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SECTION 1

lARNROD ElREANN

Procurement & Internal


Controls investigation

Strictly Private &


Confidential

Prepared by:

I INTERIM
BAKER T I L L Y |REPORT
RYAN GLENNON ! 31 January
I 2008
IARNROI) EIRI-AW - PROCTKKMI-N I ^ 1 NTKRNAL, COM ROL I \ VI-STIGATION 3 P ' JAM \R\ 21)08
Interim Report to the Steering Croup Committee
PRIVATE & CONFIDENTIAL

TABLE OF CONTENTS

CONFIDENTIALITY

1. 1.NT'RODL CTION AND BAC'KCROI NO 3


Systems Review 3
Forensic Examination 3
Current Status 5

2. EXECUTIVE SUMMARY 7
IMSN Procurement System Review Findings 11
IMSN Procurement Walkthrough Findings 16
Management of Stock Findings 22

3. TERMS OF REFERENCE & SCOPE OF THE ASSIGNMENT 27

4. PROGRAMME OF W O R K 29

5. DETAILED FINDINGS AND RECOMMENDATIONS 31

6. CONCLUSION 32

APPENDICES:
APPENDIX 1 TERMS OF REFERENCE
APPENDIX 2 PERSONNEL INTERVIEWED
APPENDIX 3 INFORMATION REQUESTED & RECEIVED
APPENDIX 4 PROCUREMENT SYSTEM REVIEW
- PROGRAMME OF WORK
- FINDINGS & RECOMMENDATIONS
- SAMPLE QUESTIONNAIRE & RESULTS

! - PROGRAMME OF WORK
- FINDINGS & RECOMMENDATIONS
T
L appendix6 MANAGEMENT O F STOCK REVIEW
: - PROGRAMME OF WORK
! - FINDINGS & RECOMMENDA TIONS
- SAMPLE QUESTIONNAIRE & RESULTS __ _ __
APPENDIX 7 PROCUREMENT & MATERIALS DEPARTMENT BISINESS PLAN 2006-2009
! APPENDIX 8 ! P R O C L R E \ IE NT \ IO D K L G R A P H
I APPENDIX 9 _ j COMPARISON OF PRQCL REM EM MODELS __ __
! APPENDIX 10 | BEST PRACTICE PRQCLREMENT MODEL .VPPRO VC H
APPENDIX I 1 STOCK VALUATION REPORT
APPENDIX 12 SAMPLE STOCK TRANSFER FORM IN USE
- \VATERFORD TO PORTLAOISE

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J A R \ R 6 0 I-] IR E A \ N - P R ()( I: R V. ^ 1H N ! & IN T E R \ AI. C O M R O L 1 NVESTIO VTK)\ 3 C' J A\ ( \ in 2 0 0 8

Interim Report to (lie Steering Group Co nun it tee


PRIVATE & COM'IDENTI \ L _ _

C O N F f D EN IIA LIT V

The contents of this Interim Report are based on the documents and information and
explanations made available and provided to us. We have not, except where specifically
indicated in this Interim Report, independently verified the information provided or
representations made to us.

This Interim Report is confidential and is for the benefit of the Jarnrod Eireann Steering
Group Committee set-up for the purposes of this assignment in accordance with the Terms of
Reference provided. This report should be treated as highly commercially sensitive and the
copies issued to the Steering Group have been numbered. No responsibility or liability is
extended or shall be extended to any third party for the whole or any part of its contents.
Should you wish to disclose it to a third party we would request that our permission is sought
in advance.

The schedule of information requested by Baker Tilly Ryan Glennon provided to Iarnrod
Eireann is set out in Appendix 3 which also shows details of information actually made
available for review by the Company. Attention is drawn to items which were not received
or do not exist.

Following consideration and any comments received from the Steering Group it is intended
to then issue the finalised Interim Report.

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IARN ROD ElUi- \ V \ - PROCUREMENT & I N T E R N A L C O N T R O L | N \ f.sTK, \ H O N 3 I"' J AM' \ in 2008
Interim Report to the Steering Group Committee
PRM'A IT. & CONFIDENTIAL

1. INTRODUCTION AND BACKGROUND

larnrod Eireann (IE) which runs the railway system in Ireland, is a subsidiary of Coras
lompair Eireann (CIE) a semi-state company. IE is responsible for maintaining Rail
Passenger and Freight Services in the Republic of Ireland as well as Port and on train catering
operations.

Baker Tilly Ryan Glennon have been engaged to carry out a full review of the Procurement
Department within Infrastructure Maintenance, Signal Electrical & Telecommunications
(SE&T) and New Works (IMSN) and Internal Control Systems within the Infrastructure
Maintenance, Signal Electrical & Telecommunications (SE&T) and New Works divisions,
together with a review of the management of stock inventory in Portlaoise Depot and line-
side, throughout the rail network.

The background and events leading to the requirement for this review arose from an internal
investigation into activities associated with the removal and unauthorised disposal of track
materials and 'suspect' transactions with suppliers of materials and services.

The Assignment is split into two broad categories:

Systems Review

> Review of the IMSN Procurement System from Policy formulation at the highest
level through to transaction compliance testing at the lowest level a - "root and
branch review".
^ Review of the Stock Management system for controlling and recording slock
movements in to am! out of Portlaoise Depot and line-side materials throughout the
Organisation.

Forensic Examination

r Examination of conduct in the acquisition, deployment and management of services,


resources and plant equipment procured during the penod from January 2004 to date.

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I,\RSHOD IOREANN - ! f-FO( t REMENT A I vrER\ \ i. CONTROL f \ \ ESTIMATION 3 E' J AM \R\ 2008
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PRIVATE & CON EIDE VITAL

> Examination of the relationships with contractors of goods and services to the
Company during the period from January 2004 to date.
Assessment of the extent of actual loss or misappropriation from January 2004 to
date.
Identification of responsibility for any breach in procurement policy specifically to
identify any neglect to duty or lack of competence in the acquisition of goods and
services and to report on areas where loss or misappropriation has occurred and the
associated value from January 2004 to date and comment on where potential future
risk arises.

This Interim Report has primarily focused on the first of these areas, the Systems Review.
Interim findings and recommendations are included in this Interim Report for consideration
and discussion. It is to be noted that throughout the period of our review, management have
been implementing changes in procedures following receipt of Reports from the Group
Internal Audit Unit and we understand this work is ongoing.

It is also to be noted that the Company is engaged on an extensive Capital and Infrastructural
Development Programme in line with the stated Government initiatives outlined in Transport
21. This involves very substantial capital investment over the life of the programme from
1999 to 2013.

To place the IMSN procurement review in context, the first capital expenditure programme
(1999-2003) resulted in expenditure of €661 million, the bulk of which was on infrastructural
safety investment. The second programme (2004-2008} has a budget of €512 million and
places more emphasis on the safety management systems of larnrod Eireann. By the end of
2008. over €1.1 billion will have been expended on railway safety resulting in a much safer
railway network for both passengers and staff. The programme is of 15 year duration (1999-
2013 ). in 3 five-year tranches. The second programme commenced in 2004 and will run until
end 2008. The third programme will run from 2009 to 2013.

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I \ us ROD EIRE \ \N - PIHXTRI;\n;vr & INTERNAL CONTROL INVESTIGATION 3 P 1 J \ N r \ R \ 2008
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PRIVATEFTCONFIDENTIAL

To place our Procurement Review in context of annua] spend by the company for the areas
under review, the Infrastructure Maintenance Budget alone for 2007 has an annual spend of
in excess of €75 million including direct labour.

The purchase order value expenditure raised for infrastructure Maintenance, SE&T and New
Works collectively, with external vendors, for the years 2005, 2006 and 2007 have totalled
€1 76 million, £235 million and €252 million respectively.

To place our Review of management of stock in Portlaoise Depot and of line-side materials
into context. Appendix 9 lists the value of stock at each location as at November 2007. It
shows that the value of stock in Portlaoise depot was circa €11.2 million and stock at both
Kildare and Connolly was valued at circa €2.1 million and €1.3 million respectively.

Current Status

Systems Review

Our findings of the IMSN Procurement system to date are summarised in the Executive
Summary and are included in more detail in Appendices 4 and 5.

Fieldwork on the Management of Stock system is completed in the Portlaoise Depot and
within the Divisions and line-side. Our findings are summarised in the Executive Summary
and are included in more detail in Appendix 6.

The Systems Review was completed in January 2008.

Forensic Exam in at ion

With regard to the Forensic element of the assignment, to date concentration has been placed
on establishing the extent to which the source records of the company and in particular the
management information system (SAP) can facilitate the interrogation and gathering of
relevant data to enable fulfilment of Terms of Reference 2 and 4.

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lARNROD ElREAVN - PROO Ri:\!i:\T& l\ I I R\ \l ( ()\ IRO! !\\ (;sM(, \I ION 31 s 'J \M \R\ 2008
Interim Report (o the Steering Group Committee
PRI v \ ri: & COM'II)I:N riAi.

It is clear at this stage that scope limitations will arise due to inter alia, the restricted business
configuration of the SAP system which has limited data interrogation capabilities required for
an entity of the size of IE. This will impact on the Terms of Reference and is current!)' under
consideration. In order to fully establish what information is capable of being extracted for
review, further meetings with IT staff, are scheduled. Prior to this element of the assignment
proceeding in January 2008. the scope and approach has been discussed and agreed with the
Steering Group. A programme for the forensic examination has been completed under
separate cover following this meeting.

Based on our findings to date it is considered that the level of work required to fully address
the Terms of Reference as drafted (48 locations and periods from 2004 to date) could involve
a considerable degree of additional time and resources. It has been agreed with the Steering
Group that we proceed with this examination focusing on specific locations/hubs with high
risk potential. This will focus the scope of the fieldwork to the locations identified as
requiring specific examination and to use the findings in those locations to assist further
detailed investigation.

A Report detailing our findings and recommendations on the Forensic terms of reference is
expected to be issued by the end of March 2008 with updates being provided on an on-going
basis.

We would like to express our appreciation to the management and staff of IE for the time and
co-operation afforded to us during the course' of our review1 to date. In general we are
receiving the cooperation and assistance of Company personnel. Any exceptions to this will
be discussed with the Steering Group. We are endeavouring to work within the constraints of
111
staff availability and acknowledge in particular the assistance o f 4 B H M H H I I I f t
facilitating the considerable volume of meetings and information documentation requests
necessary to fulfil our terms of reference to date.

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I-VRNROD i;}H[. \ \ N - PlUK I R L M C M & }NTKKN W. COM I«)l. |N\ l> I l<. VHON } 1° J \M \K\ 2008
Interim Report to the Steering Croup Committee
PR|\ A t T. & COM'iDl.M i \L

2. EXECUTIVE SUMMARY

Following the receipt and review of a number of interna! reports we have noted that
management are current])' engaged in a system review of a number of areas. Initiatives are
ongoing to engage management at Divisional level in order to implement improvements in
compliance throughout the Company.

Our findings and recommendations are intended as constructive input to that process. The
findings below are presented under the headings of:
IMSN Procurement System Review;
IMSN Procurement Walkthrough Testing; and
Management of Stock

Our findings are based on our Programmes of Work that are detailed in Appendices 4, 5 & 6.
Both findings and recommendations are presented in further detail in Appendices 4, 5 & 6.

To assist an appreciation of our findings under the various areas reviewed and considering the
volume and diversity of personnel we have engaged with in the course of our work to date,
we commence this summary with a number of key findings intended to assist perspective on
the issues to be addressed.

I. Despite the existence of documented compliance procedures, on-going non-compliance


with these procedures has been present within all Divisions subject of our review going
back some time. This is evidenced within the Group Internal Audit reports of July 2007
and December 2007 and also the Cost Audit report of June 2005. Ongoing non-
compliance is confirmed from the results of our transaction t e ^ n g in NdVeijilJjpr -
December 2007. The on-going non-compliance revealed in our transaction tests, which is
mirrored in results of the various Internal Audit Reports, is symptomatic of a more
fundamental system deficiency.

The manner in which the current IMSN Procurement process operaies is more okin to a
system that records and processes purchase transactions rather than applying a Business-

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PRIVATE & CONEI DEN ) I M

based Procurement Strategy. This is resulting in focus being lost on the key procurement
activities necessary in an organisation of this spend and transaction volume.

Our findings indicate that a greater appreciation of Procurement Strategy and System
Design through to implementation of Procurement Policy is required in the areas under
review. The implementation of Procurement Strategy should then be driven by senior
management throughout the organisation, from the top down to the lowest level, as part of
a co-ordinated roll-out plan and approved by the Board.

A feature of a Best Practice Procurement Model would be significantly more focus on


supplier engagement and control outside of the tendering process, than currently exists.

A comparison of the current procurement model in place under our review to a 'Best
practice' Centre-led Procurement has been outlined in brief in Appendix 9. Some of the
benefits obtained with such a 'Best Practice Model' are also outlined in Appendix 10 and
could be used to provide direction for future areas of focus,

2. There is requirement for induction and formal training of procedures for those occupying
new and existing positions in all areas under review. This is evident in particular where
there is incidence of recent staff turnover in key positions of the IMSN procurement cycle
(i.e. clerical officers), with new incumbents uncertain as to the nature and extent of their
duties. Linked to this is a query over the adequacy of skill sets and/or training afforded
and the absence of detailed job specifications setting out the parameters of the role.
Based on feedback received from various workshops and questionnaires, it is clear that
there is a significant requirement for education and training both at a business and
systems level. There is also a need for upskillmg of staff at different stages within the
procurement chain, in order to strengthen the procurement chain.

In both the review of the IMSN procurement and stock systems, it is seen as important
that coupled with induction and training procedures would be a rigorous independence,
compliance and assurance-checking regime, where instances of non compliance and
discrepancies are seen to be pursued to the fullest, irrespective of the nature of the breach

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or discrepancy, to obtain satisfactory explanations as to why the discrepancy occurred.


This is currently not happening to a satisfactory level. It is clear that many of those
responsible for breaches at the transaction level are capable of compliance as revealed in
questionnaire responses and are aware of the compliance procedures. Additional staff
resources with appropriate skill sets maybe required to achieve this as part of the
implementation of a Procurement Audit process.

Currently there exists a breakdown of procedural knowledge of SAP and basic controls.
Recent efforts are being made to introduce more controls however these initiatives are
concentrated at the lower transaction compliance level.

In addition, it is apparent for the areas under review, that the current I.T. system is not
being utilised to perform an audit of the procurement process. The SAP system, in this
respect, is being under-utilised.

3. It is apparent from our fieldwork within the area of stock, that explanations for
discrepancies arising are not being independently investigated to a satisfactory extent.
Considering recent serious breaches our finding is made in the context of promoting more
familiarisation with documentary procedures, both existing and to be introduced, in
conjunction with a focus on enforcement of procedures dealing with non compliance
where breaches are subsequently encountered. This applies throughout all Divisions and
locations reviewed, This would require additional dedicated stock control personnel to
implement.

4. Generally compliance is good in relation to the implementation of recommendations in


the Deloitte report for Stock Inventory Management in the Portlaoise Depot. I low ever the
compliance with stock control procedures at line-side is poor with significant exposure to
unauthorised breaches by line-side personnel. One particular area identified is the lack of
planning and documented evidence of materials expected-planned to be taken up out of
the ground at line side. Where no documentation of expected planned materials exists,
reconciliation can be difficult, if not impossible to carry out.

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IARNROD MINI-A\\ ~ PROC I RIWIRVR & INTERNAL CONTROL INVLSTK; VHON 31 M JAM AR\ 2008
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PR]\ ATE & COM-TDF.NTIAL

5. The potential risk and cost to the Company of the absence and/or systematic non
compliance with appropriate Procurement and Stock management procedures can take a
number of forms. These include :

• Loss of value-added opportunities and economies to be gamed in the market place


from co ordination of very substantial purchasing power within the Divisions
throughout the company.
• The actual cost of known (and unknown but suspected) breaches of procurement
culminating in procurement fraud on the Company by internal personnel either acting
alone or in collusion with external suppliers.
• Potential exposure to claims of discrimination and possible litigation from
unsuccessful suppliers of services to the Company, who become aware of subsequent
non compliance with tender conditions by competitors, suppliers arising either by lack
of internal procurement control procedures or active unauthorised collusion with a
successful supplier by company employees.
• The potential impact and possible cost by way of claw back of Grant Aid arising from
grant condition breaches by external agencies to include Grant Agencies and other
suppliers of external funding to the Company.
• Reputation risk.

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I ARNROD PIRLANN - PROO RLMI;vr & IN I KRN M. CONTROL IN \ L STK; VHON J \NI vm 2008
Interim Report to the Steering Croup Committee
PRI\ A I T: A C" QNI'LPLNTIAI,

I M S N PROCLRK.MEM SYSTEM REVIEW FINDINGS

The manner in which the current IMSN procurement process operates is more akin to a
system that records and processes purchase transactions rather than applying a business-based
procurement strategy. IMSN procurement has become engrossed in administration around the
tendering process such that other key procurement activities are not being addressed. The
administration work is causing time constraints for key personnel resulting in focus being lost
on the key procurement activities necessary in an organisation of this spend and transaction
volume.

It is apparent, for the areas under review, that the current I.T. system is not being utilised to
perform an audit of the procurement process. The SAP system is being under-utilised.

Procurement, within the areas reviewed, is regarded as a necessary but subsidiary activity
within the company. We recommend the empowerment of the procurement process through
senior executive management representation, the design and establishment of a single
Corporate Procurement Structure with additional skill resources and training where required
to resource this structure.

These comments summarise the specific findings listed below.

Review of the existing procurement organisational structures in operation


(See Appendix 4, Page 5)

Finding: There is no one corporate procurement organisational structure which exists and
delivers a standard process of procurement throughout the organisation, outlining the roles
and responsibilities of each individual along the procurement chain.

Reconimendation: See Appendix 4; Recommendations 1 & 2


> Create one Corporate Procurement Organisation Structure:
'r Appoint a Head of Procurement to this structure: and
Clearly establish procurement authority and responsibility.

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I \ RNROD I.'JREANN - PROCUREMENT & INTERNAL CONTROL |N \ Ls lie, VIION 3P' J \NL \R^ 200<S
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Interim Report to (IK Steering Croup Committee
P R h ATE & CONl-'iDLVITAL

Procurement Organisational Compliance within larnrod Eireann


(Sec Appendix 4. Page 6)

Finding: There is no one corporate Procurement Strategy document which exists that sets
out a clear framework for procurement throughout the company that meets all compliances
both internal and external and sets a clear focus on achieving value. While a form of strategy
document does exist within another Procurement Department of the organisation, this has not
been applied to the area under review. As an illustration, attached at Appendix 7 is a strategic
and operational document that is in place in areas outside of our review

Recommendation: See Appendix 4; Recommendations 3 & 4


> Have the Head of Procurement and external consultants, if required, review the
procurement needs of the business and identify a procurement model which represents
best practice for board approval and implementation; and
> Create a Corporate Procurement Strategy document.

Finding: An Operational Procurement document does not exist.

Recommendation: See Appendix 4; Recommendations 3 & 4

> We would recommend this document be prepared by the Head of Procurement only after
the Procurement Strategy document has been finalised. The Operational Procurement
document should represent a work plan for the procurement organisation and it should
ensure that the organisation is operating efficiently, illustrating clearly how the
procurement function is deployed throughout the organisation.

Procurement Operational Requirements within SE&T, New Works and Infrastructure


7
Maintenance (Sec Appendix 4. Page )

Finding: The procurement activity is consumed completing the administration duties


regarding tendering rather than concentrating on key purchasing tasks.

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PRIVATE <& CONELOENTFAL

Recommendation. See Appendix 4; Recommendation 5


> We recommend the review of current activities of the i.MSN procurement department,
identifying the activities currently being completed on a daily basis. A comparison should
then be earned out on what activities would prove more effective and implement a best
practice model, taking account of the recommendations.

Procurement Spend Classification within SE&T, New Works and Infrastructure


Maintenance (See Appendix 4, Page 8)

Finding: The IMSN Procurement Department in Inchicore is not conducting any high level
analytical reviews of spend, commodity, material group, vendor, pricing and market analysis.

Recommendation: See Appendix 4; Recommendation 7


> The development of exception reports which would assist in the analytical review of
procurement expenditure and help identify areas of non-compliance which need further
investigation, again taking into account the recommendations,

Procurement Knowledge Development within SE&T, New Works and Infrastructure


Maintenance (See Appendix 4, Page 1 1)

Finding: Procurement skill sets and knowledge within the business organisation has been
highlighted as a concern both from the procurement workshops and walkthroughs conducted.

Recommendation: See Appendix 4: Recommendation 10


> We recommend that within a new Procurement Development programme, training should
include procurement policy, procedures, best practice, and compliance requirements.

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IARNROD P.IRLANN - PROC TK IAII; ST & IN TURN AI. CONTROL IN \ LSTK; VNON .1 r ! J \M \in 2008
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PRIVATE & COMIDKNTI M.

Procurement Department skill-sets within SE&T, New Works and Infrastructure


Maintenance (See Appendix 4. Page 1 2)

Finding: Existing skill-sets within IMSN procurement limit the ability to create a best
practice procurement model and also limit the ability to proaclively identify areas of risk
within the current process. Resourcing of appropriate skill sets to implement the above
recommendations requires to be reviewed by senior management.

Recommendation: General
> We recommend that the inefficiencies within the existing IMSN Procurement Mode! be
addressed through the recommendations.

Procurement Efficiency Measurements (KPIs) within SE&T, New Works and


Infrastructure Maintenance (See Appendix 4, Page 13)

Finding: There are no key performance indicators (KPIs) that exist to indicate the
performance of the key procurement activities, such as critical exception reports. KPIs are
key management tools established to monitor large volumes of data through reporting
indicators used to identify key areas of performance within the organisation's procurement
process.

Recommendation: See Appendix 4; Recommendation 14


> We recommend the identification of relevant KPIs for the organisation (to be outlined
within an Operational Strategy Document). Subsequently, daily ••'weekly/monthly reports
to identify and analyse these key areas of procurement performance should be prepared
and rev iewed.

SAP IT review within SE&T. New Works and Infrastructure Maintenance


(See Appendix 4. Page 13)

Finding: SAP system skill sets within IMSN procurement are below what would be expected
for an organisation involved in such high levels of spend value and volume.

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Recommendation: See Appendix 4: Recommendations 15 & 16


^ We recommend the creation of a Procurement and Development programme which
involves ail functional and professional staff involved in the procurement process. This
training should include SAP Modules such as - Materials Model. Financial Model and
Projects Model.

Fin ding: SAP is under-utilised within the enterprise and extended supply chain. This has led
to inefficiencies and an inability to conduct analytical reviews of spend. Technological
integration with high volume third party vendors i.e. the use of electronic SAP Purchase
Orders (POs) and automatically emailing or faxing of POs are just some of the automation
which exists in the current market but are not in use.

Recommendation: See Appendix 4; Recommendations 15 & 16


> We recommend the review of the current SAP utilization within the business environment
and its extended supply chain. We also recommend that staff be educated regarding the
potential of SAP and how it can be utilized within the specific business environment of
procurement.

The recommendations above and further details in relation to the IMSN Procurement System
Review are included in Appendix 4 to address the above issues.

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IARNROD KIRI: \ N \ - PRCX i RI- M[::NT & INTERNAL CONTROL JN \ I S I K;A I ION 3P' J A M \r\ 2008
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PRI\ MI- & CONI IDI:M IAI. _ _ _

I M S N PROCUREMENT WALK I HROI e n FINDINGS

Positive Areas Identified

< We understand that a group has been established to draft a Procurement Operational
Document for Infrastructure Maintenance and SE&T. It is not clear as to whether this
will also apply to New Works. We advise that account is taken of our
recommendations under the IMSN Procurement System Review findings.

> A new procedure was introduced in September 2007 in relation to the Al and A2
releases, relating to both Infrastructure Maintenance and SE&T. This should help
strengthen the approval process for work carried out in these areas, following a more
comprehensive review of the procurement process.

> A labour database was developed in June 2007, containing the approved labour rates.
Prior to this, we understand that there was no pre-approved rates for labour work. We
understand that this database is relevant to both Infrastructure Maintenance and
SE&T. Again, this is helpful, but should be reviewed in the context- of our broader
recommendations.

Exceptions Noted

Inadequate Documented Procedures


(See Appendix 5. Page 4)

Finding: Detailed operational procedures in relation to processing infrastructure


Maintenance. SE&T and New Works Construction Unit projects are currently not adequately
documented.

Finding: Detailed operational procedures in relation to processing of mini-tendering are not


adequately documented.

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Recommendation: See Appendix 5: Recommendations 1. 2. 3 & 4


> We recommend that a formal operational manual should be developed setting out the
procedures required to be followed for the procurement of Infrastructure Maintenance.
SET and New Works Construction Unit projects.

> Once these procedures have been finalised, they should be circulated to the relevant staff
members, reviewed on a regular basis and updated as and when required. These should
also include the mini tendering procedures.

Staff Training Requirement

Finding: Our meetings indicated that formal training did not take place for all staff members
on appointment to their role in the procurement area.

Recommendation: General
> We recommend that all new staff should be provided with adequate training, which
should also include the required training on SAP.

Non-generic standardised documentation

Finding: In general, we observed that documentation was submitted by suppliers in a non-


generic format which made compliance difficult for the Company. Within other large
organisations it is accepted practice for the organisation to communicate standard procedures
and documents to mam/high volume approved suppliers. Documentation not supplied in that
form should be rejected at the outset by the company.

Detailed findings as a result of transaction testing

Finding:
> Procedures had not been followed and exceptions were noted for the majority of
transactions selected for walkthrough for Infrastructure Maintenance. SE&T and New

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Works Construction Unit. These issues relate to both plant hire and contracted labour in
Dublin, Limerick and Athlone. A summary of these exceptions are as set out below.

Instances were noted based on the transactions selected, where:

^ Requests for work had not always been communicated to the Divisional offices on a
timely basis.

>• Requests are not formally documented.

> It was difficult to determine who had requested the work as these details were not always
included on the request form.

There was no evidence that the recommended number of quotations, as set out in the
Policy and Procurement Manual, had been obtained or that a value for money exercise
had occurred prior to the Contractor being selected.

A contractor was selected by an Inspector without prior involvement of the supervisor


(i.e. ADE). From a review of a note on file the Inspector had requested the plant directly
from the contractor,

The required forms (i.e. the 'Request for Plant and Machinery Hire 1 form etc) were not
always completely and/or accurately completed and/or completed on a timely basis.

Problems were encountered in relation to the calculation of the value of plant requested as
a resu 11 of incomp 1 ete requests being submit!ed to the Divisional Offices.

Analysis was not provided to support the valuation of the work.

Rates included on the Divisions database were not accurate up to date.

Page 18 of 32
IARNROD KIRENNN - PR<)( I RENM N I & INTERNAE CONTROL INVESTIGATION 3 1 J \ M \R\ 2008

Interim Report to the Steering Group Committee


PR|\ N i t- A CONFIDENT} M,

> I here was a lack of documentary evidence of review and approval at the appropriate
levels.

> Service Entry details were based on pro-forma invoices received after the work had been
completed rather than being based on an original request, prior to the work commencing.

The quality of supporting timesheets and/work dockets and the level of information
included on these documents varied between Contractors from comprehensive detail to
little or no detail.

> Differences arose between the original request supplied by the Inspector and the invoice
and timesheets/work dockets received from the Contractor in relation to the value, type of
plant and labour requirements. There was no note/explanation on file to support the
differences.

> Contractors' timesheets/work dockets had not always been signed by an IE representative.

> Contractors' invoices had been submitted to the Divisions, which were not accompanied
by any supporting timesheets and/work dockets.

> Instances were noted where mini-tendering procedures had not been complied with.

> There was inadequate segregation of duties.

Detailed recommendations as a result of transaction testing

In relation to our detailed findings, the following recommendations should be considered for
implementation:

Page 19 of 32
lAKNROI) I'jRI- ANN ~ P R O O L REMENT& INTERNAL. CONTROL INA ESTK. A I TON 3P' J \M:.\K\ 2008

Interim Report to (lie Steering Croup Committee


PRIVATE & CONFIDENT) U.

Recommendation: See Appendix 5: Recommendations 106 & 108


> A review should be carried out on the various forms currently in operation at the
Divisions to consider the layout and content. This will help ensure that the agreed forms
are adequate, easy to use complete and provide only and all the relevant information.

Recommendation: See Appendix 5: Recommendation 107


r The required forms should be completed by the relevant individuals on a timely basis and
should contain sufficient detail about the request for work. The formal Operational
Manual (to be drafted) should clearly set out the required level of information required to
be included on the request forms.

Recommendation: See Appendix 5; Recommendation 109


> The review and approval of ail steps of Infrastructure Maintenance and SE&T and in the
New Works Construction Unit's procurement process should take place at the appropriate
level and should be adequately documented on file. The levels should be clearly set out in
the Operational Manual.

Recommendation: See Appendix 5; Recommendations 14, 26, 35, 46, 65, 74


> Standard timesheet/delivery dockets should be developed and issued to all contractors.
Certain key information should be required to be included on all delivery
dockets/thnesheets/invoices submitted by contractors to ensure that all information is
available to allow a three way check between the original request, the invoice and the
supporting timesheetsAvork dockets.

Recommendation: Sec Appendix 5: Recommendation 15


> Only invoices that are fully supported by accurate timesheets and in the required format
should be approved for payment. Supplier engagement on the format acceptable to the
Company will be required.

Recommendation: See .Appendix 5: Recommendations 3s. 6 7 . \>". 16

>- Only invoices that can be reconciled back to the original request should he approved for
payment. Where there are additional requirements after the original request has been

P e 20 of 32
IARNROD I'JRI; \ \ \ - P R O O REWJLNT& INTERNAL CONTROL INVKSI K, VI ION J\NI A R V 2008

Interim Report to the Steering Group Committee


P R O \TE & CONF ){)[•;M )AL

submitted to the Divisional Office, these should be documented and sent to the Divisional
Office to facilitate the reconciliation of the invoice to the supporting documentation to the
original request.

Recommendation: See Appendix 5: Recommendations 37. 62. 66


> A review should be carried out of the plant hire and labour databases to ensure that the
databases are accurate and up to date in relation to contractor codes, descriptions and
rates.

Recommendation: General
> Consistent procedures should be followed across all Divisions in relation to the forms
required to be completed, together with the roles and responsibilities of all relevant IE
staff Instances should not arise where inadequate segregation could exist.

Recommendation: General
> Responsibility should be assigned to the appropriate individuals to monitor compliance of
the procurement procedures. The appropriate action should be taken where non
compliance is noted,

Inconsistencies were noted in the IMSN procurement process between and across
Divisions.

In our view there are a variety of reasons for these findings:


> There is a lack of training / education in operation in the area of procurement
'r There is a Jack absence of adequately documented procedures
A- There is little evidence of activ e supervision or monitoring of procurement
compliance currently in place

Detailed recommendations are included in Appendix 5 to address the above issues.

P e 21 of 32
I ARNROD KIRK \NA « PROCUREMENT & INTKRN U. CONTROL 1N\ ES I U, \ I ION 3 P 1 J AM \ N \ 2008

Interim Report to the Steering (.roup C ommittee


PRIV.X IT A CQNRDENTI U.

MANAGEMENT OF STOCK FINDINGS

Positive Areas Identified

^ On-going efforts of the Materials Manager in Infrastructure and stock counters to


improve stock accuracy.

> Efforts of certain personnel in improving the manner in winch stock is stored in
Portlaoise Depot and the system put in place to accurately record the receipts from
Line-side with the help of the team leaders and Superintendent.

> No issues of non-compliance were identified in relation to transfers of stock from


Portlaoise Depot.

Exceptions Noted

Portlaoise Stock: Movement in - Receipts from Line-side


(See Appendix 6; Page 5)

Finding: There is substantial evidence of non-compliance with procedures in relation to


receipts into Portlaoise Depot from line-side. Instances were noted of differences in the
recording of 1) quantity of stock. 2) classification of stock and 3} measurement of stock from
what was sent to Portlaoise Depot. For instance, the quantity of sleepers received into
Portlaoise Depot would not agree with what was stated on the 'Material Advice Receipt
Note' related to that stock.

Recommendation: General
> We recommend that standard documentation for all stock movements be developed as
well as further training on documentation procedures for all involved.

Page 22 of 32
I \RNN6D EMU-ANA - PROCUREMENT & IN TERYAL CONTROL IN\ EM K, VKON 3 D ' . J AM \ R \ 2008

Interim Report io the Steering Croup Committee


PRIVATE & CONFIDENTIAL

Finding: Significant non-compliance was noted in the transaction testing earned out on
materials transferred into Portlaoise Depot. Please refer to Appendix 6 for a breakdow n of
the non-compliance.

Recommendation: See Appendix 6: Recommendation 3


> We recommend that an independent check of what the Inspector has recorded as being
sent to Portlaoise is carried out. for example, by an ADE, prior to despatch to Portlaoise.

Portlaoise Stock: Receipts from Waterford


(See Appendix 6; Page 7)

Finding: There is no standard stock movement documentation to record stock transferred


from Waterford stores to Portlaoise Depot inventory.

Recommendation: See Appendix 6; Recommendation 6


> We recommend that a standard document be put in place to record the transfer from
Waterford stores to Portlaoise Depot, as applies to other locations.

Portlaoise Stock: Security of Stock at Portlaoise


(See Appendix 6; Page S)

Finding: Clarification was sought on security procedures in Portlaoise depot. From


observations the external security agents do not appear to have any formal role in the
checking of goods inwards outwards from the Depot. Based on questionnaires returned,
various accounts have been received on the role of the external security company and their
duties. As an independent entity, security companies employed in this function can and do
form an important element of internal control on the movement of stock from Depots like the
Pordaoise Depot.

Recommendation: See Appendix 6: Recommendation 7


f We recommend a full review of Security Procedures and the role of the external security
company engaged at the Portlaoise Depot with the output being a documented Report on

Page 23 of 32
IARNROD EIREANN - PROCT REAIENT & INTERNAL CONTROL 1N\ R.S I U, \ HON 3 P ' J VNI WRV 2 0 0 8

Interim Report to the Steering Croup Committee


PRIVATE & CONFIDENTIAL

their responsibilities for control of stock mov ements of all entry exit points to the Depot.
We observed that there were tw o entry exit points at Portlaoise Depot but were informed
that there was a third entry''exit point at another part of the site. Based on this review,
amendments to the terms of engagement for the security company may be appropriate to
expand their role and duties for checking goods inwards and outwards from the Depot.
All security measures introduced should be subject to audit by management on a periodic
basis.

Line side Stock: Materials Taken Up


(See Appendix 6; Page 9)

Finding: There is no specific document to record the 'planned' removal of materials when
track is being taken up to be used for comparison against the 'Materials Taken Up' form for
what is actually removed.

Recommendation: See Appendix 6; Recommendations 8 & 9


> We recommend that a standard document be put in place to record what is expected to be
taken up, to allow a comparison with what actually is taken up as when no documentation
of expected/planned materials exists, reconciliation can be difficult, if not impossible to
carry out.

Line side Stock: Materials Used


(See Appendix 6: Page 1 1)

Finding: Issues in IE Stock reports highlight incidences where materials are taken up out of
the ground yet are not recorded on SAP

Recommendation. See Appendix 6: Recommendation 15


> We recommend all stock forms be sent to the Divisions on a weekiv basis.

Page 24 of 32
IARNROD EIRCANN - PROCUREMENT & INTERN U. CONTROL INVTMK.AEION \\S] JWE 2008

Interim Report to the Steering Group Committee


PUN ATE A C O M IQENI IM.

Line side Stock: Materials Reclassified


(See Appendix 6; Page 12)

Finding: Issues in IE Stock reports highlight incidences where;


a. Materials Reclassification procedures are not followed; and
b. Dismantled panels are not being reclassified into sleepers and rail respectively,

Recommendation. See Appendix 6; Recommendation 1 7


r We recommend that reclassification procedures be followed in accordance with the
Iarnrod Eireann "Policies and Procedures for the Control oflnfrusrrucfure Lineslocks".

Stock Takes
(See Appendix 6; Page 13)

Finding: Nationwide counts of line-side stock are carried out by Per Way Inspectors (PWIs),
and not counted by independent Iarnrod Eireann Representatives. Therefore PWIs can return
stock sheets based on what they know to be recorded on the SAP system irrespective of what
the actual count reveals.

Recommendation: See Appendix 6; Recommendation 19


We recommend that both nationwide and cycle line-side stock counts be carried out by
persons independent to the Per Way Inspector, or if there are resource limitations that random
independent verification of nation wide counts takes place.

Finding: Prom our review of discrepancies in nationwide counts, whilst queried, there is no
evidence to verify that the explanations given by those responsible are in fact, an accurate
explanation. Similarly, in relation to stock cycle counts, when discrepancies are identified,
explanations are obtained from those responsible. However it is not clear whom is
responsible for following up at Divisional level with verification of the accuracy or
reasonableness of the explanation provided for the discrepancv.

Page 25 of 32
IARNROD I ; ;IRE.A\N - Puoci REMENT & INTERN \L (. ON nun. INVESTIGATION 3U! JAM un 2008
Interim Report to the Steerin» Group Committee
PRO VIE & ( OM II)I:M I M.

Recom mend at ion: See Appendix 6: Recommendation 23


We recommend additional resources, within the Materials Management Unit, be added to
provide more comprehensive independent monitoring.

Movement in - Raw Materials


(See Appendix 6: Page 15)

Finding: Not all raw materials delivered into Portlaoise Depot are weighed on the
weighbridge; therefore reliance is being placed on the supplier for a correct account of goods
being delivered.

Recommendation: See Appendix 6; Recommendation 24


We recommend that sand, gravel and cement be weighed on delivery into the Portlaoise
Depot. (As and from December 2007 all raw materials are now being weighed as witnessed
by Baker Tilly Ryan Glennon staff in January 2008).

Recommendations are included in Appendix 6 to address the above findings.

Page 26 of 32
IARNROD EIRI-ANN - PRO( I RLMLN I & IN I I.RN O. CONTROL INN LSI K; NJ ION 3 C : J \ M \ N \ 20(18

Interim Report to the Steering Group Committee


P R I \ A !'!•: ,<: CONFIDLN RIAL.

3. TERMS OF REFERENCE & SCOPE OF THE ASSIGNMENT

The Objectives of the review of IMSN Procurement and Internal Control Systems were set
out in five Terms of Reference detailed m Appendix 1.

in scoping the scale and programme of work, a full review of procurement procedures was
required at each of the locations throughout the Infrastructure Maintenance, SE&T and New
Works Divisions where there is procurement authority to bind the Company.

The locations are summarised as the four main locations of Dublin, Limerick junction,
Athlone and Portlaoise as the hub for stock maintenance.

Together with;
I AREA N o . OF LOCATIONS >
Track 28 locations

Signalling 6 locations

Telecoms 4 locations

The procurement section at Inchicore as the central hub for procurement for the
division.
New Works
Total of 48 Locations
_J

We concentrated on the four main hub locations, taking a top down approach and carried out
a detailed review of the high volume areas for procurement and for stock movement.

The list of locations visited are as follows:


Inchicore
Portlaoise Depot
Athlone
Limerick
Connolly-

P 27 of 32
IARNROD KIRI-AW - PRO< I RILMIA r A I\ n-:Rv\i. CONTROL INVESTIGATION 3I m JAM VM 2008
Interim Report to the Steering Croup Committee
PHIV\rr A COM-IDi'ATLAL.

Muilingar
Oriel Street
Heuston
Pearse
Wieklow (hue-side)
Wexford (line-side)

Documentary evidence was gathered at Divisional level to enable a comprehensive systems


review covering all Per Way locations.

In all. circa 100 meetings/interviews have taken place in the above locations with various
individuals. These meetings are summarised in Appendix 2.

It is intended that for our detailed review of Terms of Reference 2 and 4, that we will carry
out detailed transactions testing within other locations.

Page 28 of 32
;
IARNROD EIRKANN - PROC I R I M C M & ! VITRN \I CONTROL JN\ OT JO \I ION \ P'.) W WN 2 0 0 8

Interim Report to the Steering Group Committee 1


PRO A TIC & CoMtocsn M.

4. PROGRAMME o r WORK

A programme of work was formulated for both the IMSN Procurement System Review and
IMSN Procurement Walkthrough as well as for die review of the Management of Stock. The
programmes of work for these areas are detailed out in Appendices 4, 5 & 6.

To briefly outline the programme of work undertaken, each area covered has been spilt into
three phases:
> Preparatory Phase
o Information gathering and review
> Fieldwork Phase
o Meetings
o Questionnaires
> Reporting Phase (including Interim Reports)

Third Party Verification

As part of our fieldwork we are recording meetings with key management and staff and
where necessary can revert to certain individuals following the interviews with a summary of
what has been discussed. This allows us to verify our findings and provides the opportunity
for the interviewee to amend or clarify points arising.

In both the areas of IMSN Procurement System Review and Review of Management of
Stock, questionnaires were sent to relevant personnel requesting information and also inviting
any comments or recommendations that they may have about the system at present. There
w as a 100% response to all issued procurement questionnaires circulated and as at the date of
this report 93% have returned questionnaires in relation to stock. There are three stock
questionnaires outstanding. The findings from the questionnaires in relation to the IMSN
Procurement System Review and Management of Stock are detailed in Appendix 4 and 6
respectively.

Page 29 of 32
IARNROD I-URLANN - PROCT RI-MLNT & INTERNAL CONTROL INVESTIGATION 2008

Interim Report 10 the Steering Group Committee


PRIV \IL-: A C'ONi-IDLNTlAi.

We have not undertaken any outside third party verification procedures to date as this
element is more appropriate to the Forensic element of the assignment.

Page 30 of 32
IARNROD PIRIWNN - PKOCI RI:MI;NT & INTERN Covnmi. INN I-STIG \ HON 3 1 , ) \M 2008
Interim Report to the Steering Croup Committee
PRI\ A R I- & CO N I-1 D[•: N R I \ T.

5. DETAILED FINDINGS AND RECOMMENDATIONS

The detail of the findings and recommendations summarised in the Executive Summary are
presented in the attached appendices and cover the areas of IMSN Procurement System
Review, IMSN Procurement Walkthrough Testing and a Review of the Management of
Stock.

Under the detailed findings of procurement, there are comparison findings between the three
Divisions of Dublin, Limerick Junction and Athlone, together with high level common
findings across the three Divisions.

Page 31 of 32
IARNROD EIREANN -- PROCUREMENT & INTERN W. CONTROL 1N\ LSIK, \ I ION 3 f J \NL \in 2008
Interim Report to the Steering Croup Committee
PRIV ATE & CONFIDENTIAL

6. CONCLUSION

Systems review fieldwork was completed in January 2008. Our finalised Interim Report takes
account of feedback and commentary from the Steering Group on the draft Interim Report.

Clarification and agreement has been provided on the scope and focus of the forensic
examination element of our review-'. We are now proceeding with our Forensic Examination
Programme,

At the point that the Interim report is finalised, a presentation can be provided to summarise
the findings to the Steering Group and other appropriate representatives as advised.

BAKER TILLY RYAN GLENNON

DATE:

Page 32 of 32
IARNROD E I R E A N N - P R O C U R E M E N T & INTERNAL CONTROL INVESTIGATION

Interim Report to the Steering Group Committee -31 s t January 2008


PRIVATE & CONFIDENTIAL

APPENDIX 1

TERMS OF REFERENCE
IARNROD GREANN-INTERIM R E P O R T - O P ' JANUARY 2 0 0 8 Appendix 1
PRO ATE & CONEIDENTIAE
TERMS OF REFERENCE

T E R M S OF RKFPRKNCK :

Our terms of reference were agreed with the Steering Group on the 16th July 2007
and our set out as follows:

1. Undertake a full review of the current system of procuring plant hire and contracted
labour to include the authorisation protocols, monitoring processes and transaction
validation involved. This review will take into account work previously undertaken in
this area by larnrod Eireann.

2. Cany out an examination of conduct in the acquisition, deployment and


management of services, resources and plant/equipment procured during the period
from January 2004 to date and the relationships with contractors of goods and
services to the Company. Assess the extent of actual loss or misappropriation and
assess where potential future risk arises.

3. Carry out an examination of the management of line-side materials e.g. Rails and
sleepers, a particular focus to be placed on the movement and accounting for stocks
into and out of the Portlaoise Sleeper Plant as the hub distribution and stockpiling
centre.

4. Identify and determine responsibility for any breach in procurement policy


specifically to identify any neglect to duty or lack of competence in the acquisition of
goods and services and to report on areas where loss or misappropriation has occurred
and the associated value and comment on where potential future risk arises.

5. Produce a comprehensive report and therein make relevant comments, observations


and recommendations in each of the foregoing areas of focus.
IARNROD EIREANN - PROCUREMENT & INTERNAL CONTROL INVESTIGATION
Interim Report to the Steering Group Committee -31*' January 2008
PRIVATE & CONFIDE.NTIAI

APPENDIX 2

PERSONNEL INTERVIEWED
IARNROD KIR E.\N.N - INTERIM REPORT - .'1st January 2008
APPENDIX 2
PERSONNEL INTERVIEWED

Meetings With: Title No of Meetings

Group Interna! Audit Committee Meeting !


Steering Group Committee Meeting h

Chief Executive. larnrod Eireann On-Going


Director; Strategy & Business Development On-Gomg
Manager: Cost Audit & Efficiency Unit Oa-Going
Chief Engineer, Infrastructure 1

Procurement Manager 5
Finance Manager 4
Materials Manager 4
SAP Personnel!, Materials Management 4
Stock Facilitator, Portlaoise 4
Accounts Payable Clerical Officer 3
Divisional Accountant, Athlone, Infra/Main
Divisional Accountant, Infra/Main & SE&T
Head of IT, C1E
Manager of Procurement
Projects
Projects
Purchasing
SAP Support Management
Signalling Engineer. SE&T
Accountant
Accounts Payable
.Accounts Pas able
Accounts Payable Cost Audit and Efficiency unit
ADE. Athlone. infra Mam
ADE. Heu.ston. Infra Ma;n
IARNROD EIREANN - INTERIM REPORT - Jlst .January 2008 APPENDIX 2

PERSONNEL INTERVIEWED

Meetings With: Title No of Met tings

Divisional Engineer. Limerick & Athlonc


Executive Buyer
Finance Manager
Financial Accountant
Financial Controller
Mead of Group internal Audit
Inspector. Athlonc. infra. Mam
Inspector, infra-Main & SE&T
inspector, Pearse Station. Infra/Main
Internal Audit
Plant Co -Ordinator, New Works
PO Executive
PO Executive
PO Executive
PO Executive
Procurement Manager
Production Manager
Purchasing
Raw Materials Mgr, Portlaoise
SAP Personnel
SAP Personnel
Senior Purchasing Executive
Senior Purchasing Executive
SE&T Finance Manager
SE&T Inspector
SE&T Inspector. Mulligan SET
SE&T inspector. .SE&T'
SE&T New Works Construction Manager
Signalling Engineer. SE&T
Stock Facilitator. Portlaoise

Stock ProccNsor. Vorth W.ii!


LARNROF) KLREAN.V- PROCUREME NT & L \ T E R \ A E COM'KOL I W E S T I G A H O N

Interim Report to the Steering Group Committee -31" January 2008


PRIVATE & COM-IDKMT \ E

APPENDIX 3

INFORMATION REQUESTED
IARNROD EIREANN - INTERIM REPORT - st January 2008 APPENDIX

INFORMATION REQUESTED AND RECEIVED

Requested Received

j A tjc!;iif«: organisational ch.«rt ideiUi'ying reporting lines and resnon<:mi;ues uiinu; eac
division •Jui-- •\ag-0~

Names and day to day duties onhe relevant HHhv<ot:.iss ^vth speenkations. ifavaiiab Not A'-a:
3 (.'h;e!' I:\ecuuve Organi^i'icnai Chart t - .t V:: - 0 7 Aag-U '
•4 Chief Engineer Dcpanme-u 3 •Jul-07
? Finance Department •Jlll-tP ;
•\.... '

6 Procurement Department -Jui-07 NO! A^i;


7 New Works ^ -Jul-07 AV:g-0-
Outline specification on the ioiiowing systems as they apply to'
8 Procurement Department 3 -Jul-07 Nol Av;:i
9 Purchase Order Jul-07 Aug-0"
10 Stock Con!ro! ,r •Jiil-07 Oct-07
1I Accounts Payable -jul-07 Not A vat
12 Budgeting -Jui-07 Not Avas
13 Planning 31 -Jul-07 Not Avai

Planning procedures m the area of:


14 New Works 31 -Jul-07 Aug-07
15 infrastrue lure &. Mainenance 3! -Jul-07 Aug-(I7
16 ST&T 31 -jul-07 Aug-07
Budgetary control documentation of
17 New Works 31 -Jul-07 Aug-07
18 Infrastructure & Mainenance 31 -Jul-07 Aug-07
19 SE&T 3! -Jul-07 Aug-07
Project management documentation of:
20 Mew Works 31 -Jul-07 Aug-07
21 Infrastructure & Mainenance .31-Jul-07 Aug-07
22 SF.&T 31 -Jul-07 Aug-07
23 The Company's procurement procedures manual or equivalent documentation. j -Jul-07 Aug-07
24 The Company's stock control procedures manual or equivalent 31 -Jul-07 Aug-07
25 Evidence known to the company of breaches 31 -Jul-07 Aug-0"
26 individuals involved which will inform and assist the review. 3! -Jui-07 Aug-07
Internal project reports and management information produced by the Company at regular
intervals: 3! -Jul-07
27 New Works 31 Jul-07 Oct-07
28 Infrastructure & Mainenance 3! Jul-07 Oct-07
29 SE&T 31 Jui-07 ! O-Oee
30 Brief Summary outlining Disciplinary Industrial Relations procedures 31 Jui-07 Aug-0"
31 Brief Summary outlining remuneration structure for operators. 3 j Jui-07 Aiig-0"
IARNROD KIKEANN - INTERIM REPORT-3bi January 2008 APPENDIX 3

INFORMATION REQUESTED AND RECEIVED

Requested Rveeiwd

Procurement
1 Framework agreement m piace •^Op-i.i
2 Pre-Qiiahhcanon Questionnaire -Sep-1')
3 Latest draft of nevv framework -Sep-0
4 Contracts lor SLT-Yfiin; Now Work* -Sep-0
5 'Mini-tender' example -Sep-0
6 Procurement Evaluation Crstena . Award cntera -Seo-0
7 Money being spent annually with each contractor
>ef
Procurement
1 Work instruction (masterfile; ut;h now diagrams
Plant hire Tender Process
Ordering Methodology
I fire Receipt
2 Contractor Labour contracts - showing procedure !7-Sep-
3 Framework Contract lor Services sn SE&T
4 Plant Mire Work Instruction
5 Internal Memo re Plant Mire Control 2004
6 Plan! Hue spend 2006

AW' Works (Finance)


1 Audit Workingsfife - Sample Test ! 7-Sep-07
2 Authorisation levels of New Works start" 7-Sep-07

ll'frus!ri'<-'lt<f' <£' Maintenance (Finance)


1 Reconciliation documentation between budget and year end 2006 I 7-Sep-07
2 Breakdown of spend to each business unit level/inspector 1 7-Sep-07
.1 Renewal programme per div ision ! 7-Sep-07
4 List of projects thai are on-going i 7-Sep-07
5 Plant Mire Report' oflnspectors to Die. Engineers 02-Nov-07

\- SEA T
1 Labour framework currently in place i 7-Sep-07
2 Latest draft of new Framework ! 7-Sep-07
$ Pre-qualification selection criteria 1 7-Sep-07
4 SET framework i 7-Sep-07
5 Latest summary reports ! 7-Sep-07

I- A c if Hoiks
1 Copy of report •- .inly to ;iie Board -Sep-0'
2 Generic critical path of protects undenaken -Sep-0'
3 KRP pr^rasvsme -Sen-0"
4 List of a!! site offices for Veu Works -Sep-0" j OM

Stock
1
! -O
IARNROD EIREANN - INTERIM REPORT - st January 2008 APPENDIX

INFORMATION REQUESTED AND RECEIVED

Requested Received

^HMMH^- Croup Interna! Audit


1 Internal Audi! Report IVs;;ny S.m'.r'es - lUriher meeumj heki 26-Sep-n7 : i -Oct-07

JHHHHP' AV>r
) Power point preservation from ir.vcnng 04-Of.-0 7
2 Organisational Chan - received 0-t-( ki-O" (;•'•>-<'JcT -0 7

Port/noise
1 Back up as so '.ihy •i.;->e certain suppliers tor cement a no chip i 0-0ci-07 L.'-Nov-iO
2 Licence agreement with OS! i 0-0ci-07 10-Nov-07
3 Sleeper cosi for last 3 years" 10-Oct-U? tO-Nov-O"
•4 Lrnniowork agreement of (.-21m for spealisms SO-Oci-07 SO-Nov-07

Reports
l ; or ?tie period Oir ending Sept and Year To Date Oct 200?'
Aetna! Spend by:
Area ! 3-Nov-0? 30-Nov-07
Commodity 1 3-Nov-07 30-Nov-07
User of goods & sen-aces i j-Nov-07 Not Avail.
By Vendor Invoice Spend
Invoice spend by area / commodity l.l-Nov-07 Not Avail
Area/commodity/requisiiioncr/vendor I3-Nov-07 Not Avail.
Area/commodityAiser/vendor i3-Nov-07 Noi Avail.
Any other existing exception reports (KP!) within the PO-AP cycle 13-Nov-07
Showing all invoices raised that are not matched to a P.O 13-Nov-07 Not Avail.
I AKMUM) KHU: \NN - PRO( FRFMFNT & INTERNAL CONTROL INVESTIGATION
Interim Report to the Steering Croup Committee -31" January 2008
PRIVATE & CONFIDENTIAL

APPENDIX 4

PROCUREIMENT SYSTEM REVIEW


- PROGRAMME OF W O R K

- FINDING & RECOMMENDATIONS

- SAMPLE QUESTIONNAIRE & RESULTS


IARNROD PIREANN - PROCUREMENT JT INTERNAL CONTROL INVESTIGATION . !/>/>/: \ / ) / . \ 4

PRIVATE & COMTOENMAE

PROCUREMENT SYSTEM REVIEW -

PROGRAMME OF WORK
IARNROD KIRI: VNN ... [NTICRIM RI:I>ORT tV .J VNV AR\ 2 0 0 8 .\PPHMM\4

PKJ\ \ 1 [• & (.".'0\ HI) J:\TI.\L


I'ROF I RIAII NT SVS I'i'M K; \ F [ \\
PROGR w o n ; o r WORK

P R O G R A M M E OF W O R K •••• INFRASTRUCTURE MAINTENANCE, S F & T AND

N E W W O R K S ( I M S N ) P R O C U R E M E N T SYSTEM REVIEW

Information Gathering and Examination through Workshops, Interviews and


Questionnaires

This section of our report presents the interim findings and recommendations made in
relation to the workshops and interviews conducted as well as from examining existing
procurement documentation under Term of Reference 1.

The objective of our work was to establish at a high level the current model of
procurement which is operating within the organisation and the quality of the information
system, SAP, supporting this function. A comparison was then carried out to a Best
Practice Procurement model identifying the key structural areas for improvement.

Our work consisted of the following for Infrastructure Maintenance SE&T and New
Works (IMSN).

1. IMSN Procurement Model Review

> Visited the fnchicore Purchasing department and discussed the current IMSN
procurement model operating within the business and staff daily activities duties;
^ Carried out a high level review of the Policy and Procurement Manual and other
procurement documentation which was provided bv management and functional staff:
^ Carried out a workshop with procurement management and executives to document
the existing procurement mode!:
^ 1 ssued a quesi\onnaire sheet to IMSN procureine;it s!aff for c<•>;i>n!ci!oii:
A- Documented our understanding of the procedures in place as a result of our
workshops and questionnaire: and
F ARNROO EIREANN - i\< ERIM REPORT I F ' .1 W I \RY 2 0 0 8 APPENDIX 4

PRIVVIE & C o MTOE VITAL

PROO RL MEN l S \ S T E M R E V I E W
PROGRAMME OE WORK

> Identified issues and made recommendations for improvements which was rev iewed
with management for approval.

2, SAP I.T. System Review

r Visited the C1E Group IT office;


> Carried out a review of current configuration and setup of Materials Management
Module and Project Module;
> Reviewed the availability of detailed reports;
> Documented our understanding of the procedures in place as a result of our
workshops and questionnaires; and
> Identified issues and make recommendations for improvements which is reviewed
with management for approval.

Meetings

We met with the following individuals as part of our walkthrough tests;

> Clerical Officers *2


> Procurement Managers *2
> Senior Executive Procurement Officers *2
> Executive Procurement Officers *4
> Store Manager * 1
> SAP Materials Module Expert m Group IT
r SAP Financial Module Expert in Group IT
SAP CO Module Expert in Group IT
^ SAP Projects Module Expert in Group IT
^ Head of Group IT
^ IT Manauer
IARNROD E I R E A W - INTERIM REPORT - . M " 1 J A M A I S 2 0 0 8 APPENDIX 4

PRIVATE & CONf-IDEM | \L

PRoc;i RI:\n.\r SN srr;\I Rr.\ IEW


PROGR WIME OE WORK

Question naire

A questionnaire has been circulated to all procurement management, senior executives,


executives and administrative staff within the IMSN procurement department, a total of 8
in all. We have gained valuable feedback which is included in this Interim Report.

Reporting

Our findings and recommendations are set out below.

Acknowledge

During the course of our workshops and fieldwork, we met with a number of personnel in
the CIE Group IT and Inchicore IMSN Procurement department, We are grateful for the
manner in which larnrod Eireann staff facilitated us, for the time made available to us and
also for the high level of courtesy, assistance and cooperation afforded to us at all times
during the assignment.
IARNROD E I R E A N N - PROCI RKMKNT & INTERNAL C O M RUI I
N\ I;S ! K.ATION A t'l>I:\dix 4

Pfil\ATt"& CONTIOI-NN.AT

PROCUREMENT SYSTEM REVIEW -

FINDINGS & RECOMMENDATIONS


IARNROD EIRE \ N \ -INTERIM REPORT A C ' .1 \NEVRN 2 0 0 8 AIM>EMMX4

Pli)\ VIE & ( O M T D I . N N U.

PROCUREMENT S^I STEM REVIEW


FINDINGS & RECOMMEND VITONS

FINDINGS & RECOMMENDATIONS

IMSN Procurement System Review findings and recommendations are covered


under the following headings:

I HEADING PAGE

Review of the existing procurement organisational structures in operation 5


IMSN Procurement Organisational Compliance within larnrod Eireann 6
Procurement Operational Requirements within Infrastructure Maintenance. SE&T and
New Works 7
Procurement Spend Classification within Infrastructure Maintenance, SE&T and "New
Works 8
Procurement Supplier Base Development within Infrastructure Maintenance, SE&T and
New Works 9
Procurement Knowledge Development within Infrastructure Maintenance, SE&T and
New Works 11
Procurement Department skill-sets within Infrastructure Maintenance.. SE&T and New
Works 12
Procurement Efficiency Measurements (KPls) within Infrastructure Maintenance. SE&T
and New- Works 13
SAP IT review within Infrastructure Maintenance, SE&T and New Works 13
IMSN Procurement Svstem Review-Questionnaire \5
i umdnEim-; w v - I v m m i REPORT -3P' J A M \r\ 2008 APPENDIX 4
PRO v n : & C O M !UI:MI \I.

PROT I R I : M E M S \ S R R : M R E \ 11:W

F I N D I N G S & RI:C O M M I O L ) V I T O N S

Review of the existing procurement organisational structures in operation.

Finding
Our workshops and questionnaire indicated that:

^ Two procurement organisational structures currently exist within Iarnrod Eireann,


both operating to different standards. This does not reflect best practice.

> Currently the IMSN procurement organisation lacks required high level guidance and
support to ensure corporate acceptance of governing procurement policy, procedures
and initiatives.

Re com m endation
1. Change the current procurement structure within the organisation and rather than
having two separate procurement structures in both 1) CME and 2) Infrastructure
Maintenance, SE&T & New Works (IMSN) have one procurement organisation. This
should in turn be integrated into the CIE Group procurement structure.

2. Create a new position as overall Head of Procurement of Iarnrod Eireann. Have this
position take on Board reporting duties and management of the implementation of
one Corporate Procurement Strategy. To our knowledge ill is position does not
currently exist.

T Introduce and brand a new procurement model with a Bo;!i\l approved


communication and appropriate change-management p);m. This model 'Aould need to
be designed with the specific needs of the organisation as its locus
J VRNROI) 1'IRK. \ \ \ -INTERIM REPORT A F' J \ M 2008 APPENDIX 4
PRO A IT; & CONFIDENTIAL
P R O C L I U A ! E V) SN STEM R[A IE\S
F I N D I N G S & R E C O M M E N D W IONS

IMSN Procurement Organisational Compliance within larnrod Eireann

Finding
> No Manager or Senior Executive Buyer was aware of the existence of a Corporate
Board Procurement Strategy for the larnrod Eireann Organisation for Infrastructure
Maintenance, SE&T & New Works). A number of procurement staff who completed
the questionnaire are aware of some but not all compliances which impacted on what
they procured. See questionnaire result findings 1.1 to 1.6 outlined below.

Recommendation
4. Create a Corporate / Board Procurement Strategy Document for the entire
organisation which sets a clear framework for procurement throughout the
organisation. This will allow the Head of Procurement to draft up a Procurement
Operational document which would accomplish the following;

• A mission statement;

* Ownership, monitoring and review;

• Role, responsibility and functions of all procurement staff clearly defined;

• Establishment of standard work practices for all staff involved in the procurement
process;

• Compliance to regulations to ensure continuous compliance to current and

pending legislation - and the consequences of non-compliance;

* Procurement policy and strategy implementation;

• The Framework of Procurement of major services goods and partnerships;

• 1 he development of contract management procedures and guidelines;


IARNROD FIREANN -INITRIM REPORT 3 F ' J A M ON 2 0 0 8 APPENDIX 4

PRIVATE & CONFIDENTIAL

PROO LREM EN 1 S1* STIAL R E V I E W


FINDINGS A RECOMMEND AT IONS

" T he integration of a financial management system w ith the procurement process:

• Integration of IT systems such as SAP and other e-procurement technologies with


the procurement process:

" Supplier and other 3 K : party extended supply-chain integration

• Performance measurement (key performance indicators (KPIs);

• Tendering / contracts arrangements;

• On-going monitoring and audit of procurement systems; and

• Continuous improvement review

Procurement Operational Requirements within Infrastructure Maintenance, SE&T


and New Works

Here we review how the IMSN procurement operation was being managed and controlled
within the area of review through established procurement operational documents.

Finding

> The IMSN procurement function is currently serving as an administration function


supporting the tendering process at the expense of other key procurement activities
that are not being addressed such as:
• Systems and KP1 de\ eiopment:

• implementing cost >a\ ings programmes:


IARNROD EIRI: \ N \ -INTCRIM RITORI - JAM AIO 2008 ,\M:NDL\ 4
PRO UT: & COM-IDL VITAL

P R 0( T R L MLNT S\SRL\! RL\ I{•'.W


FINDINGS & RECOMMENDATIONS

" Market analysis;

" Benchmarking;

" Supplier review; and

" Audit ~ Compliance

> The majority of IMSN procurement staff who completed the questionnaire were not
aware of the need for key operational documentation which if developed would assist
them manage a high volume procurement organisation.

Recom m endation
5. Review current processes for non-value activities currently being performed by IMSN
procurement and establish a programme of value-added procurement activities. "I bis
would be defined in the overall Procurement Strategy document.

6. Establish key operational documentation for use within the IMSN procurement
department which would establish a framework for conducting performance reviews
against established targets.

Procurement Spend Classification within Infrastructure Maintenance, SEAT and


New Works

Here we review procurement reporting and data analysis capabilities, within SAP. and
determine what reporting tools exist to assist staff complete these tasks for data within the
enterprise and extended supply chain.
1 \K\R6» I-JRK \NN IM S.RIM REPORT J.WT. \\< \ 2008 APPENDIX -4

PRI\ VIE & COM IDEN N VI.


Puot.t RE MEN ! SYSTEM REVIEW
K! N DI N(;s & R ECOM \ i E N D \ I I <)N S

Finding
> Questionnaire results indicate that the majority of the IMSN procurement
management and staff do not conduct data analysis reports on spend as part ol their
daily tasks. This is a concern as it is not practical, with the organisation's volume and
value-spend, that an appropriate review of spend could be completed other than
through predefined reports. This raises concerns that this area of review is currently
not being addressed within the IMSN procurement organisation and could allow tor
invalid transactions to be processed without notice. Currently procurement personnel
spend time conducting singular supplier purchase order enquiries and are limited in
their reporting capabilities.

Recom m en dat ion


7. Develop reports which would assist management and staff analyse:
• Spend;

• Understand spending patterns;

* Review status of purchase orders;

• Track spend through plant hire and labour and also material types: and

• Self audit to ensure compliance.

This work should be done in conjunction with the SAP IT team and finance team to
promote a common set of standard reports within the organisation.

Procurement Supplier Base Development within Infrastructure Mai me nance.


SE&T and New Works

Here we review how the procurement operation manages nnd internets with the
organisations supplier base.

Paae o of I "
I \RNRODF.IREANN INTERIM REi'our •3l >i ,J wi \in 200S \M;M)E\4
PRIVATE & ( OMTDI- M I \E
PKOCI REMENT S \ S I E M REVIEW
FINDINGS A RECOMMEND VMONS

Finding
^ Major key areas of supplier base development are not being utilised m the areas such
as:

• Supplier integration:

• implementation of a quality system:

• Transaction documentation standardisation; and

• Transaction inputting verification.

This is supported by other findings, illustrating that procurement are mainly involved in
the administration of the tendering process and other key areas of procurement have gone
unaddressed.

Recommendation
8. Develop a plan for the effective development and review of the supplier base and
allocate responsibilities to senior procurement executives to achieve the goals in this
plan.

9. Review and resource the skill-sets of current IMSN procurement management and
their ability to proactively manage procurement resources allowing them to
concentrate on value added procurement activities rather than non-value procurement
administration activities.
I \ H \ R O D PIREANN INTERIM REPORT - 3 1 " .) \NL \RY ZOOS AEEENOIXT

P R O M T : & C O M IDEM I W

PRO( i REMENT S^ STEM RE\ IEW


PINI)INC;S & RECOMMEND U IONS

Procurement Knowledge Development within Infrastructure Maintenance, SE&T


and New Works

Our objective in this case is to determine the procurement skill-sets and knowledge
within the business and how this is being developed.

Finding
> The majority of IMSN procurement staff indicated in the questionnaire that the
organisation was limited in terms of procurement knowledge and in general, did not
understand the implications that certain legislation such as Environmental, Health &
Safety and Quality have on the procurement process. Also no procurement knowledge
development programme exists.

This would be deemed a critical part of an effective procurement model. Overall


procurement knowledge within the organisation is limited and poses a problem for key
functional users who participate in the procurement process.

R ecom m en dat ion


10. Set in place a Training and Development procurement programme which would
address these issues and strengthen the procurement process. Create super user groups
within key areas of potential risk and reward employees for achieving different
expertise levels within procurement and SAP. Consideration would have to be given
to whether current interna! resources are sufficient to achieve this task.
I \ R \ R O N ENU:.\\\ I M T R I M R E P O R T - - 3 E ! J A M : \R\ 2()(HS \PIM:M)I\-J

PRIVVH; & C O.N FIO EM? A I.


PRO( i R C M E V j S Y S T E M Rl.\ Jj.W
FINDINGS& RECOMMENDATIONS

Procurement Department skill-sets within Infrastructure Maintenance, SE&T and


New Works

Here we asked the personnel within the IMSN procurement department to rank their
skill-set levels within different categories.

Finding
> The questionnaire highlighted areas of concern where resources deemed themselves
nor to have adequate skill-sets i.e. benchmarking, market, planning and product /
commodity knowledge. The areas where they felt they were strong is as a result of the
tendering process which consumes the majority of their time i.e. pricing, negotiations,
sourcing, selecting and SAP systems. The concern here is the lack of attention to
other key areas of procurement and the potential consumption of procurement time in
administration duties involved with the tendering process.

Re com m en da f ion
11. Review the potential non-value activities which consumes the buyers time in the
tendering process and assign these tasks to a more junior resource thereby allowing
the buyer to concentrate on more value-added activities.

12. Clearly identify areas which the buyer or procurement executive should concentrate
their time and effort.

13. Set in place a programme of skills development within the procurement organisation.
I A R N R O D E I R E A N N - I N T E R I M R E P O R T -- 3 F .1 A M \ I N 2 0 0 8 APPENDIX 4

P R O ATE & C O N E I D E N T I \E

PROCEREMEN E SEEM R E M E W
FINDINGS & RECOMMEND UIONS

Procurement Efficiency Measurements (KPIs) within Infrastructure Maintenance,


SE&T and New Works

Our review examines the existence of KPIs and their use within the IMSX procurement
organisation.

Finding
> No procurement KPIs exist currently within the above areas of review which would
be expected to be in operation in an organisation of this size. KPIs are there to assist
management measure and monitor performance or compliance within key functional
areas of procurement at a high level. It allows them to create exception reports, using
SAP, which would review large volumes of data and highlight variances which need
further investigation.

Recommendation
14. KPIs are an important management monitoring tool which are necessary when
dealing with large volumes of data. Management should establish key KPIs for
procurement and ensure that they are in operation and used as a management tool.

SAP IT review within Infrastructure Maintenance, SE&T and New Works

Mere we review how SAP is configured within the .MateriaIs Module (MM) & Financial
Module (FI) and how the business is utilising the current SAP IT expertise available.

Finding
'Fiie IMSN Procurement Department has a low le\ei of skiM-sots within SAP. This :s
apparent from the workgroups held with end-users and meetings w uh die SAP IT
group. The SAP FF group are available but under-utilised by die IMSN Procurement
I A R N R O D IVIREANN - I N T E R I M R E P O R T - . I F .) W I A R Y 2 0 0 8 \I>PEM)I\4

PRIVATE & CONEIDENTIAI.

PLUX EREMEN R S Y S T E M R E \ II.W


F I N D I N G S & R E C O M M E N D VRIONS

Department. The implications of this are the under-utilisation of the SAP application
within procurement.

r A request was made for the financial and procurement reports for plant hire and
labour, split by Infrastructure Maintenance, SE&T and New Works, for the years
2004, 2005, 2006 and 2007. This proved impossible to generate m SAP financial* as
there was no split in the ledger codes for plant hire and labour covering the above
period requested. In the materials module this is also proving difficult to obtain. Phis
information by plant hire and labour is still under review.

This will have implications for the forensic element of our review.

R ecom m en dation
15. Set a training programme in place to address these issues.

16. Determine the procurement reporting requirements and configure SAP


fmancials/materials module to allow for this. This requires a cross functional team to
get together consisting of SAP IT group, finance and procurement to address this
issue.
I A R N R O D EMU: VN\ - I N T E R I M R E P O R T - 3 V .JAMwu\ 2008 APPENDIX A

P R I V A T E & C O N IT D I.N T I \ E

P L K K L-REM ENT S'TS I E M R E V IEW


C>I I SNONN \IRI; RESET, IS

IMSN Procurement System Review Questionnaire

The questionnaire was designed to evaluate the procurement environment and assess the
performance of the IMSN procurement department staff and management. The findings
below indicate that staff and management have concerns with regard to the current
procurement model and this is represented in this Report.
IAHNRODKIKEA\N-|>RO(;T-KK.MMNT& INTERNAL C O N I ROL IN\I;S no \ I ION ti>r/:\()!X 4

P ^ V - M E & ( ON I ||)|;N H \ I.

PROCUREMENT SYSTEM REVIEW -

QUESTIONNAIRE RESULTS
Iarnrod Eireann - Interim Report - 31st January 2008 APPENDIX 4

Private and Confidential


Procurement System Review
Questionnaire Results

Total Consolidated
1. Procurement Compliance Yes .No Total
!. I Procurement Strategy Document Q1.1 0% 100%
1.5 Procurement Environmental Feglisauon QS.5 0" y 100% •S
1.4 Procurement Health and Safety Leglisanon 01.4 !3% 88% ,S
1.3 Procurement Feglisation (Local Goverment & FI'; QF3 1 3% H
1.6 Procurement Code of F.thies Document QS.6 ! 00° <» 0% s
1.2 Procurement Policy and Procedure Document QF2 1 00" a 0% 8

Overall averaged result 50% 50%

2. Procurement Operational Requirements Yes No Total


2.1 Procurement Operational Document Q2.1 0% 100", 8
2.3 Procurement Efficiency Document Q2.3 0% 100% 8
2.5 Procurement Risks Document Q2.5 0% 100% 8
2.6 Procurement Quality Document Q 2.6 0% 100% 8
2.11 Procedure for Project Control Q2.11 0% 1 00% 7
2.7 Procurement Organisation Structure Q2.7 13%. 88% 8
2.4 Procurement Training Document Q2.4 13% 88% 8
2.8 Procurement Data Flow Q2.8 25% 75% 8
2.9 Procedure for Schedule Maintenance / Procurement Q2.9 33% 67% 6
2.10 Procedure for Unscheduled Maintenance / Procurement Q2.10 33% 67% 6
2.2 Procurement Control Document Q2.2 50% 50% 8

Overall averaged result 15% 85%

Procurement Spend Classification Yes No Total


3.1 Commodity / Material Type Determination Q3.1 0% 100°/,, 8
3.2 Spend Volume / Value Determination Q3,2 0% 100% 8
3.3 Supplier Type Determination Q3.3 0% 100% 8
3.4 Payment Agreement / Term / Type Determination Q3.4 0% 100% s
3.7 Market Analysis Q3.7 0% 100% s
3.5 Supplier Pricing Structure Q3.5 13%, 88% 8
3.6 Supplier Contract / AgreementTvpe Q3.6 38% 65% 8

Overall averaged result 7%. 93%

Procurement Supplier Base Development Yes No Total


4.5 Supplier Supply Cham Management Q4 5 (Y n i 00" o 8
4.2 Supplier Quality System QA.2 i a 88% s
4 4 Supplier Integration 04 4 ! 5' 1 o NSO s
4.6 Supplier Transaction Verification 04. h ]^ x.v\ : s
4 3 Supplier Transaction Standarui^auon 04 3 ^ S' ! - o3%, 8
4T Supplier Base Selection 0»4 : ! '''' .i 8
4 s Supplier f:ogiagenion; Procedure Deimu.-on (04 \ \ X" \

4 . S u p p l i e r Sourcmg Procedure Denned 0-04 >8' s


4." Supplier Specifications For Selection O40 S

Overall av eraged result 49",, 51"..


Iarnrod Eireann - Interim Report - 31st January 2008 APPENDIX 4

Private ami Confidential


Procurement System Review
Questionnaire Results

Total Consolidated

5. Procurement Knowledge Development Ves No Total


5.2 Requisitioned Q5.2 0% 1 ou% "7
5. J 0 Environmental Q5.10 1 3% ssu 8
5.7 Quality Q5.7 14% 86% 7
5.1 Users 05.1 14% 86° (,- "7
5.9 Health and Safety Q5.9 25% 75% .8
5.3 Approvers Q5.3 63% 38",) s
5.5 Suppliers Q5.5 63% 38% 8
5.6 Finance Q5.6 63% i.yi)/ s
O II
5.4 Buyers Q5.4 75% 25% 8
5.8 Audit Q5.8 75% 25% 8

Overall averaged result 40% 60%«

6. Procurement Department Key Skill Sets Ves No Total


6.8 Benchmarking Knowledge Q6.8 13% 88% 8
6.11 Supply Chain Knowledge Q6.il 17% 83% 6
6.7 Market / Benchmarking Knowledge Q6.7 38% 63% 8
6.6 Commodity / Product / Material Knowledge Q6.6 38% 63% <8
6.1 2 Procurement Institute Certified Q6.12 63% 38% 8
6.10 Planning Knowledge Q6.10 7!% 29% 7
6.9 Process Knowledge Q6.9 75% 25% 8
6.2 Pricing Structure Q6.2 75% 25% 8
6.3 Negotiations Skill Sets Q6.3 75% 25% 8
6.13 Sector Knowledge Q6.13 75% 25% 8
6.1 Contract Knowledge Q6.1 88% 13% 8
6.5 Systems Skill Sets Q6.5 88% 13% 8
6.4 Sourcing / Selection Skill Sets Q6.4 100% 0% 8

Overall averaged result 63% 37%

7. Procurement Efficiency Measurements (KPI) Ves No Total


7.6 Strategic Q7.6 0% 100%
7.1 Pricing Q7.I 13% S8% 8
7.2 Suppliers Q7.2 13% 88" <> s
7.3 F vpenditure Q7.3 13% 88% s
7.4 Purchasing Q7.4 !3% 88% s
7.5 'fenders Q7.5 I A xS!'.t X
7.7 Electronic Procurement O" 7 \ \" .j NX"':, ,s
"\X Svstems Q".s \ "
o Projects Q-.O r A1 X S '! X

Overall averaged result 11% 89%


IARNROD EIREANN - PROC I REMEYJ & INTERN \L CON I ROL I N \ ESTFGA I ION

Interim Report to the Steering Croup Committee-3I s ' Januan 2008


P R I V \TE & CONEIDENTI \ L

APPENDIX 5

PROCUREMENT WALKTHROUGH
- PROGRAMME OF W O R K

- FINDINGS & RECOMMENDATIONS


I A R N R O D F I R F \NN •• P R O O R F M I N I & | N I I;RX M. ( ON I R O I . } N \ E S T I M A T I O N iPl'l. \p/\ 5

PRO \ I C & C O N M D I . N I ) \|

PROCUREMENT WALKTHROUGH -

PROGRAMME OF WORK
I A R N R O D I-JR L A W I N T E R I M RLI>ORT AE! .1 VM A in 2008 \IMM:NDI\ 5

P R I V U I ; & F O N N D I . N N M.
PROCl RLMLNT \\ vLKTUROLGU
H I G H I . L V L I . C O M M O N M N D J N G S TO U L T H R I L DO IMONS

Information Gathering and Examination

Tins section of our report presents the draft interim findings and recommendations made
in relation to the walkthrough tests conducted under Term of Reference 1.

This work consisted of a high level review of the systems, controls and procedures in
place at the Dublin, Limerick and Athlone Divisions in relation to Infrastructure
Maintenance and SE&T. The table below summarises the areas reviewed at each
Division which we visited, based on our discussions with Divisional personnel.

DIVISION INFRASTRUCTURE MAINTENANCE SE&T

Dublin Plant and labour Labour


Limerick Plant Plant and labour
Athlone Plant and labour Plant

In addition we reviewed the New Works Construction Unit (Plant Hire & Contracted
Labour) and SE&T Telecom Maintenance (Labour) and SE&T New Works (Plant,
contracted labour and contracted electrical labour), which are all located in Dublin.

The objective of our work was to ensure that up to date documented procedures were in
place, which represent good practice and which are being consistently applied within the
Divisions and between Divisions. In order to achieve this, we carried out a walkthrough
of the systems. procedures and controls in place as the three Divisions to obtain an
understanding of these. We also selected 'ransactions in each area abo\e at each Division
to ensure that work earned out had been correctK requisitioned, authorised at the
appropriate level, processed correctly and paid in a fully transparent manner.
1 VKNROD F.IRI-: \NN |N H R I M R E P O R T .) \ M \U\ 2008 APPENDIX 5

P R I W I E & C O M T D E V E I \I.
P R O C I R I . M I . N I W VI.K l i i R O I 01!
I III.IF I.1A ! i CON! M ON i I N D J N O S TO A I J . TURK!-: D I V I S I O N S

Our work consisted of the following;

r Visited the three Divisions and discussed the systems, controls and procedures m
operation, through interview w ith the relevant' individuals;
> Carried out a high level review-' of the Policy and Procurement Manual and the
'Plant Hire in the Infrastructure Divisions' document, dated August 2002;
^ Considered whether documented policies and procedure existed and whether
these were suitably drafted, provide for appropriate levels of segregation of duties
and that tasks have been appropriately assigned;
> Carried out a walkthrough of a sample of transactions;
> Reviewed documentation as part of our walkthroughs, for example the 'Request
for Plant and Machinery Hire' form, the 'Request for Requisition1 form, the
'Request for Hire of contractor for Signalling & Electrical' form, SAP printouts,
contractors invoices and supporting timesheets/work dockets to support our draft
interim findings;
> Documented our understanding of the procedures in place as a result of our
walkthrough visits and presented these to the Divisions to confirm the accuracy of
our understanding of procedures; and
> Identified issues, both positive areas and areas for improvement as a result of our
walkthroughs, which were also forwarded to the Divisions in order to confirm the
accuracy of these issues

Meetings

We met \\ ith the following nulo iduais as pan of our walkthrough

^ Clerical Officers
> Permanent Wa> Inspectors;
SE&T !nspect>;r>:
I \ R N K 6 D }-;ifi i: w \ i \ iTKfM R F P O R I Ai ^ J wi 2008 •\ITI-;NDI\ 5

Put\ vn: A ('osniM. v! i


P R O C U R E M E N T W VL.K 1 IIROL (,11
H I G H L E V E L C O M M O N F I N D I N G S TO M E I H R E E D I V I S I O N S

^ Assistant Divisional Engineers;


^ Divisional Engineers;
'r SE&T Engineers; and
^ Divisional Accountants.

Appendix 2 sets out details of the individuals we met with during our walkthroughs.

Reporting

Our Endings are presented and recommendations are set out below as follows;

> High-level common findings;


> Dublin Division findings;
> Limerick Division findings;
> Athlone Division findings;
> New Works Construction Unit findings;
> SE&T Telecom Maintenance findings;
> SE&T New Works findings; and
> Differences in Divisional procedures.

Further findings and recommendations may be noted during our jieldwork under icons
of Reference 2 and 4.

Acknowledge

Dunne (he course of our walkthroughs, we met with a number oi personnel at IE. Ac arc
grateful for the manner in w hi eh IE staff facilitated us. for die time made awulabie to us
and also tor the hmh level of courtesv. assistance ano cooperation .w'orueo to us at an

Paae oof
I A K V R O D F I R E A . N N - P R ( ) ( I R(;\||.; VI & I M K R \ A L . C ( ) M R O i . 1N\ | > L ! ( , \ ) | O \
Am:\t)i\ 5

PRJ\AEE& COMTOI:MTAI.

PROCUREMENT WALKTHROUGH -

FINDINGS & RECOMMENDATIONS

COMMON HIGH LEVEL FINDINGS TO ALL THREE DIVISIONS


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P R O V1I: & C O M M N V R I \ L
P R O U R! M I N I \Y \ L K I I F R O L O H
H I G H I.IO I:I. C O M M O N R M M M . S r o \ U . i U R I C NI\ M O N S

HIGH I.KVKI. COMMON FINDINGS r o ALL THRKK DIVISIONS

High Level tin dings and recommendations are covered under the following
headings:

!UEA[)is(; _ _
Documented Procedures 4
Mini-Tendering 5
Filing of Documentation 8

Doeu men ted P roced u res

Finding
> Detailed procedures followed at the Dublin, Limerick and Athlone Division in
relation to the following areas for Infrastructure Maintenance and SE&T are not
cu ire n 11 v doc u m en ted:

• The request for plant hire/labour by the Permanent Way inspector SE&T
Inspector;
• The approval of the request and the selection of the contractor:
• The valuation of the work for the selected contractor;
• The input of the details into SAP and the creation of a service entry tonn. where
required; and
• The receipt. re\ iew and approval of the contractor invoices and 'he release oi die
sei'\ ice entr\,

> (Jur discussions w ith a number of D;\ i.oona! per>v\nnel nuhc-ated Fi.ii the\ Fad not
received documented procedures when the\ commenced their i
area. nor did thev roeene an\ iormn) trammi.:.
I \RM<OU I ' J I t i : \ \ \ I N i i.R I M R E P O R T A D J \ M VR> 200S \PPI:M)|\ 5

P m v W E & C O M F{>[.\ N \I.


Pnon R E M E N I W A E K T U R O I CM
M I C H I . E V E I . C O M M O N L I M ) I X R , S T O M I. I I I R E E DO IMONS

We do acknowledge that a Policy and Procurement Manual, a SAP Manual and the "Plant
Hire in the Infrastructure Divisions' guideline exist. However, these documents do not
adequately set out the operational procedures required to be followed in relation to the
processes listed above.

In addition, the findings noted by us during our walkthrough, reflects the disparity of
procedures that are currently in operation within and between the three Div isions,

Recom m en elation
J. We were informed by a Divisional Accountant that a group has been set up to
develop documented procedures in the areas set out above. Once the above
procedures are finalised, these should be circulated to the relevant staff members,
reviewed on a regular basis and updated as and when required.

2. This document should also set out the arrangements to be followed should certain
staff not be available to carry out specific tasks (i.e. during holidays).

3. All proposed procedures should be introduced in the context of the broader


recommendations on a procurement model contained elsewhere in this Report.

Mini- rendering

We met with the Infrastructure Maintenance Procurement Department to obtain an


understanding of the Mini Tendering Procedures, winch were reeentlv introduced at lb.
As part of our work, we selected two transactions during our visit to one Division where
mini tendering had been applied. The work reviewed related io a request in September
2fur and Nov ember 20fi"\
I ARNROO KIRK ANN | M i a m i R [TORT 3F :
.1 \ M \ R \ 2()0<S M ' P I \()L\ 5

I'RIVvn: ,V COM IDEM i \i.


PFKKT RIAIKM U U K I (IROl Oil
HIGH U \ I.!. COMMON FINDINGS 1 0 \j.L I ilRi ! DO ! S H ) \ s

Finding

Our findings in relation to this area are as follows:

r- ') he mini tendering procedures are not currently documented.

> For one transaction selected, the following issues were noted:

• it was not clear who had requested the work as the 'Request for Plant and
Machinery Hire' form only noted that the request was made by the 'Permanent
Way Inspector, Athlone'.
• The ADE had requested quotes from 5 potential contractors. From our discussions
with the Clerical Officer responsible for mini tendering at Infrastructure
Procurement Department, we understand that it is her responsibility to carry out
this process.
• The decision of the ADE is noted on the 'Request for Plant and Machinery Hire'
form, together with the reason for selecting the contractor in question i.e. based on
'the cheapest price following request for prices to 5 companies -• see attached
paperwork'. Although we acknowledge that 5 quotations had been received, there
was no analysis of the total price of the work for each contractor. Some
contractors had quoted hourly rates, some weekly rates and some included
transport costs. From a review of the quotations received, u was not easy to
establish the total price from each contractor and, hence determine the cheapest
opt ion.
• Fhc hourly rate and the transport cost were included on the 'Request for Plant and
Machinery Hire' form; how ex er the total value of the w ork w as not documented.
• fhere was no documentary evidence on die that regies letters had been issued to
ino unsuccess'u! ooumncioirs.
I \RNROD K I R I : \NS I M T R I M RCPORI J \ M on 2008 \ P P ! M>!\ 5

PRIVVI P £ Co\ni>r\Ti \I.


PRO< 1 IUAIIA ! \ \ vl.K i fIROT GIL
H I G H I X \ E L < O M M O N L J N D I N G S I O W.L I JIRI;F: DO w o \ s

Recommendation
4. Detailed procedures should be documented in relation to the mini-tendering process.
This should include circumstances where the mini-tendering procedures are required
to be followed, together with setting out the roles and responsibilities of both the
Divisional Offices and IMSN procurement department in relation to mini-tendering.
These procedures should be reviewed on a regular basis, updated as and when
required and circulated to the relevant individual.

5. The following recommendations are noted:

" The 'Request for Plant and Machinery Hire" form should be required to be signed
and dated by the Inspector requesting the work.
• A document should be on file to record the total value of the work, based on the
quotations received from each contractor. This will provide evidence that a bid
evaluation has taken place.
• The total value of the work for the selected contractor should be included on the
'Request for Plant and Machinery Hire" form. This will facilitate the
reconciliation of the original request to the contractors invoice and supporting
timesheets on receipt of same.
• Responsibility should be assigned to monitor the mini tendering process. Tins
should be included in the documented procedures. Instances should not arise
where quotations are sought and received at the Divisional office level, as we
understand that this process is required to be carried out centrally by the Clerical
Oifcer at the f.MSX procurement department.
! \RNROD ORKANN IN H.RIM RF.I'OIM .J \M MO 2008 \I>FI:NDI\ 5

PRI\ A I & CONl'lDilNTI \i


l J R()( i i<! Ml N ) \ \ \f,K ITIROI (,M
( U G H I.IA 1,1. C O M M O N MNDINC.S I O VLL I iiiua: no ISIONS

Filing of Documentation

Good practice would suggest that all correspondence issued by Divisions should be
maintained on file.

Finding
> Instances were noted where copies of all correspondence issued by the Divisional
Office were not maintained on file, as supporting evidence e.g. faxes sent to
{n s p ec t o r/c o n t ra c tor.

Recom m en da tio n
6. A copy of ail correspondence issued from Divisions should be maintained on file, to
ensure that sufficient audit evidence exists to support a decision made.
I A R N R O D K I R L A N N ... I ' R O C I R L M L N I & IN 11 R \ U . C O N I R O L | N \ L S I I G A K O N
im;\/>/\ 5

PRO \ I K & ("< AI !!)!•;\ | | M.

PROCUREMENT WALKTHROUGH -

FINDINGS & RECOMMENDATIONS

DUBLIN DIVISION FINDINGS


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PRI\ AI E & COM ini.vn w.


L-'INOFSCS & R E C O M M E N D vnoss - PROCIREMEVI W M . K I T I R O I OH
i>\ B E I N I>L\ I S I O N - 1NER \SS K I T 11 R E M \ I M 1A \N( ! - P I . \N I & I. \BOL R

DUBLIN DIVISION

INLRAS T1U CTURK M.A1N TKNANCK - PI.AN 1 & L.ABOIR

Dublin Divisional findings and recommendations in Infrastructure .Maintenance are


covered under the following headings:

| HI: A DING ___ __ PACK j

Request for Plant Hire and Labour ...9

Accuracy of Plant Hire and Labour Requests . 10


Selection of Contractors . 11
A p p ro v a 1 o f C o n t ra c t o rs . 12
Contractor Invoices and Supporting Documentation .13

Request for Plant Hire and Labour

The Inspector/requester of work is required to submit the 'Request for Plant and
Machinery Hire' form to the Dublin Divisional Office in advance of the work
commencing.

Finding
Our walkthroughs indicated that;

Incidences were found where tins form was not submitted to the Divisional CH'iee as
required (i.e. the request was done by way of telephone call by die Inspector),

^ Older versions of she form had been completed and >ubmmed b\ Lie Per A ay

Inspector
( SRMiOl) iK If\\N i M j HiM Ul'.f'OU ) } C .) \ \ | \R\ 2008 Vl'I'lO Dl \ 5

Pim u j: A ( oNi iiiiA n \i.


L ' l M ) i \ ( , s & l i c e O M M I ' . M ) \ | ' | O N S - P U O ( i Hi \ | | . \ i W M KI IIROL 1.11
IX i5i.IN D I V I S I O N IM R WJ ma I I JU; M ON I I;N VM. I: PI W rA T. wioi. u

earned out or submitted 10 the Divisional office after the work had actually
commenced.

Recommendation
7. All requests to the Dublin Divisional Office should be done by way of a completed
'Request for Plant and Machinery Hire' form.

8. All requests should be submitted on the standard form. Different and older versions
of the form should not be m operation and should be withdrawn from use.

9. This request form should be submitted by the Per Way Inspector on a timely basis.
We were informed that the Divisional Office would require the request at least three
working days in advance of the work commencing. Good practice would suggest that
this form should be completed and received prior to the work commencing.

Accuracy of Plant Hire and Labour Requests

The Per Way Inspector requester is required to input sufficient detail on the 'Request for
Plant and Machinery Hire' form in order to allow the Clerical Officer to value the work
required,

Finding
.As a result ot'vaor \\alkshroaghs. we noted:
I \K\NON KIKI; IMT RJM I U P O R I OF .1 \ M \ I N 2()()S M'PI ndin 5

Pun VR I A C O M I I ) I ; M I \L
FINDINGS & Kix OMMIND \ i IONS - PROC I U I . M I A I \V U . K nmoi GII
I)( HI.IN I > 1 N ISION I N !• R \ s l IU f Tl RK M ON i ! \ \NC i; Pi. \ M A I. \BOf R

'r- In relation lo labour requests reviewed. the 'Request for Plant and Machinery Mire"
form did not specify the dates the work was commencing. This Sack of detail does not
facilitate the reconciliation of the details on the contractor's invoice to the original
request.

Re com m en (Jat ion


10. The details on the "Request for Plant and Machinery Mire' form should be
comprehensively completed by the Per Way Inspector/requester. Specific detail needs
to be inserted regarding the exact type, of plant required to carry out the work and the
exact dates as to when the work will be earned out. This supports the requirement of
the 'Plant Hire in the Infrastructure Divisions" guideline document which states that
the Per Way Inspector should 'explain the requirement, detailing the cost/project
eode. location, description of work, expected duration of hire, machinery type
required'.

Selection of Contractors

On receipt of the 'Request for Plant and Machinery Hire' form, the Clerical Officer in the
Dublin Divisional Office selects the relevant contractors from the plant hire database and
estimates die price of the work to be performed (based on the rates on the database and
the request received). This information is documented and forwarded to the ADJ.:. who
selects a contractor.

i'in ding
r \\ e noted an occasion where the Per Wa\ Inspector had requested the plan: dtrectlv
'rom a contractor and had not gone dnvuigh 'he required process, .is summarised
aivwe. for die case m question, die work was eommencmg on Monday W o"V
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' MHV 5

Puts vri: & ( oM ii>iA i i \i,


F l M ) j N < , s & Ri;t O M M I A D V I I O N s - [>K(K [ R E M E N I W \ ! K III K O I tUl
D t 15 U N 1)1 \ I S I O N I M ' H Vs [ RI ( | | R | . M O N El A W E Pi. \ N ! I. \ B O l R

acknowledge that there was. a note on file, based on a telephone call between the
Clerical Officer and inspector, this transaction highlights;-
• That the ADE was not involved in the selection process prior to the work
commencing. The ADE did sign the request form subsequently.
• inadequate planning by the Division in relation to work to be earned out.
" Non compliance with the required procedures.

In accordance with Section 3.3.3 of the Policy and Procedure Manual (Request for
Quotations), 71 minimum of three quotations must be sought for all purchases unless
otherwise approved by the Procurement Manager' for Infrastructure projects. For the
sample in question, there was no documented evidence presented to us that the approval
of the Procurement Manager had been sought and obtained, in the absence of the 3
required quotes.

Recont m endation
11. The contractor selection should go through the correct procedure i.e. the Clerical
Officer should review the plant hire database to select the three lowest contractors,
which should then be submitted to the ADE for approval and selection. The Per Way
Inspector should not contact a contractor directly requesting the plant prior to the
selection process.

12. Where the Procurement Manager has approved a project where there is no

requirement <o obtain 3 quotes, a note should be documented on !iie to this effect.

Approv al of C o n t r a c t o r s
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I'R! \ W i; A ( ()\| I')) N I I \L


F l \ DING'S I U ( OMO I M) \ l iONs - PR()( { UF.M IA I W U K I } I KOI OH
D ( BI.IN I)i\ ISiON | \ 1 R WIRt ( ! i Ki; M MM I.N \N( !' I'l AN I & \, OiOl U

Finding
^ Certain files were reviewed where there was no documentary evidence o! this review

i.e. the 'Request for Plant and Machinery Hire' form had not been signed by the ADh

and. or an email w as not on file to support the decision of the ADE.

Recommendation
13. The ADE should be required to sign and date the "Request for Plant and Machinery
Hire' form ro provide evidence that selection of contractor was approved at the
appropriate level and on a timely basis (i.e. prior to the Service Entry form being
generated and the work commencing). Alternatively, a copy of the ADEds approval
email should be included on file to ensure an adequate audit trail exists in relation to
the approval of the contractor.

Contractor Invoices and Supporting Documentation

Contractor invoices received are required to be supported by appropriate supporting


documentation (i.e. timesheets or work dockets).

Finding
The following issues were identified in relation to a sample of invoices reviewed.

^ The quality of timesheets and the ie\el of information included on the nmesheets

varied bet w ecu contractors from comprehensi ve detail to ititle or no detail.

^ invoices were received winch were not alwa>s supported b\ an\ nme>heets or h\
adequate 'tmcsheets.
I WiMiOD Kim: CNN IMCKJM R [.PORT - 3 P ! .) \ M \R\ 2U0S Vl'l'l M ) l \ 5

PHI V \ I K & ( DM ID! N i I \ | .


I" i \ DI V , s & UL-X 0 V | \ 1 ! M H H O X S - Pk<)( i i U A U A I \ \ \ l . K TIIKOl Gi!
I)f Bf.lN DiV ! S10 N - I M R \STIU ( T! UK M \ | \ l'!A VM M Pi \A I & I. VBOIU

submitted by the Inspector requestor. There was no note on file to explain the
difference between the original request and the invoice received.

The dates the work was carried out per the invoice did not always agree to the date
recorded on the 'Request for Plant and Machinery Hire' form timeshecfs. There was
no note on file to explain the difference between the original request and the invoice
received.

Recom m en dution
14. Standard time-sheets should be developed and issued to all contractors. Certain key
information should be required to be included on all rimesheets/invoices submitted by
contractors to ensure that all information is available to allow a three way check
between the original request, the invoice and the supporting timesheets/work dockets.

15. Only invoices that are supported by accurate timesheets should be approved for
payment.

16. Where there are additional requirements after the request has been submitted to the
Divisional Office, these should be documented and sent to the Divisional Office to
facilitate the review/matching of the invoice to the supporting documentation to the
original request. We understand that additional requirements are often, just phoned in
by an Inspecior requester.

I 7. Specific dates should be included on the 'Request for Punt and Machinery h i r e ' form

to facilitate the matching of the invoice to the original request form and the

supporting timesheets.

IS. Overall, addinor

Pa-a a M o ;
i AKNROD K I K E ,\S\ I M E I U M R E P O R I M P ; J A M v i n 20()<S U'PEM)IX'5

P R ? \ AM: & C O M n>i \ i i M,


J'lM)) V , S & K(.( O M M i . X ! ) IONS - P l U X I REMEN I W M.KTHROl OH
} ) E B E I \ I))\ j S K ) \ 1 \ E R v s l R E C K Ri: M A I M 'EX \ M.' E PE I' I, WH)i R

['he recommendations above are intended to facilitate the process ot compliance,


I \UNROD I IUI \ \ \ IN I T R I M R E P O R T -•• } R : J \ M O N 2008 \PPEM>I\

Pun WT: A C O M I D E N T ! \I,


F I N D I N G A R E C O M M E N D MTONS- P R O C I RIAIE.N I W \I K I T I R O I OH
1)1 BUN |)i\ ISION SIWI' - I. VBOl R

L)I BUN DIVISION

S K & T - L A BO I U

Dublin Divisional findings and recommendations in SEAT (Labour Hire) are


covered under the following headings:

! HKADIV; _ _ _ _ PACK

Request for Labour . 16


Completeness and Accuracy of Labour Requests .17
Approval of Contractor . 17
Valuation of Work . 18
Contractor Invoices and Supporting Documentation .20

Request for Labour

The SE&T Inspector/requester of the work is required to submit the 'Request for Hire of
contractor for Signalling & Electrical' form to the Divisional Office in advance of the
work commencing.

finding
Our walkthroughs indicated the following:

^ Tins form was not alwavs submitted to the Divisional Oil ice on a timely basis. An
instance was noted where this request form had beet] subrmned to the Dublin
Divisional office on the da\ the work actualIv commenced. A second instance was
I \RNROI) E / R K A W I N T E R I M Rl PORT . 1 ] J WL \RN 200N \N»I:M)I\ 5

P R I \ M R A C O M I N I A KM..
E I N DJ M , & Ki;< O M M I:M> C M >\S- I>RO( t R I . M I . V I H.K I I I R O I MI
DL HI IN I)l\ ISiON SE&T - I. OMH R

Recommendation
19. In order to follow the required procedures at the Divisional Office, we were informed
that the Divisional Office would require the request at least three working days m
advance. This timeframe should be incorporated into the procedures.

Completeness and Accuracy of Labour Requests

The SE&T Inspector/requester is required to input sufficient detail on the 'Request for
Mire of contractor for Signalling & Electrical' form in order to allow the Clerical Officer
to value the work required.

Finding
> As a result of our walkthroughs, we noted instances where insufficient detail was
included on the form m relation to the labour requests (i.e. day or night shifts required
etc). This can potentially result in the Clerical Officer valuing the job inaccurately
and/ inputting an incorrect amount into SAP through the Service Entry system.

Recommendation
20, The details on the Request form should be accurately included by the SE&T
Inspector requester of the work. Specific detail needs to be included regarding the
exact type of labour required s i.e. number of gangers, number of men. shifts required
i.e. day. nidn or w eekend i.

\ p p r n \ a l of C o n t r a c t o r
lARMioo Enm VNN l\ 11 U!\1 REPORT - .1 \" JAM on 200X \PI>I-:M)I.\ 5

P u n U K A COM'llliA I I \l.
FINDING & Uc<. OMMKM) \ I'IONS- PRO< i RI MI M W M K T HROI OH
I.) I in.IN |)l\ IMON SKA T- I. UXM R

Finding
r Certain files were reviewed where there was no documentary ev idence of this review
and approval by the Signalling Engineer i.e. the request form had not been signed by
the Signalling Engineer or an email was not on file to support the decision of the
Signalling Engineer (i.e. based on rates, availability and experience). We do
acknowledge that the Signalling Engineer approves the request when reviewing the
contractor's invoice, but this is subsequent to the work being carried out. We
understand that the Signalling Engineer's approval in most cases is based on
discussions with the SE&T Inspector and is not documented at the request stage.

R e com men da tio n


21. 'fhe Signalling Engineer should be required to sign and date the 'Request for Hire
contractor for Signalling & Electrical' form to provide evidence that the selected
contractor was approved at the appropriate level and on a timely basis (i.e. prior to the
Service Entry form being generated and the work commencing). Alternatively, a copy
of the Signalling Engineer's approval email should be included on file to ensure an
adequate audit trail exists.

Valuation of W ork

Once the Signalling Engineer has approved die contractor, the Clerical Officer estimates
a price for die work to be performed.

Finding
I \ U\H()» £liu: \ W i M I KIM REPORT• 3 P .i\M \U\ 2008 \!'!MAm\ 5

PlU\ \ I ! cV ( ONf !l>i \ ! I \l


E | N J > | \ ( , & RECOMMEND V I l o w - PHO< I HUM E N I W M k l H H O I G f l
Di HI IN i ) l \ ISION SK&- i - E \ B O i \<

procedure was not in place in SEWf Labour where a review is being earned out on a
number of contractors' rates to ensure that value Tor money was considered. I his
relates to both pre and post the establishment of the labour database.

> Prior to the development of the labour database, we were informed by the Clerical
Officer we met, that she based her estimate of the work to be carried out on rates
included in previous contractors' invoices.

> There was no analysis presented to us of how the total value for the work to be
performed had been estimated by the Clerical Officer. A total figure was recorded in
SAP. No value was recorded on the request form.

> Occasions were noted where zero values or the incorrect value of the work to be
performed had been input into SAP.

R ecom in en dation
22. A review should be carried out on a number of contractors' rates to ensure that value
for money is being considered. Where the lowest contractor is not selected, a note
should be on file to support the decision of the Signalling Engineer.

23. The standard rates dev eloped should be used for all job estimations going forward.

24. .An analysis should fie kept on file to support the value of the work io ho performed

i.e. rates x labour requirements etc.

25. The approved value of the work to be performed should be entered onto SAP.
I \RMiOD F l R K W X IN J l RIM RlT'ORT .M " .) W | \UN 200S \PP! .M)l\ 5

PRO M l, A ( " 0 M li)K \ I I \i„


FlMHW, A Rl C 0M M KM) \ T ! ( ) N v PRCK I RKMI.N I W M.KTMROl Oil
Di !i J IN [)|\ I SI () N SKAT - 1. \UOI.K

Contractor Invoices and Supporting Documentation

Contractor invoices are required to be supported by appropriate supporting


documentation (i.e. timesheets etc).

Finding
The following issues were identified in relation to a sample of invoices reviewed.

> The quality of timesheets and the level of information included on the timesheets
varied between contractors from comprehensive detail to little or no detail.

> The PO Number on one invoice did not agree with the PO number included on the
'Request for Hire of contractor for Signalling & Electrical Work/ form. There was no
comment on file to suggest that this discrepancy had been highlighted, investigated
and resolved.

The invoice did not always agree to the 'Request for Hire of contractor for Signalling
& Electrical Work' form. For example., for one transaction selected, the request was
for 3 men for 10 days commencing on 10 April 07. The work invoiced commenced,
on Monday 16 April 07. The re is no note/comment on File to explain why there was a
change m the commencement date.

For another transaction selected, die Request required 5 men for 4 davs: the invoice

was for o men for 5 days. There was no note on tile to explain the difference from the

request.

mperv isor.
J \RNROD P IRIAAN I YI'LRIVI R E P O R T A D J \M \RV 200X VTIADIN ?

P R O \ IT: A C O M I D I N N \ I.
I*iNi)iS(< A OVIMIAD vi IONS- PROC t RI.MIAI W w KIUKOI on
DI m IN I ) ! \ J S I O N - S E & T - I. \UI)I R

Insufficient back-up was prov ided for materials-plant hire used on certain jobs.

Recommendation
26. Standard timesheets should be developed and issued to all contractors. Certain key
information should be required to be inserted on all timesheets--'work dockets received
from contractors to ensure that all information is available to allow a 3 way check
between the original request, the invoice and the signed timesheets-work dockets.

27. Where differences are noted between PO numbers on invoices and the request form,
this should be investigated, followed up and resolved prior to approval and there
should be evidence of this maintained on file.

28. Where additional plant/materials.-labour is required in excess of the original request


by the Inspector/requestor on the Request form, this should be communicated to the
Dublin Divisional Office by way of email as the additional plant/material/labour is
used onsite. This will help facilitate the Clerical Officer on matching the invoice
details to the supporting timesheet and other documentation relating to the work
performed.

It should be noted thai this control was recently introduced in New Works and should

be applied to all Divisions as it represents good practice,

29. All timesheets should be signed bv an iarnrod bureann representative. This A a

requirement for Infrastructure Maintenance as per die 'Plant lb re in 'lie Infrastructure

Division' guideline. This i.iocumeni specifcalh states that >/>;<:«>u.\ w e i^ued

•he PHC r0 ;/?<> PU'l nn a u cckiv AAA. /V'A .OV A-AA hv 'A /'OV Pun

Paue 2i o
I \RMU)D KJIUI \ \ . \ ••[ \ H'R! M kKPOR! - 3 I ' ? -J \KN 20DH U'L'IODIN 5

Pni N vn: & COM ions 11 \L


}• I M U N O A R I ; C O M U K M ) vno\s- P R O C I K I O I K Y I \\ \I.K I T I R O I OH
I.X LILJS R>|\ I M O N • S K A I - K UHM R

Tins is good practice and should also apply to SE&T labour timesheets. hi addition, it
should be noted that this control currently operates in New Works.

30. Van and plant lure should be adequately supported. This detail should be signed on-
site on completion of the usage of the van and plant hire and/materials.

31. Overall additional care needs to be made to ensure that the invoices received match
the information contained on the timesheets.
I A R N R O D K I R K W \ - P R I X I R I \H \ R & I N T E R Y M . C O M R O E |N\ E M I G A T I O N
-1/77:'X/)I X 5

PR J \ A E E & ( D M il)| \ | | \ |

PROCUREMENT WALKTHROUGH -

FINDINGS & RECOMMENDATIONS

LIMERICK DIVISION FINDINGS


' R! \ [ RlU'OK I A E' .1 \M MO 2008
f \RNROI) LlIU: \XN • I \ JK \P!M:M)!\ r

Pirn V I I: A (OM NH YJ I \t.


LlM)|\(,A Ri'(OMMIM) \ HONS- PlUK t r k m k m W W.kTHROl C, H
LIMI.RH K D I V I S I O N I M R VSIIU CM IU; M WN I I;N W I: P I . \N I HMO:

LIMERICK DIVISION

INLRASTKI ( 11 RE MAINTENANCE - PLAN R HIRE

Limerick Divisional findings and recommendations in Infrastructure Maintenance


are covered under the following headings:

[ HEADING __ PAGI-:

Request for Plant Hire 23


Contractor Invoices and Supporting Documentation 24

Request for Plant Mire

On receipt of the "Request for Plant and Machinery Hire' form, the Clerical Officer in the
Limerick Divisional Office selects the relevant contractors from the plant hire database.
Lie/she forwards the database printout, together with the request form to the ADE. The
ADE reviews the contractors based on the rates on the database print out and the details
on the request form received and selects the appropriate contractor.

Finding
.As a result of our walkthrough, we noted the following:

r- There was no documented evidence of iiow the AD!: had selected the contractor (rom
the database printout or that a \ aiue for monev exorcise had been earned out.
I \KM«'M) lain: \ NS IN N : K I M UI:I>OR i - .> f 1 .1 \ M W<\ 2DOS U ' P I M)1N 5

P I R N \ IT: & ( ONI IDI:N I I U


KINI)TN(, I RI-:CO\IMI-:NI) M IONS- P I U K I R I A I I : VR W A I . K I I I R O I ON
I . O I i . R K k I > | \ ISION I NI R VS I II! < I I HI: M \|N I T \ \ M K • P i , \N J M I U T

> 1 lie lowest priced contractor was not selected by the A DIE for one sample selected
and there was no explanation on tile to support the decision of the ADE i.e. service
and availability, safety record and system, machine suitability and maintenance.

Recommendation
32. The ADE should clearly document the selection process to demonstrate that a value
for money exercise has been carried out and on what basis a contractor has been
selected.

33. The ADE should be required to sign and date the request form to provide evidence
that the work was approved at the correct stage, i.e. prior to the Service Entry form
being generated and/' the work commencing.

34. An explanation should be on file to support the decision made by the ADE. including
a note as to why the lowest priced contractor had not been selected i.e. based on
service and availability, safety record and system, machine suitability and
maintenance.

Contractor Invoices and Supporting Documentation

Contractor invoices received are required to be supported bv appropriate supporting


documentation (i.e. signed limesheei work dockets etc).

finding

I lie following issues 'were identified in relation to a sample o! invoices reviewed. It

shouk! be noted that these invoices na d been a p p r o v e d lor pavment. even though "he

follow mg issues w ere idem i fed:


I \RMU)I) EIRE v x x - I M E . R I M Rf:Pf)KI .1 f .J VM \U\ 2 0 0 8 \|M'EM)!\ 5

PRJV \11: A (.'ONITDIA I I \I.


PlMMM, A RECOMMEND VlTOXs- pRO( I REMEM' W M.KTUROt f ,11
1.1 MIRK K I > I V ISiON iNER VS I Rl ( I I RE \] \IN 1EN WOT Pi. VN I HIKE

'r- The level of information included 011 the work docket varied between contractors,
from comprehensive detail to little or no detail.

> 'The details and the value of the invoice did not always agree to the 'Request for Plant
and Machinery Hire' form originally submitted by the Permanent Way
Inspector/requestor. Examples noted were:
• transport costs had been added, which were not included in the original request
form;
• additional shifts were included on the invoice, which were not included in the
original request form; and
• different code types had been included in the invoice as compared to that
described on the request form.

There was no explanation on file to support the differences between the original
request and the amount that was invoiced.

Recommendation
35. Standard timesheets should be developed and issued to all contractors. Key
information should be required to be included on all limesheet.'work dockets received

from contractors.

36. AM costs associated with the plant hire including transport should be included m the
•Request for Plant and Machinery Hire' form <o as to ensure the correct value is
recorded in die service entry system and input into SAP. (We were imca'tncd that
some contractors do not charge transport costs and hence these costs are intentionally
excluded on the original request form serv ;ee entry).

37. All contractors snook! have an up to date LIST o: plant codes !rorn tne Awoken s
database. This w til lacdnaie the easv rev tew an" the contractor's mv o;ce m the orn.::nai
I \inKoi) IORI: \ \ \ • Ivj fjm! RI:I>ORT -.tp'.lwi on 2()(KS VlU'l M)l\ S

P R I \ VI K A { D M I M \ I I \!
P I N D I M ; & R t x ( ) \ I . \ I I ; M ) \ n o \ S - PROC I K I V I C N T W \I.K I H R O I o n
I . I M K R K K D I V I S I O N - ! M R \SI RI O K RK M O N I I : \ \ M I: PI O T HIKE:

request. In addition, consideration should be given to reviewing the database to


ensure that it is complete and up to date regarding contractor's rates and plant code
descriptions).

38, A note .should be on tale to explain any differences between the original request and
the final invoice. Where additional requirements for plant/labour material are required
when the job is being carried out this should be recorded by the Permanent Way
Inspector/relevant individual and forwarded to the Divisional office. This will
facilitate the checking of the invoice when it is received by the Divisional Office, hi
addition, there should be evidence that the rates invoiced by Contactors for this
extended work agree to the rates in the Division's database.

39. Additional care needs to be taken on reviewing the contractor's invoices to ensure
that they match to the supporting documentation and to the original request.
I \K\KOD EUU: \\\ I m ANNO R E P O R T V .! W . VIN 2D0N VRIU:M)I\ ?

P R O W I: & ( ONI IDEN (I U


E I M H M , & R E C O M M E N D \ I IONS- PROC I R E M E N J W VEK I T I R O I O H
I I M L UK K I ) IV I M O N S E & E - E MH>V R H I K E .

LIMERICK I)I\ IMON

SE&T (,.\B()( R HIRE

Limerick Divisional findings and recommendations in SE&T (Labour Hire) are


covered under the following headings:

HEADING _ _ _ „ _ _ J'.M-JH

Request for f.abour 27


Review of Contractors 28
Selection and Approval of Contractors 29
Valuation of Work 30
Contractor Invoices and Supporting Documentation 31

Request for Labour

The SE&T Inspector/requester is required to input sufficient detail on the 'Request for
Requisition' form in order to allow the Clerical Officer to value the work required.

Finding
For our sample selected, we noted:

> Instances where insufficient detail was included on the 'Request for Requisition form
m relation to detail of the project and the exact labour requirements i.e. type oi labour
required or amount and type of shifts required). Ibis can potentials result in me
Clerical Officer valuing the job inaccurately and. or inputting an incorrect amount into
SAP throui:]"! the Sen ice Entry S w e m . Additionally, it docs not facilitate the easy
comparison of the contractor's invoice and supporting documentation against the

Pane JM of
I \RM«)I) Kmi: \ w - IM I RIM Rl f'OUi 3 i : .j \M \R\ 200<S VPl'IAOIN 5

PR1V \) i A ( ()M I ])i \ ; I \;


Kl \ !)l\(, A Rl.C OMMIAO \ \ IONS- i'KOC I KIAIIAT W \ 1 .K IIIROI <, 11
I i M I UK Is DIVISION - SKA 1 - K \ BO! R HlRf.

^ In relation to pre June 2007 procedures, the request consisted of a high le\e'i request
to set up the Purchase Order, together w ith a weekly request for the drawdown against
this. Our work highlighted that only the initial request was approved by the SE& 1
Engineer. The original request reviewed was high level and did not provide sufficient
detail as to the work required to be carried out and over what period.

Re com m en da tion
40. The details on the 'Request for Requisition5 form should be accurately included by
the SE&T Inspector/requester of the work. Specific detail needs to be included
regarding the exact type of labour required (i.e. no. of gangers, no. of men. shifts
required i.e. day. night or weekend). All relevant sections of the form should be
completed by the SE&T Inspector, as required.

In relation to point b) above, we understand that this procedure no longer exists.

Review of Contractors

We were informed thru Labour contractors arc selected by the Sb&'l Inspector and that
the selection is based on a rotation basis.

Finding
r- As a result of the transactions selected, we noted that there was no documeniap

e\ alence to support that a value for monev exorcise was canicnJ out by die SL&I

Inspector or the Signalling Engineer, for selecting and approvme the contractor m

question or that the contractors .had been rotated. Lor one piece of work rev :ewcd. the
[ wiNROi) Kiuc WS -IM I:KI\I RU'ORT 3 [ . 1 \\i \in 20 0<S M'I'I \L)L\ 5

Pun m i & ( <>ni ii)i- \ 11 \ i.


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I.IMNKK K | ) | \ IMON Sl'.'vS. I E \HOl It f illUt

selected or on what grounds die eontraeior in quesiion had been selected (I.e. baseu
on .skill experience availability).

Recommendation
41. A note should be on file supporting the decision made by the SE&T Inspector and the
Signalling Engineer for selecting and approving a contractor. If the lowest priced
contractor has not been selected, a note should be on file to support this decision.

Selection and Approval of Contractors

Our discussions indicated that the contractor is selected by the SE&T Inspector and
approved by the Signalling Engineer.

Finding
> Certain files reviewed post June 2007 revealed that there was no documentary
evidence on file of this approval at the request stage i.e. the Request form had not
been signed by the Signalling Engineer prior to the work commencing or an email
was not on file to support she decision of the Signalling Engineer. We do
acknowledge that the Signalling Engineer approves the request when reviewing the
Contactors invoice, but this is subsequent to the work being carried out. We were
informed that the Signalling Engineer's approval is based on discussions with the
SE&T inspector and is not documented at the request stage.

Recommendation
42. The Signalling Engineer should be required to sign a an date me d\eques; ior
a contractor u jpprov cd

to the va: v ico Entry form


I VRNROO KlUI.ANN i M i.RiM Rl l'OlM .M'jWl MO 2lH)S \IMMMMX?

PlUV \M A ( O M ' t i X A ! f \ !
t I M)l SO A Ri:c OMMI'.M) U IONS" PUCK. I U I. MIA I W \!.K IHUOl (,'H
1.1 Mi: KICK l ) l \ Is ION S K A I - i, M50I K Ml UK

Engineer's appro\"nJ email should be included on die IO ensure an adequate audit trail
exists in relation to the approval process.

Valuation of Work

The Clerical Officer receives the 'Request for Requisition' form from the SE&T
Inspector, which we understand has been approved by the Signalling Engineer (as there is
no documentary evidence of this approval, as noted above). It is the Clerical Officer's
responsibility to insert the value on the 'Request for Requisition' form.

Finding
The following issues were noted in relation to the sample reviewed:

> Tor a sample of 3 labour requests reviewed, insufficient detail was included on the
'Request for Requisition' form by the SE&T Inspector to enable the Clerical Officer
to accurately value the work to be carried out. The forms reviewed did not set out the
number of men required, the shifts (i.e. day or night work), or the number of days. We
do acknowledge that in one instance reviewed, the Clerical Officer had hand written
the exact requirements, based on her subsequent discussions with the relevant SE& T
Inspector.

^ There was no anaKsis presented to ns ot now the icon 1 value tor the work to nc

performed had been estimated b\ the Clerical Officer. A total figure was recoixiedi on

the request form.


I \K\R0t) IjRI.'AW J M i:R(M k E P O R I - .! \ M \R\ 20118 U P I XOIX 5

PRIVATE A C O M I D E M IA I.
I ' l M U V , A RL ( O M M I M ) \ ITOXs- PLUX I REM E M U \EK lTIROi. OH
I.IMERU K DO IsION SPA 1 I . U J O l R HlUE

work per the original request, it was difficult to explain die difference between the
original request and the contractors' invoices.

'r- Our discussions indicated that pre June 2007 standard rates did not exist for SE& 1'
labour. We were informed that in order to value the work, the Clerical Officer on
occasion, would use rates from previous contractor invoices. On other occasions, we
understand that the contractor submitted a Setter to the Division, with their proposed
rates, which we understand that had been agreed previously with the SE&T Inspector.

Recommendation
43. SE&T inspectors should be required to insert sufficient detail on the 'Request for
Requisition' forms to enable the Clerical Officer to accurately value the work to be
performed. This should include details of the number of men required, the exact dates
as to when the work should be carried out, together with the shifts required (i.e. day
or night shifts).

44. An analysis should be kept on file to support the value of the work to be performed
i.e. rates x labour requirements etc.

in relation ro point c) above, we understand that post June 200" standard rates were

introduced for SE&T labour.

C o n t r a c t o r Invoices and S u p p o r t i n g Documentation

(. ontractor unoiees received are require*.-, to Oe supported o\ appropriate supporting


uoenmemation u.e. innesheets or work oocketsr
i \u\Ron F.IRI; sw IM i;ui\i Kij'osii .1 VM VRV 2D0S \ iM' I: \ !>! \ 5

PUIV Vi!. & ( n \ i !!)! \ ! I \ l .


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(..iM IKK K DO iSiON SFW I t.VBOl K lliKC

Finding
The following issues were identified in relation to a sample of invoices reviewed.

> The cheeking of the tmiesheet to the invoice is oniy carried out by the SlAv f
Inspector, who requested the work. We understand that the timesheets arc not checked
by the Clerical Officer or the Signalling Engineer to the contractor's invoices. We
were informed that the signed timesheets were filed with the SE&T Inspector.

> The details and value per the invoices did not always agree to the original 'Request
for Requisition' form. The differences related to additional van/tools being required,
which were not outlined in the original request. In other instances noted, as there was
a lack of detail on the 'Request for Requisition' form, we were unable to explain the
differences between the original request and the invoice.

> Timesheets reviewed did not detail the start/finish times or the hours worked for each
of the labourers. Therefore, it was not possible to determine how many hours had
been worked and to agree this with certainty to the contractor's invoice.

> We noted an instance where the work had been carried out week commencing 20
.August 2007 for a period of one week. However, at the time of our walkthroughs
(26 2" November 2007). the invoice had not vet been received from the contractor.
This time lag together with regular lack of detail makes proper reconciliation d: ffscult.

Rc'co/n in mutation
45. 1 o ensure adequate sOiu'Cgation oi duties exist, a secvmd individual should chock the

i nv coco to the support!! umosheets. It shook; be noted that in:-- cncck ts carricO out

bv the Clerical Officer and the AD!.: in another Do ;s;om w hich c. c v oucd.

Pane A: of
I \KNROD Kllii:\NS Im I lilM kl.TOKI 3lM\M 200X \ P P I M HX S

PRO UI: A ( D M I D I , \ RI W.
}• ! M ) 1 N ( . A R L ( O M \ | P M ) VI t O N S - P R O N KCMPM W \!KMIRO{(,IL
(.IMP RICK DIVISION SI.A ! I. V B O I R H i m :

46. Standard timesheets-work dockets should be developed and issued to ad contractors.


Consideration should be given to including certain key information on the standard
timesheet, to ensure that all information is available to allow a three way check
between the original request, the invoice and the supporting timesheet work dockets.

47. Where additional labour/materials plant is required in excess of the original request
by the SE&T Inspector/requestor, this should be communicated to the Divisional
Office by way of email/fax on a timely basis. This will help facilitate the 3 way match
of the invoice details to the supporting timesheet to the original request.

We understand that this control was recently introduced in New Works and should be
applied to all Divisions as it represents good practice.

48. Timesheets should detail the start and finish times and. hours worked for all labourers
to provide evidence of actual hours worked and invoiced.

49. Contractors should be requested to submit invoices within a reasonable timeframe of


carrying out the work.

50. In general, no invoice should be approved for pavmem which is not fully supported to
the original request and supporting timesheets work docket,
IARNROD EIREANN - PROCI RE\II N I & I N T E R N A L C O N I R O L I N \ E S T I G \ ITON Am:si) tx 5

P R I \ VI E & C O N F I D E N T ! \ L

^
PROCUREMENT WALKTHROUGH -

FINDINGS & RECOMMENDATIONS

ATHLONE DIVISION FINDINGS


I ARNROD Enu; \ NN -- INTERIM KEEOR E --A E: .1 A t u o 2iH)«s appendix 5
P i r n VI E A CONEIDIA ri M.
I 'lNDINO & R IX OM M EN I) \ I IONS- i'ROt I REM EN f W M.kTHROl 01!
ATHLON E - | N | k VSiiU ( II RE M \ [N I'lA \N( E i A B O ! R HIRE

ATHLONE DIVISION

INERASIRICH RE M \INH.NANC I: - LABOUR HIRE

Athlone Divisional findings and recommendations in Infrastructure Maintenance


(Labour Hire) for labour are cov ered tinder the following headings:

Hkadim; __ _ ___ _ PAOI:

Selection of Contractor 34
Approval of Labour Requests 35

Selection of Contractor

Wc understand from discussions with the Divisional Accountant and the ADE that the
contract labour requirement for the Athlone Division for Infrastructure Maintenance was
put out to tender a n d J U f w a s awarded the Contract,

Finding
We were informed that the Division follows the procedures set out below for its
Infrastructure Maintenance Labour with

• The ADE and the Relax ing Inspector discuss the labour requirement on an ad hoc
basis in conjunction w uh the tender document.
• The outcome of the meeting inc. the labour requirements) between the ADE and
the Reiaviiu: Inspector is not documented.
! \ UN ROD KlRC W N - |N ITtRIM R I. PORT .1 I " .1 VM. \R\ 2 00 S VIM'I Nf)IN 5

PRO M l A CuMlDCMI \l.


IT N 01 NO A Rl.( O M M I N D \ ! IONS- PlOH I Rl VIA | \V \ l k i ll KOI Oil
A IT! I. ON !•; - IM K \ s i !<i ( ! i R|; \ ] \ |N i j \ \N( | - j. \HOI R l l l R L

' For the sample selection, there was no documented evidence presented to us to
support the planning for the work between the ADE and Relaying inspector and the
request to

Recommendation
51. On a weekly basis, the ADE and the Relaying Inspector should consider the
Division's labour requirements on a more formalised basis in accordance with the
tender document.

52. Notes should be maintained of the agreed weekly labour requirements based on the
discussions between the ADE and the Relaying Inspector.

53. Formal communication should be in place and on the file regarding the weekly
requests made to M A review should be carried out between the original request
and the tender requirements, the invoice, the supporting timesheets/work dockets and
the rates on the database.

Approval of Labour Requests

We were informed that the ADi' and the Relaying Inspector conduct discussions

regarding the labour requirement on an ad hoc basts

Finding
For our sample selected
I \H\H6I.) P I K E \NN I M KRIM REPORT .) \ M U N 2I)I)8 \pi'EM)IX R

P R O VIE A C O M I O E N ) I U.
K I M ' J I V ; A R E C O M M E N D W I D N V P R O C I R E M E M W M K M I R O I OH
A l lium: IM R VSTRL 11 1 RE M \|S ! I N WOE 1. M>Ol R H I R E

^ Subsequent to the discussion between the A!')!.: and Relaying Inspector, there was no
documentation on file to confirm that the request had been formally communicated to
the contractor. Therefore, it is not possible to compare the amount invoiced by
the contractor to an original request. We do acknowledge for the invoice in question,
that the invoice details did agree to the timesheets. However, good practice would
suggest that a check should also be done between a request and the amount invoiced
by the contractor, with an explanation being sought and documented for any
differences.

R ecom m en da (ion
54. The outcome of the meeting between the ADE and the Relaying Inspector, in relation
to the plant requirements should be documented and available.

55. All requests to V H p a n d other contractors for labour requirements should be in


writing, either by way of email, fax or a standard form, A check should be carried out
between the contractor's invoice and the original documented request. Any
differences between these should be explained and a note put on file.
I UtNUOl) i'.IRK ANN JN1 ! HIM Kl.PORI sF .1 vM VRV 200N \PPI-AOIX 5

Pui v \ I i & C O M Tin; M I A I.


I'lNniNf, ^ KfX OMMl.Ni) \ 1 IONS- PlUK l UlAIIAT W M K I IfKOl <,U
A I IIIONK | ) | \ IMON |\( |{ \stRl ( I T RE M U M E& M.^ I Pi AN r HIRE

ATHLONE DIVISION

i M KASI Rl 0 ! ERE M AIM i:\AN( i: & $ E & T - Pi AM 111 UP

Athlone Divisional findings and recommendations in Infrastructure Maintenance «&


SE&T for plant hire are covered under the following; headings:

Heading Pace

Request for Plant Hire 37


Approval of Contractors 38
Valuation of Work 40
Contractor Invoices and Supporting Documentation 41

Request for Plant Hire

The Permanent Way Inspector is required to submit a 'Request for Plant and Machinery
Hire' form to the Athlone Divisional Office in advance of the work commencing.

Finding
As a result of our walkthrough, instances were noted where:

r It was difficult to determine who completed and approved the request form as the
form has been typed and die Permanent Way Inspector's and AfJE's Signature was
not on the form. In some cases reviewed, the ADH's name was typo signed on she
document.

^ fhe request form had been submitted to the Athlone Divisional Office after me week

had commenced. For example, die request was received on but die work

commenced on In other m-mutees. n '-wis do'icud to determine when the

•Request for Plant and Machinery Hire' form wa> submitted as the date was no;
I \unu6o Fjki: \ \ \ - l\ i i-RiM Ri POR r AD .) v i on 2()(!<S \ppi N s > i \ 5
P R I V . W L : & C O M F N I ; M I M.
Pi M H M, tji; RK< OMMIOI) U
I O N S - pROl I RPMI.M W\! .K I I I ROl <. 11
\ i HI OM l)l\ IslOV !M R \s i R| : II RJ M \|\ I I \ V( i SK& r PL VI illRI

All the required sections of die 'Request for Plant and Machinery hire' form had not

been completed in full.

Recommendation
56, The Permanent Way Inspector should be required to complete, sign and date the
'Request for Plant and Machinery Hire1 form. T his recommendation should apply to
all Divisions.

57. The date that the "Request for Plant and Machinery Hire' form was submitted to the
ADE/Accountant should be included on the form/ the form should be date stamped on
receipt to the Divisional office.

58. In addition, the 'Request for Plant and Machinery Hire' form should be submitted by
the relevant Permanent Way Inspector to the Divisional Office in a timely manner
(i.e. prior to the work commencing).

59, All required sections of the 'Request for Plant and Machinery Hire' form should be
completed in full by the relevant individuals.

Approval of Contractors

On receipt o f t h e "Request for Plant and Machmerv Hire' form, the .Accountant or the

ADE re\ tews the contractor's rates on the database and generates a print from the system.

We understand that the ADE will alwavs select and approve the commcior. fhe

contractor's details are then recorded on the ' Peuuest for Plant and Machinery Hire'

form. The value ofthe work ;s calculated b\ the ( iertcal Officer

Pace oS of
I \ U \ K O D I U R E VNN IN i ERIM RETORI J E; .1 V M A R \ 200.S \vvi\in\ 5
Pirn ME & CON n DEN r1 M.
E I N D I NO & Recommend U IONN- PROC J REMEM W M M IIROI OH
ATHLONE Dl \ ISION I N I R \S EJU CTt RE M \ IN i EN \\( & SEI I' PI. \ N I 111 R E

Finding
As a result of our walkthrough, we noted instances where:

A- The ADE's name was often typed on the request form as confirmation of approval.

In addition, the date the ADE signed the request form as confirmation of approv al
was not included. As the ADE is not required to date the request form, it is difficult to
determine if the approval took place prior to the work commencing.

A- There was no documented evidence of how the ADE had selected the contractor from
the database printout or that a value for money exercise had been carried out. As there
was a lack of detail on the 'Request for Plant and Machinery Mire" form relating to
the specific plant required, it was difficult to ascertain if the lowest contractor had
been selected. In addition, there was no note on file to explain why the contractor in
question had been selected (i.e. based on price, service and availability, safety record
and system, or machine suitability and maintenance.

Re com m endation
60. The ADE should be required to sign and date the 'Request for Plant and Machinery

Hire' form to provide evidence that the selection of a contractor was approved at the

appropriate level and on a timelv basis (prior to the work commencing).

.Alternatively, if this approval is done by way of email, a copy of the email should bo

included on laic to ensure an adequate audit trail exists in reunion to the approval ot

the contractor.

61. The ADE should clca


for monev exercise h
Where 'lie lowest pru
I \RMU)i) KIRK W\ Iviiium RI.PORI .) \M OO 2()0H \PIU M ) l \ 5

P R O \ 11 & C O M IDI-.N F I \L
KLMJIM, i RI t O M M L ' . M ) \ I IUNS- PlUX I R I O I I . M W M K I LLUOT OH
\ i HI.ONE DI\ IS ION ( S I R \ M R I cnuiAlviM EN \ M I: & SKCv i' Pi or HIRE

explain the rationale for thus i.e. based on the contractors service and availability
safety record and system, and/or machine suitabihtv and maintenance.

Valuation of Work

The Clerical Officer in the Divisional Office calculates the value of the plant requested
when the contractor has been selected by the ADE.

Finding
As a result of our walkthrough, the following issues were noted:

> The rates on the plant hire database used to calculate the value of plant requested did
nor always agree to the rates included in the contractor's invoice.

> One example was noted where the original request quoted €60 for a piece of plant
hire. Two invoices were received from the contractor for the plant, one quoting €40
and the second invoice quoting €45. There was no note on tile to explain:
" Wire the original quote was different to the invoice rates (€40 and €45): or
• Why two invoices had two different rates for the same piece ofpiam.

r An e-mail was sent b\ the Procurement Department on !6 October dno*7 to a number

of nuiix khiahs informing them that the rates on die database tor one contractor. 9 8 M P

9 M F had not been updated for die re\ ised rates of July .inoA The Procurement

Department attached a separate excel spreadsheet, containing die correct cues for this

contractor. Subsequent to (Mir w alkthroueh. we v. etc Hitormed that the dnumuse pad
I VRNRO!) PiRL\NN - iNTLRIM RlPOR! OPMvM 2008 \pn:M)i\ 5

P R O V P A ( O N M D I \ I ! M.
!• I M M M , & R R ( O \ I M K M ) . \ I IONN- | > R O ( I R I M C M W \ L K T I I N O I <;H
U HI.OM, DIVISION • I N I H \ S I R I O K RI; M \INTI:N W C K ^ S P & T - I'L. V R I IIRI:

r- 1 here was no analysis presented to LIS AS to how die total value ol the work to be
performed had been estimated by the Clerical Officer. A total figure had been
recorded on the file.

Recommendation
62. A review of the plant hire database should be undertaken to ensure that the rates on
the database are current and up to date. A note should be on hie to explain any
differences between the original request and the amount invoiced.

63. Each Division should satisfy themselves that the rates included on the invoices
received from ^ H H H I ' ! 1 period from July 2007 to October 2007 were correct.

64. An analysis should be kept on tale to support the value of the work to be performed
i.e. rates x labour requirements.

Contractor Invoices and Supporting Documentation

Contractor invoices are required to be supported by appropriate supporting


documentation (i.e. signed timesheets or work dockets).

Finding
i he follow mg issues w ere identified in relation to a sample of m \ oices rev icwed.

^ Phe level of information included on the work dockets varied between contractors
Irom comprehensiv c detai I to little or no detad.
I VRNROD H I R E VNN IN I E R I M R E P O R T J W \R\ 2 F>0S \PI'EN|)|\ 5

PlilV VIE & ( ON! i!)E\ ] ! \i


E I N D I N G & R E C O M M E N D \ ITONS- PRO< I R K M E N R W W K T K R O I OH
Ann.DM. 1)|\ Is! O N |N| K\s| ( I t IU. M ON | ! N ^ N< E £ Sl'^T Pi. \N ! 1| | R E

^ I he details anci the value of the invoice did not alwavs agree the 'Request for Plant
and Machinery Hire' form originally submitted by the Permanent Way
Inspector/requestor. Examples were noted where:

• additional hours were included on the request form, which were not included on
the invoice;
• additional hours were included on the invoice that were not included on the
request form (i.e. the job started one day earlier than requested):
• different code types had been included in the invoice as compared to that
described on the request form;
• different plant codes, descriptions and prices had been included on the invoice as
compared to that described on the request form. From a review of the invoice, it
was unclear if the same plant was supplied as that ordered:
" transport costs on the request form did not match what was invoiced; and
• timesheetdnv'oiee indicated that work commenced prior to the date requested.

There was no explanation on file to support the changes between the original request and
the amount that was invoiced.

The details on the original service entry are amended on SAP in order to agree to the

contractors' invoieesdimesheets that were approved, if tins is different than die

original request. For a number of transactions selected, these amendments had not

been noted on the original S e n tee Fntrv form printed out and placed on die. I his m a

housekeeping issue, in that the eonv on the manual die is inconsistent with the

updated information on SAP in other Divisions visited, the amendments are made to

die Service Entry prmtcvl out on die. as we understand that a soemni Service Fntrv

form can not be printed out from the svsiem.


F.\ UN ROD I. i R i: \ W IN I (RIM Ri i'ORI I .) \M \R\ 20()<S Al-M'l M)l\ 5
P R F V VR R & ( ON! I D I . M I W.
\ t JONS- PRO< I R C M I O r W u.Krn R O R O N
KINIMNO & R I < ( I \ I M I : M )
Mlll.OM: PlV IMON - iM R \s [ H( en ri; \J \ j I'.N w . K £ SK&T Pt \ N I li|Rf.

Recommendation
65. Standard timesheets should bo developed and issued to all contractors. Consideration
should be given to including the certain key information on the standard tlmesheet. to
ensure that all information is available to allow the 3 way match between the original
request, the contractor's invoice and the supporting documentation.

66. A review of the database should be undertaken to ensure that it is accurate and up to
date. All contractors should have an up to date list of plant codes from the Div ision's
database. This will facilitate the easy review of the contractor's invoice to the original
request.

67. A note should be on file to explain any differences between the original request and
the final invoice. Where additional requirements for plant/labour/-"material are required
when the job is being carried out/the original request changes, this should be recorded
by the Permanent Way Inspector/relevant individual and forwarded to the Divisional
office. This will facilitate the checking of the invoice, when it is received into the
Divisional Office. In addition, there should be evidence that the rates used by
Contactors agree to the Division's database.

68. All amendments to the service entry on SAP should be noted on the form, if the
system will not allow a second service entrv form to be printed out.
I

IARNROD KIKEXNN |'RO<T ui M E N I & INIKUN M.CONIROI IN\ I M K , \ T I O N . t !>/>/. M)l\ 5

PIRN C O M ! D I : \ I I AI.

PROCUREMENT WALKTHROUGH -

FINDINGS & RECOMMENDATIONS

NEW WORKS CONSTRUCTION FINDINGS


IARNROD KIRI.ANN |V M M I KI POR I 3T: J \M \R\ 200S APPL NDIN 5

P R O via: A C O M !Df \ n si.


KlNDINl, & Rl.COMMlM) UUONs- IMSN pRO< I RIM! N J W W.ls I UROl (.H
N p w W ORKS CONS N U c TION ( M I I'S. \ NT H I I U : & C O N \ R V I I D 1. \I>oi R

N L W WORKS CONSTRUCTION I M I

PLAN I IllKK & CONTRACTED i.ABOLR

New Works Construction Unit (Plant Mire & Contracted Labour) findings and
recommendations are covered under the following headings;

| I I HA D I N G

Documented Procedures 44
Approval of Labour Requests 45
Contractor Invoices and Supporting Documentation 47

Docu men ted Proced u res

We understand from discussions with the Track and Installation Manager and the Plant
Co-ordinator that the requirement for plant hire and labour for New Works Construction
Unit projects goes out to tender, with contractors being awarded the tenders on a
percentage basis.

Finding
We were informed that New Works Construction Unit follows the procedures set out

below for us plant hire and labour requirements.

A- Weekly meetings take place between the brack and Installation Manager, die Plant

Oo-ordmaior and inspectors to determine the amount of plant hire and labour required

for die todow me w eek m accordance w uh the tender.


I \ K M I O O PURE W N I N K RIM REPORT .) \ M W < \ 2008 \M-\M\ 5

PRO M I. & ( OM'IDI'.N N U .


PIN DIM, & R E C O M M E N D VI IONS- I MSN PROCI REM EM WU.KIHROI OH
N E W \\ ORKS C'ONM RI ( T I O N L\IR - PI. \ N R II IRE ^ (OVER \< RIU> L \B<){ R

> The Plan; Co-ordmator inputs the details of the plant and labour required and the
estimated value into SAP based on the excel spreadsheet.

'r The Plant Co-ordinator e-mails the service entry number together with details ol the
plant and labour required to the contractors.

> The work is completed on site and timesheets delivery dockets are signed by an
Iarnrod Eireann representative.

> The contractor invoices are reviewed in detail and approved by the Plant Co-
ordinator, the Track and Installation Manager, Construction Unit Manager and the
Construction Unit Accountant.

The above procedures followed by New- Works Construction Unit are not currently
documented.

R eeo mm en da tion
69. Good practice would suggest that these procedures should be formally documented
detailing who should carry out each task, the timeframes involved and what
documents are required to be maintained etc.

70. Once the abo\e procedures are finalised, these should be circulated to tho relevant
staff members, reviewed and undated as and when required.

Approval of L a b o u r Requests
I \R\H01) I JRK \ NN lM i:H!M RI PORT 3f 1 J \M \K\ 2IH)S \l>l'l M>l\ 5

Pirnon- A ('OMIDIAI I M.
P!M)IN(, A Rl( OMMLM) \ IUO\s- IMSN PROCI RIWII \ I W \I.K I IfROl Oil
NEW W ORKS ( ONs ! RI {. I ION I \JT Pi V I UlRL & ('ON I R W Ti l) L \IU)l R

requirements. A detailed excel spreadsheet is prepared by the Plant Co-ordmator which


outlines the plant hare and labour required.

Finding
At the time of our fieki work, for our sample selected;

>• There was no weekly spreadsheet on file presented to us in relation to the discussion
that had taken place. The absence of this spreadsheet makes it difficult to reconcile
the contractor's invoice received to the original request.

> There was no documentation on file to confirm that the request had been formally
communicated to the contractor. Therefore, it is not possible to compare the amount
invoiced by the contractor to an original request. Good practice would suggest that a
check should also be done between the original request and the amount invoiced by
the contractor, with an explanation being sought and documented for any differences.

Recant m en dation
71. The outcome of the meeting between the Track and Installation Manager, the Plant
Co-ordmator and Inspectors, in relation to the plant hire and labour requirements
should be documented and he'd on file.

72. All requests to contractors for plant lure and labour requirements should be in

writing, either by way of email, fax or a standard form. A check should he earned out

between the contractor's invoice and the ormmal documented request. Any

dilferences between these should be explained and a note put on tile.

Pane d*o of
I VRNKOD KIFU: \ N \ IMT RIM R I T O R R I P o l \NI. VRV 2MI<S Ai'PLADIX 5

PlilV M l. A ( D M !!>l N I I M.
|-'iM)IM, ^ RC( OMMI.M) V I TONS- I MSN l>RO( ( REM I.N i U M.k I HROI Ml
NT \\ W O R K S C O N C H O ( H O N ( A N P I . \NI U N U : £ ( O V I R V< IT:D F \ M N K

Contractor Invoices and Supporting Documentation

Contractor i mo ices are received by the Plant Co-ordinator and are required to he
supported by appropriate supporting documentation (i.e. signed timesheets or work
dockets).

Finding
For a sample selected:
> The date the timesheets were approved and the role of the individual who had
approved the timesheets was not detailed, this makes it difficult to determine when
the timesheets were approved and if they had been approved at the appropriate level.

> The timesheets for labour were very difficult to match back to the contractor's invoice
as the timesheets did not show a rate per hour and the invoice only showed subtotals
for each category of worker for each week.

> For a labour invoice reviewed, while it had been signed by the Plant Co-ordinator as
evidence of this review, there was no analysis on the invoice 'timesheet or no other
documentary evidence on file that provided us with assurance that a reconciliation
had been carried out between the invoice and timesheet.

Recommendation
73. 1 he role oi the individual approvim.: the nmcsheets and the date the timesheets arc

approved should be noted on the inuesheets so that it is easy to determine at what

level tlie timesheets have been reviewed and w hedier they were approved on site

when the work w as completed.

o4. Standard omcsheets should he developed and issued to all contractors. Certain kev
I \R\KOI) l-JKi: \NN • iMT.RfM RlPORT .M^.hM 200S \ P I'F. N 1)1 \ 5

PR I \ V IT. A C O M ' I D E M I M.
F I N D I N G A R I : c O \ I M I : \ D \TION>- I . M S N P K O I I R I M I N R W M K J H R O I OH
M w W O R K S C O N S T R I C T I O N t NIT P I . \N I H I K I ; & C O N I u u 1 I.D i . VBOI R

contractors to ensure that al! informal ion is available to allow a three way check

between the original request, the invoice and the supporting timesheetsw\ ork dockers.

75. For labour invoices, a summary sheet should be produced by the contractor (similar
to plant hire in the New Works Construction Unit), matching the times beet hours to
the invoice total. Alternatively, this analysis could be done and documented by the
Plant Co-ordinator, before he/she signs the invoice as evidence of review and
matching of the invoice to the timesheets and the original request.
IARNROD PIREANN ~ PROGI R E M E M & | \ I E R N A E C O V J R O E I W I : S I IO V I U>\ l/wv)/\ 5

P R I X A I !•: & COMTDKMIAI.

PROCUREMENT WALKTHROUGH -

FINDINGS & RECOMMENDATIONS

S E & T TELECOM MAINTENANCE FINDINGS


J VKM«)I> KIRI: w \ -1 M iami Ki :r<mr ~ ?> E ; J \M VRV ~w)<s \ PI'I.M)I\ 5

PRO \! I A: COM IDI.M I O.


KIMHINO A UfX OMMKM) V I IO\s- IMSN PROt I IILMI.M W \Kk ! 1110)1 Ml
SE&T ( I I I ( < >\;s M MM I \ \M I. I W) OI R IllRK

SE&T
TELECOMS MAIN I I NAM E - LABOLR HIRL

Telecom's
'Telecom's Maintenance {Labour Hire) findings and recommendations are covered
under the following headings:

j H PAD INC __ __ Ili(iL_

Selection of Contractor 49
Approval of Labour Requests 51
Valuation of Work 52
Contractor Invoices and Supporting Documentation 53
Segregation of Duties 54

Selection of Contractor

We understand from discussions with the Telecom Maintenance Engineer that the
contract labour requirement for Telecom Maintenance was put out to tender and was
awarded on a percentage basis t o f M P I ^ M M M M P

binding
Finding
We were informed that Telecom Maintenance follows the steps set out below for its
Contracted Labour:
IARNKOI) KiRE \N\ - iM I.KfM REPORT .! \M \R\ 21)08 \i'pi:\i)i\ 5

Pm v M E & COM IDENT! \E


I''|M)!M, & Rl.( O VI MEM) \ I IONS- 1 MSN I'ROC I RIO I EN ! W \Ek i II ROE <, !l
Sl"& T I'EJ.E< 0\!S M ON I ! N \M i. ! \|}!)l R iilRE

• The contractor is selected hy the Telecom Maintenance Engineer on the basis oi


availability to supply staff at the tune and adso what contractor may have the
capacity to fulfil the task in its entirely. Also contractors are employed based on
experience of completing tasks. They may already be employed by IE in
completing similar tasks.
• The Telecom Maintenance Engineer creates a service entry on SAP and a service
entry form is generated.
• The Telecom Maintenance Engineer/Supervisors/re levant individual contacts (he
contractor by either phone call or e-mail with the labour requirements discussed
with the Supervisor.
• The contractor invoices are reviewed in detail and approved by the Telecom
Accountant and also by the Telecom Maintenance Engineer.

> For the sample selected, there was no documented evidence presented to us to support
the planning for the work between the Telecom Maintenance Engineer and
Supervisors and the requests to rhe contractor.

The above procedures followed at by SE&T Telecom Maintenance are not currently
documented.

Recommendation
76. Notes should be maintained of the agreed weekly labour requirements based on the
discussions between the Telecom Maintenance Engineer and the Supers isors.

77M 7 ormal communication should be in place and on the tile regarding the week!)

requests made to contractors. A review should be carried out between die original

request and die tender reuutremems. 'lie invoice, the supportmg ;unesheets w ork
dockets and the rates per tender.
I A UN KOI) iUKI \ \ \ - |\ IM
' K f M R it PORT M"' .1 VMOIU 200S VPPINDIN 5

P R I V VI'I- A C O M IDCN ! I \ i .
I (\ I) I \ ( , & Ret OMMIOI) \ I IONS- [ M S N PUOCL KI.MIA I W O.klUUOl OH
SP.& I L ia.cc O M S M O N I I N \ M F: I . \ B O I R IISRI

78. Good practice would suggest that these procedures should be formally documented
detailing who should carry out each task, the timeframes involved and what
documents are required to be maintained etc. Once the above procedures are finalised,
these should be circulated to the relevant staff members, rev'jewed and updated as and
when required.

A p pro v a I o f L a b o u r Requests

The Supervisors and Telecom Maintenance Engineer discuss the labour requirements on
a weekly basis. We understand that up to June 2007 the outcome of these meetings were
not formally documented. Since June 2007 the Supervisors complete on a weekly basis
an excel spreadsheet which details the labour required.

Finding
For our sample selected:

> There was no documentation on file presented to us in relation to the discussion that
had taken place. We were informed by the Telecom Maintenance Engineer that the
discussion took place between the Telecom Maintenance Engineer and the
Supervisors, but that it is not formally documented. We acknowledge that the sample
selected was prior to June 200 7.

^ Subsequent to the discussion between the feiecom Maintenance Engineer and the

Supervisors, there was no documentation on hie to confirm that the request had neon

formaih communicated to the contractor. Therefore, it is no; possible to compare me

amount invoiced bv the contractor to an original request. Good practice woulu suggest
f \ RXlit.)I) i-JRI: \\\ - IM I : R I M Ki.I'ORI - j | y : J v\i on 20UX UTI.MHX 5

PRO VI 1 & ( OM1DI \ i ( \l.


P I N D I M , & KI:< OM\M:M> M I O N V I M S . N PROC I R K M I . N R \\ uacniRoi T.U
SI- & I I i.i.i t (>\is M \(\iT;N V M I I. MU){ R HIRE

invoiced by the contractor, with an explanation being sought and documented tor any
differences.

Recommendation
79. The outcome of the meeting between the Telecom Maintenance Engineer and the
Supervisors, in relation to the labour requirements, should be documented and
available.

80. All requests to contractors for labour requirements should be in writing, either by way
of email, fax or a standard form. A check should be carried out between the
contractor's invoice and the original documented request. Any differences between
these should be explained and a note put on file.

Valuation of Work

We were informed by the Telecom Maintenance Engineer that he creates a serv ice entry
form on SAP for the work requested, which includes an estimated value of the work to be
performed.

We understand that since SAP has been modified in June 200? to include rates per labour
type, the Supervisors complete on a weekly basis an excel schedule winch tun lines then'
labour requirement for the week going forward and the rate per labour required.

anting
As a result of our w alkthroueh. the todowma > \ : o were noted:
I MA ROD KflU. VNS - IMI.RIM KM'OIM JO" J \SL \R\ 20(18 V PIT M)i\ 5
I ' R I \ V! ! A ( O M ||)| A | J M.
i \ D! \ C A U I;C D \ J \ H ; M ) \ I IO\s-1 M S N P R O O I R I M LA I W MUCLLIRO! IIM
S1A<: f I i.l i ( OMS M \ IMTA \M {. - L \BO( R 11 IRE

There was no analysis presented to us of the estimated total value for the work to be
performed We acknowledge that the sample selected was prior to the introduction o! the
SAP configuration.

Recommendation
81. An analysis of the estimated value of the work to be performed should be kept on hie
to support the value of the work to be performed i.e. rates x labour requirements.

Contractor Invoices and Supporting Documentation

\ Contractor invoices are required to be supported by appropriate documentation (i.e.


signed timesheets or work dockets).

Finding
The follow ing issues were identified in relation to a sample of invoices reviewed;

> As an original request form is not completed it is not possible to reconcile the
contractors invoice to an original request. In addition, for the sample selected, the
details entered onto SAP did not agree to the inv oicc'timesheets. Good practice
would suggest that all invoices should be reconciled to an original request in order to
ensure that goods invoiced were requested.

r- The details and the value of the invoice did no; agree to the signed timesheets. tor

example, the signed timesheets had included an additional man and ganger 'hat had

not been included on the invoice. There was no explanation on tile to support the

lame r
lAkNRdi) K!k!: v \ \ - In ckuim Kr.i'oui i p r .J VM vu\ 200N \!MM M)l \ 5

P R O \ V I & C O M J D I . V I I W.
PlMUM, & PlXOMMI.M) \i fO\S- 1 MSN PROOI R 1 MIA J \N \l.k I IUOU OH
SK& I I ( I l.< OMS M \ 1 \ I [ S \\( I I, Midi R HlUI

'r The I'oie of the 1 ndi\ icinal who has approv ed the tim

it difficult to determine if the appropriate individual has approved the timesheets.

R econt m en da turn
82. Consideration should be given to the introduction of a formal request form for labour
similar to that used in Infrastructure Maintenance. The original request should be
compared to the contractors invoice and signed timesheets.

83. A note should be on file to explain any differences between the signed timesheets and

the contractors invoice.

84. The role of the individual approving should be included on the timesheets so that it is
easy to determine at what level the timesheets have been reviewed.

Segregation of Duties

Finding
It is noted from discussions with the Telecom Maintenance Engineer that he is involved

in the following stages of procuring contracted labour for Telecom Maintenance:

• Discusses die labour requirement with the supers mors;

• Selects the contractor to complete the work:

• inputs the requested labour on SAP by w av of creating a new sen ice entry torm:

* Res icws the im osces reccts ed hv w as o! two was cross check to me Mgneu

timesheets: and

• Approves 'lie invoices hv was o; em AT. release 'post I "WP: .."Mo o


I \RNROI) K I R K \NN -1\ RR.RIM UKI'ORT - .1 wi. vu\ 2008 VI'PI.NDIX

PRIV A l l. & C O M IDh'.Ni! M.


FINDING ^ Ur.COMMKNI) U I O N S - IMSN PUOCl Ri All.N | VV \ i K I II R () I (, f i
SK&T TI'.I.IX OMS M \iN i i.N \N< i I.AHOI R HIRE

Recommendation
85. Good practice would suggest that the tasks involved in the procurement ol contracted
labour should be segregated between individuals. Consideration should be given to
involving another individual, at the appropriate level, to carry out some of the tasks
presently being undertaken by the Telecom Maintenance Engineer.
IARNROD KIRE\NN P R O C T R E M I N T & IN 1 1 . R N M , ( U M K O I . IN\ E M K , \ I I O N •l/'MMMX 5

PRO ATE & CONF'IDCM I M.

PROCUREMENT WALKTHROUGH -

FUNDINGS & RECOMMENDATIONS

S E & T NEW WORKS FINDINGS


I \RNROD I j R i : \ \ \ • | \ [[ lUM Rf.l'OR 1 • 3 -J \ M \U\ 2M)N U'fM.NDfN 5

P I U S W N ; & ( O M A M N I I M.
K I N D I M , & R E C O M M E N D \ D O N S - I M S N P R O C I R I M EN J W A I . M U R O I ON
S K A T SEW \\ I I U K N - P I . \N I H I R E

S E & T NEW WORKS - PLANT HIRE

SE&T New Works (Plant Hire) findings and recommendations are covered under
the following headings;

| HEADING P A ^ ;

Selection of Contractor
Valuation of Work 58
Approval of Pro-forma Invoice
Contractor Invoices and Supporting Documentation

Selection of Contractor

We understand from discussions with the Construction Manager that the plant hire
requirement for SE&T New Works went out to tender and that a number of contractors
were selected per location/per line for the provision of plant hire.

Finding
We were informed that SE&T New Works follow the procedures set out below for its
plant hire requirements:

r- Scheme p l a n s are drawn up for each project being undertaken.

Fhe Construction Manager requesis die plant hire from die selected contractor m

accordance wadi die scheme plans.

r idie work is completed and tmiesiiecis are simied on-Mte at die end oi each week b\
I VRNKOD K I R E VNN • I N T E R I M R E P O R T J \ M M<O 2008 \PPI.NDIN' 5
PRO W E & CONFIDENTIAL
F I N D I N G & R E C O M M E N D \ I IONS- I M S \ PRO«: ( R E M I N I \V M.IVEHROI G H
S K A T NEW W ORKS P E \N I |FII<I:

r- 1 ho contractor issues a pro-forma invoice to the Construction. Manager, for his rev iew
and approval. The Construction Manager notes the W HS code to which the work
relates on the pro-forma invoice.

The Clerical Officer creates a service entry on SAP based on pro-forma invoice coded
by the Construction Manager and a service entry form is generated.

> The Clerical Officer issues the service entry number to the contractor via e-mail.

> The contractor sends a copy invoice and the signed timesheets to the Construction
Manager. The invoice and timesheets are reviewed in detail and approved by the
Project Accountant.

For the sample selection, there was no documented evidence presented to us to support
the planning for the work, for example:

• How the Construction Manager requests the plant hire required from the selected
contractor.

• Whether the actual work performed and invoiced is monitored in accordance with
the scheme plans and the tender.

Recommendation
SO. formal communication should be in place and documented on the nlo regarding the

requests made to contractors. A review should be earned out between the oriamal

request, the invoice, the supporting nmesheets work dockets and the rates per the

plant hire database prior to the invoice beinu approved and processed.
I VRNROP KIRK \ \ \ - INTERIM RI U>ORI 3 P ; . U M VR\ 2D08 \m.M>i\ 5

PUIV VI E & ( O N ! mi N j ! \ l
K|N!)|S(, & KIT OMMENO \]lOVs- IMSN PRO< I REM! V| W VI killROI Oil
SK&T NEW \ \ ORKS PI. \N I HIRE

87, I here should be documentary evidence that consideration lias been given to the work
actually performed and invoiced: to that set out in the tender document, together with
the scheme plans.

Valuation of Work

We were informed that the Clerical Officer creates a service entry form on SAP for the
work requested, after the work has been completed and the pro-forma invoice has been
received from the contractor.

Finding
As a result of our walkthrough, the following issue was noted:

An estimate of the work to be performed is not calculated prior to the work being
requested from the contractor. This does not represent good practice and does not
facilitate the reconciliation of the contractor's invoice to the plant originally requested.

Recommendation
88. An estimated value of the work to be performed should be calculated prior to the
work being requested and an analyses of this calculation should be kept on file to
support the value of this work I.e. rates x plant requirements. Tins value should be
mput onto SAP and the scrviccemrv created prior to the work commencing.

Approval of Pro-forma Invoice


IARNROD KIRK WN - j v m m i RKPORI - J P M V N I \RV 2()()« \l»PKNi)|\ 5

P R O \ N: A O O N | IDKN 1 | M.
I'lNDfM, & Rl'C OMMKND VI'IONS- [ M S N PROCl R I M I N I ' \ \ O IvilfKO! f.il
S K A I \ K v \ \ \ ORKS Pi \NT MIRI;

Finding
1 he following issues were identified in relation to a sample of invoices reviewed:

The pro-forma invoices are sent by the contractor to the Construction Manager. The
Construction Manager discussed the content of the pro-forma invoice with his inspector
by way of telephone conversation as the inspector maintained the signed timesheets at his
office. We understand that the discussions between the Construction Manager and the
Inspectors take place on an informal basis and the pro-forma invoice is not physically
matched to the signed timesheets.

Following the Construction Manager's review of the pro-forma invoice, the Clerical
Officer inputs the details onto SAP and creates a service entry form. The details input
onto SAP are based on the pro-forma invoice, rather than on the original request.

Re com m en da t ion
89. Signed timesheets received on-site should be sent to the Construction Manager in
order to facilitate a physical cross check to the pro-forma invoices.

90. Consideration should be given to creating the service entry form onto SAP prior to
the plant hire being requested from the contractor and prior to the work commencing.
The details should be input onto SAP based on am original documented request, rather
than subsequent to the work being carried out.

C o n t r a c t o r hi voices and S u p p o r t i n g Documentation


I \KMIOT) F I R E V\N - I N T E R I M R E P O R I • C J WI VIN 2UI)S \I»PEM.>1\ 5

P R I V \ I E & C O M T D E M T \L.
LOMUM, & R l ' . C O M M E M ) V I ' IONS- I M S N PROCL R E M I X | W A E K ' 1 IIRUL (ill
S I C & T N E W \\ O R K S - P I \N R H I R E

Finding
The following issues were identified in relation to a sample of invoices reviewed:

A As an original request form is not completed it was not possible to reconcile the
contractors' invoice to an original request. Good practice would suggest that all
invoices should be reconciled to an original request in order to ensure that goods
invoiced were requested.

> The date the timesheets were approved and the role of the individual who had
approved the timesheets was not detailed, making it difficult to determine when the
timesheets were approved and if the appropriate individual has approved them.

Re com m en da (ion
91. Consideration should be given to the introduction of a formal request form for plant
hire similar to that in other Divisions within the organisation.

92. The role of the individual approving the timesheets and the date the bmesheets are
approved should be noted on the timesheets so that it is easy to determine at what
level the timesheets have been reviewed and whether they were approved on site
when the work was completed.

P . m e em of
} \ K M i O D EilU. \ \ N - | \ | i.RIM Ri.POKi . i r : -I \ M \ R \ 2DOS ,\1'F1.M)I\ S

PRIVATE A ( O M ' l i H A I I U
E I N O I M ; A Ur.coMMi M) v n o s s - I M S N PIUK I i u . \ u . \ r W \ I . K n u m u m
S E A T NI.W W ORKS - C O M H U N:I) I. \BOI R

S E & T NEW WORKS - CON TRACTED I.ABOER

SE&T New Works (Contracted Labour) findings and recommendations arc covered
under the following headings;

! HKADING _ __ ^ \<;E

Selection of Contractor b1
Approval of Pro-forma Invoice b2
Contractor Invoices and Supporting Documentation bo

Selection of Contraetor

VVe understand from discussions with the Construction Manager that the requirement for
contracted labour within SE&T New Works was put out to tender and that ^ B f f and
were awarded the contract on a 50:50 basis.

Fin ding
We were informed that SE&T New Works follows the procedures set out below for us
contracted labour requirements:

• Scheme plans are drawn up for each project being undertaken.


The Construction Manager requests the labour from the selected contractor m
accordance with the scheme plans.
! .
fhe work is completed and timesheets are signed on-site at the end oi each week
by an Iarnrod Eireann member of staff.
a The contractor issues ;i pro-forma invoice to the Construcnon Manager lor his
i \RNROD K n u : \NN - IN I T R I M R r r n K i - ir !
.1 VNI v i n 2008 \I'I'I'NDI\ 5

P R O VI I & ( ONI IDI:N N W.


ITNDIN(, & R 1 CO M MINI) \ I IONS- I M S N pR(){ I R KM I.N 1 W'M.K I IIROt Oil
SF.& I ' V . U WORKS C ()N J K \ ( M l) [, \DO( R

• The Clerical Officer receipts the pro-forma invoice against the Purchase Order on
SAP.
• The contractors invoice is sent directly to Accounts Payable.

For the sample selected, there was no documented evidence presented to us to support the
planning of the work, for example:

> Flow the Construction Manager requested the labour required from the selected
contractor; or

> Whether the actual work performed and invoiced is monitored in accordance with the
scheme plans and the tender.

R e com m en da tio n
93. Formal communication should be in place and documented on the file regarding the
requests made to contractors. A review should be carried out between the original
request and the scheme plans, the invoice, the supporting timesheets work dockets
and the rates agreed per the tender prior to an invoice being approved and processed.

94. There should be documentary evidence that consideration has been given to the work
actually performed and invoiced to that set out in the tender agreement, together with
the scheme plans.

A p p r o v a l of Pro-forma Invoice
} VRNKOD ['URC VNN • I M C R I M RL P O R ! ]'' ,1 \ N I \R \ -OIKS \ P P P M)L \ 5

P I R N ON. & C O M T I ) [ A N \I.


}• IN 1)1 NO & u P O O M M K M ) \ | IONS- | \ ] S N P R O < I KIM I . M W V I K I'LLROU.H
S K & T \ iv\ W o R k s • C O N I R v< RITI) I . \ B O i R

Finding
1 he lollowing issues were identified in relation to a sample of invoices rev iewed:

The Construction Manager discusses the content of the invoice with his Inspector. 1 he
Inspector has maintained the signed timesheets on-site. We understand that the
discussions between the Construction Manager and the Inspectors take place on an
informal basis and the pro-forma invoice is not physically matched to the signed
timesheets.

R ecom m en dation
95. All timesheets received on-site should be sent to the Construction Manager in order to
facilitate a physical cross check of pro-forma invoices to signed timesheets.

Contractor Invoices and Supporting Documentation

Contractor invoices were previously received bv the Construction Manager and were
required to be supported by appropriate documentation (i.e. signed timesheets or work
dockets).

Wo understand from our discussions with the Construction Manager thai currently the
pro-lbrma invoice is being receipted on SAP by the Clerical Officer and the contractor's
invoice is being >ent directly to Accounts Pavable.

Finding
i he iollowmg issues wore identities in relation to a >a.mple M invoice^ rcvieweo. It
IARNROD I- IRI. \ N\ IN TIRIM REPORT .1 f ' .J w . \ r \ 2iMN \!'PiADl\ 5

PRO \ i 1 & CONl'lDKN) I \i.


plNDINOA Ri.C (jNi\U'.Nj) \ I U)Ns- 1 \ | S \ P RO( T RIAIIM VV M.KTiiROI <0!
S P A T N[.\\ WORKS - CIJN 1 R U IT D L \BOt R

^ .As an original request form is not completed it is not possible to reconcile the
contractor's invoice to an original request. Good practice would suggest that all
invoices should be reconciled to the original request in order to ensure that contracted
labour invoiced was what was originally requested.

'r The pro-forma invoice and the invoice did not


e.g. the pro-forma invoice and the invoice included an extra hour of labour and 6
hours for a transit van, which were not on the timesheet. An explanation of this
difference was not documented on file.

> The date the timesheets are approved and the role of the individual who has approved
the timesheets is not detailed, making it difficult to determine when the timesheets
were approv ed and if the appropriate individual has approved them.

R e co m mend a tion
96. Consideration should be given to the introduction of a formal request form for labour
similar to that used in Infrastructure Maintenance.

97. A note should be on file to explain any differences between the pro-forma
invoice/invoice and timesheet. Where additional requirements arise, after the initial
request has been submitted, evidence of this should be documented bv the
Construction Manager to lacilitate the review matching of the invoice, pro-forma
invoice, timesheets and original request.

98. 1 he role of the indiv idual approving the nmesheets and the date the timesheets are

approved snouki be noted on the timesheets so that u is c.; o ;o determine at what

level the timesheets have been reviewed .md whether Gov were approved on s t e

Page M of ~c
I \ U M I O I ) KIUKANN---1 V M M I IUT'ORI .M .1 \ M \ R I 2I)08 AlM'l.NDIN ?

P R I \ \ TI: & ( O S I I 1)1. V I I \L.


1-TM)IN(, & U l ' . C O M M C M ) V I K J V V I M S N P I U K T R I M I N I \\ \ I K I HRCH OH
S K & T NR.U W O R K S C O S I R \< TI D K U < TRIO M. 1. \BOI R

S E & T NEW WORKS - CON IRA( T ED ELECTRICAL LABOUR

SE&T New Works findings and recommendations (Contracted Electrical Labour)


are covered under the folio win" headings:

HI:AI)|N(, _ _ _ _ _ „ I'^'I'

Selection of a Contractor 65
Valuation of Work 07

Selection of a Contractor

We understand from discussions with the Construction Manager that the requirement for
contracted electrical labour within SE&T New Works went out to tender and that M l
J was awarded the contract.

Finding
We were informed that SE&T New Works follow the procedures set out below for its
contracted electrical labour requirements:

" The Construction Manager discusses the projects and the labour required w :Ui his
Inspectors.
in
• The Construction Manager requests the labour from ^ M H f l H B I •w^'danee
w ith the discussions w nh Inspectors
• The work is completed and umesheets are smned on-site at the end ot each week
b\ am larnrod Eireann member of staff.
• The contractor issues the Construction Manaeer with a spreadsheet ot the hours
1 \UNROD K u m \ N \ i\Tmmi R E P O R T •• } f ! . ! \ M o n 200S M'I'i:M)I\ 5

PRi v \ i i ; & C O M ii)I;\ MM.


I ' i M ) l \ 0 A R I ; ( O M M I M ) \ I ' l O S v I M S N P R O ( I K I M | N I VV \ I K I IFUO! OH
S K A T \ I : w W O R K S - O ' O M K W TI:O K I . I . O I R K M I. \BOI. K

• The Construction Manager reviews the spreadsheet and cross checks 'die details to
the supporting timesheets.
• The Construction Manager inputs the details of hours worked per she spreadsheet,
per project onto SAP and creates a sen ice entry. A service entry form and
number is then generated.
• The Construction Manager issues the service entry number to the contractor.
" The contractor's invoices are received and reviewed in detail and approved by the
Project Accountant and the Construction Manager.

For the sample selection, there was no documented evidence presented to us to support;
> The planning for the labour requirements.

A- Mow the Construction .Manager requested the labour required from

> Whether the actual work performed and invoiced is monitored in accordance with the
tender.

Recommendation
99. On a regular basis, the Construction Manager and the Inspectors should consider the
contracted labour requirements on a more formalised basis. Notes should be
maintained of the agreed contracted labour requirements based on the discussion^

between the Construction Manager and the Inspectors.

100. formal communication should he m place and documented on the file regarding

die requests made to contractors. A review should be cartacd out between the original

recjuost. the invoice and die supportimj imiesheets prior to an invoice being appi'i'wed

and processed.
I \ U \ K 6 D fun: - IN r P R I M RPPORI . m S •) \ M \R> 2(H)S \PP! N|)|\ 5

Pro v r r & ( (>M ! i ) i : s j i w.


F-'LM)L\(; & R K C O M M P M ) VIIONs- 1 M S N P W K I Ri.M 1.N I W \ P k T U R O I OH
M - . & T \ i , s \ W ()HK> - C O N 1R \< i l l) P.I TRIO u . I. \ i > o i R

101. There should be documentary ev idence that consideration has been go en to the
work actually performed and invoiced to that set out in the tender agreement.

Valuation of Work

Finding
As a result of our walkthrough, the following issues were noted:

> An estimate of the work to be performed is not calculated prior to the work being
requested from the contractor. This does not represent good practise and does not
facilitate the reconciliation of the invoice received to the contracted electrical labour
requested.

> The service entry form is generated after the work has been completed and is based on
the spreadsheet details provided by the contractor.

Recommendation
102. An estimated value of the work to be performed should be calculated prior to the
work being requested from the contractor and an analysis of this calculation should be
kept on file to support the value of the work to be performed i.e. rates \ labour
requirements.

! 0.T T his \ a hie should be input onto SA P ami the service entry created prior io the

work commencmm
I A R N R O D F I R E A N N . . . P R O C I R E M E N I A I M K I O A I C O M K O L |N \ I M K A I I O N irr/:\ni.\ 5

Plil\ U E A ( ONJ H)|. N| | M

PROCUREMENT WALKTHROUGH -

FINDINGS & RECOMMENDATIONS

DIFFERENCES IN DIVISIONAL PROCEDURES


I \ K.N HOD O R E VYN INTERIM REPORT .>P:.JAM M O :OU8 APPENDIX 5

PRO VTL: A ( O N n D E N M M.
P IN DING A RECOMMEND \ I IONS- pROt I REM I N I VV \Ek I'll KOI Off
DIETER EM" KS IN D IN IMONM. PROC. EDI RES

DIITFRLNC T:S IN DIV ISIONAL PROC FIH RKS

Differences in Divisional procedures arc covered under the following headings:

H P A DING PAOT:

Selection of Contractor - Infrastructure Maintenance (Plant) 68


Completion of Forms 69
7
Review- of contractors Invoice and Supporting Documentation -

Selection of Contractor - Infrastructure Maintenance (Plant)

Finding
In the three Divisions visited, different procedures had been followed in relation to
valuing the work from a review of the plant hire database and the selection of the
contractor.

In Dublin, the work is valued by the Clerical Officer, who prepares a summary of the
total price of the work for the 3 lowest priced contractors. This is then forwarded to the
ADE to review and to select a suitable contractor. The Clerical Officer's summary
provides evidence that value for money had been considered and also provides the ADF
with the total value of the work, prior to his'her selection.

In Limerick, a prim (.vat is generated bv the Clerical Oftlce of the relevant contractors
rates, but he she does not prepare a summarv of the total price of the work tor 'he o
lowest contractors. The print out is (hen forwarded to the ADF m order to select a
contractor. Once the contractor has boon selected bv the ADF. the value nhen computed
bv the Clerical Officer. For die transaction selected, there wa> no dooinientiir} evidence
on tile as TO how die ADF had -elecPoi the contractor m question or op what iv-MS 'his
I VKNROD [\IRE \ N N IN I'ERfM R E T O R T 3!" .1 V N I M O 2008 ASM'I NDIX 5

P R IV V) E & C O M T D E N I I \
E I N D I M . X : R E C O M M E N D VITONS- PRCXT R E M E S T W o u c n i R o i ON
D f E E E R E N C K S IN | ) | \ ISJON \\ P u o C f D! ! U >

In Athlone, i he ADE or Accountant generates a print out from the database of the suitable
contractors and their rates. The ADE reviews the printout and selects a contractor but
does not document that a value for money analysis has been carried out. Once the
contractor has been selected by the ADE, the value of the work to be performed by the
contractor is then computed by the Clerical Officer.

R ec am m en da t ion
104. Consistent procedures should be carried out between the Divisions in relation to
valuing the work to be performed by the contractor.

105. There should be documentation on fde to support the fact that a value for money-
analysis has been carried out. If the lowest priced contractor has not been selected, a
note should be on file to support the approval of the contractor i.e. based on price,
service and availability, safety record and system, and machine suitability and
maintenance.

Completion of Forms

Finding
Our work highlighted that different forms and different versions of forms, are being used
to request both Infrastructure Maintenance and SE&T projects across 'die Divisions, 1 he
table overleaf summarises our findings. based on die transactions selected.
I \ R \ R o n KIRK \ \ \ | \ 11 RIM R E P O R T 3 P ' .) \ M \ R \ 200S \PPEM)I\

P R O \I f & C O M IDKN KI M
FINDING & R l . C O M M E M ) V I H ) \ y p R O ( I RKMK.N 1 W M.KTUROl Oil
D I P P E R K M ES IN DI\ ISJON M ('ROC IUX R E S

Dublin | Plant Hire and Labour: j Labour:


I Request for Plant and j Request for Hire of
! j

j Machinery Hire form. ] contractor for Signaling


| However, two different | and Electrical Work form
| versions of this form had j
! been noted. !

i Limerick | Plant Hire: j Plant Hirer" 1


| Request for Plant and j Request for Plant and
| Machinery Hire form - j Machinery Hire form
i
J different version to Dublin

| Labour: Labour:
I
| We understand that there is Request for Requisition
j
! no labour under form
j Infrastructure Maintenance

Athlone Plant Hire: j Plant Hire:

Request for Plant and • Request for Plan!


:
Machinery Hire form Machinery lb re form

L abour: Labou r:
I \ R N R ( j [ ) El KM N \ - IM CRIM Ki I'OR I .1 \M A in 200S
PRI V V IT A ( OM <01 \ n u .
E i \ DING A R r c O M M i : \ | ) \ | IONs- PRO!; I RI M I. VI W M.KTIIROI OH
1)11 I I RIM IN l)|\ ISlON U PiUX 1.01 R l . s

Recommendation
106. A review should be earned out on die harms currently being used by Permanent
Way Inspectors and M AT Inspectors at each Division.

107. The required forms should be included in the detailed Operational Manual, to be
compiled.

108. In addition, a review should be carried out on the form and content of the agreed
forms, to ensure that they are adequate, easy to use/complete and provide only and all
the relevant information.
I \R\RO!) KlRi: VNN • I \ ITRI \ I R l.l'OR ! .> V .) \ M 21)08 MM'I'MH\ 5

Pin v err. A CON i I!)!•'.\ IT W.


P I M > I M , A Ri ( OMMI M) VIIONS- PROC I KI:MI:M \N U.K ITIROI <;H
D I N I RI M its I \ L)I\ I s I O \ \I. PKOC r u n RI.S

Re vie w of contract ors Invoice and Supporting Documentation

Finding
Different procedures are in place in relation to checking and approving contractors'
invoices. The table below presents a summary of who performs the check between the
original request, the contractor's invoice and the supporting timesheets/work dockets.

DIVISION INFRASTRUCTURE ! SE&T


MAINTENANCE
mi
Dublin | Plant Hire and Labour: Labour:
i
j Clerical Officer i
Clerical Officer and SE&T Inspector j
Limerick J Plant Hire: Plant Hire & Labour: |i
ii
| Clerical Officer and ADE i[1 Timesheets and
invoices are checked j
I j1 by the SE&T inspector. j
ii
| I Idle original request, the service entry, j
| Labour: I the invoice are subsequently cheeked j

| We understand that there are by the Cler ical Officer. (The j


i for timesheets are maintained by the I
| no labour requirements
j this Division for | SE&T Inspeetorand are not forwarded j

i 11i frastruerure Mai ntenancc to the Clerical 0 flicer). |

The Signaling 1mgmocr reviews thio ;


invoice only.
•\ddone Plant Hire: Plant Hire:
Clerical Officer a lid ; Clerical Officer -iaid Accountant
Aceoum.m!
Labour: Labouru
Accountant \'o Si-\ j" conn-u:teo labour
I vuNRdn Kim;\\\ IM KRIM Rimmr--3f ! .! wi on 2008 \m:MM\ s

P U I V VT I: & ( O N H IM. N ! I \|.


F I M ' M M , A R I ( O M M I ' M ) \ D O N S - P R U < I R I O H A T \ \ \I KI UROI OH
D i n ! RI N( J S IN DIVISION U P R I X RM RI.S

Recommendation
109, The review and approval of con tractor's invoices should be consistently applied
across ail three Divisions. This should be included in the operational procedures
document, which we understand is eurrentlv being drafted.
I A R \ R <>F> K I R E \ \ \ PR OO R E \ I E \ R & F \ T E R N A L C O N T R O L INY E s n O AI I O N

Interim Report to the Steering Group Committee -31" January 2008


P R I V A T E & C O N EL | ) L N E L M .

APPENDIX 6

MANAGEMENT OF STOCK REVIEW


- PROG R AMME OF WORK

- FINDING & RECOMMENDATIONS


SAMPLE QUESTIONNAIRE & RESULTS
IARNROD |';IRI:,\\\ PROCTRKMKN R & IVIKRV W. CON,ROI. INVKS N( , V IION AM;.\DI\ 6

PKI\ WK& ( ONMDLMIU.

MANAGEMENT OF STOCK -

PROGRAMME OF WORK
I AKM(OU EUU: V W TVI I . R I M R I I ' O R T 3O .i \ M MO 2008 \ I M M M ) I \ <)

PRO \ i I A COM IDCM I \|.


M w u MI M o r STOCK
P R O O R VMMK o r WORK

Information Gathering and Examination

This section of our report presents the draft interim findings and recommendations made
in relation to the transaction testing conducted under Term of Reference 3.

This work consisted of the following:


r Interviewing staff:
r- Reviewing the Stock Procedures Manual:
'r Transaction testing carried out in Portlaoise, Limerick, Athlone and Dublin; and
Attendance at Nationwide Stock Count and reviewing stocktaking files in
Inchicore.

We also issued questionnaires to 40 staff involved in stock maintenance in Iarnrod


Eireann to ascertain each individuals understanding of what the Management of Stock
system should be.
The table below summarises the areas reviewed at each location which we visited.

Areas tested v Portlaoise Limerick Athlone a ' D^


i Stock Transfers to Portlaoise ]V
V x^

| Stock Transfers from Portlaoise j v i v ; V


... ^
"t ?
I Materials Taken Up I \ v" V
i '
: Materials Used ! C V
I
1
Materials Reclassified ; : V
: V
Stock takmo ; v'
;\

The objective of our work was to ensure that stock procedures were bem followed in

accordance with the materials procedures manual and to identitV anv areas c)] w oakness.
I \ UN ROD KiRI. \ N\ IN TKKfM KlIPOR T i f ' •) \ M \ i n 200S Vl'PI NOI\ f>

PRO a n ; a (c o m idi : v n \i.


M AN u . K A H A T o r S i m k
PROORAMMI: of WORK

A detailed review of die following areas was earned out in January 2008

r Dismantling of panels, retention of timber sleepers and scrapping of steel;

^ Secur11y o f l i n e - s i d e s t o c k w : t h i n D1 v i s i o n s ; a n d

> Inspection of the system in place for ballast which is currently stored in Lisduff.

Co. Laois.

Meeting

We met with the following individuals as part of our walkthrough testing;

> Divisional Accountants:

> Divisional Stock Processors;


> Materials Manager Infrastructure;
> Depot Superintendent, Portlaoise;
> Rail Depot Facilitator. Portlaoise; and
> Production Manager, Portlaoise.

Reporting

Our findings and recommendations are set out below as follows:

Portlaoise & Warerford stock findings

^ Line-side stock findings

^ S t o c k t a k i n g findings

R;i\v m a t e r i a l s

further f i n d i n g s a n d r e c o m m e n d a t i o n - - , m a y ho m

o t ' R e i c r e n c e 2 a n d 4 w h i c h w i l l h e i n c l u d e d m enn
I \RNROO FLRC \N\ - I N T E R I M R [ . I J ( ) R I " . I . W L NRV 2008 Al'iMADIN ()

P R i V a K & COM IDCM ! M.


M AN SOCMEN R OE S I O C K
P R O G R A M M E OC W O R K

Acknowledge

During the course of our work, we met with a number of personnel in the Portlaoise

Depot, Dublin, Athlone and Limerick Divisions. We are grateful tor the manner in which

larnrod Eireann staff facilitated us, for the time made available to us and also for the high

level of courtesy, assistance and cooperation afforded to us at all times during the

assignment.
IARNROD EIREANN i'RO< I R I M I N I & I M I . R N W C O N T R O L I N V E S T I G A T I O N . I / V V . \ /)/ V 6

P R I V V N : & C O N I ' I D E N N \E

MANAGEMENT OF STOCK -

FINDINGS & RECOMMENDATIONS


[ \KM«')D E l i u : \\ \ - I M E RIM R E P O R T J L .1 \ M 2008 M'PEMMN ()

P R I V A T E & C O M I D E M I U.
M \ N U . I M I A i OE s r o c K
F I N D I N G S A R E C O M M E N D VI IONS

I is\)\\(,s & Ri:(ommi;m)a 11o\s

Examination of the management of line-side materials with a particular focus on the

mov ement and accounting for stocks into and out of the Portlaoise Sleeper Plant

The examination of line-side materials was conducted primarily by direct interview1 and
questionnaire supplemented by transaction testing carried out in the Portlaoise Hub and
the Divisional Offices of Dublin, Limerick and Athlone and line side inspection at
Wick low and Fun isc or thy.

Findings and recommendations are covered under the following headings:

I HEADING — PAGE I

Portlaoise Stock 5
A) Movement in - Receipts from Line-side 5
B) Receipts from Waterford 7
C) Transfers from Portlaoise to Line-side 8
D) Security of Stock at Portlaoise 8
Line-side Stock S)
A) Materials Taken Up 9
B) Materials Used 1 1
C) Materials Re-classified 12
Stock-takes 13
Movement in - Raw Materials 15
Dismantling of panels, retention of timber sleepers and scrapping of steel lb
Security of line-side stock within Divisions Id
Inspection of the system m [dace for ballast which is currently stored in fnsdufh Co.
haots IS
(dues' lonnaire 1: '
Q u e s t i o n n a i r e 11: M
I \ R \ R O D EMU;VNN - INTERIM R E P O R T AI % ! AM MO ZOOS U T 1 M H \ ()

P R I V M E & C O N E I D E N T I \I
M VN V O E M E M ' O E S T O C K
FINDINGS ^ R E C O M M E N D M IONS

Portlaoise Stock

A) Movement in - Receipts Prom Line-side

From our testing and discussions with Iarnrod Eireann staff the following were the main

issues arising in relation to receipts into the Portlaoise Hub from Line-side.

Findings
TRANSACTIONS SELECTED FOR EXAMINATION COMPLIANT NON- •

COMPLIANT

j Fully Compliant 9% 91 %

| Part A forwarded to sending Divisional Office 91% 9%

| Part B signed by Portlaoise Representative ; 23% 77%

| receiving stock
1 !
| Details of stock transferred, recorded correctly 39% 61% i

Material Codes on forms correct & all required 43% [ 57% |


j codes included j j j

| Quantities correct on forms j 35% | 65% j

> Current procedure is such that Per Way Inspectors are required to send their Stock

Transfer forms to the Divisional offices at the end of each period whale the stock can

be sent to Portlaoise at the beginning of the period. The sending division cannot

remove the stock from its divisional stock until it receives the transfer form from the

Per Way Inspector and the stock transferred cannot be receipted mto Portlaoise until it

is removed from the stock of the semlinu div ision. Time lag m processing the

paperwork could res id t in stock b e i n g returned to the Portlaoise H u h a n d being sent

out again to another div;<ion without ever beinu recorded o n SAP a s receipted in the

Portlaoise Hub.
I \ K \ R O N K N U : \ NN I V M M I RR POUR 3 T M \\I \H\ 2008 WTi M ) l \ 6

P R i v v n : A COSI IDPNTI U.
M VS \ ( | | Ml \ i Of S r o c K
p ! M ) l \ G S A Ri:c 0MMI.NI) VliONS

> As outlined in the table above we also found instances of no material advice receipt

being sent with stock materia! eodlng and quantities on material advice receipt

incorrectly being recorded.

r- As stated in the table above only 23% of the forms receiv ed in Portlaoise were signed
by a Portlaoise representative. The reason primarily for this is that the majority of
stock transferred was incorrectly classified and therefore the Portlaoise Hub could not
sign off as receiving the materials as set out on the Materials Advice Receipt.

> Advance notice is not always given to staff in Portlaoise that materials are coming in.

> These problems are causing significant difficulties for the staff in Portlaoise. The Rail
Depot Facilitator has designed a template which is used to record the correct SAP
code and correct quantities transferred into Portlaoise from line-side. The completion
of the template with what was actually transferred into Portlaoise is a slow and time
consuming task for the Team Leaders and all concerned. The accurate completion of
the stock transfer forms would ensure that stock physically coming in would agree to
the transfer form thus making it a much simpler and more efficient task.

> When the stock returned to Portlaoise is correctly identified the process o f getting the
inspector to amend what he has filled in on his form can again be a time consuming
task.

Recommendations
i. fransfer forms n e e d 10 b e s u b m i t t e d 'o the D o isional O f f c e ^ on a w e e k l y b a s i s to

e n s u r e the timely p r o e c s s i n g o f s t o c k ; r a n > i e r s a n d to e n s u r e all s t o c k is c u p m i v d on


I \RNR6[> F I R E \NN INTERIM REPORT 3E 1 .1 W I \ R \ 2008 A P P E N D I X <>

PRIVATE & CONEIDEVEI M


M VN U U M E N I OP S P O O K
FINDINGS & R E C O M M E N D U I O N S

2. Much greater attention to detail needs to be adhered to by Inspectors when completing


transfer forms.

3. An independent person with significant stock knowledge should be checking what the

inspector is sending back prior to it being loaded onto a tram. This person should be

held accountable for any discrepancies.

4. Advance notice should always be given as to when materials are being returned.

5. Introduce pre-printed forms with the most used codes already inserted.

B) Receipts from Waterford

tiHHHfeHMHl supplies rail to Iarnrod Eireann through Waterford Port. Advance


notice is given as to when the shipment is due to arrive in Waterford to allow staff from
Portlaoise to go to Waterford to ensure the delivery docket agrees to what is physically
received in Waterford. Any discrepancies are handled at this time. Stock is then receipted
into SAP location X001 which is the Waterford Stock Location using the delivery docket.
Portlaoise staff carry out the physical transfer of the stock from Waterford to Portlaoise in
piecemeal stages.

Finding
r- No formal document exists to document this transfer even though approximately EE9
million of steel has been transferred from Waterford to Portlaoise since January 2007.
See Appendix I 0 for an example of 'lie t vpe of documental ion current k be mg used to
record the physical transfer of - v . k from Waterford to Portlaoise.
J VRNROD E I R E A N N INTERIM REPORT .1 E ' . ) \M.- \RV 2008 \|>L'EN!)T\ ()

P u n ATE & ('ONEfi)EN n u .


M \NA(,TAII:N i o r S i 0 ( K
i iNi)!N<,> ^ RECOMMEND M IONS

^ Currently this non-standard documom is being used as trio source document to record

the transfer onto the SAP system. The information is also recorded by die Rail Depot

Facilitator on an excel sheet.

Recommendation
6. While the details on the paper being used to transfer rail from Waterford to Portlaoise
may be accurate, we feel it is important that this transfer should be standardised and
treated in a similar way to any other transfer into Portlaoise.

C) Transfers from Portlaoise to Line-side

To test this area we took a sample of 20 transfer sheets and tested to see if the
transactions complied with the larnrod Eireann 'Policies and Procedures for the Control
of Infrasiructure Linestocks

Finding
> A l l transactions were compliant,

D) S ee u r i t v o f S to c k a t P o r rI a o i s e

In our questionnaire to members of staff at Portlaoise we enquired as ;o how many

entrances there are to the yard at Portlaoise.

Finding
r I he answers we received varied mom three entrance-*, two eiitr.inces a no one

entrance. From our visit-, to Portlaoise we observed two entrances and v. ere informed

there was a third entrance at another part of the -me. On one o; our visits die mam

entrance was manned bv a secuiatv miard whde 'lie odier entrance. '>penmg onto a
I \UNROD Knot \NN - IN N R I M R E P O R T 3 P .1 \ M O N 200,S V P P I N|)|\ <>

P R O M : A ( O M IDENI I V L

\ ! kn \<,i.\i i.N i o | S t u c k
K I N D!NC,S A R I X O M M E M ) \ T J O N s

public road. was open and appeared to have no security presence, the sue at

Portlaoise spreads over approximately forty acres. The plant is not protected by 24

hour security which, given the nature and value of the stock, should be reviewed.

1 here are also no security cameras on the premises.

Recommendation
7. A full review of security procedures at Portlaoise depot should be undertaken to
assess any areas of risk and to confirm the terms of engagement of the security
company. These terms of engagement should be reviewed to consider the inclusion of
additional controls by security personnel over the entry and exit of stock from the
Depot.

Line-side Stock

A) Materials Taken Up

To test this area we selected a sample of 20 materials covering transactions for each of
the three Divisions for the years 2006 and 2007.

Findings
> Per the Iarnrod Eireann 'Policies and Procedures for the Control of Infrastructure
Lin.cstoeks ' all work must be planned and implemented in consultation with the
Divisional Engineer. There is no documentary ev idence to suggest this is happening
and from our questionnaire responses we note that in some cases Inspectors stated that
they make the decisions as to w hat materials are to he taken up.

Before m a t e r i a l s a r e t a k e n u p o u t o f t h e a r o u n d , t h e r e a p p e a r s to h e n o documented

vidence of v. hat is expected planned to he taken UP. Oonsequemiv there can be no

' d
I VRNKOD PMUIANN INTERIM REPORT 3 F : J V M VRV 2008 \ITM:M>I\ ()

P R O V I E A ( O M - I D L M ) \I
M AN \ G K M P N T OP SREX; K
FINDINGS A R p ( OMMEND VIIONS

check carried out to ensure that what was expected agrees to what was actually taken

up. We see this as an area of weakness.

>*" Per the Iarnrod Firearm 'Poiiues and Procedures jar the Control id Infrastructure
l.inestocks ' when material taken up Forms are issued by the Div isional Engineer's
office the divisional database is to be updated with the recipients of the forms and the
database updated again with the details of the Materials Taken Up when forms are
completed. We found no evidence that such a database exists.

> This issue was illustrated when a form was reviewed with a note that stated that '<>/ /N
sleepers taken up only 4 could be re-used. All others would be unfit for re-used There
is no independent person checking and documenting this account.

> Per the Iarnrod Eireann 'Policies and Procedures for the Control of Infrastructure
Linestocks the Per Way inspector is to forward all completed Materials Taken Up
forms on the last Thursday of each period to the Divisional Office. In the meantime
the materials taken up could have been sent back to Portlaoise without ever being
recorded as taken up out of the ground in the Per Way.

> Per the larnrod Eireann 'Policies and Procedures for the Control of Infrastructure
Linestocks '. Traffic Eight Reports are required to highlight areas of non-compliance
liowever these do not seem to be in use. flie most recent Traffic Eight Report we have
seen was for November 2006.

Recommendations:

<S. A p p r o v a! o f w hat is c o i n i n g out o f t h e g r o u n d n e e d s :o b e documented and o g n e d off

bv e i t h e r d i e D F o r A D E b e f o r e t h e m a t e r i a l s a r e t a k e n u p .
I \R.\ROD I J U I . \ N \ I M I:KI\I K U P O K R A1' JAM 2008 \PPI:M>I\ 0

P K ! \ \ T I : & C O M ' I D P M I \L.


M \N \(A : .\)v\ r OK STOCK
ElM)IM;S A R[( OMMIAP \T(ONS

9, The DF. ADF or someone sunabiy qualified who us uidependent to the Per Way

inspector should verify that what actually comes up out of the ground agrees with

what was expected to come up and also that any discrepancies are fully investigated.

1 0. A Divisional Database should be set up in order to record the forms issued and to
comply with the stated procedures as set out in the Policies and Procedures for the
Control of Infrastructure Lmestocks.

11. Materials Taken Up forms should be sent into the Divisional offices on a weekly basis
to ensure stock is processed in the most efficient manner.

12. Traffic light reports should be used to highlight areas of non compliance.

13. In summary, the Iarnrod Eireann 'Policies and Procedures for the Control oj
Infrastructure Linestocks ' should be enforced.

B) Materials Used

We selected 20 Materials Used Forms from each of the three Divisions for the years 2006
and 2007.

Findings
r- We have found no documentary evidence to suggest there is am independent check on
Materials based Forms to ensure that what was documented bv the Per Way Inspector
as being used was actually used.

The same finding v% nh regard to the Di \ ssional database as stated in the hndinus for

the Materials Taken Up forms .ire also applicable here.


I VRNROD F N O ; \ \ \ I V N . I M I REPORT - * E : J A M O O 2I)0<S \ I ' P I . M ) I \ i>

P R I V A I I; A C O M I D I . M I \I.
M vwciAmvr OF Sroc K
P I M I I M ;s & R r c O M M I O D W IONS

^ Materials Used Forms are only submitted to the Divisional office at tlie end ot the

period which does not allow for efficient stock processing

Recommendations
14. An independent check should be performed on Materials bTsed Forms to ensure what
was stated on the forms as being used was actually used with appropriate sign-off.

15. Materials Used Forms should be sent into the Divisional offices on a weekly basis to
ensure stock is processed in the most efficient manner.

16. A Divisional Database should be set up in order to record the Materials Used Forms
issued and also to comply with the stated procedures as set out in the Iarnrod Eireann
'Policies and Procedures for the Control of Infrastructure Lines locks '.

C) Materials Re-classified

In total we looked at 24 Materials Reclassification forms from the three Divisions as very
few reclassifications took place in the years considered, 2006 and 2007. For example
only two reclassifications took place in Athlone Division.

Finding
r- The stock manual states that authorisation must be obtained from either the Divisional

Engineer or ADF before any reclassifications take place. O f the 24 reclassification

forms examined none had anv signature or Engineering Depi stamp fivmi the Dh or

ADE

Recommendation
17. All r e c l a s s i f i c a t i o n j'orms s h o u l d b o a p p r o v e d bv t h e D F o r ADE .aid s i g n e d mf.
I V R S R O D P I R I : VNN • L \ IT.RIM HI-TOUT - .1 \ M VRV 200S VPPINOIN 6

P I R N VIA; & C O M I D E V ! I \R.


M AN \(,iAn'N r or Sroc k
FONU|N(;s A RITC O M M I A I ) \ L I O N S

Stock-takes

VVc attended the nationwide stock-take in Portlaoise on the 5th November 2007 as well as
meeting the Materials Infrastructure Manager to review his files on previous stock-takes.
Per Way Locations were visited in January to inspect the condition stock is stored line
side.

Findings
The stock in Portlaoise in general is well managed. However we did note that production
o f concrete sleepers was ongoing during the stock-take making it somewhat more
difficult for the stock counters to perform their jobs.

> As the Per Way Inspector has access to the SAP system, each Per Way Inspector
knows what stock he is supposed to have in his Per Way before the stock counter
arrives to check the inspectors stock,

> Two nationwide counts are performed by the Per Way Inspectors throughout the year
and returns are submitted to Inchicore. Again the Per Way Inspectors have access to
SAP so they are aware in advance what stock they are supposed to have in their
location.

^ Only two staff are employed as stock counters to carry out cycle counts in every

location throughout the country. Per Way Inspectors receive lengthy notice prior to

cyclical counts taking place. No random stock counts lake place at short nonce.

Other findings as identified by reviewing the steek reports in Inchicore

r Rat! dismantled from Panels are not ahvavo input onto the SAP system or not

r e c i . i s s ! i i c o c o r r e c t i v.
I VRNKOD K I R E A N N - I N T E R I M R E P O R T . W J VM. O N 20(18 APPENDIX O

PRO V N : & C O N I I D E N 11 \ I .
M \N \ ( , I : M I . N i OE S T O C K
I INDIN(,S A RECOMMEND\ITONS

r- Materials taken up out of the ground are not always recorded on SAP.

'r After relaying has taken place the cut offs from the 144m strings of rail are not being

reclassified from SAP code 65 N10 to SAP code 40864 which results m she

misstatement of the valuat ion of rails.

r Old. obsolete and scrap material is disposed of before the paperwork is completed by
the Per Way Inspector and before paperwork is torwarded to Divisional ()ffiees.

> Second hand materia! is reclassified to old but not processed on SAP.

> Incidences of line-side stock either not properly stacked, overgrown by grass or
partially covered with ballast.

"r Panels recovered from relaying and transferred to Portlaoise before paperwork

processed on SAP.

> Line-side stock in certain Per Ways is spread out along the line for miles, dins can
leave it very difficult to secure. While there can be logistical reasons for leaving
certain stock at particular locations along the line, stock stored in this manner can be
quite vulnerable.

Recommendations
1S.PW Inspectors should not have access to what is recorded on SAP as heme m tlien:

locations prior to the cycle co[ii)\ c,}mc<\ out by the stock counters.

19. ( j i \ e n t h e \ a i u e o f l a r n r o < ! b i r e a r m stock, the two n a t i o n w ule counts should be e a r n e d

out by independent larnrvol Lireann staff .Additional independent st.of should be


I \k\roi) film vw - I n t e r i m Rr.i'omi - r .1 \m sin 2DOS U'1'1 \ | ) ! \ ()

Pmvw at & COM IDKM I M.


M \ N \ < • r M i: \ r o i S f t) c K
HM:>IV;S & R I X O M M C M ) \ rio\s

deployed for this purpose or at least random checks should be undertaken by

independent staff.

20. Processing o f paperwork on a weekly basis to eliminate issues arising Irom

paperwork not processed when the stock count takes place.

21. Use of traffic light reports to highlight non compliance with requirement to submit

returns.

22. Where feasible, line-side stock should be stock piled and security put in place to

safeguard the stock.

23. Additional resources should be provided to the Materials Manager of Infrastructure to

carry out random stock take counts. These additional resources could also audit

compliance with all stock procedures both line-side and within the Portlaoise depot.

Alternatively, consideration should be given to allocating this role to existing s t a f f -

e.g. Divisional stock processors.

Movement in - Raw Materials

Sand. Cement and Grave! are the main raw materials used in the production o f concrete

sleepers.

finding

r F r o m t e s t i n g e a r n e d o u t at t h e P o r t l a o i s e H u b w e o n K iound evidence o; s n u i being

w e i g h e d on the w e i g h b r i d g e , t h e cement and gravel are weighed bv t h e • s u p p l i e r m

their r e s p e c t i v e d e p o t s and the d e h v e r v d o c k e t is t h e n s t - m e d b v a n I a r n r o d Fireann

representaiive ngreemg the weight, from s p e a k i m j to o a t Y o n t h e g r o u n d we have


\ \RNRO 1) l\tRI. \.N\ - I M L K I M R l P O R i 3 P M \ M \KN 200X AI'I'I-ADIX 6

PRIV via: A C o s i i m : v n \ i ,
M VWOIAU M { ) ! SLOT K
( T M ) i \ { , S A ki:,< O M M I A I ) \T I ON S

been told that spot checks are performed on the cement and grace! however we did

not see any evidence of such spot checks.

Recommendation
24, All sand, gravel and cement should be weighed on the weighbridge to ensure the
amount being delivered is correct and ensure that these transactions are not open to
potential fraudulent behaviour by suppliers,

Dismantling of panels, retention of timber sleepers and scrapping of steel

Given the extent of the number of panels throughout the divisions and the value of panels
when they are dismantled into the various components it is important that the dismantling
process is monitored and accurately recorded in SAP,

The folio win 12 example illustrates the point:


A 60ft panel containing approximately 24 sleepers is valued at (-'4 per foot on SAP i.e.
€240 for the panel, a nominal value. When this is dismantled there is approximately 3
tonne of steel to be disposed of ranging in value from €100 to €150 per tonne depending
on market conditions. A sleeper on the open market is potentially worth approximately
€30. The approximate market value of the three tonne of steel and the 24 sleepers on one
panel is therefore potentially €1.1"{).

Recommendation
25. W h i l e it l i a s b e e n noted t h a t ' h e r e is a n e m b a r g o o n d i e s a l e o f s l e e p e r s in p l a c e for

t h e last n u m b e r o f v c a r s t e a ' b o t h health and e m i r o n m e n t a l reasons, a review ot the

s e c u r i t y m p l a c e o f i m c -to.,; - l e o e e : s s h o u l d b e u n d e r t a k e n vine to t h e i r p o t e n t i a l value

m die o p e n market.
I \ R \ R 0 I > I - I R I ; \NN IN E E R I M R E P O R T JP'.L W I VR\ 2008 \ I ' P E N 1)1 N ()

P R O AL E & ( O M ' I D E V E I \J.


M AN \ G E M E N I 01 S I o< K
[•"INI)INC.;S A R E C O M M E N D U IONS

26. Considering die potential value of the scrap material kept at line side. A rev iew

should be undertaken of the quantum and storage locations at I me side.

Security of line-side stock w ithin Div isions

Finding
To gain first hand experience of how stock is stored in the Div isions we visited the
Wexford and Wick low Div isions.

> In general stock was stored in an orderly fashion in both divisions however in some
instances, weeds had become overgrown and covered items of stock making it
difficult to count. In Wexford large quantities of panels are stored throughout the
division at various locations. These panels are only being stored to be scrapped. Based
on inspections undertaken by group internal audit however the security of line side
stock is an issue as stock appears to be stored in vulnerable locations in many other
Per Way locations.

A review of records, such as Advice Receipts, Materials Taken Up Sheets. Materials


Used Sheets and Materials Reclassification Sheets was undertaken and appeared to be
in order in these locations. No issues were found with the records inspected.

Re com tnendution
27. Panels should be dismantled and scrapped as soon a.s possible, following the

dismantling, the removed sleepers should be brought to one central location to be

stored securely until their disposal.

28. Resources should be put in place to ensure

carried out effective!). Before dismantling

what quantity of sleepers arc expected to he


I \R\koi) L : :JKF: W \ - INTERIM REPORT M ^ .JAM. 2D0S APT EM)!\ <)

PRIVATE & ('ONEH)EN I E\E


M VN V<,| Mi M ()E S T <)( K
f- i \ 1)1 NOS & REOOMMENI) \iTONs

should be kept of what weight of steel will bo expected to be recovered and capable oi
being sold. The expected amounts in both cases should be compared against the actual
amount of sleepers and steel recovered with any large variances being investigated
fully.

Inspection of the system in place for ballast which is currently stored in Lisduff, Co.
Laois.

As part of our review of ballast, we visited one of the ballast depots for the country
located at Lisduff, Co. Laois. A weighbridge is currently on-site and is being hired in
to record the deliveries of ballast. In order to operate effectively, the weighbridge
needs to be connected to a direct electricity supply to ensure it is calibrated correctly.
It is understood that each time the electricity is disconnected the weighbridge needs to
be recalibrated.

Finding
> As part of our review, we selected a sample of documents to compare the weight
recorded by the weighbridge to the weight per the supplier's delivery docket. None of
the sample selected showed both weights corresponding. The delivery docket was
always found to be less than what was recorded by the weighbridge. The reason given
was that the weigh bridge had not been calibrated correctly.

There is no electricity on-site m Lisduff available to power the vv eighbridge. Instead a

generator is used to provide eieciricitv. Once die generator is switched oil the direct

suppiv ol electricity is broken and therefore the wendi bridge needs to he recalibrated

to weigh corrective
I A R N R O D E M U : VNN INTERIM REPORT 3 P M \ NE \ R I 2008 V El' EN DIN. 6

P l i i V VI E A ( O N E | D E N i l \E
M o \ ( , n n N i OR>RO( K
I' (N D!NOS & R E ( O M M E M ) \ L IONS

r Ballast is stored at approximately 1 1 different sites throughout the country, do our

knowledge there are only 2 locations current!v with weighbridges allowing staid to

check the weight of deliveries of ballast.

Recommendation
29. Considering the cost associated with the installation and the monthly hire charge,
consideration should be given to the installation of a direct electricity source to ensure
the ballast can be weighed accurately.

30. In order to increase monitoring and control of delivery, a reduction in Ballast Depots
could be considered going forward. Weighbridges located at each of these sites should
also be considered in order to effectively record ail deliveries.

31. Suppliers could be requested to supply a print-out from their weighbridge, attached to
the delivery docket.

We recognise that solutions to this issue should take account of the cost/benefit aspects
and practicality, considering constraints of location and availability of electricity supply.
IARNROD KIREXNN P R O O R E M E N I & I N T E R N AL C O N T R O L . INVESTIGATION
•1 m-:.\n/.x 6

P R I V A T E & C O M T D E N RI W.

MANAGEMENT OF STOCK-

QUESTIONNAIRE RESULTS
I suNROD KIIU: \ \ \ h i i u m i H c m u r - 3 C M \ M \ i n 2008 U ' i ' i A t m (>

P i r n en: i t ( (>M IDI \ ! i u.


M \N W . I T M C M " OR S T O C K
K I M L I s F U O M o r i;s i I O N \ U I U :

R l d S l EES I R O M Q l i;s I lON.N VIRK

We issued the questionnaire to ascertain each individuals understanding ol die

management of line-side materials.

In total we issued 40 Questionnaires of which three are still outstanding. Two responses
are outstanding from Per Way Inspectors who have stated that they have sent their
questionnaires in the post. The remaining questionnaire is outstanding as the Inspector
has been absent from work. In general, from the feedback to the Questionnaires we
received, larnrod Eireann staff understand the stock system in accordance with the
larnrod Eireann 'Policies and Procedures for the Control of Infrastructure Linestocks'.
d here were however some issues raised from responses received.

Idle following sample questions and responses included in the questionnaires circulated
illustrate the understanding Iarnrod Eireann staff have of the system but also highlight
certain issues:

1) What forms do you send when stock is being transferred from your Per Way"?
(Correct Answer; Materials Advice Receipt !EY$22/22)
Respondents Answers: 100% Correct

2) Do yon alwavs send a copy of the form to the Divisional Accountant'.1

(Correct Answer; Surun;! at end of pcrindi


Respondents Answers: I 00% Correct
1 \RNROO KIRKANN • I N T I R I V I R E P O R T 3EYJ VM o n 2m)S v!>5M;NI)ix 6

Pr-tiN u p & ( o \ | 11)KN 11 M


M VN M , K M ! N 1 OK S P O C K
R E S I EES I'ROM O U M I O W \IIO:

3) How do you know what codes to write on the forms'.-'

(Correct Answer: Consult L.ine-side Stocks SAP Materials Codes and Descriptions

issue)
Respondents Answers: I 00% Correct

4) Who authorises reclassifications'.'


(Correct Answer; Authorisation must be obtained from the Of or ADL or during a

slock-take by Stock counter)

Respondents A n s w e r s:
39% stated the Per Way Inspector Authorises
53% DE or Stock Counters
9% no answer

5) Who decides what materials are to be taken up out of the ground'?


(Correct Answer: The Divisional Engineer consults with the Chief Engineer i

Respondents Answers:
30% Per Way Inspector
70% Divisional Engineer

O] Do vou have a eopv of Iarnrod E i r e a n n " P o l i c i e s a n d P r o c e d u r e s for I'he C o n t r o l ol

infrastructure Emesiocks"'.'

Respondents Answers:

Yes is

No :6%
I \ R \ R O I ) KNU: W . \ - H r i a i i M R E P O R T 3 F : .1 \ M o n 2008

P R O M T : & C O M IOI:\ i \ \ \
O N M I > I OP' S T O C K
R E M M S F R O M QI E S E I O W M I U :

NO a n s w or 2(BN

7) In advance of a slock-take, do you ha\'c details of what should be in your location?

R espo n d en ts A n s we rs

Yes 96%

Ne> 4%

8) What security is there over line-side stock?


Respondents Answers: 35% stated that there is no security over their stock, while

others went further stating their stock is vulnerable,

9) 1 low many entrances are there to the Portlaoise Hub and how many are open during
the day 0
Answers of Respondents:
> 3 entrances, 1 open during the day
> 2 entrances, 1 open during the day
> I entrance
> Dond know-

In summary, it is reasonable to assume from the responses received that the P\\ Is have a

good understanding of the svstems and procedures. The issue to be addressed is the

apparent non-eompllance with the stated procedures.


I \RNROD PNU: \ \ \ L\ I E R I M R E P O R T 3 P ' .1 \M. \RX 2008 \ I'pi \ m \ 6

P R O M P. A C O N EI DEN PI M.
M \N \<.ion N i OP Sroc K
Q I i . s i l o w \!)ii'. i S E N T N O \ E M B E R 2 0 0 7

Q U E S T I O N N A I R E I

Questionnaire I:

Questionnaire I was sent to Portlaoise Depot Senior Management. Divisional Engineers


and Divisional Accountants. Ail questionnaires sent stated that all answers treated as
strictly confidential.

I Name:
! __
| (1A) Stock Movements into Portlaoise

| (lA.i) Raw Materials


i
i ___ _____
(1) Who currently supplies the following raw materials: sand, cement, gravel and for how long has
the said supplier being supplying?
(2) Please give reasons for any long term agreements with suppliers of the above raw materials?

(3) Are all deliveries of raw materials weighed and is the weight checked against the delivery docket?

i (4) How is wastage from production monitored and accounted for?

| (5) How is material usage in production monitored?

| (6) How are items in production counted for stock-take purposes?


i
I (7) If you feel that the above questions do not address all areas which you feel should be brought to ;
| our attention please give us your comments, j

j (lA.ii) Receipts From Line-side

; (1 j Is t h e P o r t l a o i s e Depot always given a d v a n c e notice of s t o c k t h a t is c o r n i n g into t h e D e p o t from


j line-side?

( 2 ) Is t h e c o r r e c t d o c u m e n t a t i o n a l w a y s s e n t vMh t h e stock a n d if not w h a t a r e t h e m a m e r r o r s


found?

: 3) Is c o c o i < ' ' o .. ' ;)ut m o p e o y a n d h not w h a t a r e t h e m a e - e r r o r s ' b u m ; 7

(4) H o w a r e c n s c r e p a n c e s b e t w e e n w h a t ;s a c t u a r y r e c e i v e d a n d w - a i r e c o r d e d en t h e
iciennhea'
f.VRNROI) K I R M A W INTERIM REPORT 3 f1.1 \M O N 200<S XPFIAOIX ()

PRIVVTM A COMUDFM I \L
M \(,i.\ii \ i O F STOC K
Ot if si' It.) \ N MRF. | SI \ I V ) \ FMIiFR 2007

j (6) Whose responsibility is it to undertake reconciliations between the records of .he sending &
\ receiving divisions7

I (7) Who actually carries out these reconciliations and how often are they performed7 ;
i _ _ _ __ i
| (8) Who are the top three compliant inspectors for sending m the correct documentation and who are j
j the three least compliant inspectors for sending incorrect documentation7 j
[ _ _ _ _ _ _ . !
j (9) Who is responsible for the unloading oftrains/trucks that come into Portlaoise"7 |
I _____ ' J
j (10) What recording procedures are there for unloading trams/trucks? j

! (11) Could you estimate how much of the transfers received take place at night or at weekends? j
j _ I
| (12) Do you have any suggestions on how to improve stock transfers into Portlaoise?
("(13) If you feel that" the above questions do not address ail areas which you feel should be brought to
j our attention please give us your comments.

(lAJii) Receipts From Waterford

(1) What are the recording procedures for the receipt of stock from Waterford7

(2) What security is in place in Waterford for Iarnrod Eireann stock?

j (3) Is stock counted periodically in Waterford and by whom?

I (4) If you feel that the above questions do not address all areas which you feel should be brought to
| our attention please give us your comments.

! ( I B ) Movements From Portlaoise

I (IBa) Movements to Line side

j (1) Is a fax or email always received from PW Inspectors prior to stock oeing released from
i Portlaoise7

• (2) Who checks the dispatch! docket against wnat is actuary being dispatcned?
I \RNROS) K L R I \ \ \ ... I N T E R I M U L T ' O K I *I .) \ M U U 20(1,S VtTEM)!\ 0

P R I V A T E & C O M I D E M I \I.
M VN WiEMEN I OK SMK K
Qi EMTOW \\R\ | S i M N0\ I'M Hi R 2D07

('lB.ii) Sales "" " ~~

{ (1) What Is currently being sold from Portlaoise and from iine side?

I (2) Is there a predetermined sales once for every item sold, who determines the pnce aod how often j
j is this reviewed? i
I _ _ _ _ ___ j
I (3) Who approves aii sales? j

| (4) Who reviews all sales made in a period"? !


I j
j (5) What controls are in place to ensure that all sales made are recorded and are recorded correctly? i
i I
[ (6) If you feel that the above questions do not address all areas which you feel should j
j be brought to our attention please give us your comments. j

Security of Premises at Portlaoise Sleeper Depot

(1) How many entrances are there to the Portlaoise Sleeper Depot and how many are open during the j
working day?

(2) Who are the key holders of the Depot Gates?


f
(3) What are the security guards "duties (i.e. does he check cars/vans leaving the depot) and what
hours does he work?

(4) Is there 24 hour security on the entire plant?

(5) Does the hiring of security at Portlaoise go through the procurement process?

(6) Do you have any suggestions for improving security at Portlaoise?

(7) If you feel that the above questions do not address ail areas which you fee! should be brought to
our attention please give us your comments.

2. Line side

(2.1)Transfers to/from divisions


I \RM<()[) Pun:\VN I M I;KIM R I T O U i .MWIAM 2003 A I T I : M > I \ ()

P I U V V N ; & C O M I D L M IAI.
MAN \(,i'Mi N I o f STOCK
Q [ K M I O N N \fKi: I S E N T \ O \ E M B C K 2 0 0 7

j (2,2) Materials taken up

| (1) Who decides what materials are to be taken up 7

| (2) How are the materials taken up measured and is this reconciled to what was has been already
j approved7

; (3) Who carries out this reconciliation and how are discrepancies followed up 7
|
| (4) What controls are in place to ensure that all materials taken up are properly accounted for?
j (5) What "happens when all pre-numbered forms are not returned to the Division office?
i __ _ ____ —

| (6) Who updates the database with the information on the forms?

(7) What checks are done on the accuracy of the database?

j (8) How is the database reconciled to what is on SAP?


! (9) What follow up procedures are performed when omissions/errors are reported to the Divisional
J Engineer?

j (10) If you feel that the above questions do not address all areas which you feei should be brought to j
! our attention please give us your comments, I

I (2.3) Materials Used

j (1) Who decides on what materials are to be used?

j (2) How are materials used quantified and how is this reconciled to what has been approved to be
i used?
s

! (3) What follow up is done on discrepancies identified?

| (4) What controls are in place to ensure that all materials used have been accounted for7

j (5) What happens when all pre-numbered forms are not returned to the Division office7
(6) W h o u p d a t e s t h e d a t a b a s e with t h e i n f o r m a t i o n o n r u e f

(?) What checks are done


1 VRNROO Eireann - IN n USM Report - .1 WE MO 2008 \ri'ENi)i\ 6

PRO \ IT: & (ONEIDEN DM.


M \N \(,!AII N i o r STOCK
QE ES! l o w \IRI: I SEN T NOV I-.MUER 2007

I (3) Stock takes

; (1) How much notice is given to PVV Inspectors in advance of stock takes?

| (2) Do PVV Inspectors have details beforehand of what stock should be in their location?

S (3) Is scrap actually counted or is an estimate mace of quantity?

| (4) What controls are in place to ensure that aii stock in a particular location is counted?

| (5) What controls are m place to ensure that items are not double-counted"?

| (6) With regard to the recording of stock by location in the divisions, is aii stock recorded by reference
| to mile post?

(?) What checks are done on quantities recorded in SAP?

(8) Who has access to change quantities on SAP and how are changes to stock authorised?
i
| What procedures are followed when discrepancies are found between quantities counted and
| quantities per SAP? __
I (9) Who has overall responsibility for ensuring that all discrepancies are adequately followed up and
j explained?
i
j_ __________ ____________
T (10) Do you fee! that the frequency of stock takes currently undertaken is adequate?
I" (11) Would it be possible for Bay 5 in Portlaoise to be rearranged so that stock counting could take
place easier?
For example could 54kg flat bottom steei be stacked in one place and 50kg flat bottom steel be
stacked in another part of Bay 5?

(13) Do you have any suggestions for how to improve stocktaking in Portlaoise?

(14) If you feel that the above questions do not address all areas which you feel should be brought
to our attention please give us your comments.

( 4 ) Materials Reclassified
I \ UN ROD P I I U ; \ NN IN IT.RIM R E P O R T - 3 F ' J A M O N 200N M'l'I N DI N 6

PRO \ I | ( ON! IDI N | f \i


\ ! \N \{;IA!I;N r o r STOCK
OI K S N O N N A I I U ; 1 S I NT \ o \ < MHI.R 2 0 0 7

| reclassification taking place? ;

| (6) VVho has access to reclassify stock on SAP? j

| (7) Who has overall responsibility for monitoring reclassification that has taken place? j

j (8) Do you have any suggestions as to how stock reclassification couid be improved? !
I |
| (9) If you feel that the above questions do not address all areas winch you feel should be brought to j
| our attention please give us your comments. I

I Training
i
| (1) To what extent do you use SAP?
j
I
i (2) Would you say you have a good knowledge of SAP?
j _ „ _ _ _ „ _ _ _ „ _____
(3) Do you fee! you would benefit from more training on SAP?

(4) If you feel that the above questions do not address all areas which you feel should be brought to
our attention please give us your comments.
I VRNROD IOREANN INTERIM RI POIU J P 1 . 1 W VR\ 2008 Vf'PEN ()| \ ()

PRO VIE & CONFIDENT! \I.


MAN \<, EM i N I OF Srook
OEES I IONN VIRE II SENT \ O \ EMBER 2007

Ql KSI l o w A I R I - ; H

Questionnaire H:

Questionnaire Ii was sent to Portlaoise Depot Senior Management. Divisional Engineers.

Divisional Accountants and Permanent Way Inspectors. Ail questionnaires sent stated

that all answers treated as strictly confidential.

! Name:
l _ . _ . _
;
J

I (A) Stock Transfers _ _ _ I


(D Who decides what stock is to be transferred from your division to another division and j
how is this authorised? j

| (2) Do you always give advance notice of stock being sent to another division? j

| (3) What forms do you send when stock is being transferred? j


—1

(4) Are there any instances where you do not send forms with the stock being transferred? j

(5) How do you know what codes should be written on the forms? j

(6) Do you always send a copy of the form to the Divisional Accountant? i
I J
[ .(7) Who is responsible for the loading of trains/trucks? j
! (8) Who checks that what is recorded on the forms matches what has physically been sent? ;
I |
I (9) Who decides what stock is to be requested from Portlaoise and how is this authorised7 j
! i
! ( 1 0 ) W h a t a r e t h e p r o c e d u r e s for r e q u e s t i n g s t o c k from P o r t l a o i s e ? i
i ;
( l l ) W h o c h e c k s t h e d e l i v e r y d o c k e t a g a i n s t w h a t is p h y s i c a l l y r e c e i v e d a n d h e w a r e i
' d i s c r e p a n c i e s followed u p 7 ;

| ( 1 2 ) I f y o u feel t h a t t h a t t h e a b o v e q u e s t i o n s do n o t a d d r e s s all a r e a s w h i c h you feel


; should be brought to our attention, please give us y o u r c o m m e n t s .

(B) Materials Used


( \K\KO!) KIM-: \NN INTERIM REPORI .^P' J . W E M N 2008 AIMTW DEN ()

I'RIV VIE & C()N EL DEM MI


\ M MEN I o r STOCK
0 ' EM IONN \NO: U SEN I NO\ EMBI R 2007

j (4)What controls are in place to ensure that ail materials used have been accounted for?

: (5)VVho decides and approves what materials are to be taken out of the ground7

I (6)W'ho measures what has been taken out of the ground7

! (7)What reconciliation is done between what has been taken out of the ground and what
j has been approved to be taken out?

| (8)What controls are in place to ensure that ail materials taken out of the ground are
| properly accounted for?

j (9) If you feel that that the above questions do not address all areas which you feel should
| be brought to our attention, please give us your comments

(C) Sales "" ' ~~

| (l)What sales are made from your PW?

(2)Is there a predetermined sales price for every item sold and who determines this price?

(3)Hovv often are prices reviewed?

(4)Who approves all sales from your PW?

i (5)Who reviews all sales from your PW in a period? I


i I
j (6)What controls are in place to ensure that all sales made are recorded and recorded j
I correctly? i
I |
j (7) If you feel that that the above questions do not address all areas which you feel should j
I be brought to our attention, piease give us your comments j
I |

| (D) Line side Security & Stocktaking ]


I (l)VVhat security is there over line side stock?

: (2}How much notice do you get in advance of stock takes?

( 3 ) I n a d v a n c e of a s t o c k t a k e , d o y o u h a v e d e t a i l s of w h a t s t o c k s h o u l d o e ;o you- location?

(4)L)O y o u c o u n t s c r a p u s oa'T or v o u r s t o c k t a k e 5
I \ R \ K C ) D I I KI. \ \ \ I V I C R I M KK.PORI .1 I M \R N 2008 A PP!'M)1 \ 0

P R I V UP. A C'o\nm-;vn \t,


M VN \ O I Ml \ i o r s i o< k
Of KM J O W \ | R K I I S L M V > \ KM BUR 2007

(8)Do you record quantities of stock in SAP7

(9)Do you have access to change quantities in SAP7

(10)What follow-up procedures do you follow when you identify discrepancies between
what is actually counted and what is recorded on SAP7

(11)Do you feel that the frequency of stock takes currently undertaken is adequate?

(12)How do you decide on whether an item is new, second hand or scrap"7

(13) If you are unsure as to classification what procedures do you follow?

(14)Who authorises any reclassifications?

(14) If you feel that that the above questions do not address all areas which you feel should j
be brought to our attention, please give us your comments j

(E)Training/Familiarisation l

(l)To what extent do you use SAP?

(2) Did you ever receive training in SAP7

(3)Do you have a good knowledge of SAP?

(4)Would you feel you would benefit from more training in SAP?

i (5) Do you have a copy of Iarnrod Eireann "Policies and Procedures for The Control of
j Infrastructure Llnestocks" or would you like to receive a copy?

f (6) If you feel that that the above questions do not address ail areas which you feel should
I be brought to our attention, please give us your comments
l " f e r , m Report to the Steering C r o u p C o m t n h t e e J a n u a r y 2008
PRIVATE A C() \ I-1DE \ ]• | \ I

APPENDIX 7
PROCUREMENT & MATERIAL DEPARTMENT

BUSINESS PLAN 2 0 0 6 - 2 0 0 9
Procurement & Materials Departmpnt

Business Plan

2006-2009
CONTENTS

1. Background

2. Company Objectives

3. Changes impacting on Procurement & Materials

4. Mission & Vision

5. Procurement

• Purchasing Stock Materials

o Spares for Rolling Stock

o Other Stock Materials

• Purchasing non-stock

• Outsourcing

6. MRP Forecasting

7. Warehousing

S. Fuel

9. P r o c u r e m e n t Process

10. People
1- BACKGROUND

This Business Plan has been developed by the management team in the Procurement &
Materials Department. It seeks to set the agenda and broad targets for the period 2006-2009
and to align our objectives with corporate plans and the plans of our main customers.

2
- COMPANY OBJECTIVES

At a corporate level the focus for the Period 2006-2009 will continue to be on safety,
customer services and sound financial performance. Service improvements are planned for all
services, Such improvements will include:
• modern, safe and clean rolling stock on all routes;
• implementation of a clock-face timetable with hourly services on primary intercity
routes and 2-hourly services on others;
• ondine ticket sales with seat reservations;
• doubling of the capacity on commuter routes;
• frequent "turn-up and travel" services on commuter routes
• reduced journey times
• higher capacity trains (8 car running on DART etc)
• modern station facilities with increased parking
• commuter services in Cork & Limerick
• real time customer information systems
• ticket vending machines
• improved hygiene and cleanliness on trains and in stations
• improved punctuality & reliability

A fundamental key corporate objective is to ensure that the company produces a positive
financial outurn on a consistent basis year on year. This will require a significant reduction in
the cost base, reshaping the Freight business, increased revenue growth and increased state
subvention.

3, CHANGES IMPACTING ON PROCUREMENT AND MATERIALS

At a t i m e of s u c h developments and service improvements w t t f t m I£5 i t s e s s e n t i a ! t h a t the

p r o c u r e m e n t a n d m a t e r i a l s f u n c t i o n s m e e t t h e c h a l l e n g e s p r e s e n t e d ov t h e s e c h a n g e s ana

a d a p t s to t h e n e w requirements.

Thus is a c r m c a ! t i m e for - . h u n g s t o c k IS a n d t h e m ; v. a b e s x m m c a n i c h a n g e s t o t h e make

u p of t h e b e e t s o v e r t h e p e r i o d of t m s p l a n . T o t a l f l e e t s u m w;M i n c r e a s e , a n d t h e a v e r a g e age
will fall significantly, In addition the type of rolling stock will change from locomotive hauled
services towards DMUs for many suburban and Intercity routes. As well as the investment in
rolling stock there will continue to be significant change to maintenance operations w i t h night
time working and the opening of a dedicated Intercity Depot at Portlaoise in 2007. It is
expected and assumed that the maintenance strategies adopted for each of the fleets will
continue to develop towards Line Replacement Units (LRUs). This will Impact on what and
how we purchase and hold in stock.

On the "Services" side there will also be significant changes during the life of the plan. There
lias been a contraction in the level of freight business over the last two years with the
withdrawal from the liner business and the pending withdrawal from the Guinness business.
Following on from the outsourcing of catering services on the Enterprise service it is expected
that the rest of Intercity routes will also be outsourced. This will reduce the requirements for
tenders and contracts for goods and services in these areas.

The introduction of new fleets and additional services along with changes to the maintenance
operations will require changes to the fuel distribution services provided.

4. M I S S I O N & VISION

The Procurement & Materials Department's Mission Statement was reviewed and updated in
April 2006.

Our Mission

" W e are committed to continually improving our procurement and materials


services, supporting our customers in achieving their objectives, and
generating competitive advantage for Iarnrod Eireann."

Our Vision
We will pursue our mission relentlessly so that we will continue to be our
customers first choice in the provision of Procurement and Materials
Management services as proven by our commitment to World Class
Procurement, Materials Management and Customer Services practices.

We a i m to a c h i e v e tins by:

a. Meeting our customers Material and Services requirements in


partnership with our customers
Key Indicators
• 9 9 ° u m a t e r i a l a v a i l a b i l i t y for f o r e c a s t e d ana c n u c a i items

• 9 b % m a t e i u a l a v a i l a b i l i t y for u n p l a n n e d items
• 99% accuracy in centra! warehouse
• Benchmarking of service levels with comparable organisations and industries

b. Consistently providing excellent customer relations


Key Indicators
• Conduct annual customer satisfaction surveys and measure performance
• Ensure effective two way communications with customers
• Ensure customers understand our mutual roles and functions is obtaining
maximum benefit from our services
• Meeting or exceeding our customers expectations

c. Exploiting the benefits of modern systems, procedures and processes.


Key Indicators
• Use SAP to its full potential
• Seek accreditation to ISO or similar quality standard
• Ensure operating procedures are applied consistently and updated when
required
• Explore new and emerging technologies and implement proven solutions

d. Encouraging and facilitating highly motivated staff and good staff


relations
Key Indicators
• Encourage open and frank communications
• Retention of staff
• Attract high calibre staff to department
• Personal development of staff is expected and encouraged
• Encouragement of training and upskiliing to maintain best practice
procurement and materials management approach
• Fair remuneration and rewards systems
• Address and resolve IR issues in a timely mariner

e. Providing dynamic leadership & organisation in a team-working


en vironment
Key Indicators
• M a i n t a i n a flexible o r g a n i s a t i o n a l s t r u c t u r e to m e e t c n a n g u i g b u s i n e s s '"eeds

• Effective tearmvorkinq encouraged and promoted

• Highly m o t i v a t e d , c o m p e t e n t management t e a m l e a d i n g by example

• Professional management t e a m with u n - q u e s t i o n a b l e mtcgrdy


• An approachable management team capabfe of motivating, coaching and
developing their staff

f. Ensuring safety is a necessary pre-requisite, governing all activities


Key Indicators
• Implementing procedures to ensure compliance with corporate safety
requirements as they apply to suppliers and contractors
• Recognising safety as an essential pre-requisite governing all our business
activities
• Ensuring a safe working environment and compliance with safety procedures
and requirements

g. Delivering competitive financial performance for Iarnrod Eireann


Key Indicators'
• Sound competitive commercial contracts
• Value for money
• Improved product and services quality/performance
• Reduced costs
• Improved stock turnover

h. Maintaining the highest standards of corporate governance and


control in all our business activities
Key Indicators
• Ensuring implementation of appropriate controls in the procurement to
payables cycle
• Ensuring high levels of compliance with company and EU Procurement
Procedu res
• Regular monitoring of c o m p l i a n c e w i t b a p p r o v e d processes and procedures

• Ensuring c o n t r o l s a r e effective in s a f e g u a r d i n g company assets

A n n u a l A c t i o n P l a n s w i l l b e s e t a g a m s t t h i s vis?on a n d t r a c k e d o n a r e g u l a r b a
Critical Success Factors(for implementing Mission & Vision)

INTERNAL

• Management competency and capability,


• Effective Teamvvorking
• Recruit new/replacement staff with appropriate skills
• Retention of staff
• Constructive / creative employee involvement.
• Persistence with action planning and teamworking processes
• Effectively managing departmental projects
• Support from senior management

EXTERNAL
Effective and timeiy support in respect of the following key service support areas:
• Customers
• Legal
• Technical
• Insurance
. IT
• HR
• Logistics Providers
• Key Vendors
• Finance / Accounts Payable
• Training
5
- PROCUREMENT

Purchasing Stock Materials


Approximately 23,000 materials are held in the central warehouse. For moving stock
materials, tenders are invited on a regular basis and contracts are awarded with, where
possible, fixed price agreements (typically every 3 years).

Spares for Rolling Stock Fleet

Materials and services are purchased to support the maintenance of the rolling stock fleet.
The fleet varies considerably by age and vehicle type and includes
Locomotives (107 in fleet)
• Intercity locomotive hauled coaches - 8 different types- varying in age
from 40 years + for the Cravens to new vehicles such as the
Enterprise (14 in fleet)
* Suburban diesel multiple units (Arrows) (174 in fleet)
» Suburban electric multiple units (Darts) (144 in fleet)
Freight wagons (1304 in fleet)

As these vehicles were built to IE's specific requirements, the availability of spare parts
presents an ongoing challenge particularly in relation to the older vehicles, some of which
are over 30 years old and have "obsolete parts". In many cases the components are not
in current production and must be manufactured in small uneconomic production runs.

We have commenced the process of building strategic relationships with the major rolling
stock suppliers, giving them early visibility of our material requirements and forecasts
and putting in place long term arrangements with reduced lead times and improved
prices. Over the period of the Business Plan we intend to implement strategic supply
arrangements with all the rolling stock manufacturers and major sub-assembly suppliers,
This will deliver a more efficient and effective process and provide for improved material
availability,

O t h e r stock materials

I n a d d i t i o n t o s p a r e s t o s u p p o r t t h e r o l l i n g s t o c k f l e e t , a r a n g e of g e n e r a l m a t e r i a l s are

stocked f o r u s e b y a r a n g e of c u s t o m e r d e p a r t m e n t s w d h m larnrod Eireann and the holding

company, These m a t e n a i s include personal protective equipment general cleaning

matenais, lubncants, pnnted stationery., nam:warn, signalling a n d eiocd'mal (SET; etc.


Over the period of the Business Plan it Is intended to put in place framework agreements and
call off contracts for the majority of moving materials. Where possible we will put in place
agreements with suppliers which will allow us reduce or eliminate the need to hold stock,
while ensuring an adequate supply of materials to meet the day to day requirements of our
customers. This in some cases may take the form of a "kan-ban" stock replenishment system
at the point of use.

A key objective is to reduce the number and value of materials stocked.


Major factors in the reduction of the number of spares held will be;
1. The extension of the Kitting stategy
2. Increased use of LRU / Repairables concept - ie sending out complete units for
repair/exchange
3. Framework agreements for direct deliveries of routine workshop consumables.
4. Elimination of "high street" materials from stock in favour of best practice local
purchases policy.
5. Improved use of standardisation of components within and across fleets (in
conjunction with the Technical Office)

Purchasing Non Stock Materials

The Procurement & Materials Department places contracts for a wide range of materials and
services for the various departments within IE. These include:
• Road haulage services
• New rolling stock
• Replacement road freight vehicles
• PPE
• IT
• Office requirements

• Catering materials

• Consultancy services

• Pnnted stationery
• Tickets
• Security services

• Legal Services

• hnanoal services

• C a s h - i n - tra ns;t services

• Personal P r o t e c t i v e equipment
• Uniforms
• Advertising
• Contract Cleaning - office

• Carnage cleaning
• Capital Projects etc.

We will continue to put in place long term arrangements with "industry best"' suppliers at
competitive rates over the life of the Business Plan. These arrangements will maintain the
dual aim of delivering a high standard of service and best value for money to meet the
requirements of our internal customers. This we will achieve by involving our customers in
the procurement process, by valuing their contribution and by benchmarking against best in
industry.

Outsourcing

It is expected that over the next three years, there will be an increased requirement for
outsourcing elements of work currently carried out within IE. In some cases this will involve
the increased usage of service exchange units. In other cases it will involve an external
contractor providing maintenance, repair or other operational services that are currently
carried out in-house. A policy decision has been made to outsource catering on intercity
routes and implementation of this policy will be a significant milestone in 2006,

Where outsourcing occurs we will support out our customers in implementing appropriate
service level agreements and performance regimes to ensure that the services are
implemented to the required standard.

Capital Purchases

C o n s i d e r a b l e e x p e r t i s e h a s b e e n b u i l t u p o v e r t h e l a s t 5 y e a r s o n t h e a c q u i s i t i o n of r o l l i n g

s t o c k , rolling s t o c k r e f u r b i s h m e n t a n d t h e p u r c h a s e of s p e c i a l i s t e q u i p m e n t f o r t h e CME

s e c t i o n . A n u m b e r of r o l l i n g s t o c k b u i l d p r o j e c t s , i n c l u d i n g t h e I n t e r c i t y Radcars burd.. ihe

r e f u r b i s h m e n t of t h e D A R T v e h i c l e s e t c a r e in p r o g r e s s a t p r e s e n t ( A p r , I 2 0 0 6 ) a n d t h e s e will

c o n t i n u e to be s u p p o r t e d from a c o m m e r e a l p e r s p e c t i v e b y tfus d e p a r t m e n t . T h e focus will

b e t o c o n t i n u e t o s u p p o r t t h e CME m d e l i v e r i n g p r o j e c t s o n t i m e a n d to t u d g c t a n d m

accordance wdh the contract terms.

O v e r t h e life of t h u s m a n d :
s expected t h a t a d e n b e n a ; E ' - U j s .-ml b e a c q J r e d a n d theorem em

i n p u t whl b e r e q u i r e d , - l o r e e m p n a s i s will b e p l a c e d o n h o w w e m a k e . d n a o a the spare


parts required to maintain any new fleets and on ensuring that the maintenance strategy and
plan is made available at an early date. The policy and procedures used setting up new
materials will be reviewed with the CME with a focus on "''strategic" as opposed to
"consumable" spares.

In addition, purchases of ticket vending machines and exit validation for the operating
sections and IT for Group IT & Telecomms have featured in recent years along with
p F ocu re me n t support for G roup Property projects. We will continue to support these capita!
projects.

Specific Actions Procurement

I Action I Responsibility ; Target Date


Strategic Supplier Agreements in LG ' 2007

I Place for all A items I


j Framework Agreements in place for LG/KS " 2006
i

| general materials (eliminate from


| stock)
LG/PM/PW 2007
pAgreed strategy for standardising

i— j Components on rolling stock


I 4 Reduction in number of spare parts j LG/PW I Anually
i stocked !
| Service Level Agreements for main j LG/KS ! 2007

j Services contracts j
j Outsource catering on Intercity j KS 2006
i Routes j
| Continued monitoring and compliance; PM/LG/KS Anually
I With procurement rules

6. MRP / PLANNING
In order to improve the accuracy of the forecast and to ensure that the right materials are
available to meet the maintenance requirement of the fleets, a structured planning process
with regular forma! updating needs to be put in place and managed.

I n v e n t o r y Control

A key core activity of the Procurement and Materials Department is the provision of materia!
to the CME department to enable overhauls and examinations of rolling stock occur as
planned.

Re-ordering material has largely been based on historical usage and, when a change in
programme takes place, overstocking or shortages can be the result, as the system is slow to
respond to such changes in need.

Changing the process of ordering material is essential if we are to continue to improve the
supply of material in time for the production shops and depot programmes. A forward
planning process is necessary to eliminate the inherent problems associated with ordering
material on historic information.

Planning;

The essentia) requirement is to develop and implement planning / forecasting procedure on


the system to provide a supply of material to workshops and depots in order to reduce re-
scheduling of production and assist in meeting programmes. The procedure must have the
facility to enable amendments be made to the workshop and depot programmes and cascade
the amended material requirements automatically on the system, A 3 year rolling
maintenance planning window is required, updated on a period or quarterly basis.

Significant i n p u t s will b e r e q u i r e d f r o m t h e C M E D e p a r t m e n t in o r d e r d o d e v e l o p a working

process. W e will w o r k w i t h t h e n e w l y a p p o m t e d Materials Planning Executive a n d other

managers in C M E t o i m p l e m e n t s u c h a process.

A s p a r t of t h e g e n e r a ; b u d g e t a r y p r o c e s s , s t o c k m o i d m g b n c c e t s hv hem: s h e u d d

b e s e t a n d a g r e e d w i t h t h e CME a n d t h e CME B u s i n e s s U n a A c c o u n t a n t on a n

a n n u a ' b a s i s , w i t h p e r i o d r e p o r t i n g of p e r f o r m a n c e agamst budget.


Bills-of-Materials.

In order to move from the present arrangements to a more structured approach it will be
necessary to produce Bills of Materials (BOM's) for all maintenance routines, overhauls and
exams for locomotives, carriages, railcars and wagons based on safety requirements and
specifications from the Technical Services section, BOM's for material with .100% usage
should be linked to the planning procedure to project a 3 year rolling plan for materials. This
will in turn feed into our purchasing strategy. Updating of BOM's must be carried out
regularly to enable material be sourced in advance of requirements and procedures will be
developed, agreed and implemented to effect this during the life of the Plan.

During 2006 we will work with the CME, the Technical Office, the Works Manager, the
Materials Planning Executive and the Fleet Managers to agree and implement a structured
planning process to support the delivery of a more effective materials service to meet the
fleet maintenance requirements.

I n v e n t o r y Levels,

The use of a structured planning process coupled with the extension of storage locations to
all workshops and depots will result in a more consistently high level of materia! availability,
while enabling the relative investment in inventory to be reduced. It will also minimise the
occurrences of overstocking and stockouts with a more balanced safety stock level.

An effective planning process for material requirements will enable firm contracts /
agreements for up to 3 years be placed with suppliers. It will lead to reduced lead times,
increased scheduled deliveries with a fixed 2/3 month view of requirements and provide the
facility to amend forward requirements based on production changes/output. It will a l l o w
increased use call-off orders and improve the supply of materia! through longer term
agreements.

Shortages

In o r d e r t o m i n i m i s e t h e i m p a c t t h a t s h o r t a g e s c a n h a v e o n f l e e t a v a h a b d h / a n a e n fleet

m a i n t e n a n c e p l a n s , a review^ of t h e m a t e r i a ! c l a s s i f i c a t i o n s will d e e a r n e d a c t to separately

i d e n t i f y t h o s e v i t a ? few m a t e r i a l s w i n c h a r e ' " s n o w - s t o p p e r s . " T h e s e w M d e t h e s u b j e c t c^

s p e c i a l a t t e n t i o n from a p u r c h a s i n g , s t o c k i n g a n d i n v e n t o r y c o n t r o l e e r s p e c ' i v e a n a wdl e e


given priority attention at all times. An early alert process will be developed to give t i m l e y
warning of potential shortages of these components.

New Rolling Stock Spares.

Planning the stock requirements to meet the maintenance requirements of new fleets has a
significant impact on stock-holding budgets, material availability and future obsolescence
provision. Revised procedures and guidelines for setting up new parts for new fleets need to
be developed and implemented.

A critical examination of all new rolling stock material requirements is necessary to maintain
Strategic (just-in-case) Stocks at the correct levels.
The possibility of holding and managing consignment stocks to reduce inventory levels and
costs for new rolling stock will be considered and implemented where appropriate. This will
be extended to existing stocks where possible.

A revised process for agreeing and setting up parts for new fleets will be developed with the
CME in 2006.

Fleet Exit Strategy

During the life of this plan it is envisaged that the Cravens, Mark 2 and possibly some Mark 3
carriages will be retired from the IE fleet. An agreed exit strategy from a spare parts
perspective will be agreed with the CME in 2006 with the objective of minimising IE's
exposure to obsolete materials. The obsolete fleets will be disposed of in accordance with the
CIE Group's Asset Disposal Procedures.

Obsolesence

In o r d e r t o m i n i m i s e I E ' s f i n a n c i a l e x p o s u r e d u e t o h o l d i n g s l o w m o v i n g m a t e r i a l s , a review

of t h e o b s o l e s c e n c e p r o v i s i o n will b e e a r n e d o u t <n 2 0 0 6 . T h i s w T include:

* R e v i e w of Q u a r t e r l y O b s o l e s e n c e reports

* Benchmarking the obsolescence formula v.;th o t h e r mhways

* C o n s i d e r a t i o n of s t r a t e g i c s p a r e s f r o m an o b s o l e s c e n c e perspective
Specific Actions MRP / Planning

1 j Action i Responsibility | Target Date


ri | Maintenance strategies available ; LG/PW/CME/PM ; 2007
1
| for each fleet
j 2 j New 3 year rolling maintenance j PW/FR/PM/LG/CM^ 2007

| I planning process in place


r
! 3 j Agreed Stock Holding Budgets in j PM/PW?CME 2007 "
Place for each fleet |
i 4 Bills of Materials available for all PW/CME/LG 2007
l
! Maintenance routines
1 5 Extend Storage Locations to all PW/CME 2007
!1
i Workshops and Depots
i
6 Review of A Class items & PW/LG/CME 2006
classifications generally
7 9 9 % material availability for PW/LG 2008
forecasted and critical items

i
( -1
j 95% material availability for PW/LG To08
1 !
i unplanned items j
i i
i
| |
i
! j Benchmarking of service levels j PW 2007
9
1
10 Develop & agree new part set up j PM/LG/PW/CME j 2006
i
P r o c e s s w i t h CME

"IT"" A g r e e fleet e x i t s t r a t e g y w i t h CME j PW/CME 2006

To m i n i m i s e financial exposure

' 12 S e t o b j e c t i v e of z e r o o b s o l e s c e n c e • PW/PM/CME ; 2006

a n d d e v e l o p p r o c e s s e s to achieve

this

13 Benchmark IE a p p r o a c h on PW/PM 7007

: j b s o i e s c e n c e with at least 2

:omparab!e rahways
::
14 ) e v e ' o p a n d 1 m n! e m e n t n r o po'^ a; -'W,' LG.. hn- 2006

;: o r " s t r a t e c i c spares"
15 | Review obsolescence formula rpW/PM/CFO/CME " 2 0 0 5
I 16 | Continuous improvement on stock i PW I anualiy
! I i '
| ; turn ratio

7. WAREHOUSING

Centra! Stores

Approximately 23,000-+- spare parts are held in the central warehouse with a total stock value
of £24m, The majority of these are held to support the maintenance and casualty
requirements of the various rolling stock fleets operated by Iarnrod Eireann, In 2004
following the opening of the Drogheda Depot the majority of DMU materials were transferred
to the site, It is expected that similar arrangements will be put in place for the proposed
Intercity Railcar Depot in Portlaoise in 2007,

Approximately 25% of these parts move in a given year with approximately 50% moving
over a 4 year period. Consequently there is a high level of stock obsolescence.

Materials are issued to user departments on a daily basis using electronic requisitions. The
MRP functionality of SAP is used to control stock levels.

Storage locations

C o n s i d e r a b l e l e v e l s o f s t o c k a r e h e l d a t v a r i o u s l o c a t i o n s in C M E o u t s i d e o f t h e central

warehouse. T h e DMU D e p o t a t D r o g h e d a a n d t h e I n t e r c i t y D e p o t a t P o r t l a o i s e a r e t h e largest

of t h e s e a n d t h e s e will b e m a n a g e d o n t h e S A P s y s t e m in a s i m i l a r m a n n e r t o t h e s t o c k held

in t h e c e n t r a l s t o r e s w i t h t h e s a m e l e v e l s of c o n t r o l . R e p o r t i n g will b e d e v e l o p e d t o ensure

that the s a m e l e v e l of m a n a g e m e n t information -s a v a i l a b l e w h e t h e r t h e m a t e r a i held at

Drogheda, Portlaoise or t h e central stores, in 2 0 0 6 a procedure will b e implemented

w h e r e b y , a s a m i n i m u m , m a t e n a ! a v a i l a b i l i t y is m e a s u r e d a n d - ' a b o r t e d u p o n m t h e oened

management reports.

A n u m b e r of o t h e r s t o r a g e l o c a t i o n s a m n o w u o o n t h e 5 b P s y s t e m . '"base ncu.de:

Lifting Shop

Motive Power
Carriage Shop
Fairview
Limerick wagon
Cork

A programme of cycle counting by iocal staff will be introduced in 2006 with annual and
occasional independent checks by Procurement & Materials staff. The frequency of count and
the subsequent detailed report (with recommendations) will be issued to the CME by the
Materials Manager. The accuracy level achieved will be included in the periodic Materials
Report to the CME.

The remaining material storage locations will be brought on to the SAP system during 2006
and 2007 including Running Shed, Heuston Valeting and (if required) Connolly Valeting.

It will be necessary to reallocate resources to stock counting to ensure that the cycle
counting requirements are met and a plan to implement this will be drawn up in 2006.

Specific Actions Warehouse / Storage Locations

I | Action 7 Responsibility j Target Date j


)T~ f^^^geToc^ns^oiTsAP^ iTw/CM? i~2007 •——j
I i I !
j Running Shed, Heuston, Connolly j j i
^2 ! Develop & implement cyclecounting|~PW/CME/P~M j 2006 |
| policy & process for storage j j j
locations
3 | Allocate additional resource to PW/PM 2006

4 | Carry out Bar Coding study R/PW 007

5 99% accuracy PVV

8. FUEL

Fuel Storage & Distribution


In 2006 distribution in Dublin from Alexander Road will be outsourced and in 2007 n e w
tanker units will be provided by the external contractor.

In order to meet the growing capacity requirements of distribution from Alexander Road it is
necessary to invest in new filling equipment to increase the filling rate and to improve safety
by eliminating the need for top loading. A business case for CAPEX to upgrade the equipment
will be made in 2006.

Environmental and regulatory requirements will require additional CAPEX in order to comply
with the EU Directive on the Control of Major Accident Hazards (SEVESO). And there is a
requirement to replace the existing office and staff facility at Alex Rd.

At this time (April 2006) pilot projects are planned by each of the operating companies to
consider the use of alternatives to 100% diesel to power their vehicles. It is unclear what
impact this will have on fuel requirements during the life of the plan. Developments will be
closely monitored to ensure that there is a planned approach to the introduction of
alternatives

Closer working relationships are required with our customers in relation to the fuel business
in order to better understand their needs and any pending changes to their projected volume'
requirements. Regular review meetings will be held with each of the operating companies to
update them on changes to the services being offered and to keep up to date with their
changing requirements. We will be seeking a formal forecast of their requirements prior to
agreeing the fuel budget.

Specific Actions Fuel

I Action Responsibility Target Date

1 O u t s o u r c e fuel d i s t r i b u t i o n f r o m PW/PM/KS 2006


;
Dublin

2 . Review issue & distribution controls; PW/PM 2006


3 S t r a t e g y t o c a t e r for COCK S. S o u t h ; PM/PW 2007

4 S t r a t e g y to c o m p l y with S E V E S O PM/PW 2006


5 U p g r a d e e q u i p m e n t S. N o d d i e s ?n PM/PW/CFO

A l e x Rd
9. PROCUREMENT PROCESS
Systems

We will continue to seek to maximise the business benefits of the SAP system. This will
involve producing regular and timely reports to assist in the management of the purchasing,
inventory control, fuel and warehousing functions. In addition assistance will be provided to
remote users in the best use of the system.

We will continue to evaluate such the use of web based technologies to automate elements of
the purchasing / payables cycle, We will further develop and extend the use of SAP
catalogues to manage routine non-stock materials and services.

Procedures

Considerable progress has been made in the last two years in developing and documenting
detailed procedures and work instructions in respect of the main processes in the
department, These need to be updated on an on-going basis. During the life of the plan a
series of process audits will be carried out to ensure that the procedures are being followed
and that they reflect our ongoing requirements,

A key objective here is to obtain ISO certification of our internal procedures within 3 years.

Process Audits

A n u m b e r of p r o c e s s a u d i t s w e r e c a r r i e d o u t in 2 0 0 5 . T h e s e i n c l u d e d t h e f u e l process

n a t i o n w i d e a l o n g w i t h a r e v i e w of D e p o t O r d e r s a n d a n u m b e r of T e n d e r F i t e s . T h e p u r p o s e of

t h e p r o c e s s a u d i t s is t o i d e n t i f y w e a k n e s s e s in c o n t r o l a n d n o n - c o m p l i a n c e s w;rh procedures.
T h e r e c o m m e n d a t i o n s a n d f o H o w o n a c t i o n p l a n s will s e e k t o i m p r o v e t h e p r o c e s s e s and

strengthen the control envircomenf. W e w o ! e x t e n d t h e s c o p e of t h e s e p r o c e s s a u d i t s t o

i n c l u d e t h e N e w W o r k s arid I n f r a s t r u c t u r e Divisions.

T h e a u d i t s will b e f o f m a H y "epo'Tea upon and recommendations t o h o w e c op h systematic

fashion With t h e r e l e v a n t r e s p o n s i b l e m a n a g e r s . In 2 0 0 6 t h e f u e i p r o c e s s v/H ; :.• r ••

a u d i t e d to m e a s u r e p r o g r e s s a g a i n s t t h e action plan a g r e e d m 2005.


Benchmarking

We will continue to benchmark our key performance Indicators (KPIs) against best i n d u s t r y
standards both within the railway world and outside it. During the life of tins plan we w i l l , a
a minimum seek to benchmark the following:

• Stock turnover
• Obsolesence provision
• Stock values by fleet size

Benchmarking will enable us to identify what the better companies are achieving and w h a t
the key factors are in producing their results. This will enable us to set challenging but
realistic targets and work towards achieving them,

Specific Actions P r o c u r e m e n t Process

! | Action j Responsibility " T T a r g e t Date j


j 1 | Support implementation of new j FR/PM/PW 2007
I j Direct entry fuel process ! J
I 1
T2OG6
________
"" 7~AUD R T ^ P ^ ' D E 7 ' 7 R ^ E D M E I PFR/PM
1 2007
S 3" "TTJf^^^P&MTro7edures ™T"FR i

! ISO or similar accreditation I FR 1*2008


5 j Rolling annual process audit plan j FR | Anually
_ _i ' _ __
6 j Benchmark of ™ ' ~ PM/PW/FR/LG ['2007'""
i i
j • Stock turns j
| • Obsolesence Provision I
• • Stock value by fleet size

10.PEOPLE
As of April 2006 there are 41 staff employed full time in the Procurement & Materials
Department. The focus going forward will be to improve the overall level of competency and
to optimise the efficiency of our operations overall. Annual training plans will be developed
and implemented to ensure that staff are equipped with the skills and knowledge to carry ou
their work.

A review of the structure of the department will be carried out in 2006 with a view to better
meeting the requirements of a changing company. On the Inventory side a teamworking
initiative will be launched to help deliver a better service to the customer and to improve the
working environment. We will ensure that our procurement structure continues to meet the
requirements of our main customers.

The corporate headcount targets included in the Financial Plans will be adhered to. With the
opening of the Portlaoise Depot in 2007 there will be a reduction in the requirement for
warehouse staff in the central stores to look after Intercity requirements. Staff recruited for
the depot will report to the CME.

Specific Actions People

Action j Responsibility Target Date


I Review Training plan to ensure it j FR/PM anually
I i
! Meets requirements •
I Review Structure of P&M Dept j PM TooiT~~

j Meet corporate headcount targets j PM anually


| Implement team working initiative j PW 2006"""

j in Inventory section j
| Ensure staff numbers reflect the j PM/PW 2007
I Transfer of stock top Portlaoise
I Depot

; Carry out annua! c u s t o m e r PM anually

: Satisfaction surveys & action plans •

Review
F
^ s t review June 2007.

END

June 2006
IA K N R O 0 I*.! R I; \ \ \ PR()('(: J; \ J J.; \ R & IN ']'[" \ \ | C O N T R ( ) | . J \ \ L'S T [ 0 A T J O N

interim Report ,o the Steering Gn.up Committee AT' January 2008


PHIV A n - A C O M IDI:NTI\I.

APPENDIX 8

PROCUREMENT MODEL GRAPH


f > i a i C o n s oI i d a t o d

Best Practice
Procurement Compliance 100%
Procurement Operational Requirements 80%
Procurement Spend Classification 80%
Procurement Supplier Base D e v e l o p m e n t 80%
Procurement Knowledge Development 80%
Procurement D e p a r t m e n t Key Skill Sets 100%
Procurement Efficiency M e a s u r e m e n t s (KPi) 80%
Current
Compliance No Total Yes NO
50% 50% 48 24 24
15% 85% 83 12 71
7% 93% 56 4 52
49% 51% 72 35 37
40% 60% 77 32 45
63% 37% 100 63 37
11% 89% 72 8 64
Best Practice
NJ 0) CO O
O O O O O
vO xC
CM- O"-

P r o c u r e ruer;!
Operational
Requirements

Procurement
Spend
Classification m

"O
•n
O

Procurement
o
c
Supplier Base
Development CD
3
CD
3
Procurement
Knowledge
Development O
£L
CD

Procurement
Department Key
Skill Sets

Procurement
Efficiency
Measurements
(KPl)

O
o
C>
/
G
X
o
o
3
"O
Kisk:> k.iun'u'u-.fi 3 High
Purchase to Pay Process
K i k<..-qu>(einorii for Goods o; Services 3
<',./ :•>• j ; u ; of Suppiivtss 3
e 0 ( 0 > si! ii>:i t -,{ Rt ?(;uisC!<>n • R o i o a s o d
e CO .iS<: Ol !\<•.'! jUJSUlOi'; 3

o / Rcr.oipi oi Goods Services 3


0 0 SO" K (3o» ill oi
0 0 Plan! t<;insU;;
0 10 Rocoip! of 0>i;ppht:i InvoiCCS
C i1 Matr.bsnt} oi invoiOO PO 3
Medium Low

2
2
2

2
I A R N R O D E I R E A N N — P R O C U R E M E N T & INTERNAL C O N T R O L IN VESTIGE

I n t e r i m Report to the Steering G r o u p C o m m i t t e e - 3 1 " January 2008


PRIVATES CONFIDENTIAL

APPENDIX 9
COMPARISON OF PROCUREMENT MODELS
I A R N R O D E I R E A W - INTERIM R E P O R T - - 3 L S R JANUARY 2008 APPEND! \ 9

P R I \ ' A T E & CONFIDENTIAL


I M S N PROCUREMENT SYSTEM R E V I E W
C O M P A R I S O N OF C U R R E N T I M S N P R O C U R E M E N T M O D E L TO R E C O M M E N D E D B E S T P R VCTICE

CURRENT MODEL BEST PRACTICE MOD set

Model Mode!

No clear procurement model in Centre-Led Procurement Model for


operation best described as a mix o f Irish Rail
both Centralised and Decentralised
Procurement.

Organisation Organisation

Insufficient coordination between Sourcing of suppliers coordinated


companies, divisions and business units across companies, divisions, business
with regard to sourcing of suppliers units.

Insufficient leverage of spending across Spending leveraged across companies,


companies, divisions and business divisions, business units.
units.
Procurement reports to senior supply
Procurement reports to Divisional chain executives
Management

Process Process

Standardised procurement process and Standardised procurement process and


policies does exist within divisions or policies across the companies,
business units. divisions, business units.

Different standard of procurement Maintain process compliance,


compliance, efficiency and efficiency and effectiveness consistency
effectiveness exist across the business. across the business.

Poor Procurement practices and Best practices and skilled resources


unskilled resources exist within key shared across sites.
functional areas of procurement.

Knowledge Knowledge

No know ledge of Procurement strategy Procurement strategy and operational


or operational plan exists w ithin the knowledge formulated and
procurement organisation. communicated to relevant stakeholders.

Pase I of 3
IARNR6D ElRF.AW ~ INT E RIM REPORT — JANUARY 2008 APPENDIX 9
PRIVATE & CONFIDENTIAL
I M S N PROCUREMENT S Y S T E M REVIEW
C O M P A R I S O N OF C U R R E N T I M S N PROCUREMENT M O r o R E C O M M E N D E D B E S T PRACTICE

CURRENT M O D E L BEST PRACTICE MODEL

Knowledge cont'd Knowledge cont'd

Procurement skills, product and Procurement skills, product and


business requirement expertise are business requirement expertise
lower than what would be expected for managed and coordinated across
this size organisation. businesses and sites.

Knowledge in the form of established Knowledge in die form of established


business standard procurement reports business standard procurement reports
don't exist - SAP knowledge in being available to provide visibility into
reporting is poor. spending, compliance and performance.
These reports would be aggregated at
Procurement compliance knowledge different levels.
within the procurement line is weak due
to no formal training on introduction or
no continuous skills enhancement
program in place.

Technology Technology

Procurement Technology Strategy does Procurement Technology Strategy to


not exist promote "e" BTB supplier and user
integration. This would allow for the
Procurement program for continuous elimination of paper from the
review and utilization of existing in- procurement process and the capturing
house technologies (SAP) to drive of data at source.
efficiencies and visibility o f spend does
not exist. Procurement program for continuous
review and utilization of existing in-
Procurement does not embrace bouse technologies (SAP) to drive
technology as a resource to assist the efficiencies and visibility of spend.
procurement process.
Technology decisions and deployment
SAP is currently underutilized coordinated across all sites.

Technology deployment and usage


coordinated across all sites.

Pace 2 of 3
I A R N R O D EIREANN - INTERIM R E P O R T ~ J L S I JANUARY 2008 APPENDIX <)

PRIVATE A CONFIDENTIAL
I M S N PROCUREMENT S Y S T E M R E V I E W
COMPARISON o r C U R R E N T I M S N PROC I RE.MENT M O D E L TO R E C O M M E N D E D B E S T P R U T K E

Q RRENT MODEL BEST PRACTICE MODEL

Performance Performance

No Standard metrics in use which are Standard metrics used enterprise-wide,


common across the business and which but supported centrally
are supported centrally
Metrics and incentives shared by
Cost, compliance, and performance are procurement, functions and business.
not consistent across the enterprise
Cost, compliance, and performance
consistent across the enterprise

Procurement monitoring through


ongoing audit process.
1 VR.NROD KIREAVN- PROC-LREMEN , & INTERNAL CONTROL I N VEST,CAT,ON

I n t e r i m Report to the S t e e r i n g G r o u p Committee -3P' Januan 2008

PRIVATE & CONKIDENTLAL

APPENDIX 10
BEST PRACTICE PROCUREMENT MODEL

APPROACH
IAKMHM) K I R K A N N - i \ R E R I M REPORT•--3P' J A M ah\ 2008 VPITVDIX 1 0

P H I \ A N- & C O M IDI:\RI U .
B I ; M P R \C R K F. PRCK T RI;\II.N R M O D I . I

BKST PRACTICE PROCT RE.MENT M O D E L RECOMMENDATION FOR


INERASTRPCTERE MAINTENANCE, NKW W O R K S AND SE& Y BESINI >S
UNITS OF IARNROD FIREANN

With pressures such as Government. EU and other legal compliance requirements, an

efficient and best practice model of procurement should be at the lore front of Iarnrod

Eireann \s corporate strategy.

Recent internal and external reviews have identified a weak procurement


organisational and operational structure within Infrastructure Maintenance. SE&T and
New Works. These reviews highlighted the high variation of procurement skill levels
within key procurement activities and limited reporting capabilities present.

Having carried out a review of the current procurement process within Infrastructure
Maintenance, New Works and SE&T, we would recommend a process of evaluation
o f the current procurement model with the objective of designing, implementing and
maintaining a best practice procurement model. 'This best practice procurement model
would insure compliance and achieve efficiencies and effectiveness within the
procurement process. This improved model would enhance the procurement process
both within the business and its extended supply-chain.

Our recommendations are based on our review of the current procurement model

specifically under the area of our review and we recommend that the Board consider a

Centre-!,.ed Procurement Model as an alternate e procurement model to adopt. A

cemreded procurement model, together with a greater utilisation of SAP and other "e"

Busines.s-1o-13usiness procurement technologies, would allow Iarnrod Eireann achieve

greater visibility into ^pend. control and compliance v\. uhm the procurement process.
IAK.SUOI) E I R E A N N - INTERIM R E P O R T 3 I S L JANI. \RI 2008 M W . N D I N 10

PRi\ VIE A ('.'OMTDIOM AL.


B E S I P R A C T I C E P R O C U R E MI.N J M o m I

data ai source. This would then in turn integrate with the currcni SAP application.

I his would allow for real-lime reporting and viability on .ov.o of compiiance,

performance and other KP1 mctnccs.

Other possible developments within tins process is the cataloguing o f a plant lure and

contracted labour database, which would allow for suppliers to price and lender for

contracts with iarnrod Eireann. The end result would be the elimination of paper

based requests which arc subject to being returned inaccurately completed. Another

advantage would be improved integration with suppliers / requisitioners and greater

reporting capabilities. 'Ariba' and other "e" procurement systems could add

considerable value to Iarnrod Eireann's current procurement process in Infrastructure

Maintenance, SE&T and New Works,

It is recommended that Iarnrod Eireann approach the above change with external

consultancy assistance, subject to normal public procurement criteria. The project

would involve a process mapping of the current 'as-iY model, identifying the "to-be

best practice' model and the management o f the change management element in the

move between models.


I A R N R O D I : :IHI-;AN\ - I V R I O M I R E P O R T - 3 P ' J A M \R\ 2008 appendix 10

PlU\ A IK & ( OM IDI N I I M.


B E S I P R A C T I C E PROOI REMENT M O D E I .

A Centre-Led Procurement Model would have the following cluiracteristi

CENTRE-LED PROCUREMENT MODEL : • S ! V S • < T- K? <> •V- •?.?. *

j j •Sourcing coordinated across business units


j Organisation j -Spending leveraged across companies ( O P ( uvo.p Companies], divisions and
j | business units where practical
| | •Procurement reports to senior supply chain . budget holders, department and
I I divisional management

!
i Process | 'Standardised processes and policies tailored and executed at local level
j 'Process compliance, efficiency and effectiveness consistent across the
! enterprise
•Resources and best practices shared across sites

•Skills, category expertise coordinated across businesses and sites


Knowledge •Visibility into spending, compliance and performance at company and
divisional levels

•Technology decisions and deployment coordinated across sites


Technology 'Technology deployment and usage coordinated across sites

I 'Standard metrics used company-wide, but support for local variances


Performance ; 'Metrics and incentives shared by procurement, functions and businesses
! 'Cost, compliance and performance consistent across the company
I A R N R O D E I R E A N N ... I N T E R I M R E P O R T - 3 1 " J A M A R Y 2008 M'L'ENDIX 10

PKL\ A ]"E & ( ONI IDE VI I M


HI-SI P R \ ( 1 |( E PLKX ( RE ME N'T X J ODE I

REVIEW THE FOLLOWING PROCESS WHEN IDENTIFYING NEW PROCUREMENT V


MODEL • •••
• Current procurement organisation structure
Organisatio n
• How sourcing decisions arc made
• Where procurement activity is carried out
• How spending is leveraged across die business
• What procurement reports exist
• Who runs these reports

• Standardisation of procurement processes


i Process
• Establishing procurement processes efficiency and effectiveness, KPIs
• Sharing of resources or best practice across sites

I Knowledge | • Skills and commodity expertise


| • Market, sourcing. negotiations, SAP, other technology and supply chain
| knowledge
| • Reports development which would highlight visibility into spending,
j compliances and performance (KPI)
L.
Technology ' * Utilization of existing and new technology within the procurement process
! and throughout the extended supply chain
| • Use electronic standard forms for request for plant or labour hire rather than
| paper based forms. Identify key compulsory data required for capture at
j source in this process.

Performance Establish metrics (KPI) for use in cost, compliances, performance and trend
analysis
Supplier performance and quality metrics

Business Expenditure type and volume


Requirements If • Business needs and constraints
Regularity timelines in contrast to operational timelines
; • Locations limitations on supplier selection and pricing
i • Legal and other compliances
I • Safety needs
i • Expenditure budget
; • Procurement planning requirements
Supplier Base • Market review
• Pncme Mructure review
Ormiuisalion
N ROD I'JRE \ w - P R O C U R E M E N T A INTERNAL C O M HOI. |NA ESITC; VEION

I n t e r i m R e p o r t to the S t e e r i n g G r o u p C o m m i t t e e - . i f ' J a n u a r y 2008

P R I V A T E & CONFIDENTIAL

APPENDIX 11

STOCK VALUATION REPORT


I a r n r o d E i r e a n n - I n t e r i m Report - 31st J a n u a r y 2008 APPENDIX 11

C I E S T O C K V A L U A T I O N as at 13th November 2007

SAP Location n• Value


/o
R002 Construction Unit 0.9% 219.1 3 7 .06
RO I 5 A r k l o w Infrastructure 0.2% 5S..8 : 9.69
R020 Athcnry infrastructure 1 .OA) 4 9 1.0 " s 8 !
R025 Athlone Infras'rucnire 539.09 i 30
KU70 Balivnioie hi. f rasiruetore ! .(VO, 405.0 34 SO
R! 15 Cahir Infrastruciure ^ u 648.57(1 08
RI25 Carlow Infrastructure 0.6° r, i 59.74 ! .4 1
K 145 (7asUcb;u' infrastructure 0.6° 1 60.298.59
R165 Clare m o m s Infrastructure 3.0% 774.--S72.4I
R195 Connolly Infrastructure 5.3% i .364.071 .S 7
R2 i 5 Cork Penrose Quay Infra 0.8% 194,281.83
R230 Dundalk infrastructure 1.1 % 276,054.07
R235 1: n fi ekl I n frastrue tu re 0.9% 234.994.48
R240 I-nms Infrastructure 2.0% 501.973.79
R245 b nn iscorthy I n frastruei ure 3.4% 870.433.80
R285 Heuston infrastructure 2.4% 604,8 1 1.45
R300 Kilciare Infrastructure 8.2% 2.114.219.19
R310 Killarney Infrastructure 1.1% 282,052.01
R320 Limerick Junction Infra 1.9% 492,886,60
R325 Limerick Infra.structure 3.3% 857,091.50
R340 M allow f n fra st ru c tu re 1,0%> 268,924.60
R375 M u 11 i n ga r I n fra s i ru c tu re 1.7% 425,636.38
R377 Navan Infrastnicture 2.5% 631,234.15
R380 Nenagh Infrastructure 2,7% 684,102.49
R390 Northwall Infrastructure 0.0% 10.382.03
R405 Pear.se Infrastructure 3.0% 775,382.66
R41 5 Portlaoise Factory & Infra 43.6% ** 11.200,377.13
R480 Thurles Infrastructure i.0% 260,603.82
R505 Waterford Infrastructure 0.6% ! 59.289.38
100% 25.667,253.47

* *
Three highest stock values per location, broken down as follows:

Portlaoise H u b
Portlaoise Materials 466.326.76
Sleeper Plain 93.390 47
Rails ,v Fix 10.640.659,00
1 1.200.37". 1 3
kildare Infrastructure
On Track Machinery Spares 1.8 ! 0.S43 24
<"\ > t 8.49 ; ^ !
IhI
'••'.) 0 > 0 3
Rails £ h x m g s
honiaoise M. o. ..•:::! •• % 3 i 3 f~'

Connoib infrastrucmre
'\MLOASE MA
I U O K O D F'JRE.VW _ P R O C L R R M | N R & L V R E R X A L C O N N T O L L N V E S N < ; V M 0 S

I n t e r i m Report to the Steering C r o u p Committee - 3 1 " J a n u a r y 2008


I'RIS \ r t : & C O N F I D E S N U

APPENDIX 12
SAMPLE STOCK TRANSFER FORM IN USE

- WATERFORD TO PORTLAOISE

Z.
SECTION 2

IARNROD EIREANN

Procurement & Internal


Controls Investigation

Strictly Private &


Confidential

Prepared by:
| FINAL REPORT
£ | JUNE 2008
BAKER TILLY
RYAN GLENNON
IARNROD FIRKANN - PRO< I R!-:MI:\ I - A INTERNAL CON I ROI. k!•;\ n w nv./i \/•. 2(WS

R(.>[)()vI to the Steering Group Com mince


PKl\ \ I! A CON| il)!. N II M.

TABLE OF C O M I-M S

CONFIDENTIALITY 2

1. INTRODUCTION 3
SYSTEMS REVIEW 4
FORKNSK EXAMINATION 5

2. EXECL NVE SUMMARY 13


KFY FINDINGS FORENSIC REVIEW 15
KEY RECOMMENDATIONS 23

3. ASSESSMENT O F T H E EXTENT OF A C T U A L LOSS 27

4. SCOPE LIMITATIONS & METHODOLOGY EMPLOYED 35

5. CONCLUSION. .40

APPENDICES:
APPENDIX \ ASSESSMENT OF ACTUAL LOSS
APPENDIX 2 A S S E S S M E N T OF S C A L E OF U N I D E N T I F I E D LOSS

APPENDIX 3 RISK ASSESSMENT OF CONTROL ENVIRONMENT

FILE 5:

Am:NTHx 4 BENFORD'S ANALYSIS DATA INTERROGATION SHEETS - KEY SUPPLIERS


j APPENDIX 5 [ BENFORIVS ANALYSIS £M>ATA INTERROGATION SHEETS OF OTHER VENDORS
APPENDIX 6 L ^ P A N V INFORMATJON INJRESPECT OF HIGJH.JG[FTED VENDORS
APPENDIX | EXTRACTS OF IARNROD EIREANN RISK REGISTER
( APPENDIX 8 j TERJ^LSOF REFERENCE
APPENDIX 9 1 PER.SONNI I INTERVIEWED

Final raft
1 of 40
J \KMU)1) FiRI \N\ PROCl RIMINI & |\ URN M . ( ON iROI. Rt A |IA\ 09 ft M :DOS
Roport to the Steerio" Croup Cnmmittei'
|'ri\ \! t: A COM ii>! N 11 M.

( ' O M IDKN ! I W M Y

The contents of this Report are based on die documents, information and

explanations made available and provided to us. We have not. except where

'spedileally indicated in this Report, independently verified the information

provided or representations made to us.

This Report and our Interim Report on the procurement systems is confidential
and is for the benefit of the larnrod Eireann Steering Group Committee set-up
for the purposes of this assignment in accordance with the Terms of Reference
provided. This report should be treated as highly commercially sensitive. No
responsibility or liability is extended or shall be extended to any third party for
the whole or any part of its contents nor can its content be relied upon in any
way by third parties. Should you wish to disclose it to a third party we would
request that our permission is sought in advance.

Final Or aft
2 of 40
i \ K \ R O N MIRK \NN - PROC I RI;\II VR X: IN n R \ \I ("ON I ROI. K I : \ II.W it')./1 \f JHOS
Report 10 the Steering Croup Committee
P K I \ \ i t " IT ( ()N| | D I ; \ T I M .

I. INTRODUCTION

BACKGROUND

iarnrod Eireann (the Company), is a subsidiary of Coras lompair Eireann (CIE)

a semi-state company. The company is responsible for maintaining Rail

Passenger and Freight Services in the Republic of Ireland as well as Port and on

train catering operations.

Baker Tilly Ryan Glennon were engaged to carry out a full review of:

1. Procurement Department within Infrastructure Maintenance, Signal Electrical &


Telecommunications (SE&T) and New Works
2. Internal Control Systems within the infrastructure Maintenance, Signal
Electrical & Telecommunications (SE&T) and New Works divisions
3. Review of the management of stock inventory in the Portlaoise Depot and line-
side, throughout the rail network.

The stated primary objectives of the CIE Group Procurement Policy and
Procedures (CIE Procurement Policies) dated 6 September 2006 are to ensure
that all transactions:

• "Give the Group best value for money;

• Utilise the Group's significant purchasing power:

• Are transparent:

• Ensure equality of access io qualified suppliers: and

• Comply with Government Guidelines, applicable EC procurement

legislation ("EC Procurement Directives") and all other applicable laws."

} in:)l Drat?
P:I»E 3 OF -IF)
i I \RNROO KIRK v\\ PRO( I kemi-'NTA l \ n KN M.COMIHII. RI.\ IIW iWJt \ l. 2U()N
Kcpon to (he Stoiriny (.'roup (omniitlce
PlU\ \ IC £ t o Ml!) IN II U.

The background and exents leading to the requirement for this review arose

from ongoing internal investigation into activities associated with the removal

and unauthorised disposal of track materials and 'suspect' transactions with

s 11 pp 1 ie rs o f ma t e ri a 1 s a n d s e rv i ces.

We wish to acknowledge the substantial contribution of the internal Company

Cost Audit & Efficiency Department led by

who provided us with valuable evidence and


facilitation of meetings with internal personnel throughout the assignment. We
also wish to acknowledge the guidance and assistance provided by the Steering
Committee.

The Terms of Reference was split into two categories:

A. Systems Review
B. Forensic Review

A. Systems Review - Terms of Reference

• "Undertake a full review of the current system of procuring plant hire and

contracted labour to include the authorisation protocols, monitoring


processes and transaction validation involved. This review will take into
account work previously undertaken m this area by the Company.

• Carry out an examination of the management of line-side materials e.g.

Rails and sleepers, a particular locus to be placed on the movement and

accounting tor stocks into and out of the Portlaoise Sleeper Plant as the

hub distribution and stockpiling centre."

Kin a! Dralt
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I \ K M ( O I ) FIRI-:ANN P R O C I R I : M I : V I £ I N U R N M C ON I ROI. R I O U.U av./i \i-20<),s
Report to the Steering (irnuj) Committee
P R I \ \ I F. & ( ONI SO! \ J | \T

This involved:

• Review of the IMSN Procurement System from Pohcy formulation at the

highest level through to transaction compliance testing at the lowest level

a ~ "root and branch review".

• Review of the Stock Management system for controlling and recording

stock movements in to and out of Portlaoise Depot and line-side

materials throughout the Company.

The Systems Review was the subject of our Interim Report dated 31
January 2008, which is attached. The Interim Report contains 156
recommendations. These recommendations are summarised in the
Executive Summary of this Report.

B. Forensic Examination ~ Terms of Reference

• "Carry out an examination of conduct in the acquisition, deployment and


management of services, resources and plant/equipment procured during
the period from January 2004 to date and the relationships with
contractors of goods and services to the Company. Assess the extent of
actual loss or misappropriation and assess where potential future risk
arises.

• Identify and determine responsibility for any breach in procurement

policy specifically to identity any neglect to duty or lack of competence

m the acquisit ion of goods and services and to report on areas where loss

or misappropriation lias occurred and the associated value and comment

on whore potential future risk onses."

Final Dr.il't
Paye 5 of 40
I \ K N H O I ) I'.IRI'ANN } ' K O ( I RI.Mi'.N J & IN U RN \| ( O N | R O I . R ? \ || \\ ay) ji M. :ui)s
Report lo the Steering (.'roup Committee
P r o \ 1r. £ <"o\nm-:\ n \i.

This involved:

• Assessment of the extent of actual loss or misappropriation 'c'om January

2004 to date.

• 1 d e n 11 fi c a t ion o f res p o n s i b i 1 i t y I b ran y b re a c h in p ro c u i 'e mem p o 11 e y.

• Report on areas where loss or misappropriation has occurred but where

the value of loss cannot be determined

• Assess where potential future risk arises.

We sought clarification from the Steering Committee of the interpretation of


these Terms of Reference. We were informed by the Chief Executive of the
Steering Committee that a value amount is required for the assessment of actual
loss or misappropriation only. We were informed that a value assessment is not
required for loss considered to exist but not actually quantified during the
course of our field work. However we recommend that further investigative
work is carried out by Iarnrod Eireann in respect of the higher risk areas
highlighted in this report.

This Report has primarily focused on the second of these areas, the Forensic
Examination. Our key Findings and Recommendations are included in the
Executive Summary of this Report.

I'in,il Draft
P:JS>O 6 o f 4 0
I \ h m u ) D FIRI: \ \ \ - FRO( I RI:MI; \ | \ i i R W I . C O \ I•ROI. KI \ 11 w </<)./[ \/. :oi),s
R e p o r t to the Steering C r o u p C o m m i t t e e

PRf\ \ IK A C o M l ! ) I.N ! I \ i .

TlIF 0 ) \ M X ! di" I HI-" RlA'il W

The Company is engage el on an extensive Capital and Infrastructural

Development Prog tam me m line with die Ma led Government initiatives

outlined in Transport 21. This involves very substantial capital investment oxer

the life of the programme from 1999 to 2013.

To place our Report in context of annual spend by the Company for the areas
under review, the Infrastructure Maintenance Budget alone for 2007 has an
annual spend in excess of €75 million.

The purchase order value expenditure raised for Infrastructure Maintenance,


SE&T and New Works collectively, with external vendors, for the years 2005,
2006 and 2007 have totalled €176 million, €235 million and €252 million
respectively. The value of purchase orders set up since January 2004 to April
2008 from vendors on the plant hire database totals circa €137 million.

While definitive figures are not available, based on estimates contained in


documentation supplied by the Company, it can be assumed that similar levels
o f annua! expenditure (at least circa €250 million per annum) will be incurred
b e i w een the perm d s 2 008 t o 2015. 1 f e x n end mi re re m a i n s a t 2 00 7 1 e v els. ft iture
expenditure m the areas under review range between €1.5 and €2 billion euro,
ov er the next 5 7 years.

To place our Review of management of stock in Portlaoise Depot and of line-

side materials into context. .Appendix 9 of our Interim Report lists the value oi'

stock at each location as at November 2007. It shows that the value of Mock in

Final Draff
i ' A ' ^ 7 of 40
I V R N R O D K m i : \ \ \ - PROC T R I : \ J I : S R & I N I T : R \ w. C O M ROI. K I : \ II U a() .! I \l. 200$
R q x > n to the Steering G r o u p C o m m i t t e e

P R O \ I R & COM- I D C M I U .

Portlaoise depot was circa € 1 1.2 million and stock at both Kildare and Connolly

depots was valued at circa €2.1 million and € 1.3 million respective!).

Considering the future spend m rail networks renewals projects and related

works, it is likely that the overall stock value will also increase. Our

recommendations on stock management should be considered in that context.

Our assessment of the risk of loss to the Company, together with the lack or
absence of compliance within the current procurement system, should be
considered within the overall context of the substantial annual procurement
spend undertaken and to be undertaken by the Company.

l-iuiil Draft
Ihisji' S o f 40
1 U<NROI> KIRI \NN PRCX I RI:\II-N i £ IN I I RWI. CON I ROI RI.\ II.W w/ji \r yto.s
Report to the Steering Croup Committee
P R I \ \ IT. £ ( o N R ID J \ N M.

BRIEF DESCRIPTION OF IARNROD FIREANVS PROCFRFMFNI

F l N( ! ION

P R O C C K I MI N I F l NCI ION

The CIE Procurement Policies Document dated September 2006 highlights the
policies that the Company's procurement function must adhere to. It states "the
CIE: Group must ensure that proper procurement procedures are implemented
including compliance with EU Procurement Directives (where relevant) and
national guidelines/'

Currently the Company has two procurement departments. The procurement


department in Inchicore is responsible for the Infrastructural Maintenance,
SE&T and New Works Divisions which is the subject of this review.

In the area of tendering, the Procurement Department appears in general to be


compliant with the rules and regulations as set out in the CIE Procurement
Policies manual, however in the case of transactions up to the value of €50,000,
the procurement process is rolled out through the Company's divisions so that
there is in effect a devolved procurement procedure.

A r i l I O U I T Y I . IM l s

Presently there are over 150 people in the Company with the authority to either

directly procure or procure through a third part}' in Infrastructure Maintenance.

SE&T and New Works.

final Draft
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I \ R \ R O D FIKI:AS \ - PROC ( RI MI \ s & I M I- KN \ i . C O M ROI R I O II.W i)9Ji \i. :Ufl.S
R e p o r t in t h e S t e e r i n g C r o u p C o m m i t t e e

PRO \ n : & C o M iDi > ri \i.

The value and volume of transactions lor the areas under r e v i e w is \ery large.

By way of illustration, a document provided by the Company dated 2 7 March

2007 shows the volume of transactions being processed in period from January

2006 to December 2006 under the various transaction levels as f o l l o w s :

j Approval Le vef Amount Number of Value of Transactions


I (€) | Transactions
1 0)
j I. Front Line ] " T p to 2.(700 j 10,982 | 5,527,992
| Managers j j
| 2, Business Unit f Up to 50.000 | 4,050 1 35,827,333 '
1
i
Accountants & Ii i
Cost Centre
|
Managers 1
3. Senior Managers Over 50,000 417 ! 184,578,602
Total 15,449 224,933,927

The company has introduced some controls over the payment process for higher
value (over €50,000), lower volume transactions to ensure there is adequate
supporting documentation in existence for payments made for transactions over
€50,000. However we have concerns that the procurement system does not
have significant controls in place to ensure that all transactions which should be
the subject of these controls are in fact captured by these controls i.e. there is
evidence that transactions are being arranged at procurement stage to fall below
this threshold.

It is in the higher volume, lower value area (namely 1&2 above) where
there is most concern. This is highlighted in our Executive Summary. The
level of annual spend involved in this category is in the region of €40 to ( 50
million per annum for the company in the divisions under review.

Final Draff
Pa^e U) of 40
I VRNKOD KIRI: \ \ N P R U C I R I : M I : \ I A ! M I R \ \ [ . C O N I R O I , UI-.\ II-.W n9 ji \ /.:a(i.s
Report to the Steering O r o u p C o m m i t t e e

P R I \ \ IT X- C O M I M W M M .

PKOC ! RKMKM MLX HA \ ISMS

Cui'rently the procurement function utilises a number of mechanisms in the

soureing and purchasing of goods and services, name!)';

^ Specific Tender Contracts

r Quotations

s- Framework Agreements

> Blanket Purchase Orders

The following is a brief description of how these mechanisms are intended to


operate:

Specific Tender Contracts:


• Tendering procedures are generally utilised in the procurement of higher
value or contract work to the value of greater than €50.000. where the
quantity, timeframe and scope of work is clearly defined. This is
generally utilised in the New Works and SE&T area. The tender
contracts are set up with reference to both CIE and EU procurement
policies and procedures and are designed to meet the principles of
transparency, equality of treatment, proportionality and mutual
recognition, set out in the CIE Procurement Policies.

Quo ta tion
• Three quotations must be received for work that is less than €50.000

(€70.000 pre March 2007) m value. The quotations received must include

a sufficient description of the materials required or the works to be

carried out. The work is then awarded to the most suitable vendor

(generally determined by the inspector or engineer in charge). Cnder CIE

final Draft
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i \ R \ R O I ) I ' J R C \ \ \ • | ' R ( ) ( I UK M I N I £ } \ I ( R \ \\. C ( ) \ 1 R O I . R|-.\ ||\\ iiv./i \ / Joa<s
Report to (he Steering (.'roup Committee

PRO \ I i £ C O M mi \ n \(

Procurement Policies ai! request For quotations should be issued through a

procurement manager.

Fra n 1 e\\ o rk Vgree ruents


• A Framework Agreement is set up for long term projects where some
elements of the requirements cannot firmly be established at the
commencement of the agreement. Generally the suppliers tender for
inclusion as part of a Framework Agreement and an estimated value of
the contract is established. Elements of the project are then awarded to
suppliers based on various criteria including primarily the prices quoted.
Smaller purchase orders are then set up and drawn down against the
Framework Agreement on an ongoing basis over a .period of time and the
work is carried out with reference to the terms and conditions of the
Framework Agreement. In practice Framework Agreements are set up
for multi-million euro amounts, spanning a number of years and are more
akin to a procurement facility arrangement.

BI a n k e t P u r c h a s e O r d e r
Blanket purchase orders are used by the Infrastructure Maintenance Division for
the procurement of plant hire. At the commencement of each calendar year, the
procurement department set up purchase orders based on divisional estimates of
work needed for each vendor for Infrastructure Maintenance. The purchase
order is then drawn down by way of service entries throughout the year.

Control Environment
[here are significant findings contained in (he body of the report as to (he
current operation of the Procurement Function.

i'inal Draft
Pnye 12 i.l'-40
IARNROD KIRK \ W PR<X I KI:\IIA I ^ IN U RN A CON I ROI RI A JJ.U no./i \i :/m
Repori to I ho Steering (.'roup C o m m i c t o o

P R I \ \ I t: ^ CONJ'IOKN 11 \ i

2. K \ I : : C I T I \ K SUMMARY

I. SYSTKMS RI \ IIA\ - KI.V FINDINGS OI (NTKRIM R I T O R I :

The key findings of our Interim Report issued on 3 1 January 2008 were:

1. Widespread on-going non-compliance with procurement procedures is


present within all Divisions reviewed going back some considerable lime
(years).

2. This on-going non-compliance is symptomatic of a more fundamental


system deficiency. The current procurement function does not apply an
appropriate business-based Procurement Strategy throughout the supplier
engagement process. There is an absence of key procurement activities
appropriate to a Company of this spend and transaction volume.

3. To achieve a Best Practice Procurement Model with significantly more focus


on supplier control, a fundamental redesign of the Procurement Function is
required .This will require more resources dedicated to the Procurement
Function at a senior level and may require involvement of external
consultants to lead the change process.

4. Based on feedback received from various workshops and questionnaires, it

is clear there is an urgent requirement for education and upskiiiing for those

occupying positions in all areas of Procurement, which should incorporate

greater use of IT (SAP) within a redesigned and more robust procurement

linal Draf'i
Pajji* } } ol'-IO
I \UNROD KIRK \ NN - PROCI RF.MKN I £ IN U RN M. CON I ROI. RI-;\ N:\\ 09 Ji n/. 2UUS
R e p o r t to the S t e e r i n g C r o u p C o m m i t t e e

PRI\ \ IF £ CONJ N>R N I H I .

5. The l.T. system which operates usmg SAP software is not being utilised to

support snffieient mon11oring of the proeurement proeess. The SAP system is

capable of producing exception reports as pan of a rigorous independence,

compliance and assurance regime however these reports do not exist as they

have not been designed into the current procurement system.

6. With regard to the management of stock inventory, explanations for


discrepancies arising in stock records are not being investigated to a
satisfactory extent. This applies throughout all Divisions and locations
reviewed. Considering recent serious breaches uncovered by the Company
more dedicated stock control personnel are required along with additional
audit procedures to implement satisfactory controls and fully investigate
discrepancies.

7. Stock Inventory Management within the Portlaoise Depot is generally


satisfactory however a review of site security procedures is required to
provide greater involvement by the external security company. Compliance
with stock control procedures at line-side is poor with significant exposure to
unauthorised breaches by line-side personnel. One significant area identified
is the absence of documented evidence of materials planned to be taken out
of the ground at line side, significant in context of ongoing track renewal
programmes.

8. To address these findings. 156 recommendations were included in our

Interim Report.

inal Draft
P a e 14 of 40
I \ R N R O O KIM-; w \ -- P R O C t R I O N : N i S. IN i I . R N \I C'ON r R o i , R I O H V OVJl \r. 2 DOS
Report lo (he Steering G r o u p C o m m i t t e e

PRO VI R £ ( " O N I O I J E N I J W.

FoRi:\Si( Ri \ iEw - KEY 1 I M ) I \ ( , S :

Our key findings, as outlined at section 3 of this Report are based on the

programme of work undertaken since provision of our Interim Report in

January.

Our findings are based on:

• Detailed analysis of documentation in the Procurement Division in

lnchicore and other locations including SE&T and the Dublin, Athlone

and Limerick divisions

• Interviews with staff

• Site location visits to verify specific transactions.

K E Y FINDINGS:

\ . CIRCUMV ENTION o r PROCUREMENT POUICIUS & PROCEDURES:

• There is evidence that some employees are taking advantage of the weak
internal controls and hick of trained staff in the Procurement Function to
circumvent CIE Procurement Policies. There is evidence that they are
manipulating transactions so that they remain within their procurement
authority, thus enabling them to appoint their chosen contractor.

• Apart from the o b v i o u s serious risk this has created for potential

collusion with the vendor, this practice has also resulted m a loss of grant

aid to the company for failure to employ proper procurement policies as

required under EL' law.

inal Draft
P a e 15 of 40
I \ HMUJ!) r.IKi: \ \ \ PROCl RI'MIV!' X | \ ! IR\ M C(>\ [KOI. RF.\ ll-W u<)J I M. 2 tuts
Report to the Steering (.'roup Committee
Pim \ n. A COM ii)[ N 11 \i.

• This practice should be considered a serious breach of procurement

policy as m effect any procurement transaction, including large value

transactions can be manipulated to reduce their size into smaller

transactions thus bypassing controls set tip to govern larger procurement

transactions.

• Evidence gathered confirms that risk of manipulation of the Procurement


P r o e e s s a n d o f g ra n t a id c 1 a w b a c k e x i s t s on pa s t p roj ec t s going b a c k t o
2004.

2. ABSF.NOF OF CONTROLS IN P R O C U R E M K N T I)FPART.MFNT:

• When the Company has a regular requirement for goods and services of a
particular Type' to be supplied over a period of time, in order to comply
with procurement policy, the value of purchases made under these
contracts must be aggregated and the procurement procedures must be
followed for the accumulated value of these goods or services. There is
evidence of instances where this has not been happening.

• The procurement department have no controls in place to monitor that


transactions are properly aggregated for procurement purposes at the
lower procurement authority lev els.

3. ABSFV F O F DOC ( M l A T A H O N IN P R O C l R F M l A I D I P \ R I M I A I :

• Examination of procurement books and records revealed absence of

documentation in respect of the procurement of goods and services. We

have documented various instances where there are missing quotes,

missing original documentation or where purchase orders-were set up

I-inn! Draft
Pa ye it) of40
I A R N U O D [ J R I ; \ NN - P R O C I K I M I - A I £ IN I I UN \ I C O N ! R O I . U I A MA\ tw ./i w :nos
Report to (ho Steering ( . r o u p Committee

PRO \ N & ( <>N[• I \ II M

based on a lower number of quotes than are required to comply w ith

procurement policy.

4. INCORRKC I I)( Hi Ml N I'ATJON I SI- 0 IN PR(>( MU:MICNT I RANS U TU )YS:

• Instances have been found where tender documentation dating back a


number of years, lias been used as supporting documentation for
subsequent procurement transactions which were not subject of the
original tender. We strongly suspect this has been done without the
original suppliers knowledge or consent as otherwise it would appear
reasonable that those suppliers would que 17 why they were not being
given the opportunity to tender again for the new work.

5 . N<>\ COMRI.JANCI WITH PROCKDURKS

• In numerous instances there are no Company records on file, of what the


suppliers were originally requested to quote for. This meant that it was
difficult to verify whether the vendors had been requested to tender for
the same work. Judging from comparison of the content of certain tenders
received from suppliers, they had described different works in both
quantity and type in their tender for what was ostensibly supposed to be
quotations for the same work.

• The C I f Procurement Policies state that requests for quotations should be

submitted to the procurement department describing the work to he

completed in unbiased terms. All requests for quotations must then be

i'ina! Draft
Paye ! 7 of 40
INKNROO KIRI \NN PROM RI;MI:M IN I I.RN M. CON IROI. RI;\ U.W oo./i \ /• -OOS
Report (o the Steering C'nnip Committee

PRI\ \ IT: OV ( ONI ;NT N M \I

issued through the procurement department manager, in practice this does

not happen. In many instances requests for quotations are submitted to

the procurement department by the engineers with the three quotes

a!read} attached and the procurement department then processes the

transaction. The explanation offered is lack of resources and skill levels

available in the procurement department forcing the engineers to

effectively undertake the procurement function.

• There are obvious risks attached to this practice ranging from breach of
procurement procedures to active collusion with suppliers. In our opinion
based on our review the primary objectives of the CIE Procurement
Policies are not being achieved.

6. N ( ) SUPPORTING DOCUMENTATION IN RESPECT OK PI.AN I HIRE AND


LABOUR TRANSACTIONS:

• As part of our forensic programme we carried out detailed transaction


testing on a variety of plant and labour transactions. In the vast majority
of cases no supporting documentation existed beyond a single invoice
which was used to pass the transaction for payment on the SAP system.
These invoices were often generic in nature with minimal description of
work done on the invoice for what were significant amounts (C20T)00 • ).
No supporting documentation whatsoever existed to vouch whether the
work was done satisfactorily or at all. anywhere within the Com pan)'.

• We were unable to verify from the books and records whether the

Company received an}" \alue for these transactions. A \ w;t to the site to

verify the extent, to which the work, the subject of the invoice, was

earned out. would be required m every case and ev en then, there was no

Pinal Drat!
a e 18 of 40
I \ K \ H O ! ) KLRK \NN • PKO( I KIMIA ! £ |N I I K \ M.C'ON I KOI. R | \ !1 W UVJl W: 20US
Report lo the Steering G r o u p C o m m i t t e e

P R O \ re & C O M IDI.N II W

documentation available to confirm whether the work done was

satisfactory and in accordance with what is required. We were informed

in these instances that the work was visually inspected by an engineer and

that personnel resources to implement proper controls was a major

limitation.

• The risks of loss to the company are significant in these instances and
further increased in circumstances where the individual!s) responsible for
procuring the work are absent for any reason including illness, staff
turnover or cieparture. This is not practica 1 and highly unsatisfactory from
the company's perspective and not in accordance with the CIE
Procurement Policies.

7. BUDGETING \\ H HL\ INERASTRT CTL RE MAINTENANCE

• The budgeting system within Infrastructure Maintenance and supporting


coding structure is set up to track expenditure by activity by location.
Infrastructure Maintenance spend is tracked centrally and at Divisional
level actual v. budget on an ongoing basis.

• The nature of spend tends to be repetitive in Infrastructure Maintenance

(hedge cutting etc.). While we note there are high level budgets

completed, the period reports in use monitor expenditure by location

(PW1 Division) but do not highlight expenditure by activity. Reports arc

not automatically produced to enable comparison of actual spend by per

way. by activity. We noted substantial variances between per ways for

maintenance spend {for which there may well be valid explanations

considering differing engineering criteria) however we were unable to

final Draft
Pa 19 of 40
1 \KM«>() PIUI. \ \ \ - PROC I M : \ n : S R A J \ I I : R \ M. CON IROI. RKVII-W (iVJt 2Ot)S
R e p o r t !O ThO Steering (HOII() C ' o n u n i u e e

P K t \ \ ft: ^ ( O M 11 )i \ I I \ |

undertake meaningful comparisons as no planed maintenance regime or

spend per location by activity maintenance budgets are in existence.

• It is very difficult with current information to assess whether value for

money is being obtained or whether there are material variances arising

for year on year maintenance spend even withm the same per way

location.

• We understand that steps are being taken to undertake a planned


maintenance regime in conjunction with appropriate Engineering input
and we endorse this development.

8. C O S T ANALYSIS VIA WHS COOLS

• There are substantial issues with capturing costs using certain WBS codes
in SAP. The SAP system is configured to capture costs by project.
Because of the way the SAP system is configured it is very difficult to
provide a full list of transactions that were incurred by an individual
inspector per year. In particular Renewals (R) codes and Capital (C)
codes are difficult to use for this purpose. This makes it virtually
impossible to monitor a per way inspector's spend and compare this
spend to budgets either lor quantum or value lor money without
significant manual extraction and collation of information from the
system.

• This lack of iraceabiiity combined with other deficiencies in the system

(see I 1 below) provides the maintenance and renewals inspectors and

final 1)ra If
I'aye 20 of 40
I \RMK)i> FiRF \ \ \ • PR(H I Ki.MI-N ) & |N IKRN W. 0 o \ I ROi. R I \ l!W (19 ./i \/ jnn.S
Report in the Steering Croup Comminee
PRI\ \! T & ( D M \ N \J.

others with Procurement authority with wide flexibility to re-categorise or

manipulate spend. It does not promote a culture of cost consciousness or

responsibility.

• The introduction of a Field key to enable identification of spend by

inspector throughout the different categories of spend w ould greatly assist

the tracking and cross referencing of spend by Inspector to activity to

assist budget monitoring and other related Procurement Objectives.

9. ABSENCE OK COMPREHENSIVE REPORTS FOR INFORMATION PURPOSES

• A material obstacle to our forensic review was the absence of relevant


reports and information available from SAP. There are currently no
reports in existence in the Company which provide the complete cycle of
a transaction from the formulation of the purchase order, to the goods
receipting and invoicing of the transaction. We have noted some
exception reports exist within various divisions however these are
relatively new and done on an ad hoc basis, not as part of a co-ordinated
programme.

• The Exception Re poms that have been developed may miss key
information, as a number of the key fields on SAP are not compulsory
and thereto re are often left blank thus limiting the value and use of the
reports.

I O . M O N M ( ) R I \ ( , OF F R A M E W O R K WiREEMFNTS

• Post award of tenders, there is a lack of communication between the

procurement department and ongoing users of the procurement facilities

Final Oral'i
Paye 21 of 40
I \ UN ROD KIUI-: \ NN PROOt R I M I A I X: IN I l:RN CONTROL R | . \ 11 W u9.fi \/; :uos
R e p o r t to t h e S t e i - r i n ^ C r o u p (ommittee

PRO \ iK X ( " o N M n i N ri \ j .

when the facilities are being drawn down. Once the framework

agreements have been set up and leave the procurement department for

use, it is not clear as to who is actively undertaking the responsibility to

monitor adherence to the terms of the agreements. The procurement

department have stated it is not their function, yet it is a vitai element of

procurement control. The Procurement Department should have an

ongoing monitoring role (Procurement audit) on this aspect, as part of

their remit.

• We found evidence that one vendor was charging their rates (which
varied) based on who they were working for within Iarnrod Eireann, and
not based on any procurement facility. These rates then appeared on the
invoice and not those that were originally tendered for. This practice
undermines the tender process,

11.UNUTILISED PURCHASE ORDERS

• During our examination we found that a substantial number of purchase


orders had been set up on the SAP system which have not been fully
utilised. Often the remaining balances of the purchase orders are left open
and available for use. We note that this happens primarily m SE&T.

• For example purchase orders set up with flHflHHHt totalled

€31.936.814 between 2004 and April 2008. Goods receipted for the same

period total €23.990.281. This leaves a difference of €7.946.533. A

substantial proportion of the purchase orders making up this balance

remain open and available for use.

J in at Draft
1'aue 22 of -JO
IARNROD KIRKANN P R O M RKMI N I & IN T KRN M. C O N T R O L R I : \ ILW 09 Ji \!. 2 (MS
R e p o r t to t h e S t e e r i n g (".roup C o m m i t t e e

P R I \ \ IF. X- ( ONKIDI N IT \I.

• it is a strong possibility that old purchase orders are being used to charge
in current work and there is little or no tracking of whether the
expenditure being put through these purchase orders on the system is
expenditure for which the original purchase order was set up. This can
lead to abuse of the Procurement process, and manipulation of budgets.

12.WEAK 1.1. COM KOI.S

• We found evidence that several invoices had VAT incorrectly accounted


for by the vendor. The incorrect gross amount was then paid by the
accounts department. On examination it became apparent that a control
in the accounts payable department had been ignored in the SAP facility
to calculate VAT.

• This is symptomatic of the weak controls around SAP and the ease in
which the system can be overridden.

1 I N C O R R E C T INVOICING

• We found evidence that purchase invoices were approved for payment on


SAP and subsequently paid, for work apparently done, which was
described incorrectly on the invoice and on the purchase order on SAP.
The explanation offered was that work had been done by the contractor
winch was 'similar* to what had been approved for payment. However,
the invoice paid was for a lower amount than what the supplier was
entitled to charge had the correct mvoicc been submitted for that type of
job.

inal Draft
Paye o f 40
I \ U M H ) I ) K H U : ANN - P R O ( I R I M L - A L X I M LL!N \ L. ( O M |(()| K I : \ LL-.W <)9 .! I \/: _VW,V

Report (o the Stot-rin^ G r o u p C o i u m i u e e

P K I \ \ I f: X ( ( ) N I T I ) I . \ U \ I .

• This raises the query as to why the supplier ( f l H H H H B B ) did not

themselves query the under payment and.-or why the supplier submitted

an incorrectly described invoice for payment for a different job of work in

the first instance.

• This incident underlines the lack of control over the approval for payment
process within SAP and the complete absence of other documentation to
support whether in fact work was ever done on transactions such as the
one referred to in this example. The incident was picked up through data
interrogation which identified irregularities, in this case duplicate
payments. We strongly suspect this is not an isolated incident.

1 4 . C R A M AID

• Considering the findings o f our forensic review, the company may need
to consider the implications of these findings in so far as grant aid
received and receivable is concerned.

1 5.ASSJ<;SS.\IE\TOM.OSS

Our findings in relation to assessment of loss are contained in Section 3 of


this Report.

Kin a I DraM
ae 24 of 40
I VRNKOO f'.IKt'.AW - PtUK I Ui Ml \ I & | \ !1 \ | . C'ON I UOI. K I \ U W O l hll \i. 2 0 0 S

Report to tin.' St e f f i n g G r o u p C o m m i t t e e

PRI\ \ rc A COM m i \ n M.

III. FORENSIC REVIEW - KIA RECOMMENDATIONS:

The findings in our Forensic Review confirm the weaknesses identineel in our

Systems Review.

1. The recommendations in our Systems Review should be adopted. Given


the comprehensive and widespread changes in design and work practices
that are required we recommend that a dedicated Task Force is set up.
with the requisite knowledge and skill base needed to undertake and drive
restructuring of the procurement function. While we note that additional
measures have been introduced to strengthen control in some areas, this
has been done on an ad-hoc basis, The entire Procurement Function needs
to be restructured, driven by a Task Force, dedicated to that purpose.

2. Further transaction testing should be undertaken by the Company using


the supplier data provided in the appendices to this report as we expect
that further evidence of unauthorised activity and loss to the Company
will be uncovered.

3. Using further evidence gathered at 2 above, engagement should take

place with suppliers under the headings of:

a. Transaction Vertlication

b. Account Reconciliation

c. Terms of Trade and adherence to Tender Conditions

d. Dependant on further evidence uncovei'ed. provision of

compensation to the Company for overcharging. Fegai advice will

be required. The extent to which the lack of compliance or

Eii) a I Draft
Pane 25 of 41J
IARNROD I'-JRKANN • PRO( I RI \II N I X IN I I:RN M CON IROI. RI \ IIA\
//'/./I \/: yms
R e p o r t to (lie Stvoi'inji G r o u p C o m m i t t e e

P R O \ IF CONMDI.N II \L.

acquiescence by IE staft will limn the scope tor compensation from

suppliers will be a factor to consider,

e. Redesign of the Supplier Engagement process throughout the

organisation (following implementation of 1 above).

4. A method of detailed planning, budgeting should be introduced within the


Infrastruetural Maintenance division linked to the introduction of a
[Manned Maintenance Regime by per way. While we acknowledge the
costs for maintaining track in each location will vary we recommend that
at least a benchmark should be in place to budget the annual costs of
maintaining a mile of track and the annual costs each inspector should
expect to incur in any given perway by activity .

Exception reports should be designed to highlight if variances incur and


the system should be designed to require that explanations together with
supporting documentation is provided to senior management by the per
way inspector.

SIMM A in

We consider that implementation of our recommendations will bring the


fo11 ow ing benefirs to the Company.

E Substantial cost savings amounting to potentially fmillions of euro per

annum (considering annual spend of ( 250 million lor areas under

review).

F i n a l O r a ft
a e 26 of 40
I \RNROI) FlRI". \ \ N - PR(K t RI MI N I & I M I'RN \\ ( " O M R O l . Kl.\ It.W u9.it \i. :<ids
Report to the Steering ('.roup C o m m i t t e e

P R I \ M i: C()N['|[>i:.N [ I M .

2. Greater credibility to the Procurement control process in die context of

the Company competing against private sector competitors for New-

Capital Projects going toward.

3. Significant reduction of Business Risk throughout the organisation under

a number of headings e.g. Financial. Regulatory. Reputation.

4. Greater employee satisfaction and improved skill levels throughout the

Company.

inal Draft
P a e 27 of 40
t \UNROI) K i m \ \ \ • PR<)( ( RI-MKN I & i v n : R \ \ i . ( . ' o \ I ROI. Rj;\ n:\\ OV./l \f, 2 DOS
Report 10 the Steering (.roup Committee

f'RIV M r & COM- IDi.N N M.

3. A S S F S N M F M OF THE F X I F M OF ACTUAL FOSS

RISK PROI IITNG

We have been asked to assess the extent of actual loss to the organisation from

breaches of Procurement procedures in Infrastructural Maintenance. SE&T and

New Works. This is summarised below and in Appendix 1 & 2.

The Company employs a Risk Profiling System known as the Enterprise Risk
Management Register (ERMR) which is referred to in its Annual Report and
Accounts. We have reviewed this Report and note it refers to different
categories of risk including Procurement risk in its Report format (extracts
attached in Appendix 7).

As part of our assessment of loss we summarise below risk categories that


impact on the organisation in this report which are not currently reflected in the
ERMR. We have also attributed an assessment of the likelihood or potential
impact of our findings on the risk categories for the areas under review.

f inal Draft
Pa«e 28 of 40
I U O I F O N Kim-: VW - I'RO< I R I M I N R X L\ N - R \ \I CON I ROI K L \ II-:\\ n<) Ji \/: 2on,s
R e p o r t to (he S t e e r i n g ('.'roup C o m m i t t e e

P R ( \ \ IT-: X ( DM I W . M I \T.

Likelihood/ Potential
Type of Risk Risk Event Probability Impact Risk
This category includes
general account management
concerns, tax obligations,
remuneration and budgetary
requirements. It also includes
Financial Risk actual or suspected fraud, Almost Super High
loss of value added Certain Critical
opportunities or economies of
scale, loss of grant aid and
risk of litigation from
suppliers.
This category includes
compliance with legal
requirements such as
legislation, regulations,
standards, codes of practice
and contractual requirements.
This category also extends to
compliance with additional
Compliance/Legal 'rules' such as policies, Almost Critical High
Risk procedure or expectation, Certain
which may be set by
contracts, customers or the
social environment. This
category includes director's
responsibility under the
Companies Acts to maintain
Proper Books and Records
j This entails the threat to the
I reputation of the business
; due to conduct of the entity
i as a whole, the viability of
product or service, or the
Reputation Risk/ conduct of employees or Possible Critical Medium
Stakeholder other individuals associated
Management with the business. This
category also include the
management of stakeholders
(both internal & external) and
includes identifying,
establishing and maintaining
an appropriate relationship.

inai Dealt
Pane 2 l ) of -40
I \ UN HOI) t IRi w \ - PROC i RKMI'.N 1 ^ )N i'l-.RN \l. CON 1 ROI. Rl.\ li W 1)9 .11 \ l. 20DH
Report to the Steering C r o u p C o m m i t t e e

PRi\ \ i f £ C O M i n i ; \ r i \ i .

We noted that the ERMR categorises, as critical, the risk of serious non

compliance with procurement procedures and have described the current

company status as amber (controls in place but measures planned to further

improve effectiveness). The potential impact is listed as:

^ "Contractor seeks redress through European Courts and/or Irish Courts •

damages paid.
'r
> Eoss of future binding"

We consider based on our findings that the procurement controls in place are
inadequate and capable of very significant improvement. Thus in our view, the
risk of loss to the company is super critical, requiring immediate action to
restructure the Procurement Function within the areas under review with
priority to SE&T and Infrastructure Maintenance Divisions.

The ERMR which the company utilises does not place a monetary value on risk
categories. If a company has no idea of the level of loss which it faces, there is
good empirical evidence to support a view that in an average organisation the
amount of loss from illegitimate expenditure (fraud) alone can be in the order of
5% of total expenditure. This percentage is substantiated by surveys undertaken
by the Association of Certified Fraud Examiners and is considered as a
benchmark measure within the Forensic Industry.

This benchmark measure (5 ( V) excludes other categories of loss such as loss of

economies of scale, loss of value for monev. loss arising from grant aid claw

back, loss arising from litigation by third panics or loss through cost of

disciplinary proceedings taken by the company against staM~ suspected of

Pinal Draft
Pa ye 30 o ( -40
I \R\ROI> KIRI. I'IOK I RIOIKVI X I \ I I R N \ I < O M R O I . R I : \ II W u<)Ji \/. 2nos
Report lo the Steering G r o u p (.0111 mil tee

PR i\ \ 11: X C O M n x . N ri W.

fraud-misdemeanours. Ail of these categories of loss have a monetary value.

Most categories are present in the current environment under r e v i e w ,

We would consider emperical evidence benchmark of a 5°o measure to be a

representative estimate of loss arising to an organisation with weak internal

controls.

Dependent on the state of internal controls in an organisation, the impact of


greater risk of non compliance or collusion can be to increase the percentage
measure by as much as a further 2.5% - 5% of total expenditure.

The corollary is also true in that implementation of effective measures to


increase controls would be expected to reduce loss by a significant amount to an
organisation.

Following receipt of clarification on our Terms of Reference from the Chief


Executive of the Steering Committee, we can confirm that we consider it
impossible to assess the full extent of actual loss suffered by the Company in
the period from 2004 to date, through breaches of procedures. This is due to the
sheer volume of transactions which have taken place, the lack o f information
(reports) and underlying data in the M.l.S. System of companies books and
records, and the extent of the non compliance with procedures revealed which
use! f contributed to our being unable to provide a complete figure for actual loss
in the Period under Review. We have provided a monetary assessment of actual
loss found (E2.6 million) and consider, based on our findings, that there is a
higher likelihood that further loss occurred in the period under review.

[in a I Draft
Page 11 of 40
I \RNROD KIRK \ \ \ P R I X I RKMK \ I £ I N CKRN \K C O N T R O L K I N IKW 09 Jl M 200,S
R e p o r t to the Steering C r o u p Committee

PKI\ \ I K OV ( O M ' I D I N i f \|.

I RN \ \ ( IAI I M P A C T

Assessment of Acmal 1 den tilled Loss

Following our lbrensse rev iew of highlighted areas of the company we have

assessed the level of actual identified loss to the organisation as ( 2.641.859. set

out hereunder as follows:

! ! Assessment of Actual Identified Loss 2004 to Date !


I i !
| ; I

! I
North Wall i; 892,887 !j

H H H B V Transactions 1,748.972 !

A l l Other Vendors N/A


i
Stock N/A
1
Total 2,641,859 |

Appendix 1 attached is a breakdown of the various events which have arisen in


the organisation and have resulted in our assessment of actual loss quantified at
€2,641,859.

D E I - I \ N ION OK L O S S :

As ou11 ined in our Interim Report. loss to the Company can oeeur i n a number

of w ays mcltiding:

• Loss of value-added opportunities and economics to be gamed in the

market place from co-ordination of very substantial purchasing power

within (he Divisions throughout the Company.

inal Draft
P a e 32 of 40
I \RMU)D Kmr \ NN Puo( I RCMIAT & I M I.KN U. CON ruoi. Rio N-.W 09.Ji 2oo,s
Report to flic S t m ' i n y C r o u p C o m m i i t e e

PRO \ I F X ( ONI IM \ | ! \ | .

• The actual cost of known (and unknown but suspected) breaches o f

procurement culminating in procurement fraud on the Company by

internal personnel either acting alone or in collusion with external

suppliers.

• '111 e potential i m p a c t a n d p o s s i b 1 e c o s t I) y wa y o f c I a w back of G ra n t A i d


arising from grant condition breaches by external agencies to include
Grant Agencies and other suppliers of external funding to the Company.

• Potential exposure to claims of discrimination and possible litigation


from unsuccessful suppliers of services to the Company, who become
aware of subsequent non compliance with tender conditions by
competitors, suppliers arising either by lack of internal procurement
control procedures or active unauthorised collusion with a successful
supplier by company employees.

• Reputation risk.

• Potential exposure to liability and penalties from non compliance with


regulations and legislation.

• Cost o f disciplinary and related legal proceedings with employees or

related parties (suppliers)

Cost of action required to design and implement more rob us; internal

procedures and communication of same to all stakeholders, including supplier

base.

)• inn) Draft
Pan*-' .U of -10
i \ RN ROD P l R i v \ s - I' ROC i RI Ml N C ^ I N I i' R N W. ( O N I ROI. K 1-A I1W 09.h M. :IK/,S
Report to the Steering (.'roup Commitiee

PRIX \ t r ( iiNi iDi'N 11 \ i .

Taking account of the findings in die Systems Review and forensic

Examination. Appendix 2 attached is an outline of some further additional areas

where risk of loss is evident.

ASSESSMENT OI RISK OE Ft TI RE L.oss

The Terms of Reference refer to the requirement to assess the risk of future loss

to the Company. Future projected expenditure has been requested from the

company but not provided.

Due to constraints referred to elsewhere, it has not been possible to quantify the
risk other than to state that it is super critical.

We are confident that this risk could be substantially reduced i f a redesigned


procurement system was implemented in the company in line with our
recommendations.

We consider it unrealistic to assume that an organisation of this size and


diversified procurement function would be able to completely eliminate risk of
loss, however we are satisfied, based on our findings that very significant
improvement in the current environment is possible and urgently required.

It is worthwhile to note that using an estimated future annual expenditure, for

the divisions winch are the subject of this review, of 6:250 million pier year,

substantial cost savings can be achieved by strengthening controls through

undergoing a Task Force led reorganisation of the Procurement Function.

Mr)a I Draft
Pant- }4 of 10
1 \ R N R O D L-JRI: PROC T RI.ML.N I X L\ I i RN \ \ . ( ON I KOI Rl.VIl W ttO.h \{-:20O,y
R e p o r t to Uie S t e e r i n g G r o u p C o m m i t t e e

f ' R I \ \ U: X C O M M I \ N U.

4. S C O P E L I M I T A T I O N S & . M E T H O D O L O G Y KM P L O Y IT)

ScoiM-; L I M I T A T I O N S

In the course of our review it became clear that the supporting documentation

required to undertake a thorough forensic review does not exist.

Much of our forensic review1 was then spent attempting to gather information
and undertaking data interrogation to facilitate a detailed review o f the supplier
database and the procurement tendering process.

We then had to formulate and extract our own exception reports from the SAP
system. This again was hampered due to the under utilisation of SAP by the
Company as noted in our Interim Report.

Absence of exception reports within the Procurement Function and inconsistent


entering of data on the SAP system has been noted as a key finding of our
Review (Executive Summary - Note 9),

It was agreed with the Steering Group that we proceed with our examination

focusing on specific locations/hubs with high risk potential. Thus focused the

scope of the fieldwork to areas identified as requiring specific examination to

enable use of the findings in those locations to assist further detailed

investigation by the company.

final Draft
Pa^e o f 40
I A R S R O D K I R F A W - PRO< I R I ' M C M & 1\ U R N \I C O M ROI RI;\ II:W 0 9 J I M: JOOS

R e p o r t to (lie S t e e r i n g G r o u p C o m m i t t e e

I'LTLN \ I I- & ( ' O M ' I N I N M\L

Areas that were agreed are:

1. Concentration on the estimated scale of loss m North Wail.

2. A review of the relationship of certain suppliers with company staff,

speei fica 11 y to concentrate on the fo 11 owing supphers:

a. W H B H H M

b. H B H B M l (and associated companies)

w ^HHflHSHHP

3. Estimation of Loss of Stock m Portlaoise Depot


4. Review Supplier Data Base

We then concentrated on the following areas:

• Findings and recommendations following interrogation of data related to

suspected vendors, employees and locations;

• Findings regarding the availability or absence of SAP reports to assist m

the evaluation of procurement breaches within the Company;

• Recommendations regarding the capture and reporting of key data at

different levels to help monitor compliance with procurement procedures

and highlight potential fraudulent activities. (Establishing compulsory

SAP f ieIds and contro 1 s to monitor comphance etc}; and

• Provision of data analysis models in t lie form of printed reports and

modelling tools. We u ish to acknowledge the assistance of the cost

audit and internal audit departments on aspects of this work.

final Draft
Paue 36 of •*(.)
1 \ R M * o i ) KIRK \NN PRO< t RLMFN I X I M i RNAL CON n o n . R i . \ u \\ <!<)./( \i. 2()as
R e p o r t to the S t e e r i n g G r o u p C o m m it lee

P R O \ N; X C O M IOCN N U,

Design of a Risk Profiling Template

Tins is a template we designed, listing ail the categories of breaches identified

and attributing a risk level to these breaches.

This risk profiling template was supported by;

• independent findings from fraud surveys:

• Vendor profiling;

• Benford's law analysis by supplier;

• Selected transactions testing fieldwork (to include files of documentation


retrieved); and

• Personnel profile analysis.

• Templates which displayed high risk areas in the purchase to pay process
at operational level.

Assessment of Actual Loss based on the above

• We then assessed the actual loss by reference to actual loss identified


from fieldwork by us and by the Company through its own ongoing
internal investigations, h was not possible to assess total loss due to
other constaints, except to state we are confident that other unidentified
loss exists within the organisation. Our Report provides
recommendations on how to address this issue.

Final Draft
Pa»e M of -40
1 \ R \ R O O P.nu: \N \ PRO<T RKMIA 1 & I \ T ) R \ W. C o s I ROI Kl.S il.w 09./1 M.JO OS
R e p o r t to the Steering ( . r o u p C o m m i t t e e

PR!\ V I F C O M ' I D I . M I M.

T H I R D PAR IN \ I RLL !( \L ION

As pan of our fieldwork we recorded meetings with key management and staff

Third party verification with suppliers was not undertaken in our examination

dtie to the volume of transactions in the system, the difficulty in extracting

information and time constraints.

l ina! D r a f t
Pn.qe M) o f 40
IARNROD KIRK \NN ~ P R O O R I . M I . M X IN U RN U. CON YROI. RI-A II U 09Ji \ i: 20OS
Report to (he Steering d r o o p C o m m i t t e e

P R O \ N- X C O M IDCN N M.

5. (CONCLUSION

This concludes our Report under our Terms of Reference. We are available to

meet with the Steering Group Committee and other Representative Committees

within the company to discuss our Report, as required.

We would like to express our appreciation to the management and staff of the
Company for the time and co-operation afforded to us during the course of our
review. We have endeavoured to work within the constraints of staff
availability and acknowledge in particular the assistance of V R H H B H B l in

facilitating the considerable volume of meetings and information/documentation


requests necessary to fulfil our terms of reference.

BAKER TILLY RYAN GLEN NON

DATE:

Li ft a I D r a f t
aye 40 of 40
I \R\ROD F.IRF. \ \ N - PROCI RKMKN I & IN FKRN U CON I ROI. RI;\ II.W 10 .It \/ 200S
Report to the Steering Group Committee M'IM.NDIX I

PRIN U K & CONFIDENT! U.

CONTENTS

Assessment of loss actual from Forensic Rev iew 2

1. Assessment of Actual Loss - North Wall -


Event 1 - Removal of Soil from North Wall 3
Event 2 - Collusion with the Contractor 6
Event 3 - Missing Stock 7

1
2. Assessment of Actual Loss - Transactions with j H H B H B H f l k '0

Event 1 - New Mini CTC Project 11


Event 2 - Non Compliance with Framework Agreements 16
Event 3 - Collusion with Contractor 20
I \ R \ R O I ) I J R I : VNN PRO< I RI:MJ-:N I X IN H-:R\ O. C O N T R O L 10 \ (E NN ifiji \/ :oo<y
Repot! to ilie Sieeri»n Croup C o m m i t t e e M'i' I.N !)| \ I
P R O VI'M & C O N N i ) F N [ I \ I .

ASSESSMENT OF AC 1 V A I. I OSS FROM I () RE NSI(


INVESTIGATIONS:

We have calculated the actual loss an sing from events which are the subject
of this report as €2,492,414 set out as follow s:

'Fable A:

Actual Loss i

I North Wall 892,887


Transactions 1,599,527n
n/A l
j
R7W

2,492,414

I. ASSESSMENT OF ACTUAL LOSS - NORTH WALT,


The actual loss incurred due to incidents which occurred during the North
Wall Spenser Dock project and other events which arose in the North Wall
area total ('892,887. summarised hereunder as follows:
I VRVROI") ElRKWN - PUOC V RCMIA I ^ |N I1.R\ \l. COMIiOL Rl \ 11W 10 Ji \7. 200$
Report lo the Steering ( . r o u p f ' o m n i i i lee \ i'f11A Dl \ I
I'R)\ WE & COM I D D T I vt.

Tabic B:
• North V\ all Spenser Dock G Event 1 - (' - E\ ent 2 - ( - Event3

Removal of Soil Collusion Mith Missing

from North Wall Contractor Stock

I Financial Risk:

i Actual Cost of Known or 257,682 271,665 163.540


; Suspected Fraud
j Loss of Value Added 1 Not Applicable j Not Applicable Not
i i !
j Opportunities or Economics of Applicable
Scale
Loss of Grant Aid or Risk of The €257,682 was j Not Applicable Not
Claw Back excluded from the EU Applicable
Grant Claim and was
Financed solely by
The Company
| Risk of Potential Litigation from Confirmed but not j Not Applicable
i
| Suppliers quantifiable j
| T o t a l Loss €892.887 257,682 27E665

E V E N T 1 - R E M O V A L O F SOIL, F R O M N O R T H WALL

• As part of the Docklands Station Development Project, work was


completed in the freight yard in preparation for the project
commencement in 2006. As part of the preparation. New Works
prepared a tender package in July 2006 for the removal of hazardous
and non hazardous MU!S which were accumulated during the course of
flflHHHHHHHHHIl tendered
I \ U M i O O K.IUI \ \ S PkOC I UI.Mi.N I X i \ ICRS O. (. OM ROl. k l . \ II.W lU.h M. IQOti
R e p o r t to the S t e e r i n g C r o u p ( , ' o n i m i t l e e M'PiOniX !
PRO \ I I. & C O M IOI.M ! \ l .

remove non Hazardous Soil in July 2006 but w as unsuccessful and the
to S H B H B I H B B H H H M I

invoices were recci\'ed at a later date from I H H B H B M l for the


removal of non hazardous soil from the area outlined above from
January to July 2006. it is the contention of New Works that W K t t
H B H B H B were never tasked with, nor did they perform soil
removal activities from the North Wall Freight Yard during the course
of the project and they are disputing the full extent of the invoices.

• The invoices were signed off by


and were paid by accounts payable between January and July 2006
quantified at €257,681.60 gross. The invoices were not matched to
any planned work or budget of costs for the project, prior to payment
of the invoices. Further invoices were submitted by M H H M H H H f t
4 H H B in December 2006 however these were not paid by The
Company. We understand that there are currently legal proceedings
ongoing with the said company.

Blanket purchase orders are set up on the SAP system at the beginning
of each year by the procurement department for general plant hire
work in the Infrastructure Maintenance Department. The invoices that
are the subject of review were charged against a blanket purchase
order and then coded to a capital WBS code.
IARNROD KIRI-: PR o n R I:\IIA I £ | \ RT.RN M. CON I ROI. UI \ N.W I'tJi \/-/J/7(M'
Report to the Steering C r o u p C o m m i t t e e vi'pt;MH \ i
PR!\ \ [ F & C OM IDI NTI U.

• On review of the invoice insufficient detail was provided and no


supporting documentation was available. This made it difficult to
determine if the work was actually done, figures provided by
^ m i B H i B H H H l independent consultant engineers, indicated
that the work detailed in the invoices could not have been done as the
quantity of soil left over to be removed from site was minimal.

EFFECT
• Invoices were paid to the value of €257,682 for work the company
considers never took place.

• The Dockland Station Development Project was funded under an EU


Grant Scheme, Due to the incidents outlined above, expenditure of
€257,682 has been omitted from Grant Claims. This means that all
costs will be borne by Iarnrod Eireann.

EVIDENCE (SUPPLEMENTARY FILE NO. 1)


a) S H H H H H H tender documentation for the removal of non
hazardous soil and rubbish disposal dated 04 .August 2006.
b) M M H H H f c tender documentation for the removal of non
hazardous soil and rubbish disposal.
c) Copy of disputed invoices paid between January and July 2006
totalling €257,682.

d) Copy of letter from the environmental officer of New Works dated 27


Aprii 2007 disputing full extent of invoices.
I \ R \ R O D K I R ! ' \NN I'ROC I R I : \ I I : \ U U M I . R \ \I. ( o \ i R O I R i : \ HAS lo.11 \i :ous
Report to the Steering (.'roup Committee VIT! W)l\ I
P R I \ V N : ^ C U N I INI N( I M.

S01
e) Copy of further invoices received from H M H B H H i v l
removal from North Wall submitted in December 2006 totalling
€23,329.

f) Report prepared by ^ I ^ H H H H l ^ H H f c - Consultant Engineers


dated 23 April 2007 on the extent of earthwork quantities for the
Docklands Station project.

EVENT 2 COLLUSION WITH CONTRACTORS:


• Through internal investigations in the Company
has admitted involvement in collusion with both
and M M N H M H H H H H M I Results of the internal
investigation carried out indicate that f l H k H M B was signing
fraudulent time sheets or requesting plant hire and labour when not

EFFECT
• Fraudulent invoices have been paid for a number of years under H I
• • H V H H f H M P r e q u e s t authority. An estimation of losses totalling
€271.665 has been quantified in respect old'he above transactions.

• We have been informed that the employee has repaid the Company
€1 00.000 as compensation for the above transactions.
I \RNROI) K Hi I \N\ PRO< t R I M CN I IN I'i.RN \|. ( ( ) \ | ROI. k C \ II.W lu ii M :<iu.s
Report (o ilie Steering Croup ( " o m m i u e e \ I'LM! N 01 \ |

p R f \ \ i f. X: ( ON| IDI.N n vi

EVIDENCE
g) Schedule of expend;lure authorised by flHHR provided by Cost
Audit & Efficiency Unit
h) leaker "filly workings on calculation of Losses dated 23 April 200S
i) Sample invoices demonstrating fraudulent activity

EVENT 3 - MISSING STOCK

• An audit of plant hire was carried out by the Companies Cost Audit
and Efficiency Unit in May 2005 in the Dublin Division of the
Infrastructure Maintenance Unit, The audit revealed large quantities
of stock (rail and sleepers) were being removed and sold by the
company staff for personal gain. The staff involved were using
Company resources to break-up and transport the material for sale.

• On the 4 t h July 2006 a f N H B M M M P truck was pulled over by


Gardaf heading in the direction of Wick low, carrying sleepers. On 5 t h
July 2006. a Garcia patrol car stopped an Truck which
had left the rail yard loaded with 40 50 lengths of rail on the M l
near Lay town. The truck had been en route to V H H M M H N M t t V f
M N H H H M I to sell the rail. Receipts were also recovered for two
loads which had been taken t o f m i on the 3rd and 4'' of July 2006.
Surveillance reviewed indicates that theft of rail and sleepers was a
continual and onijoinc event.
I \ R N R 0 N KIKI. \N\ I'ROC { R I . M K M X- I M I-'.RN W C O N I R O I . R I . \ II:\\ I0.il \h2O0X
Report (o (he Sloering (.,roup ( ommiuev \Pi: f N oi \ !
P R I \ \ ) 1: ^ C O N I I D I N n W

• When the purchaser of the stock in Wick low was questioned he


con firmed that he had been in receipt of 1.000 to 1.200 sleepers per
year for which he paid €14 per sleeper to the Irish Rail employee.

EEEE( R
• larnrod Eireann have suffered a continuous loss over several years for
the value of missing stock including the value of Irish Rail labour
utilised during this time and the plant hire used in delivering the
misappropriated stock to its end destination.

• Estimation of losses by the Cost Audit & Efficiency Department total


€645,000. Estimation of losses by the Infrastructural Maintenance
Department total €450,971. We have quantified the losses to the
organisation at €363,540 (Workings in Lever Arch File 1)

• The main discrepancy between our calculations and the internal Irish
Rail calculations are that we have eliminated the losses suffered in
respect of sleepers. This is becausc currently under law. the sleepers
can not be sold to the general public due to their carcinogenic
properties. It should be noted that there is a minor risk of litigation on
health grounds if it emerged that carcinogenic stock had been sold 10
the general public by Irish Rail employees. It is not possible to
quantify this.
I \RNRO|) [\I!U \NN - PKO( 1 !I|.\!FS I vV i \ I MRS M. ( O N I KOI RlO IF.W 10 Jl \f: 20OS
Report io ilie Steering G r o u p C o m i n i l i e e API'I.XNIX I

PRIV \J L. £ ("OM'IDIA ! I M.

• As noted in our Interim Report, control around the movement of line


side stock is weak and documentation is minimal. The risk of further
misappropriation of stock from line side remains high as previously
related discrepancies in the stock inventory arc not being properly or
satisfactorily exp 1 ained.

EVIDENCE (SUPPLEMENTARY FILE NO, 1)


j) Workings of losses by Infra structural Maintenance Department
k) Workings of losses by Cost Audit & Efficiency Unit
1) Workings of losses by Baker Tilly Ryan Glennon.
1 \ R \ K O N KIKI-: \ N \ P R O C I RI:MI.N R £ I v r n n \I C O N I H O I . R I O II.W Hi Jt \i. 200$
Ri'pon (u the Steering C r o u p Committee \l>!'fNI>[\ f

P R I \ \ N ; A C O N I IDI;N I I \I.

ASSESSMENT OI ACTUAL IDENTIFIED EOSS - TRANSACTIONS


WITH

The actual loss incurred due to breaches of procedures in relation to

transactions examined total €1.748.972 summarised hereunder as


follows:

€ - Event 1 f - Event 2 - Non (- - Issue 3


i I Compliance with C ollusion with
j New Mini
I | CYC Project Era me work Contractor
J
! [
Agreements

| Financial Risk:
j Actual Cost of Known or Suspected Not Known Not Known 30,602
j
j Fraud
j Loss of Value Added Opportunities High Risk 777,600 - Current High Risk
| or Economies of Scale i PO Est.
1 I LI66.600 Original
i | PO Est. !
I
1 1,520.394 Simple j
I
. \\ 1 <1 UV !

1 .oss of Cirant Aid ouc^o [ Not Applicable ! Not-


Applicable
Risk of Potential Li ligation from : High Risk Mich Ki^k j Not
Unsuccessful Suppliers Applicable
r
Total Loss - ( 1 ^ 4 8 . ^ 2 ~ " 940.770 777.600 30,602
I ARNROD KIRI: V \ \ - PROC T RI MI N I I NTIRN M (/ON I ROL R I A N;\\ in Ji u JifOS
Report to ihe Steering C r o u p C o m m i t t e e M'L'INDIX |

PRIV \ l'i- A C O M INI N 11 \I.

1t should be noted that these transactions form only a very small element of
the total volume of business the company conducts with ^fllMMIB
which in the period from 2004 to April 2008 total over €23 million. It was
not possible to test all transactions due to volume, time constraints and EE
Svstcm constraints.

EVENT 1 - NEW MINI CTC PROJECT


• As part of the 'New Mini CTC' project, a tender contract number CE
1369 was prepared, dated 24 October 2003, in order to source a
vendor for the development of radio sites along the New Mini CTC
lines. The work was awarded to three vendors who tendered;
MHBMHBHfe (€34,390 - which included the construction of a
generator room for €14,500), M H H M f t (€20,756.37) and W
M B H R (€22,478.96). The documentation in respect of the work
each vendor was requested to tender for is missing from the
procurement department and was therefore unavailable for inspection.

Subsequently VHBHMH| was awarded the work for the


development of a further 53 radio sites at a price of €19.1 82(net) per
site between January 2004 and December 2007 totalling €1.016.669.
The work was not re-tendered for and the same quotations for
VHHPMHNfc and ( H H H W featured in number CE
1 369 and dated 24 October 2003 were utilised. No vendor was given
an opportunity to re-quote for the dev elopment of the sites.
I \RNROD F.IIU.VNN PROC I KI.MI-A I JNITRN O C O N T R O L R I O ILW iO./i W JOOS
R e p o r t to Iho S t o e r i n y (WHUIJ) C o n w n i t t e e \RIM NO! N 1

PRO \ri: ^ CON run: N IT M.

* circumvented the procurement process by


setting up purchase orders at a level marginally below the minimum
tender threshold of €70,000 <3:-€1 9, ] 82). The tender threshold ieve!
was reduced to 050,000 on the 14 March 2007 and thereafter the
engineer submitted purchase orders for these transactions below the
€50,000 (2*€ 19.182) threshold. Reasons provided tor tins was the
perceived lack of an efficient procurement department and lack of
sufficient resources.

• EU procurement law and CIEs own procurement policies and


procedures state that when the company enters into a series of
contracts to obtain goods and services, the value of purchases made
under contracts must be aggregated and the EU rules wall apply if the
value of these taken together exceeds certain thresholds. In the case of
the Westport Resignaliing project the purchase orders for 20 radio site
developments were set up within a five month period. This work
should have been aggregated and a tender contract for €435,440 set
up. There is also ancillary work including the erecting and rigging of
the mast which totals €82,557 for 9 sites. This should have been
added to the tender contact as being part of the project. The project
under EU legislation would then have had to comply with EU Council
•Directive 2004-17 EC starting with a call for competition notice,
which should have been sent for publication in the OJfU.
I \RNROO I'.'LU! \ \ N PROCL RI MI:\ I |N I I.RN \1. 0ON I ROI L( \\
It) Jl \f .'"OS
Kepori 10 the S t o r i n g (.'roup ("ojunii(ii.'0 \ IT I N !)1 \ !

P R O \ N: & < 'OM IDI N M M.

• A t the i n t e r v i e w w i t h it became apparent that of the 20


invoices which were described and recorded as radio site
development -'equipment compound development on the Westpon line,
six of these were in reality for the building of generators on the radio
sites. The paperwork surrounding these transactions including the
initial set up of the purchase order on SAP. the quotations used for the
work and the final invoice submitted were all described incorrectly.
Given the lack of paper work on the project it was impossible to know
what work was completed for these invoices. Only WKKtKHKKtb
w a s
able to state the actual work completed. This lack of
paper documentation was symptomatic of all the radio site
development work. In all instances the only document to denote the
work was completed was a one page invoice which had no supporting
documentation. Under Commission Regulation 438/2001 the
managing authority must ensure the principles of sound financial
management are adhered to and under this regulation the control
procedures must include procedures to verify the delivery of the
products and services co-financed, and the reality of the expenditure
claimed, and to ensure compliance with rules in relation to the
eligibility of expenses, public procurement, protection of the
environment and equality of opportunity.

• A further examination of the .documentation relating to the


resignalling of the Ross la re line s h o w s similar characteristics as
outlined above. The invoices lor the buikiiim of the generators on this
! \KNROD KIRR \ \ S P R O V I U I M K N R X.- T\ RI:KN \ l C O N IR< >R R I O II.W la.Ji m 2tins
Repon lo I lie Si oerin^ G roup Oo m mi l k-e \pJO;\i>t\ I
PRIVUI X C O M I D I A M \R

line are correctly described; however the quotations used for the work
are not. Quotations received indicate that unrelated works are being
used to supplement the quote received from M N H M B B l which
results m flltf being awarded the job. This is a major breach of
procurement policy.

EFFECT
• Both the Westport line and the Ross la re line were to be funded by
both EU and Exchequer grant aid. Due to the significant breaches in
procurement policy, the expenses incurred in the development of radio
sites will not be eligible for funding and will have to be financed by
Irish Rail. This results in loss of revenue to the company of €5 17,997
in respect of the Westport Line and €422,776 in respect of the
Rosslare Line to December 2007, Expenditure on the Rosslare line
has been ongoing.

• We note to date that the internal audit department have recommended


that €421.472 be excluded or will be excluded from grant aid claims
in respe c t o f t h e W e s t p o rt L i n e and t h ey s t a tea fu r t h e r €4 2 2.7 7 6 will
be excluded in respect of the Rosslare Line. Given these recent
figures provided by Internal Audit and our own findings, it is likely
that further loss has occurred.
I \RNROO r.lRI. \ \ \ - PRCK I Ri AI I.N i I N ! | RN m ( ON | R o i Ri \ u . w lujl \ /: 20U.H
Report to ilu- Steering C r o u p C'omniittee \ I'Pi M>! \ 1

PRIV \ I K & ( 'ONI lDI.'N ) 1 \I.

EVIDENCE
m) Tender Documental ion dated 24 October 2003 received from
and
n) Copy of Memo relating to the Amendments to the ( lb Group
Procurement Policies anil Procedures dated 13 03 200"'
o) Schedule of Transaction of W H M N 1 taken from m Tables
extracted from SAP
p) Schedule of Radio Sue Transaciions linked to l..oeauon
I \ K \ R O I ) K I R I. W \ PKO< 1. R I : M I-:\ R X I \ I I : K N U . C O M U O I . K I \ II \\ iu./i M:
Kepor) io (IK> Siceriny C r o u p ( oinmiik-i' \pi'i;nDi \ f
Pirn \N; X COM i m ; \ i I M

q) Copy of Invoices received lor Radio Site Development from H I

r) Cop)' of Procurement Documentation received in respect of Radio

Site Development
s) Copy of SAP Screen Shots in relation to Radio Site Development
t) Copy of Invoices related to Erecting and Rigging of Radio Sites
from V H M H M H ^ M H N i
u) Copy of Tender Documentation related to Erecting and Rigging of

Radio Sites from various vendors


v) Copy of invoices received in relation to building of Generators on
the Rosslare Line from p H M N H M B P
w) Copy of tender documentation in relation to building of Generators
on the Rosslare Line from various vendors
x) S a nap 1 e o f Te rm s an d C o n d i t i o n s signed fo r E R.D F F u n d i n g
y) Letter dated 10 March 2008 outlining EU Regulation which must be
cornplied with in order to receive Grant Aid
z) Circular/2001: Financial Management and Control Procedures for
rhe Eu ropean Regiona 1 Devc 1 op men t Fu nd (E R D F) 2 000-2006
aa) Commission Regulation 438/2001
pp) Calculation of Losses in respect of Grant Aid

EVENT 2 NON COMPLIANCE WITH FRAMEWORK


AG RE EM FN IS
• Framework Agreement No. CE ! ? 93 was set up bv the Procurement
Department in 2006 for the proGsion of cabling and associated works
services. tendered for this contract and were awarded
I \ R \ R O D K i m : \\N P R O M R I : M I;\ R ^ [\IIJIN\I ( D M R O I . R I \ 1RW id it \i :<m
Report to tlte Sieoring O n m p C o m m i n e e VI'I'IM)L\ 1

P R I V \ i i: VX ( O N I m i . \ n M .

36° o based on the prices submitted, which had a value of (-"4,860.000


(36°o) over a three year period, it emerged after this agreement was
set up, that did not invoice at the tendered rates but
instead were charging rates based on their own increased figures. Due
breakdown of basic contract management controls between the
procurement department and the engineers/inspectors involved in the
receipting of work, this breach was not noticed for approx. 9 months
a fter re ward of the contact.

have been charging varying rates which have never


been tendered for, depending on the inspector they were working for.
We have not been provided with any details as to the reason for the
varying rates, however an explanation offered was that the supplier
was unsure as to which framework agreement they were working
under, which is not considered to be a satisfactory excuse.

• Once it emerged that there was a variance of rates between the


framework agreement and the rates actually charged by
the procurement department agreed with the supplier to 'harmonise'
the rates. The harmonised prices agreed arc on average 3l.29°o
higher than framework agreement CE 1793. Tins is effectively a
renegotiation of rates post lender.

• When challenged on the point, the procurement department did not


have a satisfactory explanation for the 'harmonisanon' approach as
PR<H R RI M I S R X L \ I I.RN M . C O N I ROI R I \ I I ; \ \
I \ H M I O N I-JRI: V \ N
m.n \i :/ki,S
Report (o ilit' Steering Group Committee
\I'IM:M)1\ 1
I'RI\ \ n : X C o s i M I S 11 \i.

opposed to either forcing the supplier to abide by the original tender


framework agreement (and seeking a refund for the overcharges}
and/or re-tendering the framework agreement to allow the
unsuccessful suppliers the opportunity to re tender.

• It is not clear why flHHBHHfe should have been allowed the facility
to 'harmonise' at all by the company as such practices carry high risk
for the company.

• There is sample evidence on file to demonstrate that a competitor,


V H B W , had no difficulty in complying with tender conditions and
they have been invoicing inline with the tender as work awarded
under the same Framework Agreements.

EFFECT
• The renegotiated rates have resulted in an increased cost to the
organisation of circa 31.29% in respect of framework agreement CF
1793 using a simple average calculation. An increase of 31.29%
results in a loss of (1.520,694 (Calculations in Lever Arch File 1)

• The losses will be dependant on the mix of actual hours utilised.


Using the mix of hours estimated on the initial purchase order results
m a loss of t L166.000 to the company.

N
I \ u \ K O i ) KIRK \ \ N PRO< I RKMKAIS. IN U RN M . C o m k o i RK\ IKW Hi.li \/ 20 US

Report to ihe Sfeering Croup Committee MT'IADIN I

PR|\ \ I K X: ( OM IDIA I I M.

• Since the initial purchase order was sei up. the mix of estimated hours
has been adjusted on the SAP system for reasons unknown. L'sing the
adjusted mix of hours will result m a loss of £777.600.

• The level of committed loss is therefore betw een 67 /7.600 and


€1,166.000

• The average marks given in the awarding of the contract were as


follows:

If the increase of 31.29% was applied to the J M M P H B t e n d e r e d


rate, this would increase it to an av erage rating of €1.084 and would
relegate them to third place in the framework agreement. This in turn
would mean that V H B M H I f e would have received a substantially
reduced proportion of the contract and one of the other vendors
substantially more. f H H H H S P would have been awarded only

0)
I \RM<OO I J R I : PIUX. S RI.MI-S I X IN n R \ \L ( O N I ROI. R I : \ II W in.H \i 20ns
Report lo I!H' Steering ( . r o u p C o m m i t u-e \pprM)i\ )

P R O \ N ; X C O M IIH:N II \ L

20% rather than 36% oh the contract. This translates into a reduction
t o V H M N H B in the value from €4.86 million to €2. 7 mi!!ion.

EVIDENCE
bb) Copy of Initial Framework agreement CE 1793
ce) Copy of Initial Framework agreement CE 1 586
dd) Framework CE 1793 Board Approval dated 07/06/06
ee) Schedule of H H B H H B l Rates Agreed Under Framework
Agreement CE 1 793
ft) Schedule of V H H I Rates Agreed Under Framework
Agreement CEI586
gg) List of purehase orders processed under CE 1793
hh) Schedule of sample Testing of Purchase Order Number 4500333868
- CE 1 793
ii) Schedule of sample Testing of Purchase Order Number 4500291784
CE 1586
jj) Schedule of B H W H B 0 D u b l i n Division Rates (Unknown Source)
kk) Schedule o f V H B N M R Agreed Harmonised Rates
o n
II) Copy of schedule provided by t H M N H M M f c !^alcs Pre
Harmon isation
mm) Harmonisation of Rates Workings
nn) Sample Testing o t ' H H R H H transactions • .Also involved in boih
Framework .Agreements
oo ) Schedule showing Calculation of Losses Workings
I \I\NROD IORI: \ \ S P R O C I RR:\IRS I F S IJ:RN W C O M ROI. K I:\ f I U UiJl M 20(hS
R e p o r t 10 t h e S t e e r i n g O n u i p Committee \MTM>I\ I

P»L\ \ I t: & ( V ) N I ' M ) ! . M L VI

E V E M 3 - COLLI SION W i l li (ONTRACTOR


• We have been provided with documentation by the company from
internal investigations and evidence received from surveillance that
one of the inspectors was utilising V H H H H H H H B H I for work
that was false or not required. It was noted from cost audit
investigations that the work which was being described on the system
was not actually being carried out. Surveillance showed that the
contractors were doing little or no work when they should have been
under the supervision of the inspector in question.

• The senior engineer in charge interviewed the suspect. We have


analysed the responses received and note that the explanation given is
that while the contractors were not doing the work as described on the
system, they were actually completing other work for the said
inspector. However a review of the work which the inspector in
question states was completed does not explain the discrepancies
raised in internal investigations. In one instance the vendor was seen
to be carrying out work at the inspector's private address.

EFFECT
• it is likely that the eompanv has suffered financial loss whether
through value for money or actual fraud during the period examined
for the said inspector. Invoices for the period examined total f 3 0.602.
!t is also highly likely that further losses have been incurred as a result
I \RNR6D KJRI \NN PRU< t R I M i ; \ i I N ITRS \I. C o s i ROI. KI N few 10 Jl \f- 200S
Report to (he Steering ( i r o t i p C o m m i t t e e AIMMADIN I
PRiv \ ! T: & C O M 101 \ J I W

of the situation outlined above, which have been noted in our scale of
loss estimate.

• A serious impediment to all such investigations conducted by the


company is the lack of supporting documentation and w idespread non
compliance with procedures as documented throughout this report
which allows staff under scrutiny the opportunity to 'blame the
system' or provide explanations which cannot be disputed due to lack
of evidence.
I \R\ROD FIRI: \ \ \ - PROC I
Report to the Steering Gro
PRIX \TL VI COM IDEN N \L

CONTENTS

Assessment of Scale of Unidentified Loss 2

1. Assessment of Scale of Unidentified Loss Arising from All Vendors 2


Event 1 - M H H f l H M R - O t h e r Transactions 2
Event 2 - Further Instances of Breach of Procurement Procedures - SET 3
Event 3 - Further H H P l M f c Transaction Testing 4
Event 4 - Weakness within the FT. system including Plant Hire Database 6
Event 5 - Further Internal Investigations carried out by Cost Audit Unit 7

!. Assessment of Scale of Loss Arising from Stock 11


Event 1 - Stock Discrepancies 11

3. Risk Analysis Table 14


I \R\RO!) KllU \ \ \ PR<K I R! Ml \ | |\| ! K \ U ( o \ I ROi K I \ 11 W 11/.it v :t/o,s
Report lo the Steering O r u u p C'oiiimitiee \ ! T I N i) I \ 2

i'Rf\ \ f I! ^ ( wNi !!)! N I f \l.

ANSESSM EN 1 OF SCALE OI EN IDENTIFIED I ,OSS:

ASSESSM ENT OF SCALE OF LA IDENTIFIED LOSS ARISING


FROM AI A, VENDORS

INTRODi CTION:
Apart from the findings and events documented elsewhere in this
Report, the following are a series of specific events which have come
to our attention. These events further illustrate the potential risk of
loss to the company within the Procurement Function however it has
not been possible to quantify the extent of the actual loss.

EVENT 1 OTHER TRANSACTIONS

• Appendix 4 attached has quantified loss to the company from disputed


W transactions at €257,682. This raises the question as to the
authenticity of other expenditure incurred with IflHBHHMM
W t A review of the other transactions s h o w s a further €32 7.484
for soil removal which has been coded to capital W13S codes and
drawn down from blanket purchase orders between 2004 and 2007.
by H H H H H H M H B H M H P
involved in die disputed soil removal ease. We are advised that
blanket purchase orders used were set up for plant hire use only in the
infrastructure maintenance department and should not have been used
in New Works projects.
I O O K O D IJKI: \ \ \ •• P R O I ! R I M I M A | \ 1 I I ! N M ( O M I I N I K R \ | | \ \ iv.H w Jattx
Report to the Moeriny Group ( ouimiiUH' M'lM MH\ 2
PRO \ I r. X ( ONni)i N I I u

• It should also be noted there was further expenditure with the


company for sod removal in the Infrastructurai Maintenance
Department between 2004 and 2007 which was coded to maintenance
and renewals codes.

EFFECT
• Given the extent of transactions currently being disputed by the New
Works division with this supplier, there is a high likelihood that the
above expenditure also contains some other components of authorised
expenditure which give rise to risk of loss, given the similar
characteristics of the work. Also if any of this expenditure was
included in grant aided capital projects, there is an element of risk
given that the procurement procedures were not adhered to.

EVIDENCE - (SUPPLEMENTARY FILE 2)


a) S u m ma ry o f Tran s a c t i o n s A Hoc ate d to Ca p i ta 1 Co d e s
b) Copy of purchase order screen shots.
e) Gopy o f 1 nvoices coded to Capi(a 1 WBS eodes

EVENT 2 FURTHER INSTANCES OF BREACHES OF


PROCUREMENT PROCEDLRFS IN S.E.T.

• During our forensic review we completed detailed random transaction


testing in respect of several blocks of'transactions lor different types

to review ;hc;r adherence to


procurement policies and procedures. .A substantial proportion of
I VRNROU KlUi \NN PR<K ( R! M I.N I IN II RN \ | ( O N ) ii< >|. Rf \ | | . \ \ Hi.il \/ J///IS
R i ' p o i i t<> (ho S u ' o c i n ^ C r o u p OommilUc vrri nhi\ 2
I'RI\ M i: COMISM.N | | M.

transactions within the SENT area. were in breach of procurement


policy. Again work was awarded to the contractor which had not been
correctly tendered or quoted tor, and work which should have been
aggregated was kept below the tender level.

• We also note from internal audit annual report 2007 which was
presented to the larnrod Eireann Audit Review Group in March 2008
that further significant breaches were found in areas which are outside
the scope of our report including significant non compliance in the
Chief Mechanical Engineers Department.

EFFECT
• There is a high probability that ongoing breaches in procurement
procedures including incorrect tendering will lead to a loss of value
added opportunities and economies of scale. There is also a
substantial risk of claw back of grant aid and potential litigation from
u n successfu 1 con tractors.

EVIDENCE
d) Schedule of Transactions tested for compliance with procurement

e) Copy of procurement documentation in respect of transaction


selected.

f) Copies of inv oices in respect of selecied transactions.


gi E-mail received from J H M H B ^ d a t c d 12 March coos m respect of
non compliance with certain procurement procedures.
i \RM\0!) i. J R J \NN PR (H ! RtMJN I X |\ URN \! ( ON I R<>l. Rl \ II.W IV./t \ /. 20V,S
Kcpnfl (o (he Si toi'iny (I I (JUJ) ( ummilU t/ M'I'l \!)l\ 2
PRf\ \ IT: X { < .NI IDI N I I \l.

h) Extracts received in respect of C1E Group Internal Audit report dated


March 2008.
F V E M 3 I L K 1 HER TRANSACTION
I KS 11 \ ( ,

• As part of our forensic review we selected groups of transactions


from the portfolio of flHMMHP transactions which looked
unusual, based on the following criteria:
o Substantial Time delay in receiving invoice
o Work completed prior to service entry or purchase order being
set up
o Transactions with similar descriptions and similar dates
c Transactions with different work descriptions but identical
prices.
W e solected a samp 1 e o f 4 5 invoices fro m I H H H H H H H H B to
review, fulfilling the criteria outlined above. On review of the
invoices it became apparent that there was little, or in the majority of
cases there was no supporting documentation available to verify
whether the job had been completed or not. Given the nature of the
work (plant hire and labour) it was not possible for us to carry out a
physical rev iew to confirm receipt of value for money.

EFFECT
• We were unable to confirm whether or so what extent the work had
been completed. In all cases die goods were receipted m Inchtcore bv
I VKNU(il) I- I UI \ S \ I'KOl I KIM I.N I (.X I \ I I UN \i < (IMRDI lU'.M!^ ;//./,' v Jut/S
Report to the Sicei inii ( . r o u p ( uinniittei- \rrr\m\ -
P u i s M I: ^ ( OM IDIA I I M

either in Inchicore or at lineside to confirm receipt of the goods or


services.
EVIDENCE
i) ( op\ of schedule outlining transactions selected.
j) Copy of in\ oices selected lbr re\ ie\v.
k) Copy of email correspondence received from inspectors outlining
reasons for lack of documentation.

EVENT 4 WEAKNESS WITHIN THE IT SYSTEMS


INCLUDING PLANT HIRE DATABASE

• Appendix 3 attached is a risk assessment of the IT Control


Environment. The report outlines significant weaknesses in the plant
hire database and in the SAP system data interrogation capabilities.

• As an output of this Forensic Report we have attached data reports


generated through the amalgamation of varying tables extracted from
the SAP system for each of the vendors featured on the Plant Hire
Database supported by Ben lords Law analysis diagrams. These can
then be reviewed and exception reports generated for further and more
detailed internal testing. In respect of the \cndors which are the
subject of this review, we have further analvsed the transactions into
hmher risk areas for review bv iarnrod Eireann.

c
I \ R \ R O ! ) KLIU \ \ N PRO! 1 RI Ml \ I A | M I N \ \ | ( ON I RO{ RL.X if W ivji \/-
R e p o r t lo s h e S t e e r i n g (.'roup O x m n i K e e M'I'L N I)| \ 2

PRIX \ n . X C O M - I D I A I I O

EFFECT

• The weaknesses outlined in appendix 3. particularly with reference to


the plant hire databa se can result in die following:
o Price RicLune:

ampenng;
o 1.oss of Va 1 ue tor Money;
o PO Price changes after vendor awarded contract;
o Risk of Fraud Exposure;
o Potential Collusion between Employees and Vendors;
and
o Risk that one same vendor will get majority of business.

EVIDENCE
1) Appendix 3 of our report details our review of the internal IT control
environment.

EVENT 5 - FURTHER INTERNAL LNV ES TIG A HONS CARRIED


OUT BY COST AUDIT & EFFIC IENC Y DEPARTMENT

• As o u t l i n e d in A p p e n d i x 1 there is a h i g h l i k e l i h o o d o f c o l l u s i o n

between f H l f l H H H H H H H H B H H H H H H H I ^ ^

the Vendors.

• We have only quantified the element of o m which wus the subject of


I \RNROP PlNI \ N \ ('HOC ( Ri.Mf N I ^ I \ I t. U N ( ON 1 RO!. \{\ \ | | \\ I oh m 20 os
R r p o n ro ihc Steering ('.'roup ( ummiUre \ (MM N [) | \ 1

IM\1 \ \ I'i ^ ( ONFIDI N MM

internal investigation and that oh the other monitoring activities


carried out to date by the Company, u would indicate that there is
potential for loss in a substantially greater percentage of lineside
inspector transactions.

• Figures received from the Cost Audit & Efficiency department show
that had created service entries to the value of €403.368
with in 2006 and 2007.

• We also note from internal investigations and surveillance reports


other company employees are suspected of involvement in fraud or
other offences.

EFFECT
• Given the weak internal controls and the evidence uncovered by
internal investigations, it is likely that there is a further element of loss
from the above transactions. While we have not included this in our
actual loss calculation, it is further evidence supporting our measure
of the scale of historic loss.

EVIDENCE
m ) Q u a n t i f i c a t i o n o f s.er\ ice entrv creation h\
I VRNRUO I i f <» \NN PLUX i RI'MIM \ IM I R\ ( (IN I ROI Kl \ II \\ 10 Jl \t- JOO-S
Report l<> the S t e e r i n g O n u j p CuinmiKee M'l'l M)l \ 2
P R I \ \ RR A. ( ( i M I I I I . S I I \T.

S C A l l OF UNIDENTIFIED FOSS:
• As noted in our report the value of purchase orders rawed between
2005 and 2007 lor Infrastructural Maintenance and SE&T alone total
041 1 million. The goods receipted value for suppliers in the plant
hire and labour area totals 0123.672.482 between 2004 and present
date.

• We prepared a Fien ford's Analysis of each of the vendors on the plant


hire database (Appendix 4 & 5) which shows the variances of the
invoices versus the statistically expected normal level.

• An estimation of the scale of loss in an organisation such as larnrod


Eireann is by definition an estimate. It is noted in a IJK. Government
Fraud Survey (1999-2000) that 70% of fraud occurs due to an absence
of controls or failure to observe existing control procedures. The 2006
A (.'EE Report to the Nation on Occupational Fraud and Abuse
estimates that organisations lose 5% of their annual revenue to fraud.
There is other evidence to support the industry benchmark that in an
average organisation the amount of illegitimate expenditure could be
in the order of 5% of total expenditure.

• Given the systematic non compliance with piaKWdui'cs and policies


rind the lack of internal controls. and current suspicions in relation to
several vendors employees and our findings m our sv-uems ami
lorensic review, it is hkelv mat the comnanv has experienced a
siamfleam loss m the above areas
I V RN KOI) KlRL \ N \ ('Rot. I RI MI.N i i IMIUNM ( ON ! ROI R j . \ | | \\ iv it m :vos
R e p o r t lo lhv S t e e r i n g ( . ' r o u p ( m n m i t f e e \HM M ) l \ 2

Pro v 11. X COM iiH.N 11 o

EVIDENCE
n) Total Purchase Order-Goods Receipt Value per Vendor between 2004

to
o) Total Purchase Order/Goods Receipt Value per Plant Hire & Labour
Vendors between 2004 and present date,
p) UK Government Fraud Survey (1999-2000)

q) 2006 AC. Id; Report to the Nation on Occupational Fraud and Abuse

SUMMARY
We have not quantified the scale of unidentified loss, this estimate as we are
informed it is beyond our Terms of Reference, however below is a Risk
Template for all vendors.
ALL VENDORS G

Financial Risk;
Actual Cost of Known or Suspected Fraud Hi ah Ri sl<
Loss of Value Added Opportunities or 1 huh Risk
Economies of Scale
Risk of Potential Claw Back of Grant Aid limb Risk
Risk of Potential Litiuation from Unsuccessful Medium Ri^k

Suppliers
Reputation Risk Medium Risk

Regulatory Risk: Medium Risk

E s t i m a I i o n o f S e a I e o f I n i d e n t i fi e d L o s s ItHjuaniifictl
1 \ R \ R O D Klki: \NN I'RIH I RI M! \ I X IN 1 I R \ \\ C ( I \ I KO| KI \ || \\ H/.h \i :nos
Report to iho Steering (.'roup ('ommiitee \I'PIMM\ 2

i'Riv \ I f vX ( OM IDI N I I M

ASS ESS M E NT OESC AEE OE LOSS ARISING I ROM S LOCK

STOCK
Financial Risk:
Actual Cost of Known or Suspected Fraud High Risk

Loss of Value Added Opportunities or Not Applicable

Economies of Scale
Loss of Grant Aid or Risk of Potential Claw BaJ Not Known
I Risk of Potential" Litigation from Third j Not Known
I Parties/General Public
Reputation Risk: Medium Risk

Regulatory Risk: Medium Risk

EVENT 1 - STOCK DISCREPANCIES:

• Following the review of the Stock Management System in our System


Review, a number of breaches and non- compliances were identified
in the area of stock management. In light of this, detailed sample
transactions testing was undertaken in the area of stock in respect of
^ I ^ H H H P M M f l f e located m the Dublin area between April 2006
to November 2007.

• fhe reconciliations identified a substantial number of discrepancies


between amounts submitted by M H p M as closing Mock
compared to documentation sub-mined to the Divisions during the
period. Due to the substantial variances arising on :hc above and due
1 \ UN ROD 1:11 RI \ W I'Roc 1 RI \ 11. \ I iV I M I K N O ( OM ROI R I \ 11 W ! n .h N /• JOOS
Report to llie Steering G r o u p ( o m m h u - e WTi M?t\ 2
PRO \ n ; X COM im \ 11 \ i

to the incompleteness of documentation, reconciliation was


impossible and therefore oilier methods were used to test the stock
area.

A review was then undertaken of the SAP reconciliations made av ailable


by f M N M H H H H H M H H P M N i ^ f e These reconciliations are based
on the Stock figure reported by SAP and compared with stock counts
submitted by S H W H R H t or counted by the Materials Management
Department. Should a variance arise between these figures than the
amount of stock counted is posted to the SAP as the new closing stock
figure. A reconciliation was also carried out on using
this method and substantial variances were found.

The amount of the known variance between the stock value on the SAP
system for the most recent 3 stock counts is €130.016. This excludes
stock loss for stock which is removed from line side, but not captured on
the SAP system. This figure is unknown and can only be reconciled when
proper procedures for controlling line side stock are fully implemented.

I I IIC I

• Substantia! variances were tVumd between the Iarnrod fireann SAP


system records and the physical stock on site quantified at €130.016
since the second stock count (We have excluded the first stock count

completed,
t• as m> was a correction o! die res io i o r m an u

basis}. Due to the hick of control within 1 i L Stock Management


I \KM(OI) HUU; \\N PROC I R I \II.N R ^ I M K R N \I. ( " O N T R O I K I \ ITW in.ii \i: :oo<s
Kcpon (0 tlie Steering (roup ( oil!mif UO
' M'I'I N|.)|\ 2
P R I \ \ N: ^ C O M MM \ 11 VT

System and the incomplete documentation it is difficult to determine


if this is actual loss, how ev er, it is reasonable to assume based on the
lack of controls w ithin the Company and our knowledge of actual
theft of stock in the North Wall div ision that an element of the above
differences is due to theft of stock and as such has resulted in a loss to
the organ is a t i o n. The li g u r e o f € 1 3 0.016 is the known d i s e re pan c y
w ithing the system however the stock system breaches, particularly at
line side create significant scale for further risk of loss.

EVIDENCE
r) Baker Tilly Ryan Glennon summary of reconciliations provided by
I \HM(()L) Him \NN PRO( I KIM I \ I X [ N 11 M ( D M ROt R[ \ 11 VX l(l ^ -ll0S

Report to the Steering (.roup Committee ^''IM M U \ 1

PR IN \ I I X ( ( ) N | ! I ) I . M I \ I

RISK ANALYSIS TAB1.L

See o%erleaL
Procurement Process Breaches Identified Source From Control Measure in place j Risk Assessment Rating
Cycle Yes/No J H/M/L
Management & Divisional Offices used information & BTRG > Database/tender j - Hsgh
Maintenance of Plant Hire pn- from outside the plant-hire 08/01, dooument/RFQ i
Database database IA07/06 &
IA 07/12
Request for Services by
inspector
Requested were not formally documented BTRG A- No I ^ High
instances were noted where extensions to 08/01
the original periods of hire were arranged
directly by PWt/otber without reference to > No f ^ fvit-idtum
the procurement procedures or advice to 1A07/06 &
me Divisional office IA 07/12
Requirement for goods/services &
approval of same was discussed in an
informal basts & was not documented

(>oi nnensation
Forms were not adequately completed BTRG > No ^ Hign
Forms were completed during or after 08/01 ^ Request Form ^ High
work had completed BTRG ^ No - Rsgh
Requests were not sent to the divisional 08/01 ^ No High
office on a timely basis IA07/06 r- No ^ High
0'.Un;uU to determine who had completed BTRG
request form 08/01
BTRG
08/01

Sourcioy/Selection of Vendors sourced from outside preferred IA 07/06


suitable vendors & vendor base
calculation of estimated Selection of a vendor by senior staff who
value of work is related to vendor, vendor was not on
the plant hire database at the time
Recommended number of quotes or IA 07/06
Value for Money Exercise not carried out
Cop-u dctor was pre-seiected by Inspector
vSc did not. go through selection & approval
piocess
b o o t s m calculating the value of work was
noU,"J
Analysis of estimated price was not
always provided

f-tnai Selection and j ^ ADE not approving request as contractor


A p p r o v a l of Contractor by ! pre-seieeted by PWi
AOL; ^ Basis of selecting contractor was not
i i>!Ov!ded

C o m p l e t i o n of Request for
Piant and Machinery' Hire
form

Details entered onto SAP


IA 07/06 &
BTRG H»;h
08/01

IA 07/06 &
BTRG
High
08/01

IA 07/06 &
IA 07/12 & ivieoium
BTRG
08/01

BTRG
08/01
High

SA 07/06 &
BTRG l-u-r;!'!
08/01

IA 07/12 & j
I In-ih
BTRG !
08/01 i

IA 07/0(5 & ]
IA 07/12 i-iKih
performed or ihe work had commenced
Service Entry was created based on pro-
forma invoices received after the work had j
been completed j

~r
Generation of a Service
Entry Form from SAP by CO

Service Entry Form issue to


inspector and Contractor by
CO

Completion of Work by rimesheeLs bad not always been signed


Contractor & Goods/ by an IE representative
Services Supplied receipted Quality of information provided on
timesheets was poor & dtd not facilitate
the reconciliation to invoice

invoice received by Division Invoice submitted to the Divisions without


Office/inspector with iiiviesheels/deiivery dockets
supporting Invoices differed to estimated price, actual
time sheet/del i very docket. work, dates & location did not correspond
Invoice cross-checked to in dates, work & location per service entry
timesheet s/deli very invoices raised prior to completion of work
dockets, service entry form, In,voices approved for payment once
request form sioned by inspector/'ADE without cross
chock lo supporting documentation
Explanations for the differences between
estimated costs & actual costs are not
documented
Requirement for one invoice per Service
Entry Eonn is not being adhered to by the
Dublin Division
Requirement for one invoice per Serviee
E n t r y Form ts not besnq adhered to by the
Duhiin Division
> BTRG
08/01

> "BTRG
08/01

BTRG High
8TRG~
j
Hiqh
08/01

CAR 05/06 j Hi<i!i


& BTRG |
08/01 I

CAR05/06
iKiii

IA07/06
i A p p r o v a l / A c c e p t a n c e of
: Service Entry on SAP by
| D i v i s i o n a l A c c o u n t a n t and
; GRN inserted on invoice by :
j CO

I i n v o i c e sent to A c c o u n t s i /-• Duplicate payment of invoices


j Payabie for p a y m e n t

! Other i , ii was iiOiedlhal ui certain instances there


a lack of s e ^ r ^ a t j o n c ^ d u t i e s
{A 07/12 &
BTRG
08/01

IA 07/06 HKJ!>

BTRG | j - Medium
08/01 | |

"> j/v 07/06 I" j - High


!i ;j
BTRG | 1 - HK;U
08/07 I i
Procurement Process | Potential Breaches
Cycle I

Management & Security of Database Pricing


Maintenance of Plant Hire information
Database Benchmarking of Database Pricing
Control and Management of Sensitive
Data (pricing/information) within the
database
Anuii iraii of changes to prices and
niaci11nery descnptions
Policy & procedure document
regarding database in place & up to
date
Changes lo database not tn agreement
with tender agreement
Access to database by unauthorised
personal
Changes to database by unauthorised
personal
Control of & access to database back-
ops & copies of database
Environment that database is
operating in - organisation, skills set,
ownership & policy.
Systems SAP interrogation -- sourcing,
approval receipting & payment

Request for Plant by Requirements request not necessary j


inspector inspectors knowledge of Pricing & j
into;mation contained on database !
may lead to contractor tailoring request j
in order that a particular vendor is 1

Sou) cinq/Select ion of E: Fixing [


suitable vendors & Vendor Selection Fixing j
c a l c u l a t i o n of estimated Plant Rue Documentation Fixing 1
value of work

Approval of request & t> n /anq p a c e s at 3


Final Selection of . e ,!( .. . alue for m o n e y
Control Risk Assessment Rating
Measure H/M/L I
in place i
;
Yes/No
> High

> High

r- High

> High

'f High

S ^ Htgh
!
II

j ^ High

^ High

High
j
| ^ High
I
| - Hiqh

I" ~
i
i
j

^ High
: Contractor exercise
Request forms being authorised by
individuals who do not have authority
for a pedicular VVBS code/cost
cerUro'project

; C o m p l e t i o n of "Request
; for Plant and Machinery'
; Hire form

; Details entered onto SAP

Service Entry Forms being printed


; Generation of a Service i poor So A1 released [prior to Sept 07
; Entry Form from SAP by no A1 release]
Service Entry form being created after
the work has been completed/after the
invoice had been raised
Service Eaitry Form issue ;
to i n s p e c t o r and
Contractor by CO

C o m p l e t i o n of Work by if ismesheet not provided/signed no


Contractor & G o o d s / fonnal back-up documentation of work
Services S u p p l i e d being completed/provided
receipted

i n v o i c e received by Overpayment of goods/services


D i v i s i o n Office/inspector loceived
with supporting
timesbeet/delivery
j d o c k e t . Invoice cross-
; c h e c k e d to
j hmeshcets/dehvery
: d o c k e t s , service entry
j form. request form

j A p p r o v a l / A c c e p t a n c e of invoice not approved by appropriate


; Service Entry on SAP by HKiiViduai
.; D i v i s i o n a l A c c o u n t a n t
I and 6KN inserted on
. i n v o i c e by 0 0
Invoice sent to Accounts
Payable for payment
Procurement Systems Breaches Identified
SAP & Other

Management & Problems with the accuracy &


Maintenance of Plant Hire completeness of the pricing & plant
Database data on the plant hire database were
noted
Divisions used information & pricing
from outside the plant-hire database
due; to delays in updating database
Request for Plant by instances were noted where request
inspector forms for emergency work was
submitted to the-; Div Office a long time
after ibe work had been requested &
performed __ _ _ __ ___
Sourcmg/Selection of 'vendors sourced from outside
suitable vendors & preferred vendor base
calculation of estimated Recommended number of quotes or
value of work Value for Money Fxercise not carried

Contractor was pre-selected by


inspector A did not go through
selection & approval process_[
Final Selection and ADE not approving request form as
Approval of Contractor contractor pie-selected by PWI/other
by ADF

Completion of 'Request
tor Plant and Machinery'
Hire lorm

Details entered onto SAP Instances were noted where non- j


plant transactions were being !
proceeded through pre-approved !
Fir'F1 ^pp. ;.:V j
insumces were noted where Service
G c n e r o l i o n of a Service r.ntry Form was completed after the
Entry f o r m from SAP by work was performed
CO Sorvice Entry was ;.mated based on
pro donna invoices received after the _
Control Risk Assessment
Measure in Rating H/M/L
place
Yes/No
IA 07/12 & > High
BTRG
08/01 j
IA 07/12 & I
BTRG - High
08/01

IA 07/06
r- Modi i JIT)

' iA 07/06 T~ . ' : U;)\\


i
i
IA 07/06 & | - High
BTRG
08/01
j
IA07/06
| . High
1
[

' IA 07/06 <4 | > High


BTRG i
08/01 I

i
j

1
'~7A 0 7 / 0 6 " ~ Yes | /•• Median'!
1 i
j
1
i
1 < High
"5 ~
: 1
i
1
1 1
1 .J
work Eva,<3 been completed H'nii
Service Entry Eorm issue ;
to inspector and
Contractor by CO

Completion of Work by ;
Contractor & Goods/
Services Supplied
receipted

Invoice received by invoice submitted to the Divisions BTRG


Division Office/Inspector without Umesheets/deiivery dockets 08/01
with supporting ^ Invoices raised prior to completion of
timesheet/delivery work CAR05/06
docket. Invoice cross- ^ invoices approved for payment once J AO 7/06
checked to signed by inspector/ADE without
hmesheets/deitver y cross check to supporting
dockets, service entry documentation
form, request form Requirement for one invoice per IA 07/06
i Service Entry Form is not being
adhered to by the Dublin Division
Approval/Acceptance of it was noted that a significant number IA 07/12
Service Entry on SAP by of service entries which reiate to plant
Divisional Accountant j hue ciders nave yet to be receipted &
and GRN inserted on ; paid
invoice by CO ;

invoice sent to Accounts |


Payable for payment
? E . 3
I \ R N R O D KIRK VNN PROC I D E M I O T A I M I RN M. CON I ROI R I ; \ I I U 10.JI W. 2008
R e p o r t to (lie Steering G r o u p C o m m i t t e e \l'PEM)l\ 3

PRO \ RR & CONFIDES IT U.

Risk Assessment of the IE Control Kn\ironment


I \ R \ R 6 D E M U : \NN P K O I I HI \II:N R ^ I M I'RN W ( O N I ROI U U : \ \ ///.// M- JV///.V
Report (o (he Sieorinu ( . r o u p ("nmniiltoi: MM'cvniN
PR[\ \ IT ( O N I IDI. N J I M.

Assessing the Control Environmcnt- Plant Hire Database

The system was developed by a user i •) to help the process ol


vendor selection for short term plant hire activities. While developing this
application helped address a business requirement, it was carried out through
' end - u s e r- computing' \

End-user computing is an inherently risky process for developing key


business applications. A user who is not skilled in development will take a
considerably more time to develop the application than a professional
developer. He may also not fully scope the requirements and consequently
produce something that only satisfies limited requirements. Therefore the
process can be costly, inefficient and often incomplete.

The obvious weaknesses in the system are as follows:

I Security

• Database is not password protected or encrypted

• There are no login based controls on the data

• .Access format is extremely portable - can be emailed, placed on


memory keys etc. As a result the information on this system could
easily he distributed to interested panics.

• All master fie element are available 'or display or edit bv fie user.
I \UNR('M L-aur \ S S PKO< I RI M I N I | \ I I K \ \I ( U \ I KOI Ri \ n W /'!./( \f 2>tfJ,S
1 !
Report so tin Steering (croup ('oinmiuoc \(M fM)l \ 3
P R O \ IT \ ( ON) | 0 | \ ! | vl.

• ] ho re is no auditing on any changes to master file data (pricing)

2 Usability

• The application docs not have a coherent menu forms system. it


relies on help documentation to guide users to generate their own
queries through a QBE grid (Query by Example).
• There are no validation elements processes to help prevent errors in
master file data or query generation.

3 Integrity

• The database file is distributed to regional locations. Local users


access their own copy of the system. There is no formal cont rol (other
than the file name) to ensure everyone is using the same version with
the same pricing information.
• Local users can change pricing information without restriction

• Users extract information from a hilly configurable QBE grid rather


than a controlled form. Output can therefore be corrupted through user
ignorance or user deception.
• Query output is nor printed to a traceable log sheet that clearly shows
results and the query parameters.

• The organisation of the data m tables is of questionable design. Data


could have been normalised more effieienilv
I \RSROf) | | ri; \ \ \ Puoc I RIMfA ! l M I.RN O. ( O M Kdl. Rl. \ I I U iO.ll M. VMS
Report to the Steering Group Commit lee \ i'SM \ !)! \ 3
Pro \ rr. ^ Cosrnn:\no.

4 Sensitive Data

The Plant Hire database represents a tendering process lor 52 Plant Mire
\endors. I ach have an interest to work with Irish Rail and have supplied a
listing of their plant hire machinery description with related hire rates,
transport costs and other as requested by Irish Rail.

We were unable to identify any controls in place which restricted / limited


the visibility of this key pricing and plant sensitive data within the
procurement cycle. Our understanding is that the Clerical Officer and other
individuals involved in requesting plant hire services within the business
unit has access to this information. Our concern is that the pricing
information of one or many competitive plant hire vendors may become
known to a competitor and this would give possible rise to the competitor
vendor adjusting their price in order to obtain the contract and later once
obtaining the contract they would adjust their prices.

Control over changes to sensitive data within the plant hire database again
should be brought into question as some business units had used alternative
prices to those published in the plant hire database.

Co n.sequences

The Plant Hire database with its current setup represents a high risk area
to the company of:
^ Price rigging
1 \RNROl) I ) U I \NN l'R<)< I RI"\M;\ I £ | \ 1 KRN \! ( u \ ! Roi R| \ II \\ It!Ji \i 2UUH
Report 10 llu' Steering Group Cumminee V!TI,M)L\
I'RIN VI1: & ( ( iN f iS>| s n M.

^ Bid tampering
^ Loss of value for money
r PO Price changes a tier vendor awarded tender
r Risk to fraud exposure

'r Potential Collusion between employees and vendors


r Risk that the same vendors continue to get the majority of business

Recommendations Plant Hire Database

> Create a user friendly company web front-end procurement for


vendors to complete electronic tender documentation and have this
interface with both commodity tables and pricing catalogues into SAP
financials and procurement.

> SAP VIM Contracts - More use should be made to set up long term
agreements in SAP as contracts rather than ordinary PO\s. The use of
an ordinary PO's will typically have many partial goods receipts. This
is especially noticeable with services (service entries) for plant hire.

Current SAP process for Plant Hire/ Labour

- PR purchase requisition is created for plant hire ser\ ices for long
period of time and a large sum of money e.g. 0 ) 0 . 0 0 0 or more.

^ PR is required to be released at various levels (4 due io large 'value)


PO Purchase Order is created with link to the PR purchase requisition
- PO :s released
1 VUNKO!) K I UK \NN PUO( ! R r \ | | \ I vS. In i CRN \ | . ( O N j KOI. f \ II \\ ///.// N 2IMS
Report to (tie Steering ('."roup Committee \ i'l'r N Hi \ 3
PRI\ \ i I. ^ ( O N I | D I M | \|.

Service Entries arc created


^ Sen ice onirics arc released (2ie\ ei> of release introduced recently)
- Goods receipt automatically generated upon hnal sen ice entry release
^ Invoice posted

Proposal SAP process for Plant Hire / Labour

> PR purchase requisition is created for plant hire services for long
period of time and a large sum of money e.g. €200,000 or more.
> PR is required to be released at various levels (4 due to large value)
> SAP Contract is created with link to PR purchase requisition
> SAP Contract is released
> Purchase requisition is created for ad-hoc requirement. Link with
service entered (determines G/L code). Cost object is required
> Purchase Requisition is released (levels determined by value)
> Purchase order created automatically by SAP
> Service entries are created
> Service entries are released (levels required)
> Goods receipt automatically generated upon final service entry release
r Invoice posted

Big advantage in the use of contracts is the ease of invoice processing for
the accounts payable department. This is because there will typically be
one invoice matching to one GIG to one " c a l l - o f f PO.
F \ R \ R O T ) 1.1 WN I'ROI I RI \ ! L \ ! VSL' ( M I R N \ L ( <>\ IROI. I\L \ L!A\ in Js w
R e p o r t l o she Slevrin'j: C r o u p ( o i m n i l f e e \iM:!M)l\ 3

P R O \ N: C O M ' I I I I A N M.

An other advantage of contracts is thai validity dates are specibed tor the
period of the contract and this wail cuntroi spend in relation to the
contract. Currently the PO can and is amended to increase elates. quantity
and values. Also contracts can have \alues beyond winch, you cannot
draw down.

Assessing the Control Environment - Tendering

From the first interim report from Baker Tilly Ryan Glennon in which the
purchasing department was reviewed it had highlighted two key items that
impact the control environment around tendering.

> Underutilization of Sap and current. SAP skill set within procurement
> Where procurement is more involved in the administration function of
tendering documentation with the possibility of other key areas within
procurement not being addressed.

We were unable to determine if any control process . document existed


between the tender documentation and the purchase order. The control
which we are referring to here is if a tender purchase order is changed or
adjusted for any reason is then' a control system to track changes from the
original tender price, description of delivery, serins, quality conditions and
report on same. Is this control svsiem managed w ith in SAP or through
another manual or oilier device''
I \ R \ R O D K I R K \NN P R O C I K I M I A R & | \ IT:RN o ( O M UOI !U:\ I I W [!)Jl W JftO.S
Report ui i lie Steering (.roup ('otiimiuee M'IM:M)I\ 3

Pirn \ S I C O M MJIA 11 \ i

Recommendations \ endor Tendering

* Vender Tendering create a central location for the management of


all tendering documentation with specific controls on chances to
prices and plant hire items. Maintain a simple report on all tenders by
commodity type, vendor name, start and finish dates of tender, prices
per commodity/service supplied, reference PO number, PO details and
pricing reflecting the tender agreement.

> Use SAP Contract for all Tendering Use SAP Contract
functionality for contracts initiation and control.

> Consider using E Tendering with a web based supported


tendering application for all Tendering

Consequences

> Control over Price changes


Lack of reporting on breach of tolerances in price, quantity and
quality from tender
'r Disengaged procurement department
I \R\ROI> i: IRI v \ \ |>RO< I KIM! N I i IN 1 I RN \! t ON | ROI R l \ 11 W /n J i \ i. 200$

Report lo the Steering (('roup Co m a n n e r \l'IM N|)I\ 3

PRO M I: ( O»NI ini \ 11 M.

Assessing the Control Environment Purchase to Pay

We haw1 conducted a number of walkthrough's within the purchase to pay


process and result of winch has highlighted areas of non compliance winch
have been identified in detail within the first Baker 1 illv Rvan (dennon
Interim Report presented in January 2008.

We have noted that non-compliances noted prior with the interna! Auditors
Reports and the Cost and Efficiency Audit Reports. What concerns us is the
number of repetition of non-compliances and in some cases fraudulent
activities have been proven to have taken place.
According to our analysis non-compliances or breaches had occurred all
along the purchase to pay process / cycle indicating lax internal controls and
providing the opportunity for a fraudulent environment to develop.
These lax internal procurement operational controls together with those
findings from the first Baker Tilly Ryan Glennon Interim Report would
suggest that the company take immediate corrective actions to address the
areas of risk identified.

Recommendations- Purchase to Pay

r- Establish a team of cross functional members w ith the relevant


expertise and support to implement changes in accordance to best
practice.
I \K\RODI"-:!RR \NN PROC'I RF.MI.SJ I N I T I O \I C O M R O I R I \ 11 \\ ia ji \i• :oas
Report to ihe Steering Croup Comniitu-e M'pi Nnix 3
P R O \ IT & ( ONI I D I M I \I.

Consequences

^ Fraud
I oss o f a i ue lbr M oney
r Frustration among procurement
13usiness continuously being expose to risk
^ Inefficiencies

SAP System Data Interrogation

Conduct a review of SAP current reporting capabilities in order to determine


whether reports exist which would allow for data interrogation of the
Purchase to Pay Process.

Areas reviewed were:


> Materials Management Module (MM)
> Accounts Payable (AP)
> Other Reports {Exce 1)

FINDINGS:

Materials Management Module (MM)

No standard SAP, report exists which allows (he mer to interrogate data
across the full cycle of purchase to pay. Some reports have been de\cloped
from recommendations made bv Baker Tillv Rvan Glcnnon some nve wars
1 \RM<oo E m : W S PIOH \ HCMIN IN H.RN \I ( " o \ I KOI.TFJ \ n.w ln.il \ / 2 OfAY

Report to die Sieerin^ C r o u p ( o i n m i u e e \I'PIM)L\ *


5
1 R!\ U P ( OM'lDi \ I I

ago. Standard SAP reports do exist tor operational data analysis by


functiona 1 SAP module but no SAP standard reports exist for across SAP
modules and SAP Data Tables.

No coordinated program exists between Group IT. Procurement, Finance


J Business Unit Accountants, Accounts Payable! , Budget Holders
! Departmental Management} and Requisition Administrators to develop
reports which allows for data interrogation / analysis of the purchase to pay
process {FTP}.

In order for us to review transactional data with X vendors and employees


we had to go to the SE16 table analysis screen and run various table reports
on all fields within those tables in order to view all data captured in SAP
relating to those Vendors, Employees, Locations and Projects. We then tried
to establish links between the SAP tables in order for us to run queries
across different SAP tables and modules.

This exercise consumed a number of individuals time trying to establish


links and reports and resulted in our team just being able to produce
restricted reports based on individual tables rather than reports which had the
capability to extract key data across a multiple of SAP rabies cov ering the
entire purchase to pay cvcle. This limitation has impacted our ability to
conduct a high level report which would assist in the data interrogation of
SAP. ibis roadblock subsequently means thai more manual work ami time is
required to obtain other key blocks of information in she purchase to pav
process PIP process.
( \U\R0f) r.lHK PkOOt R! \ u : \ I I n I F.RN \! C o s i ROl Ri \ u : u 10 Jl M- 20()<S
Ropori lo she S i c v r i n j i C r o u p C o m m i n e v \ IT I. M)f \ 3
I'RI v \ il IV ( i} N I 11.) I \ II U

Recommendations

Set up a team of experts both internally and externally to address the


business requirements to capture key data in the purchase to pay process
while insuring data accuracy at source.
Various stakeholders within the purchase to pay process wall have different
requirements and it's important to establish what these requirements are at
the start of this engagement.

Key Stakeholders

• Group IT

• Procurement

• Project Managers

• Finance {Business Unit Accountants, Accounts Payable! ,

• Budget Holders {Departmental Management}

• Requisition Administrators

• Internal Audit

• Cost arid Efficiency Team

• 1 -ecu!

• Other external bodies whose regulations need to be compiled with e.g.

EU. Focal Government and other.

• Vendors
1 \KNROI) PLU! \NN I'ROI ! Ml M l M X I \ I I UN \l ( ( A IROI R | 11 W hi it M yti/,s
Ri-pnn tu (lie Siccrin^ Croup ( omniiKi'c Vi'Pi M ) ! \ 3
l'RI\ \ I I ^ ( OM IDI N 11 xl-

Prepare a data How diagram on how current kev data ilows throughout the
organisation within the PIP process. With the aho\e stakeholders establish
what the key data is what's there or not and try to install a process which
insures that data is inputted correctly in a timely manner into SAP.

Typically there are two approaches in accomplishing this

(1) Go to the source of the transaction "requisitionef * or who requires


the goods or service and put in place a controlled SAP environment or other
"paper, other technology".

(2) With improved Vendor integration you can establish as part of the
vendor engagement certain criteria with regard the submission of key source
data example PO--. Date Start/Finish, Plant Hire used, Pricing details and
quantity. Location of work completed, type of work completed, supervised
bye delivery documents, invoices etc as proof of work completed.

All this information should be in electronic version in a format which


can interlace wuh SAP M M . Fl GO and PS module allowing for immediate
population of key data fields. Benefits from this are in the area of less
manual data input, quicker visibility on activity, ability to generate reports

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