Bank transfers 'should have been spotted'
Anglo Irish Bank's auditors only became aware on Thursday evening of former chairman Sean Fitzpatrick's practice of temporarily concealing loans from the bank.
Ernst & Young is understood to have been unaware that Mr Fitzpatrick transferred loans over an eight-year period to Irish Nationwide Building Society before Anglo's year-end so they would not be recorded in the Anglo's annual accounts.
This revelation came as accountancy expert Niamh Brennan said the kind of transfer carried out by Mr Fitzpatrick was quite common and should have been spotted by the bank's auditors.
Professor Brennan, who is academic director for the Centre of Corporate Governance at UCD, also queried why such large transactions were not scrutinised under the stringent laws designed to combat money laundering.
"It was such a simple operation that it is almost unbelievable that it could have been successful," said Prof Brennan. "You sometimes get this kind of window dressing in companies, coming up to the time when the books are to be done by the auditors. Transactions in that period should be scrutinised by the auditors."
Prof Brennan said she found it hard to believe that the transactions were not known to, or assisted by, other staff in Anglo-Irish. "At least one other person must have known," she said.
E&Y said yesterday that it does not comment on clients' business. However, it is believed the firm is comfortable that its audit structure is complete and thorough and that this is not an issue that normally comes up and could be easily concealed.
While the practice did not breach banking or legal regulations, Mr Fitzpatrick has conceded "on reflection, that it was inappropriate and unacceptable".
The Financial Regulator became aware of Mr Fitzpatrick's loan transfers during a review of Irish Nationwide's books in January but the Department of Finance and Finance Minister Brian Lenihan were not informed until recent days.
The watchdog had told Anglo to ensure these loans were accounted for in the annual report for Anglo's full-year to the end of last September, which is due for release soon.
The issue also came to a head during the week as Anglo's talks with the Government regarding its recapitalisation plans intensified, and Finance Minister Brian Lenihan asked the regulator to check out loans to directors of the group.
It subsequently emerged the watchdog had been looking into the issue since January.
Prof Brennan said that the Financial Regulator's decision to keep the matter confidential was a cause for concern.
"I should imagine that the Taoiseach and Finance Minister must be feeling very let down that this was not made known to them earlier," she said.