€1m Anglo auditors criticised for failing to do job
Anglo Irish Bank's auditor EY, formerly Ernst & Young, was severely criticised in a report for not spotting multi-million euro loans which were alleged to have been hidden by Sean FitzPatrick.
The financial services firm had been paid €1m a year to audit Anglo's accounts.
A preliminary report by former comptroller and auditor general John Purcell for the Chartered Accountants Regulatory Board (Carb) certified that EY was liable to disciplinary action.
Details of the findings were outlined in the absence of the jury by Mr FitzPatrick's defence counsel Bernard Condon SC. He said Mr Purcell concluded that a properly planned and executed audit would have brought to light the scale of loans. The report concluded Ernst & Young failed to follow up on a number of "red flags" and adopted a narrow approach.
Its work did not examine the transactions underlying the balances submitted and appeared to have been over-reliant on management representations.
The issue came up in discussions within the Office of the Director of Corporate Enforcement (ODCE), which was investigating the alleged non-disclosure of loans by Mr FitzPatrick. Amid concerns that EY's failings could jeopardise the case, former ODCE director Paul Appleby is said to have concluded that a prosecution could proceed anyway. "Paul Appleby said the prima facie finding of incompetence against EY is unhelpful," said Mr Condon.
"But he also thought it would end up being irrelevant in the context of the prosecution."
The court heard that EY made a submission to Mr Purcell in which the firm "vigorously defended the adequacy of their audit".
Carb referred Mr Purcell's findings to a disciplinary panel, but the process was put on hold due to a number of Anglo-related trials before the courts. Three years ago the DPP secured a stay on civil proceedings issued by Anglo's successor IBRC against EY for €50m in damages over an alleged failure to uncover the alleged loan transactions. The stay was granted pending Mr FitzPatrick's trial.
IBRC is suing EY for its alleged "repeated failure" to uncover alleged "highly unusual and improper" loan transactions.