Saturday 24 February 2018

Watchdog to probe Central Bank suppression claims

Outgoing Central Bank Governor Professor Patrick Honohan
Outgoing Central Bank Governor Professor Patrick Honohan
Shane Phelan

Shane Phelan

The State spending watchdog is to investigate issues raised by a whistleblower who claims the Central Bank suppressed critical findings in an internal audit report.

The move by Comptroller & Auditor General Seamus McCarthy came after it emerged a former senior auditor at the bank had claimed he was put under pressure to alter and remove findings from the report.

His contract was not renewed by the bank a month after he made a protected disclosure to former Central Bank Governor Patrick Honohan.

The matter is now the subject of an unfair dismissals case at the Workplace Relations Commission.

The bank claims it was cleared of the whistleblower’s allegations following an independent investigation.

However, the claims will further damage the bank’s image.

It is the second time in the space of a month that the bank, which regulates financial services in Ireland, has been accused by a former staff member of supressed adverse findings.

Frank Browne, a former head of the Central Bank's Monetary Policy and Financial Stability Unit, told the Oireachtas Banking inquiry important information about the health of the financial system was "suppressed" in 2007.

Details of the latest allegations were outlined at the Dail Public Accounts Committee by Sinn Fein TD Mary Lou McDonald, who referred the matter to the C&AG.

Ms McDonald said the former employee had made a protected disclosure to her.

He was tasked with carrying out a review of the Central Bank’s compliance with the code of practice for the governance of State bodies, she told the committee.

The bank had been found not to be in compliance with those measures previously.

The auditor joined the bank in July 2014 and carried out field work between August and September 2014.

He produced a draft report in October 2014. This criticised a lack of appropriate monitoring of arrangements for engagement of external auditors, ineffective monitoring of the bank’s internal auditing arrangements and the failure to review its internal audit manual.

Ms McDonald told the committee that during the course of November 2014, there were discussions on the draft document.

“It is the strong view of the whistleblower that they were encouraged [and] instructed to omit, delete, amend certain findings within the draft,” she said.

The whistleblower made a protected disclosure to Mr Honohan on November 17 and had no further involvement in respect of completing the audit report.

Consultants Deloitte were tasked by the bank that December to carry out an assessment of what happened.

“They acknowledge that the whistleblower had resisted amending, deleting, omitting elements from their findings,” the Sinn Fein TD said..

“However, Deloitte found that in their view the actions of management may have been appropriate.”

The whistleblower was informed of Deloitte’s findings on December 21, 2014 and two days later he was told his contract was coming to an end.

The final audit report was delivered on January 29 this year.

It did not contain the criticism in relation to monitoring arrangements for external and internal auditors or the lack of a review of the internal audit manual.

However, it did find the bank was only partially compliant with the code in relation to the composition of its board, remuneration, risk management, accountability, internal control, procurement and tax compliance.

It found the bank was non-compliant in relation to disposed of State assets and access to assets by third parties.

Ms McDonald said the whistleblower’s claims raised a number of serious issues.

She questioned behaviour within the Central Bank and its audit division, in particular “the practice of asking people, encouraging people” or “attempting to coerce people into removing, amending, altering findings in an audit report”.

Ms McDonald said there were questions about the treatment of the auditor after he raised his concerns.

“The question that arises in my mind is was the whistleblower punished for speaking out and not going with the flow?” she said.

She also said that the eventual report, even without the criticism allegedly omitted, did not “make for very good reading”.

“What it reflects is that the Central Bank, as at January 29, 2015, is not compliant with the code of practice for the governance of state bodies,” she said.

“I think that is a very troubling account of the level of compliance of the Central Bank.

“The reason why I believe this report is troubling is we know a lack of regulation, a lack of oversight, sloppiness, groupthink, all of these things were ingredients over the years that led us to a very catastrophic situation.”

C&AG Seamus McCarthy told the committee his office planned to investigate the issues raised in the audit next year.

Mr McCarthy said the issues went back to matters which the C&AG previously raised with the bank.

He also said his office had been aware that a whistleblower had made certain claims.

In a statement, the Central Bank said it could not comment on the unfair dismissals case.

However, it said issues raised “were thoroughly investigated last year following challenges raised by a team member”.

It said an independent external party was appointed to fully investigate the claims.

“The independent external party did not uphold the complaints,” its said.

“The Central Bank has a Confidential Disclosures (Whistleblowing) Policy in place, and places great importance of staff ‘speaking up’ when appropriate. The Central Bank is satisfied that its actions in relation to this issue have been appropriate.”





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