Official Report: Minutes of Evidence

The Chairperson (Mr Swann): I welcome Dr Andrew McCormick, accounting officer for the Department for the Economy, and Ms Heather Cousins, deputy secretary for higher education and investment in the Department for the Economy. Kieran Donnelly, the Comptroller and Auditor General (C&AG), and Alison Caldwell, the Treasury Officer of Accounts, are also in attendance. Andrew, I believe you want to make a brief opening statement.

Dr Andrew McCormick (Department for the Economy): Thank you, Chair. Thank you for the approach that the Committee has taken to the issue so far. I appreciate very much the approach you took four weeks ago when we had the closed session. In correspondence since then, I have said that we are ready to answer questions, whether they are a continuation of those from the original session on 28 September that was not finished, are based on matters arising from the new information that we have sent or follow on from the session with Ofgem. There is one area where we will be limited in the scope of the answers that we can provide, and I will explain that.

The Committee is aware of the fact-finding investigation that is being undertaken on my behalf by PricewaterhouseCoopers (PwC). I initiated that process following the session on 28 September as a result of the information that we discussed in closed session on 12 October. The point is that it is clear that the attention of the Department was drawn to the structural and design problems in the scheme at various times in the period 2013 to 2015 but that information was not acted on in a way that it was reasonable to expect it to be. We have to express our deep regret that that did not happen and that the appropriate action was not taken.

As I have said in correspondence, the fact-finding investigation continues. Once that has been completed, if the evidence suggests it is appropriate, we will commission an independent HR adviser to consider those facts and advise on whether there are any issues of performance or conduct that need to be addressed in line with the HR handbook in relation to members of staff. I stress that we are not yet in a position to conclude that that will be required, as the fact-finding is not complete. It remains very important, for the reasons that I explained in the closed session on 12 October, that we do not say anything today that would prejudge any such process. I am here ready to acknowledge the mistakes and omissions on behalf of the Department corporately, but we will need to avoid any attribution of failure to individuals. I hope that you will understand that that is necessary at this stage. We certainly want to answer as fully as we can this afternoon.

We have had a lot of additional information to examine over the last few weeks. That has helped us to understand better what went wrong. The scheme had been devised with worthy intentions to increase the use of sustainable energy, but it is clear that the scheme was not fit for purpose. The intention was good, but the execution and design were seriously wrong. There are a few conclusions so far, and I am happy to expand on these or deal with them in the session this afternoon.

I do not have any evidence to suggest that, at the initial design stage, the Department fully understood how the scheme would work in practice. There was a lack of awareness that the design would create a perverse incentive. The Department was aware that there was a need to control costs and should have acted earlier to introduce cost controls of various kinds. That is quite a complex point, but, again, I am happy to expand on that in questioning. When information was brought to the Department's attention that suggested that the scheme was providing returns that were overly generous to recipients, that information was not acted on. The focus in the early years of the scheme, when uptake was low, was on the fact that the budget was being underspent. Then, when demand escalated in 2015, what happened was a response focusing on seeking additional budget cover rather than examining critically why the scheme was becoming so attractive. That is what we should have done and did not do. That was affected partly by the confusion over the budgetary treatment. The mindset in the Department in 2015 was that additional annually managed expenditure (AME) funding would be made available. The fact is that some of that happened; we got additional AME in that financial year. It was not until January 2016 that the implications of the scheme for the resource DEL and hence the opportunity cost for public services finally became crystal clear. It should have been clearer a lot earlier.

Those are just some thoughts that I have bringing together the threads of the whole issue and what is going on. There is lots of detail further emerging. We received the material that the Committee received from Ofgem following its session. I have noticed important points in that already, but I would not claim that we have been through it in full detail. We will need to do further homework on it. Obviously, if there are immediate points that you need to ask us about, we will try to answer them today; if we cannot, we will come back to you in writing or, if you require us to come back, we are happy to do that. As the Committee is aware, there was another whistle-blower case that was referred to us by the C&AG last month. The position on that case is still under review.

I do not think that anything there is other than confirmatory of the lines of questioning that the Committee was on six weeks ago, but I thought that it was helpful just to draw those threads together. I am happy to go into questions at this point, Chair.

The Chairperson (Mr Swann): Andrew, thank you again for the honesty in some of your comments. There is some damning criticism of your Department, which is what we got from you the last time. The Department did not fully understand the scheme and did not have the ability to reverse what was going wrong when you were made aware of it. I will give you a couple of comments from a PAC point of view and ask whether you feel that they are fair:

Is that a fair comment?

Dr McCormick: That sums it up well. That is very fair. The only point I would make is that towards the end of the scheme there was still a sense that this was a worthy objective and that for Northern Ireland to be contributing a larger proportion of the UK's renewable heat was a good thing. However, that is undermined fundamentally by the fact that we did not realise how much was not being spent well, and we only found out about that definitively through the inspections PwC carried out. As you said, there were warning signals, but they were not acted on as they should have been. We have to accept that.

The Chairperson (Mr Swann): I have another comment that I want to read to you:

Fair comment?

Dr McCormick: I would not accept "endemic"; lots of other things were going on in the Department. We have been at the Committee often enough on other kinds of cases, and the casework process in place ensures value for money for the vast majority of expenditure. A further lesson from this is that, had the casework conclusions and deliberations in the spring of 2012 been followed through in this case, some of the issues would not have arisen. We have systems that should have worked but went wrong on that point. The casework — our primary governance mechanism to ensure value for money — did not kick in. Commitments were made at casework that were not followed through in this case. Fundamental on the path back towards confidence — we are on a journey to the place where we can give the Committee confidence again that we are on top of things — is our system for implementing and checking the mechanisms, so that there is clarity of responsibility at every level in the Department when a commitment has been given to review, as there was a commitment in this case to review the tariff, which was then not carried out. The casework identified the risk of the scheme being overly generous. That was recorded as a risk but not acted on. We have to make sure that, when we review these things, the checks and balances are effective. That is absolutely fundamental to our job.

The Chairperson (Mr Swann): Further comment:

Fair comment?

Dr McCormick: Fair comment.

The Chairperson (Mr Swann): Finally:

Fair comment?

Dr McCormick: I cannot argue with that.

The Chairperson (Mr Swann): Andrew, those four comments are from this Committee's report on Bytel; they are not related to this inquiry. Those are four opening statements from the introduction to the executive summary. That inquiry was completed and reported on by 1 July 2015. Bytel happened between 2003 and 2005. What did the Department learn from Bytel?

Dr McCormick: All you have said was there and also the specific lessons in relation to the fact that it was a technical area where we had insufficient grasp of the reasons for the decisions being taken and over-relied on external advice in that case. I am going further than you said, because we have been thinking about the comparison a lot, and we realise that there are far too many similarities. The difference now is that we have a new system coming in to do this governance so that we have to be sure that we double-check the casework approvals. The key point for us is that we recognise our risks and have more effective project management in these cases. Maybe the biggest lesson is to make sure that we are not taking on things without proper organisational resources. That means looking at what we have internally and —

The Chairperson (Mr Swann): But Andrew, exactly what you are saying to me is what the Department should have learned from Bytel before it went down the avenue of the renewable heat incentive (RHI) scheme. Even in your opening statement, you said that the Department did not fully understand. I ask you this again: did the Department learn anything from Bytel in retrospect, when you look at the comments made here on 28 September?

Dr McCormick: We thought we had learned quite a lot, but it was clearly not sufficient. There is no denying that lessons had not been internalised. The fact remains that a lot of the things that went wrong with RHI had happened before the Bytel case was heard here. Most of the things that went wrong happened before that report. When it came to attention again, it came up into consciousness for senior level attention following the expansion of the uptake in March 2015. The point, then, is that our response to the issue at that stage was wrong.

The Chairperson (Mr Swann): Have you reflected on the answers that you gave in the evidence session here the last time? Have you re-evaluated your answers in light of new information that you have received, as referred to in your letter of 4 October?

Dr McCormick: Yes. As you know, the evidence session was affected by the fact that I received the additional information only on the morning of that hearing. I checked very carefully the nature of what was said then. I would definitely acknowledge that, in the course of that session, I was using what is, for me, a familiar line, which is to say that I regard collective failure as more serious and more difficult to manage than individual failure. That was on the understanding — that was the situation I was in while preparing for the session on 28 September — that my summary at that stage would have been that the RHI case was dominated by a series of omissions that were understandable at a level if they had not been drawn to attention.

What changed fundamentally through the new information was the evidence, which we had not been aware of before, that the very issues about the tiered tariff had been drawn to the Department's attention several times in the period in question. That changes my view of that. Because we still have an ongoing process, I do not know where that will lead me in terms of a conclusion, and I am determined not to prejudge that. It changed it from, if you like, a series of collective omissions where nobody was aware to a situation where there was evidence that people were aware. That, to me, is a different kettle of fish.

The Chairperson (Mr Swann): With regard to collective misjudgement, do you think that that is an adequate rationale? I do not want you to go down the line of —

Dr McCormick: I do not think so, but I would reserve my position on that finally until we have further facts. It does not look like that from where I sit today.

The Chairperson (Mr Swann): It does not look like that. Again, I go back to Bytel:

From what you have said to me, I hope that the Department is moving away from that.

Dr McCormick: We are pursuing the case, as you know, and I owe you a letter in relation to the follow-up on the Bytel case, both the update on the generality of the memorandum of reply to the Bytel case — that is coming very shortly — and, as the Committee is aware, we pursued recommendation 7, which relates to the point you have just made. I will write separately to you about that. We pursued an issue. It was not possible to bring it to a resolution. I have had a discussion with the Northern Ireland Audit Office (NIAO) about that, because, helpfully, Kieran and colleagues drew my attention to additional considerations in the way that had been handled by individuals. However, the Bytel issue was a long time ago, and we have had to conclude that there is no actual issue to pursue there. I will explain that fully when I write to you.

The Chairperson (Mr Swann): The lessons should have been learned, I think that is —

Dr McCormick: Yes. Therefore, it is important that we are much quicker to respond to cases like this. That is an important point, and, again, there is clear contrast, in that this issue is still unfolding in real time, even now. Memories are much more recent than was the case with Bytel, which will make it a different case again.

The Chairperson (Mr Swann): Where, I think, the two differ is in their financial implications. The financial costs incurred by this scheme are huge, and mistakes have been made by both the Department and Ofgem, as we witnessed in our last evidence session. They are simply astonishing.

You have been around the Civil Service, according to your biog, for 36 years, Andrew. Would you agree that, in terms of public money, this is the biggest financial scandal in living memory?

Dr McCormick: In Northern Ireland, I cannot recall anything that was on this scale in relation to both opportunity costs to public services and poor value for money. I accept that.

The Chairperson (Mr Swann): Figures are given in respect of the cost to the Northern Ireland block grant this year and in future years. The estimate in the Northern Ireland Audit Office report was an impact of £32 million on the block grant for 2016-17. Can you tell me what the latest position is on the expected cost to the block grant for 2016-17?

Dr McCormick: It is still the best estimate we have. I am sure that it will change, but we have no fresh information on that.

The Chairperson (Mr Swann): Has anything been cut from your Department's spend to cover that cost?

Dr McCormick: The monitoring rounds are not yet complete for that year. We have had to be ready to transfer savings from other sources, so there is certainly an opportunity cost in our budget and to the wider block. We have not actually had to cut anything, I think.

Ms Heather Cousins (Department for the Economy): May I expand on that? I have been involved in all the monitoring round discussions with all the business areas in the Department. In those discussions, we have made it clear that, where there is expenditure that is not already committed, it should not be committed, as we are looking to meet as much as we can of the pressure from our departmental budget.

The Chairperson (Mr Swann): Is that an instruction from the Executive or the Department of Finance?

Ms Cousins: That is an instruction from the Department of Finance, and it was re-emphasised when we were talking to the business areas. We also had discussions with the Minister on the need for reining in discretionary spend.

The Chairperson (Mr Swann): Andrew, you touched on monitoring rounds. Heather, you were previously in the Department for Employment and Learning and are now involved in monitoring rounds. Can you remind the Committee how much was reassigned in the last monitoring round to cover RHI spend?

Ms Cousins: There is £20 million set aside centrally, but it has not been allocated to the Department at this point.

The Chairperson (Mr Swann): What about the £1·7 million from apprenticeships in the last monitoring round?

Ms Cousins: I am not entirely sure about that.

Dr McCormick: Let us check the figures, and we will get back to you.

The Chairperson (Mr Swann): I am sorry; they were covered in the House. There was £1·7 million from apprenticeships: £600,000 from Assured Skills and another £1·2 million from training schemes.

Dr McCormick: Where there have been emerging savings, they have had to go to cover this rather than being used to either expand or refresh skills areas or anything else that would have been possible. The effect is real. Your point stands.

The Chairperson (Mr Swann): The fact is that, currently, there is a hypothesis out there that this will cost £1·18 billion, but, at this minute in time, Assured Skills, apprenticeships and the future of some of our young people are being affected by this scheme.

Ms Cousins: Where that is the case, those are programmes that, in this financial year, we are not able to spend on, because of a lower demand for those schemes than we had anticipated at the beginning. It is not that we have cut those schemes; it is just that they are not spending against profile and therefore we have been able to gather that funding towards meeting these pressures. The skills schemes and apprenticeship schemes are demand-led. All our skills programmes are demand-led.

The Chairperson (Mr Swann): Heather, as the previous Chair of the Committee for Employment and Learning, I remember you in front of me telling me how you would meet those and that you needed more budget to carry out those programmes. I do not want to labour that, but I want to point out clearly to you the concern about the future of some of the young people in this country. Apprenticeships and Assured Skills have been reassigned and re-profiled financially to cover this scheme, and it is still your intention to do that.

Dr McCormick: Obviously, we now need to work with the Department of Finance and more widely to get as reasonable an outcome as possible for the rest of this financial year and the years beyond and to minimise the damage. There is no question that there is loss here. As Heather said, it has not been about cutting services, but it certainly has meant not having resource that would otherwise have been available to expand one service or another. We have known that since January/February this year. Even as the final plans were being drawn up for 2016-17, we knew that we had this issue, and, looking ahead, it remains there.

The fundamental action for us is to do everything that we can to reduce the forecast estimates of demand. If there is any way to reduce the flow of funds on the scheme legitimately and reasonably, that is what we need to do. I cannot go into detail on that now, but that is where our active work is as positive as we can make it. We are devoting time, attention and resource to bearing down on the future year cost to get that billion figure down. We always knew that it would be a scheme worth half a billion pounds or £600 million over the period. We knew that it was going to be large. It is far larger than it should have been — that is our problem — but we need to look hard, with a very open mind and as radically as we can, at what can be done to change that. That will include looking at where we might challenge any illegitimate expenditure. That is why the work of PwC was important in exposing some of the areas where the scheme is not operating as intended and maybe, in some cases, operating outside the regulations. We then have to look at what else we can do by way of looking at the legislation and our obligations in this context to get the cost down going forward. We are highly motivated to do that, and our Minister and the Finance Minister are very focused on that point.

The Chairperson (Mr Swann): You talk about trying to drive costs down. We want to have the figure clear in our heads. I think you said at the last session that, over the next 20 years, it would cost £660 million to the block grant.

Dr McCormick: Yes, that is my recollection, but, again, things partly depend on the budget share that we get from London. This depends partly on what happens going forward with Treasury and what is now the Department for Business, Energy and Industrial Strategy. Looking at its budget and our Barnett consequential of that, the larger that is, the smaller the pressure on the Executive's block grant. That needs looked at, and we then need to do what we can to bear down on cost.

The Chairperson (Mr Swann): Still a complete project cost of £1·18 billion.

Dr McCormick: As we stand today, that is what we are working on.

Ms Cousins: If we did nothing, that is what it would cost, but we do not intend to do that. That is the worst-case scenario, and that is what we are working towards.

The Chairperson (Mr Swann): What is your best-case scenario, Heather? What have you?

Ms Cousins: It is hard to speculate. It depends on the options that we have available to us legally, and we are taking legal advice on what we can do.

The Chairperson (Mr Swann): Andrew, you referred to a whistle-blower and how that is being dealt with. Correspondence that the Committee has received from a whistle-blower — a concerned member of the public — shows that there were clear warnings to the Departments in relation to tiering and the wasteful use of heat as far back as October 2013. Why was that not acted on?

Dr McCormick: The context in October 2013 was that the consultation was current in relation to phase 2 of RHI, which was twofold. It was introducing the domestic scheme and then a number of aspects of expansion and revision of the non-domestic scheme. Yes, at that point in time there was a meeting with an individual who had approached the then ETI Minister, where the point was made that the scheme was not operating as intended. It seems, on the face of it from that, a clear signal to act and to at least ask the question, "What does she mean? What does this person mean?" and "How can this be?".

What is said in the email that followed in May, as you know, is that the reaction at the meeting was that the officials did not believe what they were being told. That is in the emails you have seen. The person makes the point and is not believed. I find that a cause for great concern and ask myself this question: "What was so difficult about trying to understand what she was saying? If the scheme is too generous, in what sense is it too generous?". In mitigation, at that time there were many voices, in the context of the consultation, saying that the tariff was too low. There was a lot of other stuff going on. I do not find that complete and satisfactory, but we are still looking at the detail of all of this. To me, that was the first clear opportunity for the point that the tariff was too generous to be identified and understood; as a matter of fact, it was not. I hesitate to criticise, because you always have to put yourself in the context of what someone does at the time. It is never as simple as it appears, but the point looks very fundamental.

The Chairperson (Mr Swann): From what you have told the Committee, the then ETI Minister — now the First Minister — was informed.

Dr McCormick: The person raised a concern, and what the then ETI Minister did was entirely appropriate. She said, "You need to go and see my officials", and that happened.

The Chairperson (Mr Swann): Were the officials not concerned or overly worried about the fact that this had been raised by their Minister? As at an earlier session on 28 September you seemed to intimate that it was being kept at a lower level in the Department and had not got the length of the permanent secretary, but surely, if it was at ministerial level, would there not have been a —

Dr McCormick: I do not know exactly who knew every detail of that. I would not expect, if this was one of many conversations — not every conversation will be shared with everybody in the Department. The responsibility and the clear right thing to happen was for the initial approach at ministerial level to be followed up by officials, and it was. Where it went wrong is in the follow-up to that meeting.

Mr Clarke: On the same point — I am not asking for anyone's name — is the person who looked at that in terms of the whistle-blower part of any of the disciplinary stuff that is going on?

Dr McCormick: There is no disciplinary stuff going on.

Mr Clarke: Sorry, what?

Dr McCormick: There is no disciplinary exercise going on. There is a fact-finding exercise.

Mr Clarke: OK.

Dr McCormick: If and only if that leads to a consideration of conduct or performance, those decisions lie ahead, and I will not prejudge them. What I would say is that, self-evidently, those are the very things that the fact-finding exercise is focusing on. It is specifically to help us understand, in a fair and proper context, what the individuals concerned did or did not do with the information at that time.

Mr Clarke: That is fair enough. What grade was the person the whistle-blower was directed to?

Dr McCormick: My understanding is that the meeting in October 2013 involved people at several grades. It involved three individuals, including someone from the Senior Civil Service (SCS).

Ms Alison Caldwell (Department of Finance): In that respect, I ask the Committee to be careful about the guidance in the 'Guide to the Scrutiny of Public Expenditure' and the issues around ongoing fact-finding.

The Chairperson (Mr Swann): That was covered in a closed session.

Mr Clarke: I appreciate that, Chair, but I am not asking for anybody to be identified; I have asked for the grade.

The Chairperson (Mr Swann): As long as you are finished at that.

Mr Clarke: If I can find out the grade. Am I entitled to find that out?

Dr McCormick: As I said, there was an SCS member of staff at that meeting with the whistle-blower.

The Chairperson (Mr Swann): A senior civil servant.

Mr Kearney: Andrew, twice in this session, in mitigation for people not getting a grip on the situation at an earlier stage, you have referenced that a lot was going on. How many staff are there in the Department?

Dr McCormick: I do not recall the exact number in DETI at that time, but the number of people involved in the policy work on energy totalled 20 or 30. In renewable energy, that number was a half a dozen, and that included those whose job it was to manage the renewable heat premium payment scheme. There was an operational function as well. A very small number of people were involved in the policy work.

Mr Kearney: And how many of that number had management oversight?

Dr McCormick: It depends how you define —

Mr Kearney: A helicopter view.

Dr McCormick: We are taking about four or five people who had the time and attention for that kind of policy and design in relation to the operation of the scheme.

Mr Kearney: OK. How many people in the Department have an overall helicopter responsibility for knowing about everything that goes on in the Department?

Dr McCormick: At that time we had one permanent secretary. We also had two deputy secretaries, one whose role related to policy work, including energy. The core of the other person's job was related to finance and corporate services, so their role would have been what Heather does for me, which is to help make sure that the governance and financial decisions are appropriate. Three of those individuals carried governance responsibilities in relation to all kinds of operations by the Department, including this scheme. You then had a single energy division headed by a senior civil servant. Does that give a reasonable overview?

Mr Kearney: That is roughly 10 people in the Department who would have the helicopter view, who would have the responsibility and should know everything that is going on.

Dr McCormick: Yes, at a strategic level.

Mr Kearney: And at an operational level. Are you telling us that they were not talking to each other?

Dr McCormick: They were talking to each other a lot. Whether they specifically talked about the approach from that individual — thinking about how that works in the real world, I doubt that that would have happened, because it would have been one of many conversations. Part of the point is that, because it was not understood, it was not seen as important.

Mr Kearney: Do you accept —

Dr McCormick: That is where it all goes wrong.

Mr Kearney: I infer from the reference to a lot going on that you were very busy and were doing all sorts of things, you were distracted in different directions and there was lots of work happening. Do you accept that that is really not an observation or mitigation that should be shared with the Committee to explain why —

Dr McCormick: I do not think it is anything like a sufficient explanation of what has gone wrong here. I just want to record it as a matter of fact that the people in the energy division had a lot of other things going on and a lot of other voices coming to their attention. This was one of many voices. If it had been the only voice they had heard, there would have been a different perspective, but there were others; people were writing to them and phoning them, saying they had too low a tariff.

Mr Kearney: The difference in the case that Robin just referenced is that it was brought to the attention of the Minister, who then commissioned the structures to deal with the matter being brought forward, and then there was radio silence. It just falls into the bog.

Dr McCormick: Yes, and, again, I don't know how —

Mr Kearney: You see, what I do not get is this: if it goes to the Minister, who then commences a process, and it goes to the tier in the organisation that should have a helicopter view and overall responsibility — you indicated that it could be as many as 10 in this division, this section and then overall departmental responsibility — somehow or other, the ball gets dropped.

Dr McCormick: The only point I can make is that the significance was not clear; it should have been, but it was not.

Mr Kearney: Is the Minister not significant enough?

Dr McCormick: Of course, but what she had asked to happen had happened. Then we had a situation where the team — as was recorded in the email — did not believe what it was told. They did not identify the issue and — I am guessing here — with the number of conversations that may have happened and the number of other things that were going on, there would not have been an explicit obligation to go back to the Minister and say, "We've now met that individual". I do not know exactly how it arose, but there is no standing obligation in that sense. If it had it been known that it was significant and if the Minister had said it was — I do not think the substance of the point was explicit in the conversation, but there is no evidence to support it. To me, this is understandable in the real world.

Mr Kearney: In parallel to that, we established at the last hearing that lower members of the Department became very clearly aware that there was something wrong. On the one hand, we had lower members of the organisation becoming aware that there was something wrong and attempting to do something about it, and over here, in parallel, we have a situation where the Minister has initiated departmental members' attention to deal with a complaint or information that has come in to the Department and it goes nowhere. If there were two parallel processes, I find it inconceivable that more senior people would not have copped on to there being a problem at an earlier stage.

Dr McCormick: Again, I do not think they were parallel; the two points you make were at different times. The approach to the Minister and the meeting with the person happened in October 2013, and the evidence of concern at a more junior level comes, as you said, in the handover note in May 2014. It was the same person, but the events were at different points in time.

Mr Kearney: OK. Let us take all of it back into the system. I want to pick up on a point that was left off by Robin earlier about this being an endemic problem. Dealing with the system, I find it inconceivable that more senior members of the Department would not have become attentive to and acted on a situation. I just find it inconceivable.

Dr McCormick: What you say is entirely reasonable.

Mr Kearney: Do you find it inconceivable? We have agreed that "a lot going on" does not stand up as an explanation and mitigation of why they would not.

Dr McCormick: Looking at it, you have to consider what it was like in the real world as people were doing this and other things. Part of the work that I am doing at present is seeking to establish, as clearly as we can, to whose attention the issue was later drawn. In May 2014, there were references to things requiring urgent attention and urgent follow-up; that is recorded in those documents. Who knew about those? The fact is that, at that point, not only was there a handover from two individuals who were leaving, but there was a handover to someone who was temporarily involved and then a further handover. At that point, things were not good in terms of transfer of information and responsibility, but the question stands: what information was known at a senior level? We are getting close to the substance of the fact-finding, so I want to be very careful, because it goes right to the heart of the issue.

Mr Kearney: That is OK, but it suggests to me that there are systemic problems.

Dr McCormick: I understand.

Mr Kearney: I would like to make three quick points to take this on a wee bit. You disputed that the problem was endemic, and you made the comment that collective responsibility is much more difficult to manage. I agree, but for me collective responsibility is also much more significant. When you move into the territory of collective responsibility, that speaks to culture, attitude and mindsets. What I put to you is that, when all of that is flawed or defective, it impacts then directly on systems. If the culture is flawed and people's mindsets are distracted or not connected up, you do not have effective systems, and, when systems are wrong, there is an endemic problem. I do not think that you can separate your astute observation about collective responsibility from systemic and endemic difficulties arising from a mindset and a culture that, I suspect, were the backdrop to what went wrong with Bytel, and that is where you find the connecting thread right through to RHI. I put that to you.

Dr McCormick: That is a cogent summary and accords with exactly the kind of case study that a good business school would use to show why organisations go wrong. I can think of parallels where people have drawn out that analysis. Applying the thought to the organisation in the period 2013-14 through 2015 until now, we are aware of the issue. There are several things I would say to that. I developed a line of thinking when I was in the Department of Health — the Health Department is full of difficult risks to manage — and my line to the chief executives was, "I expect you to manage risks, but, if you have a risk that you cannot manage, you have the right and responsibility to tell me as principal accounting officer". I use the example of the Ulster Hospital. John Compton, who was chief executive of the trust, told me that there was an issue that needed to be managed, and as a result of that we re-prioritised the capital programme. He said that there was a risk that needed to be sorted, and we acted on that. That is the best example I can give of it working positively. It did not work in this case. People knew that a risk existed and did not escalate it.

Is that an issue in relation to internal culture? It probably is, and the responsibility on us as leaders is to say, "Challenge". Everybody has to have permission to challenge. Everybody has to have permission to raise issues that disrespect authority. Governance only works when every member of staff has the right to say to the most senior, experienced, intimidating senior officer, "You are doing that wrong". We as senior officers have to be prepared to take that, listen and be provoked to think. That is absolutely vital if these things are to work, and in this case it did not work.

I would still argue that the problems that we are talking about here are not endemic, because there are aspects of the Department's work where lessons have been learned in other contexts and we have established systems and procedures. So, yes, it goes, exactly as you said, to systems. We have to have effective systems. The solution to this kind of risk management challenge will be in having effective systems and the right people in the right positions, people with the training and the mindset. Culture and attitude are fundamental, and there has to be an inquisitive and challenging attitude in everything that we do. I was taught when I was in the Department of Finance in the 1980s that you need only two words in your vocabulary. The first word is "why", and you keep asking, "Why?". If someone says, "I want to do this", you keep asking "Why?" until you are fully convinced. In this case, the question was not sufficiently asked. We need to work on that.

The Chairperson (Mr Swann): Was it ever asked?

Dr McCormick: No.

Mr Kearney: I have an observation and one quick question.

The Chairperson (Mr Swann): Very quick.

Mr Kearney: It is a yes-or-no question. My observation is that I find it deeply alarming that we are having this conversation about the direction of travel of the Department within our institutions that is meant to act as the powerhouse of economic innovation, economic policy, growth, productivity, investment and the development of skills. To add to that, it is some 18 or 19 years after we have had a transfer of powers to the local Executive.

Dr McCormick: That is why I say that there are a large number of areas where the appropriate approaches to governance and systems are effective and working. There are some similarities between the Bytel case and this case that I am well aware of. We need to pay some serious further attention to those. The need to learn the lessons of this case is acute and extreme for us. I really acknowledge the force and gravity of what you have said, but I do not think that it applies to the wider generality of functions. We are also in a process of bringing together the established methods in DEL as a Department where, again, attention has been given to governance and governance practice, and we are still bringing that together.

This whole episode has been a major blow. It has given us more pause for thought than anything that I can remember. However, I reassure you that there are lots of things that work in our governance systems, partly because we have been through the learning processes from cases as far back as the 1980s that are still remembered as learning cases in relation to aspects of investment in the economy and innovation. We know how to do lots of cases and we continue to do them well, but this one went very badly wrong.

Mr Kearney: This is my last question, Andrew, and I hope that it will get a yes-or-no answer. Thanks for your indulgence, Robin. In your last presentation, Andrew, apart from references to a lot of stuff that was going on, much of what was offered by way of explanation came in the form of design flaws, misunderstandings, assumptions, weakness and thoughtlessness. Do you think that that is an acceptable explanation for the public when the financial implications of this scheme start to impact on departmental budgets and our overall block grant?

Dr McCormick: No, and therefore we need to do an awful lot more about it.

The Chairperson (Mr Swann): The figures that I mentioned earlier are £1·4 million from apprenticeships, £600,000 from Assured Skills and £1·7 million from Invest NI to meet a £3·7 million transfer across to RHI.

Dr McCormick: Those will be savings that have been redistributed, not cuts. They are opportunity costs, so the point that you make stands.

The Chairperson (Mr Swann): Members, there are a lot of people looking to ask questions here. Can I have questions? I am happy to take threads of questions, but I do not want statements.

Mr McMullan: I have three very quick ones. In the meeting with the whistle-blower, did the whistle-blower state that any particular application was wrong?

Dr McCormick: Not that I am aware of. I do not think so.

Mr McMullan: Are there minutes of that meeting?

Dr McCormick: There is not a detailed record of it.

Mr McMullan: Are there minutes of that meeting?

Dr McCormick: No.

Mr McMullan: No. There are no minutes of that meeting. I am astounded. I am sitting here listening, and you keep talking about the real world. I put this to you: are you in the real world? I say that in the nicest possible way. You keep telling us of lessons learned; lessons should not be learned here at all when working with a programme of this magnitude. You keep saying that you asked the question, "Why?". We have no minutes, and it was the same the last time with Ofgem: no minutes. You did not go back to the Minister with an answer. You did not believe the whistle-blower. How, all of a sudden, when the programme changed, was there such a big influx of applications at that one time — at that one time, in the real world?

Dr McCormick: In the real world, that was because we had created exactly the conditions that would give rise to that.

Mr McMullan: In what time frame?

Dr McCormick: The change was announced in early September 2015 — the decision to introduce tiered tariffs. That did not take effect until the middle of November 2015, so there was an ideal time period for a rush of applications to come in. We had not understood that risk in August 2015.

Mr McMullan: You did not understand that risk, going from what you had to open season in eight weeks. We are talking about eight weeks. When you put that out to the public, what was the volume of applications?

Dr McCormick: Have you got the figures, Heather? When the spike of applications happened —

The Chairperson (Mr Swann): It is 8 September 2015.

Dr McCormick: There were several hundred applications. The total of the installations that were applied for before November 2015 was 1,800, and nearly half of those came in the last few months because there was such a rush.

Mr McMullan: Yes, such a rush. Nobody in your office at the high grades — the ones that Declan talked about — who oversaw it all worked that out before you did that?

Dr McCormick: There was no understanding of why there was such a rush of applications, because the tariff point still had not fallen into place. We knew that there would be some, but the sheer scale was not anticipated. In fact, it was not anticipated when we had discussions in July, August and September. Certainly, if we had known then what we know now, the advice would have been to close the scheme down much more quickly. There is no question about that.

Mr McMullan: Where did the order come from to close the scheme down?

Dr McCormick: It became clear in June/July 2015 that there was a major issue, that the budget had been exceeded and we had to do something. We put the advice to the Minister, we had discussions with the Minister and we proposed urgent action to close it off.

Mr McMullan: Who proposed it?

Dr McCormick: That was put forward by officials.

Mr McMullan: By officials at the meeting?

Dr McCormick: In discussion and in a formal submission to the Minister in July 2015.

Mr McMullan: Was that minuted?

Dr McCormick: Yes. There is a formal submission to the Minister.

Mr McMullan: Can the minutes of that meeting be seen?

Dr McCormick: There is not a formal minute of the meeting with the Minister; there is a record of the decision taken. The record is very clear as to what happened. There is no question about what happened in the period during June/July through to September 2015. The difficult point for us is that, even at that stage, there was a gradual trend of increase in applications, but there was nothing that would have given us the expectation of the very rapid increase in applications that happened after the announcement.

Mr McMullan: Was anybody who took the decision not to believe the whistle-blower involved in the decision to close the scheme?

Dr McCormick: There had been a complete change of personnel between those two times, so no one was directly involved.

Mr McMullan: Nobody was involved with the whistle-blower who was also involved in closing the scheme down.

Dr McCormick: No one who had met them in October 2013. Again, I am being careful here. The documentary trail shows that the same individual sent further emails. There is an email of May 2014 and a further email of March 2015, by which stage the people in post today were in post. That further correspondence from the individual came in but was not drawn to attention. I did not become aware of it until a few weeks ago.

The Chairperson (Mr Swann): OK, Oliver.

Mr McMullan: I appreciate that. Thanks, Chairperson.

Ms Gildernew: My question is along the same lines. You are very welcome, Andrew and Heather. I find it hard to understand it all. I am looking at an email that is dated October 2013 and a follow-up email from June 2014. We have heard from you today that demand escalated in 2015 and that you sought budgetary cover rather than try to find out why, when the reasons why were very clear and were shared with a small team. I cannot understand that.

I accept, Andrew, that you did not come into the Department until 2014. A small team was dealing with this, and points were made that very clearly said why, yet, when the demand escalated, there were shrugs of shoulders and people saying that they did not know why demand had escalated but they would seek budgetary cover for it.

I want to ask you, Andrew, about the ongoing fact-finding investigation. As part of that, are you looking at how the scheme was marketed and how the information was put out there? You said that half of the applications, or thereabouts, came in one spike. Where did the people who applied during that period hear about the scheme? How did they hear about it? Who was selling it? We have asked a number of times for information that has not been given to us. How many of those applications during the spike — the ones that we are now worried about and that are having a major impact on the budget — were for five boilers when one would have done? Some of them might be going to domestic installations. How many of them involve windows open and empty sheds? If I was looking at anything, I would be looking at the spike, where the issues were generated and why the budget that we have now for a considerable period has been so heavily impacted by this scheme.

Dr McCormick: We do not have details of the extent of those issues because what we have from PricewaterhouseCoopers is a sample. You could extrapolate from that, and what it found was that around half of the inspections that it carried out had one problem or another in categories 2, 3 and 4, as in their report. However, that is from a sample, so we cannot know how that applies to the generality of the 2,000 installations. I do not think we have precise detail as to which of those were in the late applications. The figures are, of course, in the Audit Office report, so there were 485 in October and November 2015. That was the spike. It is not as much as half, as I said, but it is still a very large number.

Again, we do not have tracking of the precise cost of those going forward. We can try to produce some further analysis of that for you, and we are happy to do so. All that shows is that, going back to the email trail, the point was made, and it was very clear and very straightforwardly put in those emails as to what was going wrong. My concern is to establish as best I can why that was not acted on once it became known, who was told and why it was not acted on. I am pursuing the evidence on that, and that is of the deepest concern from my point of view.

Ms Gildernew: We may come back to this later.

Mr McCrossan: I have a few thoughts on this. First of all, the more I listen to this, the more nothing ever seems to add up. We are going round in circles, and some of the questions that have been posed by other members show that we are going round in circles and still not getting to what exactly went wrong. No matter who presents before the Committee, it is the same thing. To go back slightly, when did the Minister flag up with the Department the concerns about the scheme, or did the Department flag them up with the Minister? I just want to clarify a few things about those concerns. Did the Minister flag up with the Department that she had concerns as a result of someone bringing it to her attention? Is that right?

Dr McCormick: No, the individual approached the Minister in October 2013. I have no detail as to the nature of that conversation, but the right thing happened in that, as soon as possible after that — I think that it took a month — there was a meeting with officials. That was one major opportunity for the concerns to have been identified and addressed. The longer-term perspective is that the focus came on to this much more fully when the extent of applications began to increase such that the budget came under pressure in March 2015, and that is when people had an issue that had to be acted upon. It should have been acted upon earlier.

The Chairperson (Mr Swann): Daniel, the point about the Minister and the whistle-blower has been addressed in previous packs.

Mr McCrossan: Just for the sake of openness, if that was identified in 2013, someone saw the train coming down the track very clearly. The Minister met with, and brought it to the attention of, senior officials. I am sorry for covering old ground, but it is important to highlight that. They were people in very high-ranking positions, as Trevor highlighted, and no one got back to the Minister after that. Are we right in saying that?

Dr McCormick: I —

Mr McCrossan: Just a second, Andrew; this is very important.

I am looking at various things and listening to what you are saying about living in the real world. Again, Oliver touched on that. I do not think that anyone in the Department is in the real world at the minute about what exactly happened and about what is an unprecedented scandal. It is beyond belief. I cannot understand how no one got back to the Minister about this.

The other thing is that "fact-finding" is a very loose term. I could give a few hard facts across the table that you would not want to hear, but the public are clearly stating their complete disgust at what has happened. The credibility of this institution has been damaged as a result of the incompetence of the Minister, the Department, Ofgem or others. Why have no disciplinary procedures been put in place? If this was a private organisation —

The Chairperson (Mr Swann): Sorry, Daniel, the point about disciplinary issues and where that is at this stage was covered in closed session. I know that you were only here for the open session. We had a closed session earlier, and we covered that. This is what we can cover and what we can talk about.

Mr McCrossan: It is still important, Chair, to ask why. Whether it is in open session or closed session, the public deserve to know why no one has been held to account for this disaster.

The Chairperson (Mr Swann): It was covered in Andrew's opening statement as well.

Dr McCormick: It is in my correspondence. My letter of 4 November explains that.

Mr McCrossan: I was at a prior Committee meeting, so I apologise for being late.

The Chairperson (Mr Swann): The letter covering all that is in there.

Mr Butler: Thank you, Andrew and Heather. I want to pick up on the term "endemic", which was used by the Chair and Declan. I have been thinking about this since our first sessions. I will ask a question without making a statement. How significantly does the turnover of Department staff at all levels weaken the Department's ability to design, install and manage schemes of such significance as the RHI programme, given that, a couple of minutes ago, you indicated that there had been a complete change of personnel? If I was running a business, I certainly could not sustain such a turnover of staff and, to my mind, there would be a weakness in that corporate memory. That is one question. To finish that point, it has also been stated, Andrew, that there was no formal project-management system in place to do this, which is unforgivable. There was no senior reporting officer, and that, I think, answers some of our questions officially. If there was no senior reporting officer, who had the responsibility for appointing one for a scheme of such significance?

Dr McCormick: I acknowledge completely that there is a risk to corporate memory when there is discontinuity in staffing. That is a known risk. Everywhere I have worked throughout the years, the risk to business continuity through personnel is high on the list. It was undoubtedly a factor in what has gone wrong here. I would infer that some of the material came to our attention because an effort was made to transfer information at the time of a handover, so that is what was at the heart of that documentation. What we have learnt is that that did not work. It should have worked; it should have been a way of compensating for the fact that there was such a significant change. Not all the changes were simultaneous, and there was scope for some further discussion, so I do not think that it is an adequate explanation; but it is something that we know of as a risk. For example, when we were making the changes to create the Department for the Economy in this past May, we had a lot of changes and some people were retiring or leaving the service under the voluntary exit scheme. It was an acute challenge for us, as senior managers, to make sure that, in each and every part of the organisation, there was at least some degree of business continuity. Also, we said to people: just because you have moved to a new job does not mean that your former colleagues might not need your memory. "Be available" was part of our consistent leadership message at the time of the departmental reorganisation. I cannot guarantee that that has been 100% effective, but we had to try to manage that risk. The point you make about discontinuity is very important.

Sorry, can you remind me of your second thread?

Mr Butler: To my recollection, it had been intimated that there was no SRO, and you certainly accepted that there was no formal project-management system or principal in place. My question was, whose responsibility would it have been to appoint an SRO to a scheme of such significance?

Dr McCormick: If we had this to do over again, it would be my responsibility to make sure that, for something of this scale, there was a senior responsible owner (SRO) of the project. Some aspects were informally owned by the energy division at that time, in the early days. There was certainly some detailed involvement, but we do not have the kind of process, record and system, including a risk register, an issues log, and all the good practice of Projects In Controlled Environments (PRINCE) 2 methodology are not visible in the record. That was not done, and it should have been done; but it is the sort of thing that we really need to take out of this and do right in the future.

Mr Clarke: I return to Michelle's line of thought about the whistle-blower. I am not sure whether I am permitted to ask this — I take your guidance on that, Chair. I am picking up that the whistle-blower was within the Department. If so, what grade was the whistle-blower?

Ms Cousins: No.

Mr Clarke: The whistle-blower was not in the Department? OK, sorry. I picked that up wrongly.

Dr McCormick: It was not, strictly speaking, a whistle-blower; it was an external source who is to be commended for having come forward.

The Chairperson (Mr Swann): I return to Robbie's point about the SRO. Was it common practice in the Department at the time to appoint one?

Dr McCormick: I do not know exactly. I think there were a number of aspects where there were projects of that type. Let me check that and come back to you on that point.

The Chairperson (Mr Swann): If there are, can you let us know what was the value?

Dr McCormick: The value of the projects? Yes.

The Chairperson (Mr Swann): What value does a project have to be for someone in the Department to deem that an SRO is necessary; they thought that this one was not.

Andrew, I come back to Declan's point. There was a lot going on, and you have used that reason, excuse or whatever you want to call it. You keep mentioning the domestic renewable heat incentive. What is the value of the domestic scheme?

Dr McCormick: It is a small fraction of the value of the non-domestic scheme. Bear with me.

Ms Cousins: The value for the domestic scheme is £3 million a year.

The Chairperson (Mr Swann): Over 20 years?

Ms Cousins: No, seven. The domestic scheme is only seven.

The Chairperson (Mr Swann): So a complete scheme worth £21 million was a bigger distraction than a scheme that could potentially cost £1·18 billion. That was taking up more officials' time. Is that because it was simpler and easier to understand?

Dr McCormick: We were behind our counterparts across the water in introducing both schemes, and there was a strong desire — it was a ministerial priority — to get the domestic scheme in place, and that is understandable. Ministers have the right to expect that what they ask us to do is done and done properly. There was a strong priority to do that. The context was that the problem with the non-domestic scheme at that time, up to March 2015, was that it was not working. Nobody was applying, so it was necessary — Sorry, I did not come back on the point about advertising. Advertising was being done to try to improve take-up.

The situation was that £25 million had been specially allocated by the Treasury and we were not spending it. As officials, we get plenty of criticism for failing to spend money and handing it back to the Treasury. Our attitude was that we had the domestic scheme that needed to be brought in so that people could benefit, we could pursue that aspect of renewable heat, and, if anything, we needed to find a way of getting that wretched non-domestic scheme to happen — we questioned why it was not happening. We had an advertising campaign. Most of the advertising money was spent on the domestic scheme rather than non-domestic scheme, but I think that something in the order of £40,000 or £50,000 was spent on advertising the non-domestic scheme, and that improved uptake. That was —

The Chairperson (Mr Swann): On the non-domestic scheme or the domestic scheme?

Dr McCormick: — going on at the time. The view and the concern were about why it was not working, and we questioned whether the tariff was not good enough. That was seriously the thought. It is unbelievable to say that now, but the observation was that we had introduced the scheme in 2013 and had a trickle of applications. Not much was happening, and we asked why it was not working. Very wrong conclusions were drawn, but they were drawn.

The Chairperson (Mr Swann): In some of your earlier comments, you mentioned that there were other voices at the time as the domestic scheme. Expand on that.

Dr McCormick: The consultation on phase 2 of the RHI covered the introduction of the domestic scheme and some development and refinement of the non-domestic scheme; it was quite a large consultation document. Some of the comment at that stage was that the tariff was not large enough. The renewables industry was arguing that it needed more help to get it moving. One voice said, "Here is what is wrong" — that was the person who was saying exactly the right thing and to whom we should have listened — but at the same time others said that it was not good enough and asked why they could not have the English tariff, which, at that time, appeared more generous.

Mr Kearney: Andrew, it is possible that, at any stage in the middle of what you described, a commercial interest began to drive the scheme and that it was, in fact, compromised as a result of overriding commercial interests that sought to profit an advantage as a result of the spike and the increased expenditure? Is that an issue that you have considered?

Dr McCormick: Yes, it is an issue that we are very conscious of and thoughtful about in considering how it happened and in explaining how we got to where we are. It is also a point that we are very thoughtful about in considering the options going forward. There are some very good aspects and some in which business models for commercial activity are very effective. It works well in some respects.

Then, on the other hand, there are aspects where, as PwC drew out in its report, the commercial activity appears to be dubious to say the least. We have to look at all those and be thoughtful — a bit more streetwise — about what goes on, and then think very carefully about the right thing to do going forward.

I am clear that there were aspects where an opportunity was taken because we had not understood what was so attractive about the tariff. The simple point that the tariff was higher than the cost of fuel had not been recognised and understood in the Department; it should have been. I am in no doubt that a large number of commercial entities were very well aware of it and were, therefore, highly motivated to maximise their access to the business.

Mr Kearney: Are you focused on the potential for that motivation being driven as a result of some of what I consider to be systemic or endemic difficulties in the Department? Are you looking at that flank?

Dr McCormick: Yes, we are looking very hard to make sure that this vulnerability does not apply anywhere else. We designed this vulnerability pretty perfectly, and we are now looking at everything else that might be of a similar nature to make sure that the inherent design flaws in non-domestic RHI are not there. We have asked those questions of every other major scheme that has any flow of funding and have checked and assured ourselves. The domestic scheme is not perfect, but it does not have anything like this vulnerability. There is nothing else that we are doing that has this kind of vulnerability. We are very conscious of that point. It is one that the Minister puts to us and puts us over, as you would expect.

Mr Kearney: I will finish on this point. You may not be able to answer today, so I invite you, if necessary, to engage with the Committee on this at a later stage. I, and other members of the Committee, find it extraordinary that this spike took place. I find it impossible to believe that it has not been driven, and that there is not some kind of commercial or profit imperative acting as a driving dynamic. I find that concerning. If that did happen, it is important that the Committee is satisfied that you have got to the bottom of it; if not, then it is important that we have a very clear explanation of how the spike took place. It did not happen by accident or by osmosis.

Dr McCormick: I am afraid I have to say that it also did not happen illegitimately. We had created a legitimate opportunity for people to apply, and if some organisations saw that opportunity, met the deadline and fulfilled the conditions, that was legal. In fact, we were obliged to pay. I say that, knowing that it makes it all the more serious in relation to our role and difficulty in that context. You cannot blame a commercial organisation for making the most of an opportunity that we created. I think that your point stands, as a matter of fact.

Mr McMullan: Did anybody argue against it?

Dr McCormick: Against?

Mr McMullan: Doing what you did, advertising it to change the whole dynamics.

Dr McCormick: No, and, in the context, there would not have been a reason to do so, because at the time it was happening the thing was not working. We were saying that we have introduced the scheme; gone through all the fuss; got access to quite a good budget, but it is not happening. It was totally rational to advertise in that context.

Mr McMullan: Even when whistle-blowers told you that this was going on, nobody took that into consideration. Was Ofgem party to all this?

Dr McCormick: Again, Ofgem was aware of the pattern of what was going on. Part of what set me on the course of initiating the fact-finding exercise was the further factor of the evidence that had emerged that Ofgem had drawn attention to the risk of over-incentivising or that the tariff was too generous. Ofgem had drawn attention to the fact that if we had wanted to introduce tiering, it could have done so. So, credit — genuine credit — to Ofgem in relation to the information it drew to our attention in the period in early 2014.

Mr McMullan: So, —

The Chairperson (Mr Swann): Oliver, we have a section on Ofgem coming up, just before you go down that road. Is that all right?

The discussion winded up after we started to talk about whistle-blowers. You mentioned in your opening statement about another whistle-blower. Where has that case reached at the minute?

Dr McCormick: It is still under consideration. As to the detail of that, we have discussed the principles affecting that case, and a number of other cases in the PwC report, with our lawyers and with Ofgem. There is not a full meeting of minds as to exactly the right way to see it, so we are looking at further legal advice being required as to whether what happened in that individual case is legitimate.

Again, it is important that we apply to that individual, as to all the others who have been inspected by PwC — sorry, that individual was not inspected by PwC, but by Ofgem — totally fair and objective processes. If there is an opportunity to claw back money or constrain something, we should do so, but we have to act fairly and properly in relation to every individual.

The Chairperson (Mr Swann): It is not the same case that is referred to in the PwC report.

Dr McCormick: No. The whistle-blower case came entirely separately. It was drawn to Ofgem's attention separately in June, before the PwC exercise even began.

The Chairperson (Mr Swann): As regards Ofgem and whistle-blowers, we had quite a contracted conversation. When Ofgem seemed to be investigating them, it did not call them whistle-blowers, it had another phrase. Is there any duty on Ofgem to report to the Department if it has concerns regarding any application?

Dr McCormick: The administrative agreement with Ofgem implies that it should be bringing any such case to our attention. We are a bit disappointed that that did not happen. We are aware of the exchange that you had with Ofgem last time, but the cases that it was describing had not been drawn to our attention. Do you have the chapter and verse, Heather?

Ms Cousins: I have, indeed. The administrative agreement states:

There has been no correspondence with us on any of the 10 cases that it has been investigating.

The Chairperson (Mr Swann): So, who is at fault?

Ms Cousins: We need to explore with Ofgem as to why it did not fulfil it. There is fault on the Department's side in not having properly monitored compliance with the administrative agreement. I think that the view was that it was a partnership between the Department and Ofgem, and that is how it was handled, as opposed to a more formal, contractual-type agreement.

Improving governance is a high priority for us. That is also reflected in the recommendations from PwC, which we have accepted in their entirety. We have said that governance between the Department and Ofgem will be improved by 30 November 2016; so we intend, by the end of this month, to have the governance between ourselves and Ofgem put on a more regular and normal footing.

The Chairperson (Mr Swann): You paid Ofgem £1·5 million to administer the scheme, and it has not been telling you of suspected fraud.

Ms Cousins: That is something we will have to discuss with Ofgem. We have just recently found that it has not informed us of these cases.

The Chairperson (Mr Swann): In your meetings with Ofgem, and I know they have started to be minuted only recently, and we went into great detail on that with Ofgem, did nobody from the Department ask, "Have you had any concerns raised? Are there any fraud investigations going on?"

Dr McCormick: It would appear not.

Mr McMullan: Will you go over that arrangement again with Ofgem? You said that it was more of a partnership than a formal arrangement. Will you elaborate on that?

Ms Cousins: There is a document called the administrative agreement. There is a written document setting out what each side should provide and their roles and responsibilities.

The Chairperson (Mr Swann): Oliver, it is in the pack.

Ms Cousins: It had not necessarily been tabled at each meeting. There were no key performance indicators drawn up. It has not been managed formally; it has been informal. As you saw in the previous evidence sessions, there were discussions and they were not minuted. All that has to change and this has to be managed as if it were a contract.

Mr McMullan: I understand — with minutes etc.

Ms Lockhart: There does not seem to have been any cognisance taken of the consultation that we mentioned on the first day. I know that it was commissioned by the Department. At what point was the consultation commissioned? There were no outworkings of it and no recommendations came forward from it, but I assume that the consultation was to try and drill down into these issues.

Dr McCormick: There were several consultations in the history of the scheme, focusing on the consultation in 2013 when the Department wanted to move forward with phase 2 of RHI. The next step after the introduction of the non-domestic scheme was twofold. It was to introduce the domestic scheme and then to look at some expansions and refinement of the non-domestic scheme. So, that consultation happened, and the approach from the external party, if I may use that phrase rather than "whistle-blower", happened during that period. The follow-up was to proceed with the introduction of the domestic scheme. So, all the attention post-consultation was on the introduction of the domestic scheme. In fact, some aspects of the consultation on non-domestic were used in the new crisis that emerged in the autumn of 2015.

I have seen a number of references to the Department continuing to plan to pursue the aspects of the non-domestic scheme, which had been the subject of consultation in 2013, but, in fact, nothing happened. The point of concern there is that that covered aspects of cost control. So, cost control was consulted on after things went wrong and after we reached the stage where, in practice, it was impossible to recover. We made use of that in not needing to consult on the introduction of the tiered tariff that came in in November 2015. So, we got some advantage out of it, but that was not a normal or proper process. What you are saying is absolutely right. There was not a normal follow-up to that consultation on the non-domestic side.

Ms Lockhart: So, again, it is another —

Dr McCormick: It was a missed opportunity. There is no question of that.

The Chairperson (Mr Swann): Before we go into some of the other sessions, why did the whistle-blower in the PwC report — the initial one — go to OFMDFM?

Dr McCormick: I do not know. I do not know who that person is. They remain anonymous as far as we are concerned. We have the document that was passed to us by the First Minister's office through the head of the Civil Service in January.

The Chairperson (Mr Swann): Is that normal practice?

Dr McCormick: It happens. You never know. I do not think that it is unreasonable to infer that people felt that the Department was not listening. I do not know. I can only speculate.

Mr Clarke: On that one and the other one, you refer to Ofgem. Albeit we have not had sight of them, what were those whistle-blowers claiming? The Department should be at an advanced stage in its knowledge of what was going on; so, what are the latest whistle-blowers claiming?

Dr McCormick: The January 2016 whistle-blower made a series of six allegations. That led us to have the investigation, which PwC began and reported on in September. That is "anonymous to First Minister". In January 2016, there was a separate approach, first to Ofgem in June 2016 and subsequently to the C&AG in early October, if I recall.

Mr Kieran Donnelly (Northern Ireland Audit Office): Last month.

Dr McCormick: That is the individual case that is still under investigation.

Mr Clarke: What is the content of that?

Dr McCormick: It concerns alleged abuse of the scheme. Then, there are the cases that Ofgem had been dealing with and which we were not aware of.

Mr Clarke: Is the alleged abuse of the scheme being investigated?

Dr McCormick: Yes. It turned out that, because the allegation had come to Ofgem several months before coming to us, Ofgem had already looked at it and received further information from the individual concerned. It remains subject to further consideration, as I explained earlier.

Ms Gildernew: Can I just make a quick observation, please?

The Chairperson (Mr Swann): Yes. Go ahead.

Ms Gildernew: Ofgem has not covered itself in glory in this. I am not sure that it is qualified to investigate anything.

The Chairperson (Mr Swann): Following our previous evidence session, Andrew, that is a very fair point.

Dr McCormick: Be assured that we are reviewing and considering the right thing to do in all of these things. In fact today, we have no alternative capacity. It is not as if we could turn something on — like a switch — and, all of a sudden, we would have the capacity to do the things that Ofgem currently does on our behalf. Even if we took the most extreme and negative view, we would not have a quick alternative. We have to look at all of the options. We have to be fair to Ofgem with regard to what it has done and reflect carefully on the limitations of what has been happening. We have great concern about the fact that these cases were not drawn to our attention.

Mr Clarke: If you get more spurious — not necessarily spurious — enquiries, how will you deal with them? Given that there has been much in the media about abuse of the scheme, perceived or otherwise, how will you handle those enquiries?

Dr McCormick: The main line of investigation has been that in January 2016, the whistle-blower to the First Minister led to the PwC report, which fundamentally upheld most of the allegations that that person made. The final version came to you, subsequent to my last appearance here, and included an assessment of the limitations in the oversight arrangements that we had had with Ofgem. So, this is a whole body of work for us to consider and advise the Minister on the right things to do in response to all of that work and on how we go forward. The scheme is closed, so there is nothing more to be done in that sense.

Mr Clarke: Sorry, I am not concerned about the scheme closing. You said "abuse of the scheme". if I want to allege, anonymously as a whistle-blower, that someone was abusing the scheme, what are you doing with that allegation?

Dr McCormick: If we receive any further allegations, then, depending on their nature, they would probably require an inspection, which is what happened. It happened with the individual case that we have talked about a little bit. Certainly, any time we had particular intelligence during the PwC work, we got an unannounced inspection carried out; that is the right approach to this kind of thing. We need to either gear up so that Ofgem does things exactly as we want it to do, and in a sufficient way to protect all the governance considerations that we have now, or, we need to find an alternative. We are currently looking at all this. It is current, real-time work for us to say what is the right thing to do here. In the meantime, the standing arrangements are available to us. If something comes in and we need something done, we could get Ofgem to do it.

Mr Clarke: Just a last point; there are many cranks out there — our offices are inundated with them — who will jump on the bandwagon and want to perceive their own version of events. I am worried that if you are going to respond to every crank who writes to you, given that PwC has taken an interest and has done the cases. At what stage do you start to dismiss cranks?

Dr McCormick: You have to look at allegations on their merits and whether there is something credible about them. It is a matter of judgement, and we would —

The Chairperson (Mr Swann): Trevor, I think that it is unfair to label everybody as cranks.

Mr Clarke: I did not say that everybody is a crank. The PwC has investigated what has been done. We are inundated with people coming to our offices with various things and, whether you want to be associated with calling them cranks, I am happy to call them cranks in some cases. My issue here is —

The Chairperson (Mr Swann): Trevor, sorry. Some people have come forward with evidence. I am being careful. I do not want to put people off if they have genuine concerns.

Mr Clarke: They might have concerns, and that is where I want to go with this. At what stage do you decide that you will stop continuing to investigate? The next thing will be that we will be talking about a legacy investigation for the RHI.

What I want to contend is that PwC, an independent body, was brought in to investigate all this. People may want to sit at home, as fireside solicitors and everything else, and draw their own conclusions or make spurious claims about individuals. At what stage do we stop spending money following up those claims, given that PwC, which is an independent organisation, has reviewed the scheme and produced a very damning report on it?

Dr McCormick: It reviewed a scheme and a sample of cases that were, at least and to some extent, based on a risk stratification. We identified where the most damage might be done if the allegations received in January were true. That is a completed exercise; that is finished and we have no ability to re-engage unless we go back to some kind of new contract. What we do have is the standing arrangement with Ofgem and the standing obligation on Ofgem to investigate allegations. That has to be done on the basis of the assessment of validity. If someone just throws mud, I think it will be possible to recognise that. If they give details, for example a name, address or function that you can relate to the RHI register — the list of applications — then maybe something could be followed up.

What we have to do more fully is to make the decision — it is a big decision for us — on what further inspection regime is needed. Business-as-usual would not mean that, over the 20-year period, you would expect all 2,000 installations to be inspected. A period of 20 years is a bit too late in the nature of the concerns we now face, but we also do not want to overreact. Trevor's point is important: we must not overdo it. Finding the balance is an issue of judgement.

Mr Kearney: Ofgem told us that the Department had the same information in May as it had in 2013. It said that it proposed a data-sharing protocol with you in April 2014, and you confirmed that were minuted meetings from November 2015. When Ofgem was asked whether the Department was happy with its audit regime, it said that the Department was happy. Do you agree with that statement?

Dr McCormick: It may be that, at that point in time, Ofgem was told that the Department was happy, but we are not happy today and should not have been at any stage. The key point in the initial arrangements set up with Ofgem was a recognition that the Northern Ireland scheme had some important differences from the GB scheme. There was a clear obligation in the arrangements with Ofgem to do a separate risk analysis, including the analysis of fraud risk. It was up to the Department to initiate that, but it is also absolutely clear that Ofgem had an obligation to do that and it was never done. We may have said that it was OK, and there may have been a relationship, including informal and other meetings, that allowed everyone to think that it was. It was never OK. There was a clear obligation to produce a separate risk analysis of the Northern Ireland scheme. That was never carried out and it should have been.

It is another of the very bad aspects of this scheme. Would that have prevented everything that has happened? I would not argue that, but it might have helped.

Mr McMullan: You put teams out to inspect.

Dr McCormick: Yes, we did through PwC.

Mr McMullan: Looking at any application today, can you say that it is properly fulfilling its original obligation?

Dr McCormick: No. There are so many deep concerns with this. One of our deepest concerns is the evidence from PwC that a very substantial proportion of those it inspected did not fulfil the intentions and obligations of the scheme.
Our obligation now is to assess what we do about that. Do we pursue the remainder of the 2000 and inspect everybody so that we get cast-iron information on each and every case? What else do we do? How do we find a way to deal with this situation? At present, we do not know the extent of non-compliance, and we have to find the right, proportionate and appropriate way to do that. The evidence is that there are some sectors in which everyone inspected was in line with the scheme and fulfilling all the obligations. Maybe there are some aspects where it is OK, but we have quite a lot of unknowns, and we have to find a proportionate and appropriate response to that.

Mr McMullan: We know now that a big proportion of them are non-compliant, so why do we not have a team, or teams, out checking them? In one day, a couple of men in a van could drive round and check whether those schemes are compliant. You could do that without a lot of bother and without spending a lot of time wondering what way to check them. That is simplistic, but it could work like that.

Dr McCormick: Given that Ofgem requires detailed schematic descriptions and had a degree of back and forward with applicants, the question will be whether they are conforming with what they said they were doing: does the actual installation match what is there? The truth is that effective inspections take a bit of time, and the cost of each inspection is about £1000. It is quite a tall order. We accept the obligation to do the right and effective thing on this point.

Mr McMullan: I appreciate that, but the information is widely known — it is public knowledge. We have to be careful: empty sheds are being heated; and houses are being heated. It would not take a £1000 investigation to look at that. That is the point that I am making. I appreciate what you are saying about in-depth investigations.

Dr McCormick: That is a fair point.

The Chairperson (Mr Swann): Members, I will open it up to other sections.

Mr Easton: At the last session, Ofgem outlined to us how the accreditation process worked. Ofgem is based in Glasgow and had no presence here in Northern Ireland. It had no local firm to undertake site visits in Northern Ireland to physically inspect installations. At the accreditation stage, Ofgem had no local intelligence. The whole accreditation process was based on purely desk-based evidence. Why did the Department think that this approach was adequate to approve applications for a scheme that will pay out more than £1 billion over the next 20 years?

Dr McCormick: We are still reviewing exactly what the right thing to do about all of this is now. The fundamental point is that Ofgem was in place as the operator of the GB scheme. There was, therefore, every reason to expect that it would have the technical ability, resources and systems to operate the scheme effectively. Local presence is not perhaps the most important issue: Ofgem does not have a local presence in every subregion of GB that is of the same scale as Northern Ireland, and it is not realistic to ask it to do that.

I come back to the point that I made a short time ago, which is that what was of most concern to us was that our scheme was a bit different, and Ofgem tended to operate as though all the procedures for accreditation that applied to the rest of the UK could work fine here. We are clearly now not satisfied. We should have been more concerned at an earlier stage. That is the real problem with all of this. I would not say that the accreditation process is the worst aspect of this. There are clearly some concerns, as has come out in the previous discussions, but, in fairness, they require information exchange and supporting evidence. As was drawn out in an earlier session, it could have been more effective, but we now have to re-examine this and see what is best going forward. Is there anything that you want to add, Heather?

Ms Cousins: There was a degree, albeit small, of pre-accreditation checks. When PwC was doing the inspections, it did not use a local firm of inspectors either. At the time, Ofgem was selected and continued in the role because of the experience that it had, which was not available here or elsewhere.

Mr Easton: You mentioned a small number of accreditations. Would you not expect the main operator to do some inspections?

Ms Cousins: It was doing inspections.

Mr Easton: Not very many.

Ms Cousins: No. It was doing inspections on the basis of a proportion of installations.

Mr Easton: Which it did not meet, is that right?

The Chairperson (Mr Swann): Yes.

Ms Cousins: It was not satisfactory, but it was not that there was nothing.

Mr Easton: It was not satisfactory. Did the Department raise with Ofgem that it was not satisfactory?

Ms Cousins: At the time, the Department did not. I think that there was a recognition before that that there needed to be more inspections, and we had been planning to have an additional scheme of inspections ourselves.

Mr Easton: The Department did not raise it with Ofgem.

Ms Cousins: That is correct.

Mr Easton: That is very poor, is it not?

Dr McCormick: It is very poor. We accept that this was part of the pattern: concerns that could have been identified earlier were not acted on, and that includes pursuing an inspection regime. There was a long discussion, I remember, on the numbers here. The fact of the matter is that there will always be planning in advance to allocate resources according to the proportion of applications in Northern Ireland. Prospectively, they will have planned a certain number for 2015-16. If they had planned for 3% and then, all of a sudden, the number of applications goes up, by definition, the proportion will go down. The figure of 0·8%, which was a focus of attention in your discussions with Ofgem, was partly a consequence of a time lag. We still probably should have been intervening to say, "Because we now have a higher rate of applications, we need you to accelerate and expand your inspection regime". That is a delay, but the numbers are just a consequence of what happened in those terms.

The Chairperson (Mr Swann): Was the Department aware that Ofgem was not meeting its target?

Dr McCormick: I think that —

The Chairperson (Mr Swann): Yes or no, Andrew.

Dr McCormick: No, I do not think so, because, in the period of the spike, as a team, we were dealing with the emerging budgetary consequences and then closing down the scheme.

The Chairperson (Mr Swann): The period of the spike was very specific: 2014-15. In the two previous years, were you aware?

Dr McCormick: If my memory serves, the proportion of inspections in that period was around the 3% mark. It may have been a bit lower and not exactly 3%. The low percentage, I think, relates to the spike year.

The Chairperson (Mr Swann): I want to clarify something that Ofgem was a bit dubious about. You seem to indicate that the level of inspection is 3% of applications.

Dr McCormick: Yes.

The Chairperson (Mr Swann): Can you check with Ofgem? It seemed to indicate that it was cost of inspection against cost of scheme, which is not a direct correlation.

Dr McCormick: We will check that point. I am sorry if I have not followed that carefully enough. It is a fair point.

Mr Easton: Ofgem told us that, between 2012 and 2016, it carried out 57 random site inspections, which were the accreditation ones. While it identified problems at almost all the sites, none has been suspended from payment. Do you have any concerns that Ofgem has not been sufficiently rigorous in its site inspections? Did it make you aware that nearly all the sites had issues?

Dr McCormick: There is a genuine concern about the extent of information and feedback from Ofgem to us about what it was finding. When the problems began to emerge and we first asked about this, we were told that it had not found anything material. That is recorded in the Audit Office report.

Mr Easton: It told you that, of the 57, there was not —

Dr McCormick: There was not much to worry about. Again, that —

Mr Easton: That is awful.

Dr McCormick: That shows to me that the process was not working. When you set that beside what was found by PwC, it is not unreasonable to infer that one possible factor is that all of its inspections had been previously announced. Partly because of the way in which it was working, it would have contacted the applicant and said, "We're going to come and inspect you". As you know from another part of the forest, unannounced inspections matter. What PwC did was unannounced.

Mr Easton: Remind me, Chair: did Ofgem say that it made the Department aware of the problems?

The Chairperson (Mr Swann): Ofgem said that it made you aware of the problems and concerns, Andrew. You are saying that it did not.

Dr McCormick: There was some information coming through. The real point is that there was no big alarm bell being sounded. The information being fed back was not saying, "Oh, we've found a big problem". That never happened because it did not find a big problem. It found some relatively small problems, and I think that there was a degree of awareness of that. However, it was not a big issue in the perception because it did not find —

The Chairperson (Mr Swann): In whose perception?

Dr McCormick: In either ours or Ofgem's. Ofgem did not find any big problems.

Mr Easton: Did it clarify what those —

Ms Cousins: When the inspections found problems, Ofgem went back to its system internally, and more information was sought from the applicant. Part of the problem was that, when that information was provided, Ofgem very readily accepted the explanation.

Mr Easton: I am trying to get this correct in my head, which can be difficult at times. Ofgem identified problems on almost all of the 57 random sites, which are the accreditation ones. It did not make you aware of any major problems; it made you aware of issues, but it did not really expand on what those were. Is it fair to say that you are not really aware of what those issues were?

Dr McCormick: Yes. That is a fair summary, to be honest.

Mr Easton: Did the Department not want to clarify what the issues were, or was it happy enough because it was assured by Ofgem that they were not —

Dr McCormick: Looking at it in the context of those times, it was not on the radar as a big problem, so there would not have been a pressing reason to pursue and ask a lot more questions. Knowing what we know now, that looks bad.

Mr Easton: Do you agree that, because of the small number of inspections, the likelihood of someone being inspected by Ofgem over the lifetime of their claim is relatively small and that, even at that, the regulations are so weak that, if problems are identified, no action will be taken?

Dr McCormick: There are a couple of different points there. The expectation is that all sites would be inspected at some stage in the 20-year life of the scheme, but, if you find a problem in year 20, it will not do you much good. Everything, ultimately, should be looked at. As for action and intervention, we have clearly identified that as an aspect of the problem, and it is part of how we definitely could have handled the whole thing better in our relationship with Ofgem.

Mr Easton: Is it fair to say that you feel the Department should have been a bit tougher about the inspections?

Dr McCormick: It would need to be thought about case by case. Every individual applying has the right to do their best to fulfil their obligations under the scheme, and I think that it is wrong to presume that everyone is either misleading, evading or whatever. There will be a lot of very straightforward cases. We do have a concern about Ofgem enforcing the regulations. Part of what we are doing now, and part of the discussions with the lawyers, is to see what is the right thing to do now: what is fair, what is appropriate and what is proper management of public money here. Now that we know, we can see the thing in such a different way.

Mr Easton: A number of cases have been passed to Ofgem from the PwC review. Given the weakness in the regulations and Ofgem's past performance, how confident are you that strong action will be taken?

Dr McCormick: A key difference now is that, because this is much more out in the open, and because we are devoting resource and attention from the Department to it, we do not want Ofgem to sign off and resolve cases on a business-as-usual basis. Business as usual is over in that sense. Part of the discussion that I had with Chris Poulton directly on that point is that we now have to engage in assessing the issues and making sure that the assessment of the cases that PwC has drawn to its attention and any conclusions reached are informed by discussion with us. In turn, our view of it will be informed by discussion with our lawyers. We now absolutely need to bear down as effectively as we can, while still being absolutely fair to each individual applicant. There is no prejudice or pre-emptive action here, but we have to make sure that where it becomes clear that an applicant either misled Ofgem in their application in some way or is not fulfilling their obligations — the obligations include the obligation to use heat efficiently, and the obligation that there is an economic value in the heat — we need to continue to pursue them.

Mr Easton: Are they being pursued as we talk here?

Dr McCormick: Absolutely. That is what we need to do.

Mr Easton: Are you aware of any cases in which there has been abuse of the contract?

Dr McCormick: There are a number of cases in which there is potential evidence of that. We are pursuing those, including pursuing fuller and more detailed information. It is absolutely right that we do that.

Ms Cousins: There are a number of cases in which payments have been suspended pending that.

Mr Easton: Are we allowed to get a rough number at the moment?

Dr McCormick: We can provide that, for sure.

Ms Cousins: We are working through category 4 and then category 2 and category 3. Chair, I wish to clarify that the number of inspections was based on 3% of the number of GB inspections. So, if there had been 100 GB audits, there would have been only three Northern Ireland audits. All the funding was based on 3% of the GB scheme.

The Chairperson (Mr Swann): If there were very few audits in GB, would we have had even fewer?

Ms Cousins: Yes.

The Chairperson (Mr Swann): Who set the GB level of audit?

Ms Cousins: Presumably, DECC set it.

Dr McCormick: I assume so.

Mr Dunne: Surely that should be based on risk.

Ms Cousins: We accept entirely that it should be based on risk.

Mr Dunne: That is where the whole thing went wrong. You talk about risk surveillance, and the surveillance of a project is based on risk. It works on the history: if a problem comes up, you reassess your procedure, and, on the basis of the risk, you step up your inspection system.

You said earlier, Andrew, that everything should be looked at. I hope that you are not saying that every one of them will be looked at. There is no need to look at every one. Look at the system and procedure and work on a sample basis. Through statistics you can assess how efficient or otherwise the scheme is. Obviously, it has not been managed properly.

Dr McCormick: The hard fact is that there was not a proper assessment of the risk. Nobody had seen the risk arising from the absence of a tiered tariff — we had an overly generous tariff — so our risk assessment was fundamentally flawed. That is where this went wrong. The second phase of site inspections, which PwC did, was very much based on risk stratification. That is exactly what we did.

Mr Dunne: We got this last time. The inspection standards were different for PwC and Ofgem. Everybody should work to the same quality standard. The standards seemed to be different for Ofgem, although the fellows from Ofgem seem to think that they had done a reasonable job against what they had been tasked to do. There was evidence that they had not met all their targets — a lot of auditors do not — but they seemed to think that they met the limited specifications that were set. However, the PwC standards were a lot broader. Do you accept that they were working to different standards, Andrew?

Dr McCormick: We commissioned PwC because we had the allegations, and they made us focus very hard on the scope and nature of the work that we were asking it to do. For that reason, the standards were tougher and stronger than in the business-as-usual approach that had been applied by Ofgem. That is what happened. It goes back to the fact that the right thing to have happened from the beginning would have been a formal risk assessment, including of fraud risk, by Ofgem. That should have happened at the inception of the scheme and been built in from the beginning. That might have meant our having to pay for and secure a more extensive inspection regime from the outset. That is probably what should have happened, but it did not.

Mr Easton: Ofgem told us that it raised the issue of cost control and tiering at the beginning, in its feasibility study, and, in particular, at a meeting in January 2014, when it started to see some high usage. Have you any record of those issues being raised, and, if so, can you explain why the Department failed to act? Did the Department see this feasibility study?

Dr McCormick: The Department did, yes. It has not been established to me that it included specific identification of the risk arising from the absence of a tiered tariff, but I am open to correction on that.

Mr Easton: Will you look into that and let us know?

Dr McCormick: Absolutely. I will look into that directly. I acknowledge that there was a discussion in 2014, as they said. It was recorded in the handover note that, as part of the fact-finding exercise, there were discussions with Ofgem in the period when the risk of over-compensation and the consequences for the behaviour of applicants were drawn to the Department's attention. Yes, Ofgem did that, which is to its credit. There is no question about that.

Mr Easton: You will look into the feasibility study.

Dr McCormick: I will do that.

Mr McMullan: You said that the inspections were expensive, but, last week, Ofgem said that the cost of inspections ranged from £100 to £900. You quoted a figure of £1,000.

Ms Cousins: We were talking about the inspections that were done as part of the PwC work, which we have acknowledged were more extensive than the Ofgem ones.

Mr McMullan: Would you say that the inspections done by Ofgem were not up to standard?

Dr McCormick: It is possible to infer that. Maybe, if the scheme had not had the deep vulnerability of the acute value-for-money risk arising from the tariff — vulnerability that does not exist across the water — a £100 inspection would be sufficient, or it could be more a case of business as usual in a more benign context.

I am not sure it is inherently wrong, but I will say that our experience at present is that, to get to the bottom of the issues, it is more about going to the higher level. Again, we need to do more, so if we can find a way to do more fully effective inspections at a lower cost, that is what we should try to do.

Ms Cousins: It is our intention to procure the inspections directly ourselves so that we know we will get value for money.

Mr McMullan: You said there are a number of cases where payments have been suspended. Was that suspension done by you or Ofgem?

Ms Cousins: Ofgem.

Mr McMullan: Ofgem. So, they are still sitting out there, and Ofgem suspended them. Have they been inspected? If Ofgem's inspections were not up to standard, and it has suspended payments, it is sort of —

Dr McCormick: Those suspensions are consequential on PwC inspections. Where PwC has inspected as part of our work and has fed the information across to Ofgem, Ofgem has looked at the evidence from PwC and said, "There is a point to answer there" and has, therefore, suspended payments. So, they are a consequence of the PwC inspections.

Mr McMullan: Have any of Ofgem's suspensions been overruled?

Dr McCormick: Not to my knowledge, no.

Mr McMullan: So some of its suspensions are still there.

Dr McCormick: Yes.

Mr McMullan: Before PwC?

Dr McCormick: Oh, sorry —

Ms Cousins: No, these are all PwC.

Mr McMullan: These are all PwC.

Ms Cousins: Yes.

Mr McMullan: OK. Are there many figures?

Ms Cousins: We will get you the figures.

Mr McMullan: Thank you.

Ms Gildernew: Following on from that, does the money from the suspensions come out of the money you are trying to find in monitoring rounds and things like that, or does it come out of the British Treasury's contribution to the scheme? If the money is suspended, who benefits from that: us or them?

Dr McCormick: It will be part of our budget, but it is not of a material scale. These are relatively small numbers. We are talking about tens of thousands, I would guess, rather than millions. Part of our determination is to extend this process so that if the scale of gaming or misuse of the scheme is as extensive as the proportion would indicate, you would be starting to get at large amounts of money. But we are not there yet, and we need to take it step by step, because what we do not want to do is take steps that end up losing in court. We have got to do this right and quickly.

Ms Cousins: There is a two-pronged attack on this problem. There is the enforcement action as a result of what we have found or what we might find if we extend the inspections. We do not anticipate that is going to resolve our budgetary issues, so the other aspect of it has to be what we can do to bear down on the overall costs of the scheme. That is the bit where we will need very clear and strong legal advice and where we will need to look at all the options and go out to consultation. We cannot, at this moment in time, go into detail on what those might be, because we cannot predetermine the outcome of that consultation.

Ms Gildernew: While I accept that, some of these cases may be fraudulent. If you are looking at it from the point of view of finding a way of reducing the cost, the fraudulent ones are the ones that should be looked at. There needs to be a way of finding the people who entered into the scheme to try to make money out of it and those who entered into it according to the ethics by which it was set up, which were about renewable energy, using fewer fossil fuels and finding a way to keep their businesses going in a more sustainable way. I think it is really important that we differentiate between those two sets of people.

I know we touched on this earlier, but can I ask again, Andrew and Heather, for an explanation on discussions and meetings with Ofgem? They were not recorded until November 2015. What initiated them being recorded at that stage? What was the issue that resulted in the meetings being recorded?

Dr McCormick: The answer is not a good one. It was because, by that stage, we knew we were in a crisis. Before then, things were ticking over and the issues were not so acute. I think that is just a matter of fact. The recognition of the need for greater formality was in a context where, by that stage, we were having to deal with an emerging and very serious issue.

Ms Gildernew: At that stage, did you ask whether it had recorded previous meetings? Presumably, you had done the trawl in the Department, but did it have any notes or any discussions?

Dr McCormick: I am not sure whether that question was asked, and it would not have helped us out of the crisis all that much. It is important to pursue it, and we are pursuing it, to get as full an understanding as possible of how we got to where we are, but, in managing the difficulty, that would not have been the top priority, if you understand.

Ms Gildernew: Ofgem told us that, after the data-sharing protocol was put in place in April 2014, there were no data-sharing difficulties, but the Department then apparently told the Audit Office earlier this year that you did not have the names of applicants and that that was for data protection reasons. It then took three months for that information to be provided from Ofgem. That does not sound right either.

Dr McCormick: I know we have the names as a matter of fact now. I guess that, most of the time, we would not have had a functional need for the specific identification of companies or individuals benefiting from the scheme. That was not part of the perceived role in that period. We have had to acquire more data, partly from the point of view of modelling the possible implications of change and so on in the way Heather is describing. The flow of information from Ofgem was not as sharp as it should have been. That goes back to the fact that, for so much of the time, the scheme was seen as underperforming, and that would not have been that kind of issue.

Ms Gildernew: I know we have asked a number of times for the information on the names of applicants. I am still very much of the view that we need to see that. This is the Public Accounts Committee, and any papers we get are all identified. If they are leaked, we will know where they are leaked from. I still think we need to get a handle on the names of those that benefited from the scheme.

Dr McCormick: As I have said in correspondence, we are willing to pursue that route, and we have explained how we could pursue it. It would involve seeking the agreement of each individual to release their names to you. If that is what you want us to do, we will gladly do it.

Ms Gildernew: That in itself might be a good indicator of where the problems are.

The Chairperson (Mr Swann): Andrew, to be clear, you cited data protection as a reason why you could not share. I will just inform you that the Committee has taken legal advice about whether that can be shared, because we are aware that single farm payments and all the rest of it are processed online. I think that the collective view of this Committee is that we see no reason why there is a data protection issue over RHI payment compared with single farm payment.

Mr McMullan: Chairman, you can openly find out the payments made under single farm payment. It is not under data protection.

The Chairperson (Mr Swann): That is right. Michelle did it when she was Minister.

Ms Gildernew: I have data protection in my office because I am dealing with the public. We are all grown-ups around this table, and we all know — I mean anybody who is at the table anyway — the issues. There are issues on data protection that we deal with on a daily basis.

In the last session, Andrew, Ofgem told us that, even if 99% of the heat generated was used to heat a private house, it could still be acceptable for the scheme to fall within the regulations of non-domestic RHI and receive the subsidy for all the heat generated. Do you think that is within the intention of the scheme, and is it acceptable?

Dr McCormick: I think it is not within the intention of the scheme. I think its argument is that it is within the letter of the scheme. This is a very active point for our discussions with it and with our lawyers at this present time, because it seems to me that the Assembly created a domestic scheme, and, if the intention was to heat houses, you do that through the domestic scheme. It is a very live point for us.

Ms Gildernew: Yes, but the rates were not anywhere near as lucrative in the domestic scheme. You mentioned my time in DARD a few minutes ago. When I was there, we had the farm nutrient management scheme. It was a massive scheme, and it paid out a lot of money. Farmers would come up to me and complain everywhere that they saw me, whether that was at the filling station or at a funeral. They would say, "We can't get the money. We've paid out all this money and have had contractors in. We've been out a major amount of money to do this scheme. The Department is holding off on payment".

When I went back and challenged the Department, it said that, until the final inspection was done and every box ticked, it would not pay out. To me, that was not anywhere near the same output of the scheme. We have learnt that the average payment to every participant in the RHI non-domestic scheme will be around £1 million over those 20 years. That is a huge amount of money. Surely within the definition of the scheme, an inspection regime should have been costed into that so that we could be sure public money was being spent properly. The Department has now paid over £1·5 million to Ofgem since 2012. Do you think that is good value for money?

Dr McCormick: It is tricky at this point in time. As I explained, and given the nature of the arrangement, we were paying its costs. That was the agreement we entered into. We have a concern now. At the time it happened, there was an appraisal of that option. Very few options were available within the statutory provisions for who could run the scheme. It does not look good now. We have to make sure that, going forward, we take the right decisions on what to do in the future. Either we have very rigorously enforced arrangements with Ofgem, or we have a different arrangement going forward. There are clearly aspects of this that have not been satisfactory. I think that, in fairness, a lot of the onus is on the Department where it was not requiring the right things of Ofgem, pursuing recordings of meetings or access to information. It was just not working from our side. I think that is part of the reason why it then emerged as unsatisfactory on Ofgem's side. I think we have to accept our share of that responsibility.

Ms Gildernew: Andrew, has there been any discussions with, for example, the permanent secretary in DAERA to identify other options? You talked about alternatives. If the PwC bill for an inspection is the guts of a grand and the Ofgem bill is £100, is there capacity within the Civil Service for another Department to take on and do these inspections to find a more cost-effective way of inspecting to the point where we are saving major money?

Dr McCormick: No, we have not done that, as a matter of fact. That would be absolutely the right thing to do.

Ms Cousins: The only thing is that we discussed it with the construction side in the Department of Finance, but it did not have the resource to be able to do these inspections. That requires heating engineers, not just a normal —

Ms Gildernew: Which AFBI or DARD have, by the way.

Ms Cousins: Yes. We explored with other Departments whether there was the capacity, and the answer was that nobody had the capacity.

Ms Gildernew: This is my final question, Robin. PwC's draft interim report outlines at paragraph 5.20 that 31 site visits could not be completed. Do you know what the reason for that was? Has the Department any plans in place to revisit those sites to complete the inspection?

Dr McCormick: This is the risk. The downside risk of unannounced inspections is that some people are not available when you turn up. That is the main reason. That is a relatively small proportion of the ones it tried.

Ms Cousins: Yes, and there were other occasions when they could not be on the site due to specific reasons like biohazard. Those were legitimate reasons why they could not be on the site.

Ms Gildernew: We know there are mitigation measures against biohazard. If there is a will, there is a way.

Dr McCormick: These inspections are based on, at least in part of the work of PwC, risk stratification. It is not as though we are inspecting because we have a primary cause for concern about any of them. The concerns arise from the generality of those that have been inspected. There is not a prima facie reason to go back: it is not that we suspect those 31 of being any more at risk —

Ms Gildernew: I accept that.

Dr McCormick: — or a cause for concern than anywhere else. We are satisfied that the purpose and intent behind the inspections at PwC has been achieved. We have enough information out of it to take some judgements about what we should do next. It then goes back to the points made earlier about going forward with a risk-based approach, which is making the best possible use of money and using every available resource.

Ms Gildernew: Given the conversations we have had, Andrew, over the past month or two, do you have an opinion now that every single applicant should be inspected?

Dr McCormick: What PwC told us was that there were a number of sectors where every case it visited was OK, so there is an argument to say that you identify a category — this is exactly the kind of risk-based approach Gordon was talking about — where maybe you say that, based on a reasonable assessment of judgement, it is not necessary to inspect.

That is still ahead of us as a decision. I would not commit to an answer on that today. It is not beyond the bounds that the right thing is, in fact, ultimately to inspect everybody, but we definitely have to make sure the priority is given to those where there is evidence from the schematic that we have some of the symptoms PwC picked up in the categories it identified. Those were issues around domestic, parasitic drying or that kind of case. So, yes, we have to prioritise those, but then, having done that, we have to keep under review what are we learning from this and what do we do next. That is a dynamic we have to pursue.

The Chairperson (Mr Swann): Andrew, in regard to inspections and all the rest of it, Ofgem made us aware the last time it was with us that it has an annual self-cert that every applicant has to verify. That self-cert states it is a criminal offence to knowingly make false representation to the scheme. Is that based in law? Is there a penalty?

Dr McCormick: I assume there is, yes. That is not something I have gone through with it, but the obligation under the scheme is to comply with the regulations, and that includes ongoing obligations. The test of criminality would include evidence of intent to defraud and so on. The thresholds are quite high, but our responsibility is to control this as rigorously as we possibly can, fairly and proportionately.

The Chairperson (Mr Swann): So a claim for running a boiler 25 hours a day would be criminality.

Dr McCormick: If the evidence supports intent to deceive, yes. If that is an artefact of some other factor in the calculation, that would not be fraud. We have to look at those on their merits, case by case.

The Chairperson (Mr Swann): We have been quite hard on Ofgem, but it also warned the Department a number of times about tiering.

Dr McCormick: That is fair. I would agree. I accept that.

The Chairperson (Mr Swann): And you ignored it as well.

Dr McCormick: Action was not taken that should have been taken. I accept that, yes.

Mr McMullan: It clearly states in the papers from the Department that any deviation from the reason for the grant is deemed non-compliant, so I do not think that is an argument. If somebody is doing something any way outside it, that is non-compliant.

Dr McCormick: There is a distinction, I think, between non-compliance and criminality.

Mr McMullan: It is not compliant, because we are working with money here. I have not heard one mention yet of clawback. As was said, in every other grant aid there is clawback, and if you step outside, you are non-compliant. There is no word of criminality. That is further down the road.

Heather, you talked about doing inspections in-house through other Departments and said that there had to be engineers. What was the standard of the inspections by Ofgem?

Ms Cousins: It also used an engineering company to do the technical aspects of its inspections.

Mr McMullan: You are saying it could take £1,000 to do an inspection at home when we can take them from England to do them for between £100 and £900 with engineers, but at the same time, we say we are not happy with what was done.

Ms Cousins: I do not necessarily think we are comparing like with like here. The £100 inspection did not include an engineer going to a site.

Mr McMullan: So, on that premise, we should revisit all those inspections that Ofgem did if it was being charged £100 by an engineer.

Dr McCormick: Again, I think we have to apply to that category, as to all the others, a risk assessment. What is going to be the most effective use of our time and resources now to get the best possible way forward here? We are still at the stage of reflecting on the significance of the PwC work and where we are with Ofgem. We have some decisions we will need to put to the Minister as options for the way forward. That is critical work for us now.

Mr McMullan: Part of why I was saying that is this: do you not take decisions on your own without reflecting on PwC? What is your own view on it?

Dr McCormick: Our responsibility is to make some informed judgements about what to do next. That is critical. We would have to go to the Minister if we were committing further resources to these tasks, and, undoubtedly, some further resource will need to be put into it. It is absolutely right for us to look hard at this. It is part of what we are here for.

Mr McMullan: You have not answered the question, with respect. Where is your assessment of it, without reflecting on PwC's? That is the point I am trying to get over here. If we are going to look at putting our own teams in, will we have an open cheque for them, or will we definitively know what it will cost and where we are going with the inspections?

Dr McCormick: The correct answer is that we have not decided those things yet. We are still working on it, so apologies.

The Chairperson (Mr Swann): Folks, I am going to call a 15-minute suspension.

The Chairperson (Mr Swann): OK, folks, we will resume where we left off. We will move on to another section of questions. Carla?

Mr Lunn: Are you on the right section? I thought that we were doing structural weaknesses.

The Chairperson (Mr Swann): Is it structural weaknesses? My apologies, Trevor.

Mr Lunn: That is all right. We are four hours in here. [Laughter.]

The Chairperson (Mr Swann): Tell me about it.

Mr Lunn: Do I look like Carla?

The Chairperson (Mr Swann): After four hours?

Mr Lunn: Andrew, I want to clarify a couple of things from your previous answers, if you do not mind; it should only take a moment. I am sorry to go back to the random site inspections, because I know that they have been well trawled over. If you do 57 random site inspections and identify a problem at almost all sites — I know that Heather said that payment was suspended in a few cases — can you give us any idea of the type of problems that might arise on a random site inspection that would not result in a penalty or some action?

Dr McCormick: If I recall, one or two of them involved apparent discrepancies in meter readings, which could have been resolved by seeking an update from the applicant. There was also a case in which something was not totally satisfactory in the primary evidence from inspection.

Mr Lunn: When you say "apparent discrepancies" in the meter reading, what does that mean? I assume that somebody gave you a wrong meter reading, presumably to their own advantage. Is that not sufficient to warrant some action? It is straightforward. I will not use the word "fraud", because I have said "legalised fraud" so many times that I am tired of it now. However, that is a pretty good example. How difficult is it to read a meter?

Dr McCormick: Yes, but human error also applies. If it was the result of an honest mistake, you just fix it. Some of us have made honest mistakes at times in our lives, so you just have to take each case on its merits. If there is evidence of something non-compliant, that standard has to be applied. If it is shown that somebody has deliberately set out to deceive, you also have to act accordingly. All that was said to us was that they had found a number of issues, and, in most cases, they had found a way to resolve them, so an investigation was not triggered. At the next level up, they had complaints or external challenges of one sort or another, and we were very dissatisfied that they did not refer those to us. They investigated them and, in some cases, closed the cases without even telling us they had them.

Mr Lunn: I am not saying that everybody is perfect. We are all human and human error is a common thing, but reading a meter is so easy. What would be the excuse for getting it wrong? Did you not have your glasses on or did you mistake a two for a one and put in 12,000 instead of 11,000? Were there many of those?

Ms Cousins: We do not have the detail of that.

Mr Lunn: Fair enough, but I just get —

Dr McCormick: Let me see whether we can find some more detail to send you.

Mr Lunn: That would be interesting.

Dr McCormick: I can see the concern, and it is right that we should answer that concern. I am sorry that I do not have precise detail on that.

Mr Lunn: In response to an earlier question from Robbie on the turnover of staff and business continuity, you accepted that a constant turnover could be a problem but said that it had been impressed on staff who were leaving that their memories might be called on in the future, but was there not proper record-keeping and minuting? Before Michelle left, she asked a question about meetings not being recorded until November 2015. Is it part of the culture of the Department to rely on previous employees' memories?

Dr McCormick: No. The authoritative record is the formal record. We have made a lot of investment in retaining and managing public records. We no longer have the classic old-fashioned paper file where you could look at everything in date order and it sits in a registry. Instead, we have an electronic filing system. That has a lot of advantages with searchability and so on, but it is sometimes quite hard to track through it.

Questions were asked earlier about culture, and that affects the nature of how things are recorded. As we are emailing internally all the time, we tend to take it for granted that the email trail will probably mean that most important things are picked up and recorded. To me, the documentary record is much more important. The opportunity to test someone's memory is supplementary. Sometimes, a quick word with somebody who used to work in an area can save a long time searching for a document if someone says, "The important point to remember is this". Nothing like enough of that happened in this case. We might have been in a better place if the significance of some of the points that people were aware of had been passed on more fully at certain points.

Mr Lunn: Declan asked a question earlier — it was quite a while ago — about two levels of management running in parallel. In the private sector, companies have what you might call a suggestion box, and employees from a lower level are actively encouraged to make suggestions and direct those to a higher level. Maybe I have picked it up wrong —I am not saying that it is the case now — but could it have been the case at that time that lower-ranking employees were not actively encouraged to make suggestions and, effectively, to whistle-blow?

Dr McCormick: I do not know exactly what the culture felt like in that period. I think that the right approach is for senior managers to ask and to be open and transparent in their behaviour and welcome challenge and suggestions. A long time ago, there used to be a staff suggestion service in the Civil Service. The more important thing is for there to be a willingness to listen and a feeling that no question is a stupid question.

Mr Lunn: I am sure that your door is always open to employees who want to make suggestions. I just wonder what some employees might have felt in making suggestions that might be construed as criticisms, which was probably so in this case. If a lower-ranking employee had gone to somebody senior and said, "This scheme is dreadful; we need to discontinue it", they might have had a wrong reaction; they might have felt that, if they did that — it has been known to happen in all scenarios — their future progress might have been impeded. I am sure that it does not go as deep as that.

Dr McCormick: It absolutely should not. I recognise the syndrome that you describe, but it is a very wrong syndrome. The only right tone at the top, which is a phrase that I have heard, is one that welcomes challenge, is prepared to listen and does not dismiss questions, comments or challenges. It will help to get the right thing done if the person speaking is right. If they have missed something, they will learn through a dialogue that allows their understanding to be developed. That is a win-win: either way, dialogue and engagement on that will be better.

Ms Cousins: Part of the governance stream that I am responsible for in the new Department for the Economy has a change transformation team. The whole idea of that is to create a new culture that will look at overall Civil Service values. It involves focus groups of staff from all grades coming together to discuss what we want to do to change culture, what we are looking for and how we can achieve that. That work has already started. We also have seminars about how things are done in the Department; it was two Departments coming together into a new Department, so we share ideas about how we did things, and we pick up on best practice. We are very aware that a lot of work needs to be done on creating that open culture where people feel that they can raise concerns as part of the normal course of business rather than having to do it through a whistle-blowing process.

Mr Lunn: That is good to hear, but it is also worrying from the point of view of what happened in the past. If you had to create this new culture — seminars, focus groups and an open atmosphere — it indicates that, in the past, perhaps that was not the case. That is what I was getting at.

Ms Cousins: It is more about the fact that it is new.

Mr Lunn: It seems that an awful lot of people had reservations and concerns about the scheme from day one, including the whistle-blower and, I am sure, junior staff. I do not want to insult anybody, but so much was structurally wrong with the thing from day one that a number of people working on it — I think that you, Andrew, said that there were six or 10 — must have had reservations. Perhaps they expressed them, but it took so long.

Dr McCormick: One reason for having a fact-finding exercise is to establish what the situation was. Part of that process has to be to give all those who were around at the time the chance to say what they were thinking about and an open opportunity. We are asking closed questions in that process about specific documents, but there has to be a general point about what they thought about it and what their understanding of it was in a very open and genuine way so that we are fair.

At this stage, there are not clear signals that there was an awareness of the grave risk. That is what concerns me most about the whole thing.

Mr Lunn: I understand that, when the scheme was initially set up, it was planned that there would be regular reviews of the subsidy levels.

Dr McCormick: Yes.

Mr Lunn: The first review was planned to begin in January 2014 and be in place by April 2015. Fourteen or 15 months seems like an inordinate length of time to have a review of something that started only two years previously. Why was that review date missed? Why did the review not happen?

Dr McCormick: There is no good answer to that. It should have happened. It was a condition of the approval of the scheme in 2012 through the process at case work and then the submissions to DFP and so on. All had recognised that the biggest risk in the scheme was the potential for an under-generous or overgenerous tariff. That was identified in the business case in 2012 and is why it was built into the programme. Had it been a proper programme management approach, the commitment was to have a review. In practical terms, it probably drifted because the attention was on other things, notably the introduction of the domestic scheme and — I am sounding like a broken record, I am afraid — the low take-up. The scheme was not performing, so the need for a review was not clear.

Mr Lunn: Sorry, I do not agree with you. If it was a good scheme and there was a low take-up, surely there was a need for a review. Do you have diaries? This is a case of flagging something up and putting it down for two years hence. I am not trying to be facetious.

Dr McCormick: I have nothing strong to say in response; you are being totally reasonable.

Mr Lunn: Applicants had to install the heating system before they applied to the scheme. Do you think, in retrospect, that that was a crucial flaw? Why was the scheme set up in that way? To put it delicately, it seems back to front.

Dr McCormick: I find it odd, and it is unusual. It evolved as a way of doing things in relation to several aspects of renewable energy, and this is one part of the way of working that came from the way it was being done across the water.

Mr Lunn: Was it done that way across the water?

Dr McCormick: Yes, it was the same basic system. In 2011-12, a range of options for the best approach to renewable heat and all those things were drawn out, the pros and cons analysed, and the recommendation was to do it in that way.

The lesson to be learned from what happened is to question whether that was a good approach. I would absolutely hesitate to adopt that approach for something else because we have learned such hard lessons from this case.

Mr Lunn: I appreciate that you were not there, but surely the people who set this up, combined with the procedures that it went through, could have said, somewhere along the line — we have been through all this and I do not want to repeat it — "Hold on a minute. We will be able to regulate the flow of applications if we get the application forms first". We might even have avoided the situation that happened towards the very end of the scheme where people had spent thousands of pounds on equipment, ordered thousands of pounds of equipment and could not get out of the contracts, but the scheme was finished. You are not disagreeing with me.

Dr McCormick: I am not. It looks very unhelpful. The expectation was that the scheme would continue and, therefore, would run until it gradually reached a stage of saturation where prices would have moved so that renewable heat would have become more normal. It was trying to deal with the barrier to new investments. Had reviews and aspects of control of costs or value for money — those are separate — been built in earlier, it would not have hit problems and been the risk that you describe, where people had made their investment and the scheme then closed on them. That would have been avoided.

Mr Lunn: That is before you get to the people who were selling the boilers, who had probably ordered a load of stock, particularly when the spike happened. Maybe they would have been able to return it. Anyway, we have been there.

The DETI casework committee approved the business case for the scheme on 9 March 2012. Are we allowed to know who sat on that committee?

Dr McCormick: Yes. We can get you the names but on the basis of the usual protocols about naming members of the Senior Civil Service in public hearings.

Mr Lunn: Were minutes kept of those meetings?

Dr McCormick: Yes.

Mr Lunn: If you could supply the minutes and the personnel, that would be very useful.

Mr Dunne: I will not be too long, I hope. Andrew, in the last session, you talked about there being no case for a fuel subsidy in Northern Ireland because biomass fuel was cheaper than oil.

Dr McCormick: Yes. That was at the inception of the scheme.

Mr Dunne: Did you consider having a capital grant scheme for the installation of boilers?

Dr McCormick: That was one of the options that was appraised in the feasibility study in 2011.

Mr Dunne: Why did we not go for that? That would have saved an awful lot of bother.

Dr McCormick: Yes, we can say that now. The view was taken that this would create a greater incentivisation. What they were trying to do was to get the most renewable heat for the £25 million that was available. With advice from the consultants and the internal analysis, as is rehearsed in a submission to the Minister, those options were considered, and the pros and cons were addressed. The recommendation was to go with this tariff-based system, and that was approved. All that I can say is that that is what happened. The reasoning is set out in the feasibility study and the business case.

Mr Dunne: Have you reviewed that now?

Dr McCormick: We have looked at it, yes. We have the papers. Again, if you want access to those documents —

Mr Dunne: Are you satisfied now, having carried out your review, that the Department went for the proper method?

Dr McCormick: Again, it is hard to answer that without importing into the past knowledge from the present. I have not seen anything in that process that makes the decision and principle of doing it that way inherently unreasonable. The much more important issues arise because they did not have a cost control and had this glaring risk in relation to value for money. To make the point again, we have focused a lot on tier tariff. A tier tariff would not in itself have prevented the budgetary problem. There would have been less of an incentive to apply, but, in theory, you could have an infinite number of applicants coming through and, therefore, bust your budget anyway. Tiering was not the solution to budgetary control. In that circumstance, they would have needed a budgetary control as well, but GB did. GB started with a tiered tariff and, as things evolved, introduced both break clauses, so that they could suspend or close the scheme, and digression, which automatically reduced the tariff as they moved towards budgetary ceilings. We missed all those and found ourselves in 2015 able neither to turn the tap off nor protect against the risk of abuse because the tariff was so generous. A lot of things were missed. I do not think that it is inherently because of the design of the scheme in the sense of it being a tariff-based system. What is frustrating is that an awful lot of work went into considering and reviewing the tariffs, yet we got it wrong.

Mr Dunne: That maybe leads me into the next question. However, before I leave this, how was the domestic scheme managed? Could you clarify how it operates? Is it a capital grant scheme?

Dr McCormick: It has an element of grant and a tariff as well.

Ms Cousins: It is a tariff scheme, but it is capped at a maximum of £2,500.

Mr Dunne: Was there any real discussion about transferring that into the commercial scheme?

Dr McCormick: There is a point there that is both good and bad. Both schemes, in their principal design, mirrored the approach being taken across the water. If only we had also looked at a tiered tariff, as was happening across the water. Is that a fair summary?

Ms Cousins: Yes. One other difference is that, with the domestic scheme, there is a deemed heat requirement for each individual property based on the energy performance certificate. As you know, it is an independent check that you pay for and says what heat a particular property requires.

Mr Dunne: So it was managed and controlled.

Ms Cousins: Yes.

Mr Dunne: Knowing what we all know now, do you think that the energy team in DETI was adequately resourced and had sufficient qualities and skills to manage the project?

Dr McCormick: Most parts of the Civil Service will, at some stage, say that they are under pressure and need more resources. That was more of a difficulty in more recent days when there was an intensity of work around aspects of renewables policy, including the NIRO, which has been a very difficult issue recently.

Mr Dunne: That was in the last 18 months or so.

Dr McCormick: I am not sure how it felt in 2012-13. I had only one very brief discussion with predecessors about that point, and it did not present to me that a major issue was being raised. Obviously, there was some concern about people being busy, but I do not think that it is unreasonable to have expected some of these issues to have been handled better. It is important to point out that the scale of resource that DECC and Ofgem have for these functions is much larger, because they are dealing with the economy of scale of working at GB level. I would certainly suggest that, had we been able to be part of a UK-wide scheme, that might well have been a better way forward. That opportunity did not arise. There was an element of timing and an element of judgement. Northern Ireland was different in that we had an oil-dominated heating market as opposed to the gas-based market across the water, and there was a risk — it comes through in the papers — of displacing the growth of gas in Northern Ireland. It is very unfortunate that we were not able to be part of that bigger system, because it would have meant a more proportionate resource. There is probably a point in there, Gordon. In fairness, there are probably difficulties there. People were under pressure, but I could not say that it was unreasonable to expect them to have addressed some of the points that have caused concern.

Mr Dunne: It was not reasonable.

Dr McCormick: It is not unreasonable to expect that.

Mr Dunne: It is not. So they fell short. Was there even the necessary technical and commercial expertise across the whole Department to manage the scheme? It was obviously quite technical and new to them. That was a major risk.

Dr McCormick: That is a very important thematic point and goes back to the points that the Chair raised at the outset of this session. The point that we really need to focus on is that we should only take on an area with this degree of technical complexity if we have either internal or external expertise that is really effective, well aligned and reliable. We have learned some hard lessons on that in the past.

Mr Dunne: The last time you were here, we talked about project management. The point was made that this should have been project-managed. Were there people in the Department with the necessary skills to manage such a project who had gone through the training and were competent?

Dr McCormick: I do not know the extent of the detailed training of the individuals concerned. What has been represented to me is that very detailed work was going on that would have had some of the features of project management and intense engagement, including some from a senior level, but what is conspicuously missing is a clear structure, clear record-keeping, checkpoints, a risk register and an issues log. There was a risk register for the scheme — it is in the business case — but it does not seem to have been effective.

Mr Dunne: There will have been a sponsor and a project manager. Were they ever clearly identified in the Department?

Dr McCormick: De facto, there were people who were playing roles akin to those roles but not with the rigour and formality that was needed.

Mr Dunne: That is a major failure. The Audit Office made the point that there was previous history in DETI in relation to broadband. It was before our time — certainly before my time. That risk had been identified previously, and we are all worried about whether that was ever addressed. It looks like it has not been addressed with project management.

Dr McCormick: The deficiency in that area was mainly in the period from 2011 through to the inception and operation of the scheme, and so that predated the actual hearing and report on Bytel. However, the point stands that, as a matter of good practice in management, we should have been doing better on that point. There is no big defence there, to be honest.

Mr Dunne: Had you adopted a project management system, it would have gone through all the various stages that would have given assurance of quality and value for money. All the various technical people and senior management would have been involved to sign off the various stages. That is what it is all about. It is about shared responsibility. It is about giving assurance to us and everyone that the scheme is properly qualified and that it is capable of doing what it sets out to do. The major failure, in not having a project management system in place, has been major non-compliance. Would you agree?

Dr McCormick: Yes. I would say that those systems, the good systems that you have described, are a necessary condition for getting things right. I do not think that they are a sufficient condition. There also has to be adherence to things agreed.

Mr Dunne: True.

Dr McCormick: In this case, one of the problems is that the good aspects of our governance that applied, as you will see in the casework minutes, included some conditions on approval and those were not fulfilled. You could have the best system of project management, but still have non-adherence to the things agreed.

Mr Dunne: Yes, but if part of it was management review —

Dr McCormick: That would mean more likelihood of challenge.

Mr Dunne: Yes. All the managers should have sat round and agreed this. They should have asked, "Are all these things agreed? Are they signed off?". The sponsor would then sign off the project to verify that it meets the requirements. Unfortunately, that does not seem to have happened, and we have had that major downfall.

Dr McCormick: Agreed. I would argue that, as well as a good system, you also need people to adhere to fulfilling their responsibilities.

Mr Dunne: You need compliance. Really, you need internal audit to ensure that there is compliance. Again, that did not happen.

Mr Lunn: I have a supplementary question, but it might intrude on the next question, so, if you do not mind, I will wait until Robbie is finished.

The Chairperson (Mr Swann): That is OK.

Mr McMullan: I have a supplementary question. Was an economist ever used?

Dr McCormick: Yes. The economists were —

The Chairperson (Mr Swann): Oliver, we will cover that in the next section.

Mr Butler: I have two questions. The first is one of my own. At the start of today's session, you mentioned the work that went into the casework at the beginning of what we loosely term a project at this stage. What do you consider to have been in place in the original casework that could have addressed the inefficiency of the scheme?

Dr McCormick: The key points are that there was the condition for review, which we have talked about already. That was a condition for approval. There was a recognition in that of the risk of getting the tariff wrong. That was a reason for the team to have kept that under review, and neither of those things happened in practice. There are probably some other details, but those are the things that stand out for me.

Ms Cousins: It also covered the need for flexibility, so that you were not having to go for legislative change every time you wanted to change something. That did not make its way into regulations either.

Dr McCormick: That is a very good point.

Mr Butler: Off the bat, there are certainly three reasonably sensible instances. That leads into the main question anyway. On page 9 of the C&AG's report, the graph shows that the subsidy rates in GB halved from 2012 to 2015, while Northern Ireland's rate actually increased. We know that this was not being monitored by the Department. Would it be fairer to say that it was not being monitored or that the effect of it was not being recognised?

Dr McCormick: I go back to the point that I made at the very beginning that nobody had seen and understood the excessive incentive that was inherent in the high tariff. The initial position was that we needed to incentivise investment and, therefore, we adopted the commitment that, once a tariff was applied, it would remain in place for 20 years and would be operated with inflation. All the analysis and decisions in the early stages took us to that decision. The flaw was missed at the outset, and then the opportunities to introduce digression, which would have led to the kind of progressive decrease seen in the GB tariff, were not followed up. Digression was mentioned in the 2013 consultation, and there is some evidence in the 2014 documentation that some on the team had expected that to move, but it did not happen. Nobody pushed it or argued for it strongly enough for it to happen. Then we drifted into 2015, and, by the time the uplift in applications began to kick in, there was nothing that could be done, because any change had to be taken through legislation. Hence the gap between announcement and effect, which provided the opportunity for the spike. All those things are just what happened. They are not good answers.

Mr Butler: OK. I assume then that no steps had been taken when it became evident that there were much higher rates here in comparison with GB.

Dr McCormick: The problem did not crystallise. Until March 2015, people were still concerned about low take-up, and when take-up began to increase, they felt, "This is beginning to work." That was good because they had been trying to promote renewable heat, and all of a sudden it was going well. Then it hit a budgetary problem, and the focus was on the budget rather than on value for money. That is just wrong.

Mr Lunn: You mentioned digression, Andrew. The English scheme did not have digression at the start; nor did ours. You could say that ours followed the English scheme. But, before very long, they introduced digression. Even if nobody spotted that at the time or reasonably thought that we should do the same thing for the same reasons — sorry to bang on — the review that was missed in April 2014 would have taken care of that. I just want to put that on the record.

Dr McCormick: You are absolutely right. That is why I go back to the point that the casework approval was on those conditions.

Mr Lunn: In the normal way of things is there sufficient contact between various parts of the UK Civil Service, through which English officials might have pointed out to us that they had decided to introduce digression? Did they?

Dr McCormick: That is a fair point. On the extent and depth of discussion, comparing notes with colleagues in London would have been a good thing. I do not know to what extent that happened, but it seems not to have had any effect.

Mr Lunn: Do your records show that the Department had been advised that the English scheme had decided to introduce digression?

Dr McCormick: Yes, we were well aware of that, through informal contact and, indeed, ministerial correspondence. That was there and was not acted on.

Mr Lunn: Are you saying that it was in the Minister's correspondence? At ministerial level, we were advised that it had been necessary to introduce digression in England.

Ms Lockhart: Just on that point, Ofgem was regulating the English side of things, and it was administering our scheme. Did it not tell the Department at any stage that —

Dr McCormick: It was going ahead and applying the system as it was being amended. The regulations for the English scheme were amended, I think, 10 times over the last number of years. That would all have been going on.

There was probably no strong reason for it to come to our attention because, again, of the low uptake. The low uptake would have meant that people were not focusing on it, because it was not seen as a problem until it was too late.

The Chairperson (Mr Swann): Sorry, Andrew, in Ofgem's evidence to us, they claimed to have written to the Department on 14 May 2014, highlighting concerns over tiered tariffs.

Dr McCormick: Yes, that is right; they did indeed. Again, I emphasise that that is one of the opportunities that we missed. Tiering would have made a big difference to the concerns on value for money and risk of abuse. It would have dampened the demand and, therefore, helped with the budget, but it would not have solved the budgetary problem totally. It is a fair point that Ofgem raised that, and we said that earlier. I do not think that it was for them to draw attention to digression, for example. We knew about that anyway. DECC introduced it in 2013, so we were well aware of that. There was no sense of a need to do it in Northern Ireland, that is the problem.

Mr Lunn: What was the nature of the correspondence between the Ministers?

Dr McCormick: That was a routine update. There were a number of letters, but the ones that I am most familiar with would have been in late 2013. Normal practice is for the lead London Minister to write to colleagues in the devolved Administrations to say, "Here's what we're doing".

Mr Lunn: Can we see those?

Dr McCormick: Yes, I do not think that there is any difficulty with that.

Mr McMullan: Ofgem was here last week. They said that they shared the information from here with colleagues in England. They used information on what we were doing here and shared it in England.

Dr McCormick: Yes.

Mr McMullan: Is that normal practice?

Dr McCormick: It is not unusual for them to talk about what is going on, informally. I do not see any difficulty with that.

Mr McMullan: Is there nothing wrong with that?

Dr McCormick: Nothing particularly.

Mr McMullan: Is there no data protection or anything?

Dr McCormick: It would not have been about individual details. It would have been about the principles, policies and practices. I do not think that there is anything wrong with that. It would not have been about individual applicants.

Mr McMullan: I appreciate that, thank you.

Ms Lockhart: I have a very quick question, and I know that it is maybe rehearsing a bit of old ground. Andrew, when did you take over in the Department?

Dr McCormick: 1 July 2014.

Ms Lockhart: When did we realise that there was a problem?

Dr McCormick: The problem was drawn to my attention as a budgetary problem in May 2015. The first record or signs within the team of awareness was March 2015. It was brought to my attention in May 2015. The nature of that discussion was very much, "We need to get more money for this".

Ms Lockhart: As head of a Department and given the nature of the organisational structure — I am not getting into specifics around staffing — are you not absolutely furious that no one thought to tell you, from July 2014 to March 2015, that there were concerns and issues with the tiering or the fact that we did not have tiering?

Dr McCormick: I share all the concerns and frustrations that are being expressed here. This was not at all satisfactory. I have to look at making sure that we learn the lessons. The lesson has to include the fact that people have a responsibility and a freedom to raise concerns. That is the kind of cultural point that I touched on with Declan earlier. It is very important that we set the right tone so that people can express difficulties and are not afraid to raise them. I absolutely share the dismay at what has happened here.

Ms Lockhart: In the previous session, you outlined that tariffs were based on an assumed particular size of boiler and usage level, but it did not require much change to either of those assumptions for the rate of return to go to a very high number. The Audit Office report identifies the potential for returns to scheme applicants to be as high as 82% per year for 20 years. I assume that the business case for the scheme would have been examined by the Department's economists as part of an economic appraisal. The crux of my question is this: do you know why your economists did not carry out a sensitivity analysis on the proposed tariffs to ensure that value for money was being achieved? I know that there are stocktakes and what-if type scenarios at certain times in all government procurements. Will you maybe just expand on that?

Dr McCormick: I find this a cause of significant concern, and it is a point that I have discussed with the team. As you said, the sensitivity analysis is a fundamental, basic check. I cannot see any evidence of it having been applied to the complex —

The assumptions were quite complicated, and, in the information that we have had from CEPA's work, the model seemed to work on the basis of the assumptions. A lot of assumptions were made about the kind of usage that would apply, the kind of scale of boiler, the kind of scale of heating that was required and the extent of heat needed. I am not sure that they focused on what emerges from some of the significant sectors where that worked, which justifiably involved 24/7 use. There are clearly some flaws in that analysis. Whether they were —

Ms Lockhart: So, they did analyse it.

Dr McCormick: A lot of detailed work was done to look at the scale of boilers, hours of heating, the heat requirement and the efficiency of boilers. All those were analysed in very extensive detail to produce a recommended tariff.

In the initial CEPA report, the crucial line was that they did not recommend tiering. That was the case in 2011. Then, after the initial consultation during 2011, the Department procured an addendum to the work of CEPA, because there had been strong pressure during the consultation to have higher tariffs. A further piece of work was then done, and it was at that point that the tariff was increased from the initial proposal in 2011 to the number that was adopted in 2012. That is when there was a chance to re-examine the question, "If we are going to increase the tariff, does that mean that we have to think about tiering again?". I have no evidence of that question being asked, but maybe there is more to be found in our fact-finding. To me, that is right at the heart of why this went wrong. Sorry, I am only rehearsing what is in the Audit Office's report.

Ms Lockhart: Have the economists been challenged on that? Are they being —

Dr McCormick: I have not spoken to the people who were there at the time, but the people who are working for me now as economists have looked at what happened. They can see that, if you look at the assumptions, the conclusion is reasonable. My question then is this: where was the sensitivity analysis and the what-if challenge to that? It seems that that was not sufficient. I do not have a good explanation for why that was the case.

Ms Lockhart: Again, it goes back to the people who were there at the time and the questions that need to be asked of those individuals. I think that that is something further that we could explore.

The incredible decision not to tier the subsidy rates obviously led to the huge incentive to burn more wood and generate more heat than needed simply to collect the subsidy rate. Has the Department done any analysis to see if that is actually happening on the ground? That probably goes back to explaining your inspections and your plan for going forward.

Dr McCormick: From the evidence acquired so far, as in the PwC report, the question that we have to address now is this: what is the right thing to do about that and, especially, what is the most effective way to change the future? We cannot change the past or the present, but can we change the future? Our strategic approach to that will influence our judgement on what further approach to take. I think that we also have to be fair to applicants and recognise that some are, essentially, category 1 in the PwC report, where there is no issue of question marks over compliance or behaviour. We recognise that there will be a substantial proportion who are, in that sense, correct.

Ms Lockhart: When do you expect to know what you will do?

Dr McCormick: This is urgent work. I do not want to put a precise time frame on it. In the next couple of months, we need to be resolving this, gearing up and finding a way forward.

Ms Lockhart: Are you talking January?

Dr McCormick: Realistically, to do the kind of processes that we need, which will include looking at all the issues around what is the right thing to do going forward, is complicated. The last thing that I want to do is rush to something that is, in the end, wrong and compounds the bad position that we are in. We do not want to do that.

Ms Lockhart: Maybe, at that stage, we will get some more information as a Committee.

Mr Kearney: I am going to reframe the approach here very slightly just to tweak it a little. I have three quick questions. Andrew, it seems that the Department operated from 2012 to 2015 on the basis that there was no risk to the block grant and that everything was going to be covered by the Treasury.

Dr McCormick: In practice, yes.

Mr Kearney: Let me set out that perception for you, because, on the basis of everything that we have heard, there is a reasonable basis to say so. On that assumption, do you accept that that type of complacency led directly to the failed regulation by the Department?

Dr McCormick: It is definitely connected. There is no question about that. I think that the understanding of the budgetary control system differed from the early days. As Alison Clydesdale drew out at the session six weeks ago, she and some successors were well aware that, while this was called AME, it was not standard AME and was subject to either a ceiling or a clawback the following year. That is something that Treasury quite often does. If you overspend in one year, you repay in the next year. Then there is the reference to 5% that crept in. In the end, that was a very distracting red herring. The attitude in the early days was more around low uptake. There was no anxiety about the budget, not because of a point of principle but more because it was not spending. The serious problem during 2015 was that, while there were some people in the Department who remembered and brought to attention those old emails that showed the issue, the prevailing view was that this was AME. That was one important fact that was both helpful and unhelpful. It was helpful in the sense that we got some money from the Treasury. The Treasury gave us AME increases during 2015-16, and that will have reinforced the view that the Treasury is paying. It was helpful that it did but unhelpful in the sense that it reinforced the mindset that, ultimately, as you know very well, was wrong.

Mr Kearney: In the context of a culture that was one, in my view, of negligence, mindsets responded that disregarded those realities and led to that type of complacency.

Dr McCormick: I cannot disagree with that.

Mr Kearney: At this time, do you have any other projects of this scale on your books?

Dr McCormick: No. There is nothing that compares to this in scale or nature.

Mr Kearney: You have substantial projects, obviously, given the nature of your brief.

Dr McCormick: Yes. The big budgets in the Department are for Invest Northern Ireland, and its deal flow is projected by financial budgetary management and controlled by its internal casework procedures and, where projects are of a particular scale, departmental and DOF approval. Those are —

Mr Kearney: Can you assure us that the consequential learning under your leadership will directly impact and influence the governance of the schemes now?

Dr McCormick: Absolutely. It is a clear and straightforward responsibility.

Mr Kearney: So it will be lateral.

Dr McCormick: Yes, across the full range of our budgets.

Mr Kearney: We are not coming back to Bytel again.

Dr McCormick: No.

Mr Kearney: Lastly, we have recognised that there is a significant issue for the block grant. You indicated earlier that there is a measure of cross-departmental communication about how it is going to be mitigated. Can you confirm that that is the case?

Dr McCormick: It is an issue for us. It is the old story: if it is a small debt, it is your problem and, if it is a big debt, it is your bank's problem. The Department of Finance is aware of it and is being very helpful about it in the monitoring context, as Heather described earlier, but we still have to fulfil our part of the responsibility in getting it right. That is where our efforts are focused.

Mr Kearney: Do you agree that, flowing directly from this, there is also a very significant intangible economic and financial fallout from the project?

Dr McCormick: Yes. I had a number of interesting conversations after the scheme closed. Had we been able to sustain a controlled renewable heat incentive scheme that delivered as originally intended, a positive consequence would have been a very vibrant renewable heat sector, including the production of fuel and installations. I talked with a number of suppliers, and they had seen a real business opportunity, so I am well aware that a consequence of what happened is detrimental to that growth. I am also conscious that we need to look at the competitiveness of the sectors that make legitimate use of the scheme. This works; it works exceptionally well for poultry houses, and we need to recognise that as we go forward. Looking at change, we need to be sensitive to the consequences for those sectors when managing the present and the future.

Mr Kearney: As things stand, this has caused huge damage to the whole concept of renewable energy and heating in the North. And finally, then, this is, for me, a corollary. It is not just about financial debt; it is much more far-reaching than that. It is about reputational damage to DETI then, and your Department now. There are reputational issues for the entire structure of governance in our Civil Service. Do you agree that it throws up serious issues of public confidence?

Dr McCormick: Yes, which is why the essential thing for us is to put things right in every possible sense. That means looking at a very honest and direct learning of what happened, as we have tried to do this afternoon. Also, it is about looking at what we can do to show there are ways forward. Again, we need to test those within a legal framework, but restoring reputation and restoring confidence is absolutely critical from my point of view, yes.

Mr Kearney: Thanks Andrew, thanks Heather, thanks Robin.

The Chairperson (Mr Swann): The 5% was a "distracting red herring". Expand on that for me, Andrew.

Dr McCormick: It goes back to an email of April 2011 from the Treasury, in which there is a throwaway line that says there will be some penalty, and perhaps 5% of the overspend AME would be recouped from resource DEL. If that was the only budgetary constraint, it would not be so bad. In practice, what happened, of course, is that we were told by the Treasury in January this year that no exceeding was permitted and the entire exceeding was to be charged to resource DEL, not 5% of it. So what happens in 2016-17 and the forward years is a 100% penalty. The complication is that, in the 2015-16 financial year, Treasury provided the additional AME, so we had no penalty. I have worked with Treasury for a lot of years, so that does not totally surprise me. The Treasury does its own thing, and, in the end, its decisions are final, but the email where the 5% figure appears, if you read it in context, was clearly not a final and definitive authoritative statement of the Treasury position. It was at a stage when the scheme was still being developed. It never seems to have been confirmed, and it was one of the points where I found myself most frustrated in the whole process, because we had relied on something without it having any real foundation.

The Chairperson (Mr Swann): I understand where you are coming at it from — that the 5% may have been the only risk. Is there potential that it is still an additional risk?

Dr McCormick: No. The Chief Secretary's letter of January this year gave a final and definitive position on what was being provided for us for renewable heat. That is, as I understand it, the final position. Maybe I should just double-double-check this point with the Department of Finance.

Mr McMullan: Just before I ask my question, is there any record anywhere to say that the 5% was mentioned to anybody at a meeting as being the only possible clawback?

Dr McCormick: That was the nature of some of the internal discussions during 2015. At that stage, the focus of attention from March 2015 through into the autumn was to seek additional budget cover either from DECC or from Treasury. The crutch that we were resting on was that, from what Treasury used to say in the past, the degree of risk is only 5%. So that was being talked about and was the advice that I was given during 2015. I belatedly — and I regret not asking for it earlier — then asked in February 2016, "Show me your authority for that. Where is the document that conveys that authority?". All that was available was the Treasury email, which, when I saw it in context, was, I am afraid, only a relatively informal communication.

Mr McMullan: Who was that sent to?

Dr McCormick: It was sent to our team in DETI at the time and to the Department of Finance and Personnel. DFP saw that at the time. It was discarded as a red herring. It did not have any final authority.

Mr McMullan: Do you agree with me that it could be part of the problem that people took comfort in that 5% —

Dr McCormick: Yes.

Mr McMullan: — and carried on, knowing that they were only going to be possibly hit with a 5% at any level?

Dr McCormick: Yes. That is what we are being told. That is the extent of the risk.

Mr McMullan: So that went to DFP and where else?

Dr McCormick: Within DETI and —

Mr McMullan: How far in DETI did it go?

The Chairperson (Mr Swann): Oliver, we have copies of that email. That is in the papers.

Mr McMullan: OK. Sorry. I keep being pulled up all the time —

The Chairperson (Mr Swann): I am just helping you.

Mr McMullan: I am trying to find out exactly what is going on here, because people are going by an off-the-cuff remark of 5%, and they are running a scheme that will cost into the billions on predication of 5%. I do not know if we are in the real world or not.

In 2013, Ofgem noted that there were two installations that had received full or partial funding through the Carbon Trust, through Invest NI interest-free loans, and it was queried whether the loans were regarded as state aid or not. DETI then appeared to be content without the application going through into the scheme. Has the Department ever looked at whether it was breaking any rules or was in breach of any state aid rules?

Dr McCormick: That was drawn to attention in precisely those terms, as you say, by Ofgem. Is that the final position, Heather? Can you take that point, please? I have another document that I need to see.

Ms Cousins: Yes. The Department looked into whether it was state aid or not. We have a team that looks at that. We communicated to Ofgem that it was not state aid and it was OK for it to proceed with that application.

Mr McMullan: So interest-free loans were given out to two installations. That was on top of very generous funding coming in as well.

Dr McCormick: These are the cases that were referred by Action Renewables to Ofgem as part of the documentation that Ofgem provided in the last few days. Ofgem drew this to our attention — this is also where it refers to the tier tariff. Going back to what we were saying earlier, we have established that this is the only time that Ofgem raised the issue of the tier tariff. It then passed this on for us to consider, and it was discussed with the state aid experts in DETI. We identified that there was a potential problem as to whether these would be above the de minimis threshold in relation to state aid. We have only just received some of this documentation from Ofgem, so I need to reflect further on this and come back to you with our conclusion on the point that you have asked about.

Mr McMullan: OK. How many other people applied for a loan from the Carbon Trust or a free loan from Invest NI?

Dr McCormick: I do not have that detail. I will get back to you on that.

Mr McMullan: How was that loan administered? How was it got out to the public on the back of the scheme? Did that work in tandem with the scheme?

Mr McMullan: They were separate policy initiatives that were separately administered. I will need to get back to you with the detail on that. I am sorry; I do not have that to hand.

Mr McMullan: What was the tie-up between Invest NI, Ofgem and the Department?

Dr McCormick: I am not aware of any direct contact between Invest NI and Ofgem. There may have been, but I am not aware of any. Again, I need to check this whole area out and come back to you with a written explanation.

Mr McMullan: Will you do that?

Dr McCormick: Surely.

Mr McMullan: Are you satisfied that there are no other papers in there in which somebody said something to you know who and said what? Do you think that people were under pressure to spend this money from further up the food chain?

Dr McCormick: I think you asked me this the last time, and I said that I am sure that there are more documents that would be of great interest in this whole process. We are continuing to look at that as fully as we possibly can. Of course there was pressure to make use of the budget and to perform as well as we possibly could. There was a Programme for Government target, and an obligation at EU level, to improve the proportion of heat being produced from renewable sources. That was there, and it was entirely legitimate. My view of these things is that our obligation is to fulfil the policy directions that are determined by Ministers, and also to fulfil the obligations to secure value for money and propriety and regularity of expenditure, and to protect against fraud. We need to do the right processes well. Yes, the Programme for Government now is focused on outcomes. We are all being told to change our behaviours and be less risk-averse, but we also have to manage risk effectively. Our responsibility — what we are answering on today and will continue to answer on — is the limitations on and failings in delivery. The pressure to perform, to spend money and to get things done well was there, but it was entirely legitimate.

Mr McMullan: Are you confident that we are going to get some more, or do you think that there should be more?

Dr McCormick: More resource?

Mr McMullan: Aye, in any other Department, other than where you are looking?

Dr McCormick: All we can do is try very hard to bear down on future expenditure. The responsibility now is to focus our attention on that.

Mr McMullan: This is my last question. There does not seem to be any clawback built in here in the way that there is for other grant aid. Michelle hit on that earlier. Indeed, if you look right through the whole thing and at every Department, any grant aid — the one that we are all involved in at the minute is the rural development programme and how you qualify for funding there. I would love to know where the mantra for this came from. What example was it taken from? Who dreamt it up?

Dr McCormick: Many of the features were read across from the GB system and scheme. Certainly, where there is evidence of non-compliance, we can pursue that. If we find evidence of fraud —

Mr McMullan: So you took this from the GB scheme?

Dr McCormick: Most features. If only we had taken the tiering as well. That is the big flaw. Most aspects of the regulations and the nature of the policy and the fundamental arrangements were a carbon copy.

Mr McMullan: Are we not confident enough here to take it from here, rather than taking it from England and ending up with a flawed system even before we started, which we were told about as far back as 2013-14?

Dr McCormick: The GB system did not have the same flaws.

Mr McMullan: It was not the same system.

Dr McCormick: It was broadly the same system, with different tariffs. This is where, if we had understood and analysed the tariffs properly and effectively, this could have been avoided. It was clearly avoidable — there is no denying that.

Mr McMullan: OK. Thank you.

Mr Dunne: May I make one quick point, Chair? Andrew, if there had been one clear owner of the scheme, instead of two — Ofgem and DETI — would it have significantly reduced the risk? There is always a risk when two bodies are involved, and the lines of responsibility and demarcation were not clear.

Dr McCormick: My answer to that is, again, unhelpful to the Department's position, because my answer is that there were not two people responsible. There was one person responsible, which was us, and we did not fulfil our responsibilities.

Mr Dunne: Ultimately, yes.

Dr McCormick: Ultimately. If we had required Ofgem to deliver more clearly and more fully, and if our oversight of Ofgem had been more effective, I would agree with you that that would have been the right thing to do, but I do not think that it is inherently — we were in a principal-agent relationship. We were the principal, and it was the agent. I would not describe it as a partnership.

Mr Dunne: It was the agent.

Dr McCormick: It was our agent to deliver, but it was our responsibility.

Mr Dunne: But it was empowered to deliver the engineering part of it.

Dr McCormick: Yes. There are aspects where I could express disappointment about things it did, but that would not take away from the need to acknowledge, on the Department's behalf, the things that we got wrong.

Mr Dunne: You were ultimately responsible for everything.

Dr McCormick: Yes, that is right.

The Chairperson (Mr Swann): Andrew, I want to go back briefly to where Oliver was in regard to the interest-free loan, administered by the Carbon Trust through Invest NI.

Dr McCormick: Yes.

The Chairperson (Mr Swann): The renewable heat incentive sitting — both sitting within DETI.

Dr McCormick: Again, I would need to get back to you with a fuller understanding of that; I would not want, at this stage of the afternoon, to give answers that are not well evidenced. I will come back to you on that point.

The Chairperson (Mr Swann): My train of thought is that someone sees an opportunity, and it goes back to commercial gain rather than to the objectives of the scheme.

Dr McCormick: Yes, I see what you are saying.

The Chairperson (Mr Swann): That is potentially happening in the Department. If you are prepared to look at that, it would be useful to come back to it.

Mr McMullan: Can we find out more about the free loan?

Ms Cousins: Just looking at some of the information that we have received on this today, it appears that the legislation was amended to facilitate whoever got the interest-free loan paying it back and then availing themselves of the scheme, but not both.

Mr McMullan: So you paid it back before you got the scheme.

Dr McCormick: That seems to prevent a double benefit. If the concern is that there is a risk of double benefit, that seems to have been foreseen.

Mr McMullan: If you had been in the scheme and the paperwork was brought forward, how do you pay the loan back before you go into the scheme? I would love to know how you did that. I am in business, and I would love one of those loans.

Dr McCormick: I will get back to you with a fuller description. We want to give an assurance, but it seems that there was a primary prevention of double benefit.

The Chairperson (Mr Swann): That is purely a timing issue. Going back to the peculiarity of the scheme, you installed the boiler before you got the grant.

Mr McMullan: That would also release you from declaring that you had other finance for the scheme.

The Chairperson (Mr Swann): Which was part of the application from Ofgem.

Mr McMullan: If you were asked that.

Dr McCormick: Let us get back to you on that.

The Chairperson (Mr Swann): Down the same avenue, then, on de minimis, which is where we are going round, I think that the Department actually rejected the two applications for installations that Ofgem brought to the Department's attention, and the Department then changed the definition of de minimis or how they read it. Would that be correct?

Dr McCormick: Sorry —

Ms Cousins: We literally only got this information —

The Chairperson (Mr Swann): Ofgem was in front of us a fortnight ago. I am sure that you have referred to Hansard and what was covered there.

Dr McCormick: I am aware that this was discussed. I have not done sufficient preparation on this point. Apologies; we should have.

The Chairperson (Mr Swann): The Department brought back de minimis decisions from Ofgem on 13 October 2014 or thereabouts. It is in the Ofgem documentation.

Dr McCormick: That was covered in the evidence session. You are right.

The Chairperson (Mr Swann): Why did the Department feel the need to bring back that part of the decision-making process at that stage?

Dr McCormick: Sorry, I am not prepared on that point. I should have been. I will get back to you on that.

The Chairperson (Mr Swann): I refer you to page 55 of the Hansard report. Mr Poulton said:

I questioned him on "high-level", and he said that they met at all levels of the Department in regard to de minimis and the Department bringing that back from Ofgem. The two parts we have talked about into consideration — Carbon Trust and neutral loans coming from Invest NI to support an RHI scheme — potentially clashed through de minimis. The Department brought back that responsibility from Ofgem at the same time, having rejected two applications.

Dr McCormick: I can see where you are going, but I do not have the factual analysis of that point to answer you. Again, apologies: we should have looked at that more fully following the Ofgem session.

Mr McMullan: Can we also find out who dreamed up this way of giving out the free loan? Was that part of the discussion on the overall scheme, to entice people in? Did only two get the money that we know of?

Dr McCormick: I will check those facts.

The Chairperson (Mr Swann): Maybe only two declared that they got the money. Andrew, if you are telling me that you could get the interest-free loan and pay it back before applying to the scheme, you did not have to —

Dr McCormick: Again, let us check that. It is a matter of fact, and I do not know.

Mr McMullan: Where did the money come from? Who released that money from what Department?

The Chairperson (Mr Swann): It was Invest, I assume.

Andrew, it is an intensive piece of work. Maybe you will take some of our concerns away with you today. Folks, any other questions? No.

Andrew, Heather: thank you very much for your attendance here today. I would like to say that this is it, but there are other actors in the scheme who have to get back to us. It is only fair to put you on notice that we will expect you back again at some stage.

Dr McCormick: I understand that entirely.

The Chairperson (Mr Swann): The information that we have requested —

Dr McCormick: I have to get back to you with several things, and I will do that as speedily as I can.