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Analysis/Comment Last Updated: Aug 23, 2010 - 8:24:15 PM

Ireland's business-as-usual professional fee 'cartels'
By Michael Hennigan, Founder and Editor of Finfacts
Jul 2, 2010 - 5:55:43 AM

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Ireland's professional fee 'cartels' appear to be in a business-as-usual mode despite the economic crash and why wouldn't they when their biggest customer, the Government/public sector, is continuing to provide the fuel?

There are of course many professional firms and individuals suffering like others in the private sector. The category we are referring to are the insider firms who would for example be shortlisted by the toxic property agency NAMA for plum assignments, big accounting firms and individuals who are among the select who can become multimillionaires on public tribunal fees where virtually all their overheads are also paid from public funds. 

In recent times, it has been in the Four Courts where questions have been raised about outrageous fee claims and last February, in the High Court, an examiner seeking fees equivalent to a €884,000 annual salary for investigating the viability of the insolvent Dublin private members club, the Residence, was told by the High Court to re-examine his rates. Mr Justice Peter Kelly said fees of €425 an hour sought by Jim Stafford, of Friel Stafford Corporate Recovery, were not acceptable in the current climate.

Stafford was seeking costs of €61,857, plus €50,000 legal costs, for the 90-day examinership period.

The judge questioned why five people (including Stafford) were involved in an examinership and he also queried the legal fees.

This week, the Taxing Master of the High Court, Charles Moran, granted only €393,472 of a €2.143 million legal bill and expressed his “disgust and bewilderment” at the level of costs claimed. He described the costs claimed as “revolting in the extreme”.

A claim for postage, photocopying, paper and other such costs, of €10,000, was reduced to €1,000.

A ream (packet) of 500 sheets of paper costs  €5 to €6.

This should be investigated further to ascertain the basis of the claim on public funds.

Last year, fees for the unsuccessful examinership of the Thomas Read Group of pubs, amounted to €1,072,126 including VAT @ 21%, split between the examiner  Kieran McCarthy of accountants Hughes Blake, who sought €554,109, and his solicitors Lyons Kenny, who claimed €346,275. Their senior counsel Lyndon McCann charged €104,611 and his junior Ross Gorman charged €66,271.

The Irish Times reported that €1,250 was charged for five hours spent by one employee on “general photocopying, e-mails”; €3,500 for two employees who spent “7 hours each – 15 booklets of papers prepared.”

Quite a return on  an employee for photocopying during a recession period and he or she may have been paid the minimum wage.

Beyond the issue of what can be termed opportunistic charging or worse, there is of course the routine of legitimate bubble-time charge levels and the Government is often the willing victim.

Against a backdrop of politicians feathering their own nests and governments acting as arbiters between vested interests seeking as big a share as possible from public funds, it has long been evident that there is no Irish constituency for parsimony.

“The scene was sickening and all the Irish were there, most of them vying with each other in eagerness to plunder the public purse,” William Ewart Gladstone, British Chancellor of the Exchequer, wrote in an 1859 letter to his wife concerning a House of Commons debate, on the cancellation of a subsidy for the mail steam-packet service between Galway, Ireland and Newfoundland. Gladstone was facing a budget deficit of £5m.

Last May, the Irish firm Arthur Cox, which sells services to Government departments and has been contracted by NAMA, was reported to have one of the highest turnovers for a law firm in Europe with annual revenue per partner in excess of €1 million, according to thelawyer.com magazine.

The firm reported fee income of €105 million and is in 14th place in a list of the top 100 in Europe in terms of turnover.

Not only has the Government ignored a  raft of Competition Authority reports, it facilitates these significant wealthy firms and individuals in two ways. 1) Because limited liability doesn't apply, the firms or individuals do not have to publicly disclose relevant financial information. For example, the biggest of the Big 4 accounting firms, PricewaterhouseCoopers, in Ireland only discloses its annual revenue in a one-line statement, while its sister company in the UK, provides much more information. 2) Government Departments and agencies, including NAMA, maintain the Victorian era policy of secrecy on public contracts, which is in the interest of insiders and against the public interest. There are some exceptions via Freedom of Information requests, but it is a very unsatisfactory system. What is termed 'commercial confidentiality' is absolutely inimical to competition because the default system is to select via tender or otherwise from the biggest firms who maintain close contacts with senior civil servants.

Last year, Aidan Lambe, Director, Technical Policy at Institute of Chartered Accountants in Ireland (ICAI) commented on remarks by Tánaiste Mary Coughlan on professions and competition: "ICAI supports fully the need for an open and competitive economy. Far from being part of the 'sheltered sector', the accounting profession is arguably the most competitive and regulated profession in the State. There are currently nine professional accountancy bodies recognized under the Companies Acts whose activities are overseen by the Irish Auditing and Accounting Supervisory Authority. Such competition is healthy. The structural rigidities, such as set fee scales or barriers to competition referred to by the Tánaistecertainly are not present in the accounting profession. Indeed, the accounting profession was not included within the scope of a recent review of certain regulated professions by the Competition Authority.

The chill winds of economic reality have certainly impacted on ICAI members in the past months. ICAI members have experienced unemployment, have accepted salary cuts, and, as regards ICAI practitioners, have been reducing fees charged to clients.

Chartered Accountants both in business and in practice have played a vital role in helping their employers and clients through these strained economic times and will continue to do so."

The facts are that bodies such as the recently rebranded Chartered Accountants Ireland, are ruled by the big cats and for example, Anglo Irish Bank's Seán FitzPatrick, was on the governing council for years.

The professional bodies can be voluble about many issues but they generally remain silent on the issue of overcharging.

They are also silent on their roles in the economic crash.

Chartered Accountants Ireland is investigating members who held senior positions at Anglo Irish Bank. However, other members headed the two biggest banks, over several years, which were brought to the brink of ruin. There apparently is nothing to answer for.

NAMA has a budget of €2.4bn for professional fees and so there is wealth for the taking from the bubble and the crash.

IBEC the business group had also been silent on the issue of the protected sheltered sector until yesterday, when it welcomed the Taxing Master's decision this week. It also said that many professional fees, but particularly legal fees, must fall as part of the major and necessary adjustment that is taking place right across the economy.

IBEC Director General Danny McCoy said:
"In serious cases of excessive pricing, the deterrents must be substantial. Where fees are grossly overstated there is a case for all entitlements to be forfeited."

Speaking about business costs across the economy,  McCoy said: "If the economy is to return to sustainable growth, Ireland's cost base must come back into line with competitor economies. While significant strides have been made in getting business costs under control, there remain areas where costs are excessive.

"Irish companies continue to pay above the odds for many professional services and this is making it more difficult for them to survive the downturn. While the cost of some professional services has dropped considerably in the last 18 months, some costs remain at unsustainably high levels. The country is going through a painful but necessary period of economic adjustment and it is important that all sectors play their part."

Finfacts has advocated transparency on public contracts as that is the only way to promote more competition. Without it, there will be no change.

It was interesting in the Thomas Reed pubs examinership case, that despite the crash, the banks did not query the charges from the lawyers and accountants, reflecting the legacy of the bubble when it was partytime for the professions.

Adam Smith, philosopher-economist and author of The Wealth of Nations, which was published in 1776, wrote: "Masters are always and every where in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate. To violate this combination is every where a most unpopular action, and a sort of reproach to a master among his neighbours and equals. We seldom, indeed, hear of this combination, because it is the usual, and one may say, the natural state of things which nobody ever hears of."

The masters in the professions, have called the tune for too long. It's time for the fee 'cartels' as the "the natural state of things," to change in Ireland. However, if politicians continue to support Victorian secrecy and practices, what can be expected of others?

We can keep singing the mantra about improving competitiveness but as the EU survey on prices showed this week, the reality is different. There are other sectors where a recovery will result a return to the past.

SEE: The Waste Land - - Bord Snip, Irish Public Spending Transparency and the motto "Never do anything for the first time"

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