Kickbacks, waste and bogus orders costing CIE millions
Top secret report blows the lid off litany of rampant abuses at the semi-state transport giant
AN explosive top secret report on Iarnrod Eireann has found that kickbacks, squandering of millions of euro in taxpayers' money and collusion with contractors, and incompetence has been rife in the loss making semi-state company for several years, a Sunday Independent investigation can reveal.
The damning report which covers close to €120m in third party contracts and spending reveals that the taxpayer faces losses of nearly €9m as a result of rampant malpractices and lack of controls at Irish Rail. "We also note from internal investigations and internal reports that several other inspectors are suspected of involvement in fraud or collusion with vendors," the report notes. It also highlighted dealings with one contractor where it could find "little documentation available to determine whether the job had been completed or not".
The state gives CIE over €300m per year to disperse among Iarnrod Eireann, Dublin Bus and Bus Eireann. CIE is the second massive semi-state company to be exposed for squandering taxpayers money, following Sunday Independent revelations about FAS last year.
CIE has confirmed that the report, which was completed nearly 18 months ago by consultancy firm Baker Tilly Ryan Glennon, was given to the Iarnrod Eireann board audit review group and the main CIE board audit committee. "The implementation plan arising from these recommendations is progressing well," said a CIE spokesman.
However, the Sunday Independent has learnt that one of the key contractors highlighted in the report -- a major Irish firm -- has yet to be informed of the findings. It is also believed the company in question continues to conduct millions of euro of business with the CIE group. A copy of the report has been sent to the Garda Bureau of Fraud Investigations.
CIE, which is chaired by John Lynch, ordered an investigation into theft and malpractice at the semi-state following the break up of a railway equipment theft racket by Wicklow gardai in July 2006. The scope of an investigation was widened to include contract and tendering practices, which had been subject to internal speculation for some time. Baker Tilly completed the report in May 2008. Apart from Lynch and a glut of worker directors, CIE's main board includes Offaly property investor Seamus Sheerin, former Smurfit executive Dermot Killen and university professor Yvonne Scannell.
The discovery of these extraordinary breaches of company tendering policy and suggestions of collusion may lead to major litigation against the semi-state body, Baker Tilly has warned. Massive amounts of grant aid from the European Union have been lost to the Irish taxpayer as a result of the tendering chaos.
The report, which has never been revealed in public, focussed on a very small part of Iarnrod Eireann's operations but warned that abuses were obvious at other parts of the business. "Further significant breaches were found in areas which are outside the scope of our report including significant non-compliance" in other key departments, the report notes. The authors' determination to keep the contents under wraps was underlined by their decision to number all copies.
The forensic investigators, who questioned key management and staff, found that some employees were "manipulating transactions so that they remain within their procurement authority thus enabling them to appoint their chosen or contractor". It added "there is high likelihood of collusion between one of the[key maintenance staff] and one of the vendors."
The report considered these activities a " serious breach" of procurement policy as large value transactions can be manipulated to reduce their size to smaller amounts "thus bypassing controls set up to govern larger procurement transactions".
Missing documentation was another obstacle to the investigation, the report said. It claims there are frequent cases of missing quotes, missing original documentation or cases where purchase orders were set up based on a lower number of quotes than what is required to comply with procurement policy". It spells out incorrect documentation, faulty invoicing, non-compliance with procedures and an absence of supporting documentation in respect of plant hire as major flaws in the procurement process.
Baker Tilly expresses particular concern over a case where a contract was issued for removal of soil at Dublin's North Wall/Spencer Dock project. Iarnrod Eireann lost nearly €900,000 on this project alone. The company's New Works Division prepared a tender package for the removal of hazardous and non-hazardous soil in 2006. One company tendered unsuccessfully for the contract to remove the soil. Another company won the contract but the first company later sent in invoices that were paid. Iarnrod Eireann maintains the first company was never hired to, nor ever perform the soil removal. This extraordinary incident leave Iarnrod Eireann exposed to the loss of up to €257,000 in possible EU grants. These companies and the names of the contractors have been identified by the Sunday Independent but as yet cannot be named for legal reasons.
Under the heading "Collusion with Contractors" the consultants report that in one instance an inspector had been signing fraudulent time sheets or requesting labour and plant hire when not required. The report states that they had been advised by earlier internal investigators that an employee had been receiving a "kick back" of 25 per cent of the proceeds from the transaction. They quantified the loss to the company as a result of several fraudulent invoices in this area to be €272,000 over a number of years. The employee in question is believed to have repaid Iarnrod Eireann €100,000 in compensation.
Transactions with another third-party contractor -- one with employee links to CIE -- cost the state-owned company a minimum of €1.6m due to breaches of procedures, the report found. The consultants emphasise that they have not been able to monitor all transactions with the company due to volume, time constraints and IT system constraints.
Specifically turning to the Rosslare and Westport lines the consultants calculate that the company has lost nearly €800,000 on these two projects; the loss is due to further loss of eligibility for EU aid due to the breaches of procurement policy. Similarly it warns of a significant risk of a claw back of grant aid to the value of €798,000 on the development of radio sites along the Mini CTC signalling project.
Assessing the risk of future losses the report says they could be substantially reduced if a new procurement policy was enforced. A difficulty arose because the company failed to provide them with a roadmap of future projected expenditure. Items chosen for immediate review included the relationship of certain named suppliers with Irish rail staff, the estimated losses in Dublin's North Wall and the estimated loss of stock in Portlaoise.
Originally published in
