Stormont's failure to control a renewable energy scheme will hit the Northern Ireland block grant by £140m over the next five years, auditors have found.
A damning Northern Ireland Audit Office (NIAO) report on the running of the Renewable Heat Incentive (RHI) scheme said commitments under the scheme have exceeded the maximum amount that HM Treasury were prepared to fund.
The RHI scheme encouraged the installation of costly eco-friendly heating systems by paying a tariff per kilowatt of heat burned over a 20-year period. It was administered on behalf of Department of Enterprise, Trade and Investment (DETI) by the Office of Gas and Electricity Markets.
Claims of abuse of the system have also been outlined in the report.
In one case a farmer is in line to receive £1m over the next 20 years after installing a new heating system for an empty shed, an anonymous letter sent to Stormont claimed.
Large factories in Northern Ireland are also allegedly on course to pocket £1.5m over the same period for running incentivised biomass boilers all year round in premises that previously were not heated.
More than £1bn of public money will be paid to Northern Ireland-based businesses by 2036 after they installed new appliances under RHI, which is now closed.
Comptroller and Auditor General (C&AG) Kieran Donnelly says the Renewable Heat Incentive Scheme, could cost tax payers here hundreds of millions of pounds.
Key issues in the report include:
The excess funding will now have to be met from the Northern Ireland block grant. Over the next five years, this additional cost to the NI block is estimated to be £140 million and significant costs will continue to be incurred until 2036.
The Department failed to obtain required approvals from the Department of Finance and Personnel for £11.9 million of expenditure during a seven month period during 2015-16.
The design of the scheme crucially did not introduce ‘tiering’ of payments as operated in Great Britain where a reduced rate was applied after the equipment had been operated for 15 per cent of hours in a year. This tiering would have helped prevent potential abuse of the scheme by operating the equipment simply to increase the grant received.
The scheme in Great Britain also used ‘degression’ which allowed the amount of subsidy paid to change quarterly in response to changes in demand. From 2012 to 2016 the rates paid in Great Britain fell by 50% while the rates in Northern Ireland increased.
Returns available to claimants under the scheme in Northern Ireland appear to be excessive and are committed to for the next twenty years.
The fact that the Department decided not to mirror the spending controls in Great Britain has led to a very serious ongoing impact on the NI budget and the lack of controls over the funding has meant that value for money has not been achieved and facilitated spending which was potentially vulnerable to abuse.
Mr Donnelly's report did not look into the accuracy of the specific claims.
Aside from the concerns of abuse, auditors discovered an administrative oversight let the scheme operate without the approval of the Department of Finance for seven months last year - during which almost £12 million was spent on RHI.
Thousands signed up to the RHI scheme, which started in 2012 and was extended to domestic customers in 2014.
However, unlike in the rest of the UK, in Northern Ireland no cap or payment tier system was placed on the money that could be claimed in proportion to the size of boiler. In effect, that enabled a business to burn unnecessary heat just to make money.
Mr Donnelly described this as a "critical mistake".
The scheme was tightened up in November with the introduction of tiered payments, but there was a surge in applications before the change came into effect.
The claims of abuse are being investigated by DETI’s successor, the Department of the Economy.
In a statement, the Economy Minister Simon Hamilton says the findings are shocking and extremely serious.
He added that external consultants are already being appointed to conduct on-the-spot and thorough inspections to ensure there are no further fraudulent claims.
Commenting Simon Hamilton said: "At the outset I thank the Audit Office for their work to date on what are extremely serious issues.
"The Audit Office’s findings in respect of the Renewable Heat Incentive scheme (RHI) are deeply shocking and catalogue multiple failings in the design and administration of this scheme. The potential ongoing costs of this scheme to Northern Ireland taxpayers are incredible and the accusations of fraud will be rigorously investigated."