flagged up the necessity to minute those meetings formally prior to November 2015.

Dr McCormick: Again, that is a matter of fact. That goes to the perception, certainly up to August 2014, that the inherent risks around this were under control and that the problem was low uptake.

Mr McMullan: When was the scheme closed down?

Dr McCormick: It finally closed in February —

The Chairperson (Mr Swann): Oliver, we are taking questions on Carla's points.

Mr McMullan: This is the point that I am making. We are talking about Ofgem and the Department. Who made the decision? Is there a paper trail of that decision between Ofgem and the Department?

Dr McCormick: Ofgem was not directly involved in the decision to close. The decision to close was based on the recognition, at ministerial level, from the letter received from the Chief Secretary, of an immediate and totally unacceptable budgetary position. Therefore, the decision was a matter for Ministers, DETI, as it then was, and the Department of Finance. Ofgem was not directly involved.

Mr McMullan: The letter went to the Minister from the Chief Secretary.

Dr McCormick: Yes.

Mr McMullan: Where did he get his information from?

Dr McCormick: The Chief Secretary was responding to the fact that we had flagged up the budgetary problem. The budgetary problem had emerged during 2015 and had been drawn to the Treasury's attention by the Department of Finance and Personnel. The Treasury provided an increase in the annually managed expenditure budget for 2015-16 from £11·9 million to £30 million. It gave us the additional amount that we required for the financial year 2015-16, but it then wrote to say that it would not provide the additional required for forward years.

Mr McMullan: It gave you the extra money for 2015-16 but then said that it was not giving you any money from 2016. Why was that?

Dr McCormick: That is its decision.

Mr McMullan: No. There must be a paper trail as to why.

Dr McCormick: There will be a paper trail in the Treasury.

Mr McMullan: We do not have it here.

Dr McCormick: We have not.

Mr McMullan: We should have that.

Dr McCormick: They will not give it to us.

Mr McMullan: Ofgem never said anything at all about closing the scheme down. The Chief Secretary went to the Minister and said to close the thing down, and it was closed down.

Dr McCormick: Yes.

Mr McMullan: Just like that?

Dr McCormick: It was seen as very urgent, because, had it been left open, for even for a short number of weeks, there was a risk of a further rush of applications. There was a last-orders element to February, with 300 applications towards the end, but the time between announcement and actual closure was relatively short.

Mr McMullan: There were 300 applications at the end of February.

Dr McCormick: Towards the very end in 2016.

Mr McMullan: Given the extra money, did that not ring a bell at all?

Dr McCormick: All the bells had rung loud and clear before then.

Mr McMullan: It had exhausted itself.

Dr McCormick: It was now about the fastest possible closure. It had to be done as quickly as possible, given legislative procedure.

Mr McMullan: We actually paid more to close it.

Dr McCormick: We paid a lot less than we would have done if we had not closed it.

Mr McMullan: We would have paid a lot less if we had have listened to what we were told in 2013.

Dr McCormick: Yes, of course.

Mr McMullan: We cannot therefore say now that we saved a lot more. We actually paid more in 2016 to close it down. Why did we not close it before we got extra money? Was the Minister not advised on the scheme before he took the decision to close it down?

Dr McCormick: The advice in July 2015 was that we urgently needed to get this back under control.

Mr McMullan: In July 2015.

Dr McCormick: There is a submission to the Minister dated July 2015 that draws that out.

Mr McMullan: There was a problem in 2015.

Dr McCormick: The problem was that we did not understand the tariff point fully at the time. We did not anticipate the spike.

Mr McMullan: We did not understand the tariff in 2015. After going from 2011 to 2015, we still did not understand the tariff.

Dr McCormick: Nobody at that stage said that we really need to close this down because the tariff is too high. There was an awareness that, somehow or other, this was working more generously than was intended but exactly why that was did not really crystallise at that point.

Mr McMullan: Did nobody think of looking at what was going on in England?

Dr McCormick: We would have been saying to ourselves that the market in England is different. Prices had also moved. The price of oil had fallen, of course. In 2015-16, the oil price was then significantly below the cost of biomass. Therefore, the presenting argument that it was obvious that we needed to slam on the brakes was not clear in July or September.

There was urgency, because we had irregular expenditure, had run out of budget and did not know where the money was coming from. Those things led us to urge the Minister to close the scheme down quickly, but it was done —

The Chairperson (Mr Swann): Michelle —

Mr McMullan: This is my last point, Chair. What was the conversation that took place to get the extra money, given that, in 2015, we should have been closing the scheme down?

Dr McCormick: It was to do with AME, and Treasury can do whatever it wants with public expenditure. I have worked with the Treasury for 30 years, and whatever it decides, it decides. That is the way in which it works.

Mr McMullan: It decided in 2011, however, that this was not time-bound.

Dr McCormick: I do not quite understand why it gave us more than we were, in a sense, entitled to in 2015-16. I am very glad that it did, but the difficulty is that that was the last —

Mr McMullan: We do not know why it gave it to you.

Dr McCormick: No, and I do not think that it will tell you either.

Ms Gildernew: May I just clarify something? In 2015-16, the amount went from £11·9 million to £30 million: is that right?

Dr McCormick: Yes.

Ms Gildernew: In that period, we were negotiating with the British Government on an anti-austerity package and mitigation measures for some of the most vulnerable people in our society. The Treasury handed over the guts of £20 million for the scheme. The whistle-blower allegation was in January 2016, so, at that time, presumably somebody in the Department had noticed that there were excessive claims on the scheme. With that money, we pay people who may or may not be involved in fraud when we are trying to protect people, as Carla said — I 100% agree with her — who cannot afford to heat their home, cannot afford to eat and are at rock bottom. The Treasury handed over a pot of cash, and DETI, now the Department for the Economy, put it into this scheme when the Executive were trying their best to find money to protect people. That could not have come to the Executive. Maybe it did. I am very keen to see whether that money was tied up in that package of funding and whether there was any scope for the then Minister of Enterprise, Trade and Investment to put that money into other schemes.

Dr McCormick: The fact is that, by that time, it was spent, and it needed to be regularised in some shape or fashion. There was no way to divert the spending power that the Treasury provided. That simply was not remotely possible. All that this was doing was not requiring us to cut something else to cover it. Had the Treasury not given us that £20 million, other things would have had to be reduced. This was already being spent.

Ms Gildernew: The Treasury was telling us at that stage that there was no more money. That is the conversation that it was having with us. There was more money, however, and it went to this scheme, which would be continuing ad infinitum only for the fact that the Treasury said, "We will not give you the money every year". I took a note of this. You said that this came to your attention because there was an expenditure that the Department could no longer stand over, yet you would have spent that money willy-nilly without any accountability to the public purse.

Dr McCormick: The key design flaw in the scheme was that, once an applicant was accredited, there was an obligation to continue to pay that applicant for 20 years.

Ms Gildernew: I will bet you any money that, in the form — go back to the paperwork — that the applicant had to fill out, there is a clause. If there is not, there are some very stupid people working in the Civil Service. There is bound to be a clause in there that states that, if anything is found to be not entirely legitimate, you forfeit your right to this.

Dr McCormick: Sorry, yes.

Ms Gildernew: It cannot be open-ended. Why was that not utilised?

Dr McCormick: It may yet be possible to utilise it. We have not given up on that. Starting with category 4, we will be looking to see whether we can enforce it and claw back resources or whether there is deliberate deception going on that would amount to fraud or suspected fraud. Yes, we will pursue that.
PwC tells us that, for category 2 and category 3 issues, some of the language in the regulations is not as tight as it should be. Maybe there are mistakes in that that we will suffer from, but if it is possible to enforce clawback and say that something is not eligible, inefficient or not as intended, we will act on that. Yes, the clause is there to get the money back, but it needs to stand up. That will happen only if we can put a case together that will stand up.

Mr Kearney: I beg to differ with you —

The Chairperson (Mr Swann): Sorry, Declan. Trevor wanted in on that point.

Mr Kearney: I want to ask a supplementary question on Michelle's point when you are ready, Robin.

Mr Clarke: I have a line of questioning on excessive returns that I want to get back to. I have listened to pontification from Michelle, but it is no different from a political party setting up research companies and getting money. We can talk about the Department, but that is also fraud, and it got away with it. We are accusing members of the general public who applied for a scheme in good faith. The problem was that the scheme was wrong. The general public were not wrong.

Andrew, you have been asked to speculate today, and I will ask you a hypothetical question. If you needed 280 kW of heat, would you go for three burners or one? Would you go for three on the basis that you would get 5·9p per kW or for one at 1·5p per kW?

Dr McCormick: Obviously, you would go for the one that is more lucrative.

Mr Clarke: What would you have done wrong?

Dr McCormick: Nothing.

Mr Clarke: Nothing, because the scheme had been designed badly. We need to be careful about what we say about the public and about characterising them. People invested money in a scheme. The design of that scheme was wrong, and the Department is at fault for designing and publishing a bad scheme.

Dr McCormick: I agree.

Mr Clarke: We should not tar all with the same brush and say that they have committed fraud. They looked at a scheme and saw that it would be more beneficial to put in two 99 kW heaters and get 5·9p per kW and top up the other 80 kW at 5·9p, as opposed to putting in a big boiler for which they would get 1·5p per kW. They have done nothing wrong; rather, the scheme has been poorly designed.

Dr McCormick: I agree. We have no prima facie evidence of suspected fraud. It is possible, and the starting point to look for that will be with the category 4 issues. The case that you describe is in category 2. We need to look at that. If it is possible to enforce clawback, we will do so, but we recognise that there are limits, and I will not raise expectations. We have a big problem.

Mr Kearney: My point is not about the scheme's design flaw. Clearly, it was flawed. Looking for another £19 million, which effectively became good money to be spent after bad, is not a design flaw in itself. A decision had to be made to seek that additional £19 million, and that was a political decision. Where and how was that decision advanced in the Department and how was the process to persuade the Treasury taken forward when we were all, and still are, living in the midst of an austerity crisis?

Dr McCormick: I think that the point is that, at one level, there was no choice. The money was being spent, and it would need to be brought into account in the government accounting system one way or the other. The only choice was whether the Treasury would give it to us and provide an increase to the allocation that would make it regular. If the Treasury had said that the limit remained at £11·6 million, we would have had to find the money from the Northern Ireland resource departmental expenditure limit.

The money was being spent anyway. There was no choice to be made. It was contractually committed, and there was nothing that we could do to stop the money going out the door. The only question was under what heading it would be brought to account. In that sense, it could have been worse. The Treasury giving us that money was definitely helpful. At that stage, we were not part of the wider discussions with the Treasury.

The Chairperson (Mr Swann): Andrew, you said earlier that a note was passed to you in the back of a taxi on the way to a meeting in DECC in which you were told to ask for more money.

Dr McCormick: I would not quite say it like that.

The Chairperson (Mr Swann): You did —

Dr McCormick: It was close to that. OK.

The Chairperson (Mr Swann): Was that the official process?

Dr McCormick: Had it been the right answer and had DECC been the potential source of extra resource, that would have been quite a good thing to do. Even DFP at one stage asked us to see whether DECC could provide more.

DECC had a big budget, and we were conscious that, with any public expenditure budget on that scale, a small underspend by it would be a big number for us, because of the sheer GB-to-Northern Ireland relativity of scale. It was therefore not such an unreasonable thing. It was not, however, the right answer. We should have known, back to the 2011 emails and all that, that it was clear that it was entirely a conventional issue, whereby our share was determined by Barnett, with the exception of the extra money that the Treasury gave us in 2015-16, and we had no reason to expect any more from anybody else.

The Chairperson (Mr Swann): Oliver, I will bring you in a for a supplementary, and then I will bring this to a close.

Mr McMullan: Very quickly, Chair. You mentioned legalities there, in that you were legally bound to carry on with the programme when the rush of applications came in. Were you legally bound to do that? Was there nothing written into the programme to state that, if you were oversubscribed, you could not fund it?

Dr McCormick: That was another design flaw. We should have had, from the outset, something to cut it off.

Mr McMullan: The other thing is this: who exactly asked for the extra £20 million that came in? Who decided to ask for that, and what discussions took place to ask for it? That £20 million was to save face for someone after the rush of applications. As Michelle said, at that time, the block grant was being cut. You are telling me now that the Treasury in Britain gave you £20 million, as our block grant was being cut, to prop up the rush on applications — 200 extra — that came in? It seems very likely that somebody was sitting somewhere directing the band.

Dr McCormick: The process in that context was that our responsibility was to flag up to DFP not that we would quite like to have £20 million but that our pattern of spend was such that £20 million more was going to be spent. It was our responsibility to give that information. DFP also had the right and the responsibility to say to Treasury, "This is happening. It is an AME budget. Can you or can you not increase the budget? It is only fixing what has already happened". As I said, there was no choice to it. That money was legally and contractually committed and was being spent. DFP, in the normal course of business, would have raised that with Treasury. That was then confirmed as part of the outcome at the time of the spending review settlement in December 2015.

Mr McMullan: That £20 million has formed no part of the block grant reduction.

Dr McCormick: It was a separate part of the total.

Mr McMullan: Are we paying for that £20 million from our block grant?

Dr McCormick: No, it was additional.

Mr McMullan: Finally, at what stage did Ministers here know of the application for the £20 million?

Dr McCormick: We would have drawn it to the attention of the then Minister of Enterprise, Trade and Investment. We were in discussions from June 2015 onwards, briefing the then Minister on the scale of expenditure. It would, I assume, be a matter for DFP to draw it to its Minister's attention as well.

Mr McMullan: The Minister knew in July 2015 that we were going for an extra £20 million.

Dr McCormick: The estimate as of May 2015 was £23 million, and the estimate at October 2015 was £24 million. It was only in December 2015 that we knew that it was £30 million. In October 2015, we did not know about the spike. A major spike in applications came in October and November, just before the change to tiering. We were reviewing the estimate of spend on a weekly basis in that period, because it was changing so rapidly.

The Chairperson (Mr Swann): OK, members. At this juncture, we will suspend the inquiry. We will come back to it on 12 October, which gives us time to gather up some of the information raised here today. Significant new information has come in front of us, and we will work with the Comptroller and Auditor General on that.