Official Report: Minutes of Evidence

The Chairperson (Ms Boyle): I welcome our guests, Mrs Jackie Kerr and Dr Andrew McCormick. I also welcome Ms Caldwell, the newly appointed Treasury Officer of Accounts. Dr McCormick, I believe that you want to make an opening statement.

Dr Andrew McCormick (Department of Enterprise, Trade and Investment): Thank you very much, Chair. I will set out in general terms some explanation of our role in relation to this issue and some of the processes for company inspection and director disqualification. That will provide some background and principles for the Committee and avoid risking any compromise of the ongoing processes following on from the investigation of the Events Company. There is an ongoing investigation at the Department, and there is also, as you know, a parallel investigation of possible criminal activity by the PSNI. So, I want to be very careful not to compromise anything.

The starting point is the relevant legislation under which we act, the body of the Companies Acts and Orders, which have been enacted and amended over the years. These give DETI responsibility, where companies have become insolvent, for investigating any concerns about their conduct and, where the Insolvency Service has sufficient information from available records, it can consider all the appropriate regulatory action, including, where necessary, proceeding to possible disqualification of directors. It has additional power, where formal complaints are received about the conduct of companies, to commission statutory inspections.

A company inspection is a statutory process that requires the Department to appoint named company inspectors to undertake the process, and the purpose is to investigate aspects of corporate behaviour that might harm both the business community and the public generally. The advantage of appointing company inspectors is that they have statutory powers to require the production of documents and information by the company, or any person or third party involved in that company, now or in the past. A failure to cooperate with inspectors can be treated as contempt of court.

In the case of the Events Company, DCAL asked DETI in November 2008 to initiate a company inspection. Since 2001, inspections have been carried out by private sector inspectors, not DETI staff. That change was made all those years ago to ensure a proper separation of roles between the directors disqualification unit (DDU), which remains in the Department, and the inspection function. The process for inspections was the responsibility of DETI's Insolvency Service up to 30 September 2009, but following a change of legislation at UK level, this function has been discharged by the companies inspection branch of the Department for Business, Innovation and Skills at UK level. So, we do not do company inspections any more because of that change.

I move on to the process in relation to directors disqualification. The DDU has responsibility for acting on concerns about the conduct of company directors, and under insolvency legislation the term "director" can also extend to de facto or shadow directors, that is persons who, while not formally appointed as directors, act as if they were directors or exert significant influence over directors. Where cases arise from complaints, there is a statutory time limit of three years — it used to be two years, but recently went up to three years — before which the DDU can consider the issues and either initiate formal action or drop the investigation where the conclusion is that there is insufficient evidence to proceed successfully. There is no statutory time limit on cases where a company inspection has been commissioned.

The DDU is required to consider the evidence and, where there are grounds to consider seeking a disqualification of a director, draw up an affidavit setting out the case to be answered and address the question of whether, in the Department's view, it would be in the public interest to pursue possible disqualification. So, there are both the facts of the case and the wider public interest considerations.

The process then involves sending what is called a pre-proceedings letter to the relevant directors. That gives them an opportunity to present any evidence or make representations in relation to the issues. In some cases, individuals may accept the evidence against them and choose to give a disqualification undertaking, which would have the same effect as an order but avoids the need for court proceedings. DDU carefully considers the responses to pre-proceedings letters, in conjunction with its legal advisors, and if it judges it appropriate, it then initiates court proceedings by lodging the formal affidavit that I mentioned earlier. Only when a case is listed for hearing by the Court Service would it be known publicly that anyone is subject to that process. The remaining process after that stage is a matter for the court, which decides whether or not disqualification is appropriate and, if so, for how long.

In the present case, the Insolvency Service is considering the conduct of the company's directors, and, while I cannot go into detail on any individuals, I can confirm that the investigation is now at an advanced stage and pre-proceedings letters have issued to a number of individuals. Those individuals are then given an opportunity to respond to provide for fair process, and the Department is now considering the responses received so far. To ensure the integrity of that process, we cannot go into detail, and I apologise in advance if there are limits on how we can respond to some of the questions that you may have, although we will, of course, seek to be as helpful as possible. Thank you for the opportunity to make those points.

The Chairperson (Ms Boyle): OK. Thank you, Dr McCormick, for that opening statement. Paragraph 1·6 of the report tells us that you appointed the inspectors back in November 2008, and they reported in March 2014. That is five and a half years for a piece of work to be done. Can you give us any reason for it taking over five and a half years?

Dr McCormick: It is worth saying at the outset that inspections typically take up to three years. That would not be unusual in the context of company inspections. This inspection was particularly complex and detailed, and there was a pause, a period of over a year, when the inspectors could not undertake any work because the police had asked for time for them to review the position and consider the issues of potential criminal investigation. So the timeline included a gap from February 2010 to May 2011 when, effectively, the work was paused.

The other factors that led to the time required for the process were the complexity and scale of the information. The inspectors had to look at approximately 122,000 documents and more than 350,000 emails, stored on about 20 computers to be examined. The record-keeping in the organisation was particularly poor, so there was a need to try to make sense of what the documents meant — whether it was the final version of the minutes, etc. There was along, tortuous investigative process.

The situation with company inspections is that each one is different. Each case can only be judged on its own merits. This was by far the most complex that we have been involved with in the last decade, and that relates to the complexity of the issues and the fact that we had to be exceptionally careful, given that, from the beginning, there were concerns about potential criminal activity. Therefore, we had to be extra thorough, careful and protective of records. Those are some of the factors. There is more I can say, but the reasons were very good.

It is worth adding the point that it was particularly difficult to secure some of the interviews, in particular with the former chief executive of the company. That process in itself took about a year because there was non-cooperation from that individual. So there was a lot of real process to be undertaken, and I think it was necessary process to achieve the result required.

The Chairperson (Ms Boyle): OK. Some of the other members have questions about the costs, but before I allow them in, why has the company inspection report not been published?

Dr McCormick: There is provision in the Order, the legislation that governs this process, for inspectors to be appointed on the basis that their report will not be published, and there are a couple of major reasons why that clause in the legislation is sometimes invoked. It was invoked in this case. The first reason is that there was concern about criminal activity; therefore, there was a need to undertake a process that would protect all the information that might possibly be relevant to that criminal investigation. Protecting that parallel process was a responsibility that we had; therefore, it would have been wrong to contemplate publication. Therefore, when this was initiated, the decision was taken to invoke that provision of the legislation.

The second factor is that, in conducting the process, it was possible to assure people being interviewed and asked for information about the process that the report would not be published. That was designed and intended to at least provide some reason for greater candour in the discussion with the individuals interviewed. So they were given that assurance that the report would not be published. That, again, is provided for in the legislation, and it was an entirely appropriate process. Of course, within very careful terms, under both companies and data protection legislation, it is correct and appropriate to share the full report with a number of organisations, including the Audit Office. The Audit Office has seen the inspection report, but it was clearly not intended for publication, and it would be wrong to publish it.

Mr Beggs: Can I just pick up on something that you said earlier? You said that there was a delay of about a year because of non-cooperation from one of the witnesses. I also thought you said that the company inspectors had statutory powers; did they not use them?

Dr McCormick: Yes, they pursued and applied them, but even using those powers, it still took that time to actually achieve the result. As a matter of fact —

Mr Beggs: I am astonished that it took a year to do so. Perhaps, if there is more information, you can explain why it took so long; I think that that would be useful.

Dr McCormick: I do not have any more on that right now.

Mr Beggs: OK.

The investigation itself cost £1·24 million. That is almost as much as was lost by the Events Company through its mismanagement. Do you consider the investigation, at £1·24 million, to be value for money?

Dr McCormick: Yes. It was a necessary process. To have not pursued an investigation of the case would have been an entirely inappropriate response. What we did all the way through the process was consider very carefully each stage that we were going through. There were checkpoint and review meetings regularly through the process with the inspectors and with other parties. At that time, this question was always being asked: is this the right thing to do?

To have aborted the process completely would have meant that there was no investigation of a very difficult and unacceptable situation. To have tried to do it by some kind of half measure would have made the rest of the processes, on which this one depends, ineffective. The value that has been obtained from the inspection includes a foundation for further work by the other organisations concerned, including the PSNI and the Chartered Accountants Regulatory Board (CARB), as the audit regulators. All of them have benefited from the report and from being able to make use of the information obtained. Somebody had to do it. Somebody had to wade through all that information, because it might have been the 300,000th email that actually turned the whole argument around. If someone had not read that, thought about it, matched it against the other information and gone through that process, maybe a future process would fall down. Obviously, we cannot prejudge future processes. We have to ensure that there is transparency and fairness in what lies ahead, both in terms of directors' disqualification and in anything that is done by the police.

What was made possible by a thorough report was a foundation of evidence that was carefully checked and put together. The value obtained is, I think, to be measured by the impact on the way in which the whole system works and the protection of the public interest. It was much wider than this individual case. We have done the best that was possible in the circumstances. As explained in relation to the question of timing, the points made on the time required also relate mostly to cost, and most of those factors would have affected the cost of the investigation as well. It was obviously a large amount but, in the context of this work, there was no other way to do it well.

Mr Beggs: Can you advise us how much DETI originally budgeted for this case when the inspectors were appointed?

Dr McCormick: A very rough initial estimate was made that it would be at least £250,000. That was a broad, initial stab at the estimate of costs. As the process began, it became clear very quickly that it would be larger than that. The nature of the work means that you do not know the extent or scale until you actually start. Some prior work had been done, but it was made clear, and we knew from the beginning, that that had not been exhaustive or complete, and some of the difficulties that I mentioned earlier were not foreseeable at that initial point.

Mr Beggs: You mentioned that you had various checkpoints at which you reviewed progress and further expenditure, but to start out at £200,000 and end up at £1·24 million seems quite extraordinary.

Dr McCormick: I understand what you are saying, but, in the context, nobody regarded that initial view as having any great — it was not a very firm figure; it was an initial figure. We knew from the beginning that it might be substantially more than that. There was no other way to do it right.

Mr Beggs: I often relate my earlier experience working for some small companies in the private sector. Do you think that a company in the private sector would have spent £1·24 million to investigate a loss of £1·4 million?

Dr McCormick: That is not the complete equation; the issues are wider than that. This work provides the foundation for other investigative processes, which are in the public interest, especially if we learn further things through the disqualification process or whatever. It is important to pursue those things. It is wrong to simply draw a parallel between the cost of the investigation and the amount lost.

Mr Beggs: You feel certain that there was nothing done that did not need to be done. Could we have got to where we are today without spending the full £1·24 million?

Dr McCormick: We are clear that there was very careful examination and checking of the stages of the work and regular meetings with the inspectors. The head of the Insolvency Service throughout the period was assiduous in asking, "Does this need to be done? Is that process necessary? Are these required?" Then there were the checkpoint meetings, which were attended by the then permanent secretary and, in some cases, the PSNI and the Audit Office. At those meetings, the question was asked specifically whether this was the right thing to do, and there was agreement. Now, it is the Department's responsibility to have made that judgement, and we stand by that responsibility, but, as a matter of fact, the Audit Office also said that the costs incurred were appropriate. We do not have a direct, agreed record of those meetings, but we have emails and records and memory that say that the Audit Office was satisfied that it was the right thing to do.

Mr Beggs: You have told us that there were a number of check processes and that you authorised further expenditure in different directions. Did anyone ever stand back and look at the net costs as it went along, rather than just individual decisions?

Dr McCormick: My understanding is that those checkpoint meetings did exactly that.

Mrs Jackie Kerr (Department of Enterprise, Trade and Investment): I will give you some more detail on the control processes that operated over the project itself. At the outset, there was recognition that the budget would not be less than £250,000. That approach was taken because it was recognised from the outset, based on the report that KPMG had done for DCAL, that there was a range of issues in the Events Company, including matters of a potential criminal nature. Also, there was recognition of the very poor quality of records in the organisation. The problem for KPMG would have been the powers that they would have had to call for documents and require individuals to cooperate. So, it was known from the outset that this was complex and wide-ranging, and that many individuals would have to be interviewed through the process.

The Department was mindful from the outset of the importance of very rigorous controls. From the outset, there was a rigorous process to ensure that the rates agreed for the contract were the best value. The rates were fixed for the duration of the contract. There was day-to-day monitoring by the contract manager, the director of insolvency, who monitored on a regular basis the work that was being done against an agreed work plan and terms of reference. The inspectors had to seek approval for any variation, no matter how minor. At another level, then, there was more strategic oversight, which Andrew has alluded to, from the permanent secretaries of DETI and DCAL, joined, on occasions, by the Comptroller and Auditor General and the PSNI. That was an important role from the strategic perspective. They did not just look at the time taken and the cost but raised those very questions that you have asked, such as, "Are we still doing the right thing? and "Are we satisfied that this is in the right direction?".

We also had — I will say this briefly — another process in parallel, in the budgetary context, looking at the overall spend. Initially, the indication was that the cost would be not less than £250,000. Then, at checkpoints, approval had to be sought for spend to go to another point. At each one of those stages — that happened at three different points in the life of the project — it went right back to first principles: "Should we continue with this? Should we re-tender? Should we scale back the scope of the inspection?".

It really went back to a proper business case, asking the fundamental questions to ensure that the public funds that were being tied up in the investigation were being used wisely. There were multiple levels of control and sign-off throughout the process.

Mr Beggs: Just going back to the initial contract, was there simply a flat rate per hour? I would have thought that, when something ends up costing five times the original estimate, you should have something built in to say that there will be a reduced hourly rate. What hourly rate was paid here?

Dr McCormick: It would have varied. A range of personnel were deployed in the contract, and they all had specified contractual terms, but —

Mr Beggs: Did that change when the contract became five times as long as originally planned?

Mrs Kerr: DFP's Central Procurement Directorate (CPD) has a framework agreement on the initial appointment of inspectors. This is a very specialist area, and only a small number of firms can actually undertake the work of a company inspector. So we used CPD's framework agreement, which was a competitive procurement process in itself, and we went for the most cost-effective firm on that contract. We then negotiated a more competitive rate directly with the inspectors. That rate was fixed for the life of the contract, which, at the outset, was not anticipated to run for as long as it did. The Central Procurement Directorate actually fed back to us that we had achieved very good value for money in the rates that we had agreed for the contract and in having that fixed rate for the duration of the contract.

Mr Beggs: Was that at the start?

Mrs Kerr: At the start, yes.

Mr Beggs: Would it still say that today?

Mrs Kerr: Yes, I would be confident that it would.

Mr Beggs: Do you not appreciate that sometimes contracts awarded by CPD are actually dearer than what can perhaps be achieved?

Mrs Kerr: This was a specialist —

Dr McCormick: I do not think that there is any evidence that any better alternative could have been achieved. We were taking the lowest-priced firm on the framework agreement, as Jackie explained. It then deviated from its normal terms of engagement in agreeing that the rates for individual members of staff would not increase for the duration of the contract. So we got the best possible deal in the context. It is the nature of this work that that is the best that we could have achieved. I cannot see — nor did anybody else in the process or in the oversight group — any way of identifying, "If only we had done this, it would have been better." That parallel universe does not exist, as far as I can see.

Mr Beggs: OK. Thank you.

Mr Poots: Was a business case done for this?

Dr McCormick: It was considered by casework in the business case process that Jackie explained a short time ago. Yes, that was undertaken.

Mr Poots: A business case was done.

Mrs Kerr: Approval was sought through the internal processes to embark on the company inspection. This was a request from DCAL to DETI to appoint inspectors to undertake that, so it was slightly different in that regard. At that time, when DETI had responsibility for company inspections, if we received a complaint or an approach in relation to the need to undertake a company inspection, we would take a decision on whether the case merited it. In the Events Company, the issues were so clear-cut that there was a very definite need for the inspection to be undertaken. So it was slightly different from the normal scenario where you would do a business case to decide whether or not to embark on a particular project. That was us responding to the statutory responsibility that DETI had at that time to respond to complaints or requests for the behaviours of a company or the directors of a company to be investigated.

Mr Poots: Given the nature of the inspection, you identified at the outset that you could spend up to a quarter of a million pounds, and you did not do a business case for that.

Mrs Kerr: There were internal approvals to appoint the inspectors and for the cost of the inspection.

Mr Poots: I have heard all your answers so far, but I have not heard an answer that there was a business case.

Mrs Kerr: There was not a business case at the outset for the appointment —

Mr Poots: Thank you. I would like to move on to the next question.

Mrs Kerr: Sorry, Chair. Can I just say, Mr Poots —

Mr Poots: You have explained it four or five times. I asked whether there was a business case, and on, I think, the fifth time of asking, I got the answer that there was not a business case. That is fair enough. You have explained all the other issues around it.

Can you give the Committee details of inspections completed over the last 10 years — their budgets, final costs and the time taken?

Dr McCormick: We have some detail.

Mrs Kerr: Would it be helpful if we wrote to you with that? We can give it to you now.

Dr McCormick: We can give you some details, but —

Mr Poots: For us to do some comparative —

Dr McCormick: They vary a lot.

Mr Poots: Is this normal activity? Dr McCormick indicated earlier that it is not abnormal for it to take three years.

Dr McCormick: Yes.

Mr Poots: That is not to say that it is good practice to take three years over it; it may be bad practice to take that long. Just because it is not abnormal does not mean that it is good practice. Perhaps you can tell us.

Dr McCormick: They range from costing as little as £55,000, for one which took just a short time, to — I am just trying to find the little table that I have.

Mrs Kerr: To £886,000. The Events Company inspection, Mr Poots, was not routine. No company inspection can be described as routine; each is individual, and it depends on the circumstances. However, the Events Company inspection was particularly unique because of the factors and difficulties encountered by the inspectors and the sheer scale of it, including the number of directors and the size of the board. Many company inspections focus on relatively small companies with maybe a couple of directors and one specific area of the behaviours of those directors or the company. In this case, it was looking at the company itself, the board, the role of DCAL and the role of the auditors, so it was very wide-ranging. We can give the Committee some details of some of the previous inspections but, as Dr McCormick — sorry, go ahead.

Dr McCormick: I was just going to say that three years is the approximate average of about nine company inspections over the last 10 or 12 years. The numbers are so small that the averages do not mean very much. Each one is unique, but they ranged in cost, as I said, from £55,000, and £63,000 in another case. It may be no coincidence that the two that have been of concern to this Committee are the two that have been both the largest and most expensive — the Bioscience and Technology Institute (BTI) case, which cost nearly £900,000, and this inspection in relation to the Events Company. That is because those required that additional layer of producing evidence and analysis that would satisfy the standards of public accountability and provide the right basis for assessing those processes. It is the price of this kind of process.

Mr Poots: Of course, those two cases that the Committee has investigated have increased the average length of time by a year, so the rest of them would have taken two years, on average, had it not been for these two particular cases. This one has taken over seven years. What did you learn in year 4 that you did not know in year 3?

Dr McCormick: I mentioned that there was a year when the pause button was hit and nothing happened.

Mr Poots: Well, take year 5, then. What did you learn in year 5 that you did not know in year 3?

Dr McCormick: Year 5 was one of the peak periods for the interview process, which had been delayed by the initial stages that had proven difficult. Much of the final year of the work was taken up with the so-called process of "Maxwellisation". That is exactly what Sir John Chilcot is having to do at present. It is the obligation, under case law, for an investigation to give those who are criticised in a report a fair opportunity to respond to that criticism before reports are published or finalised. That is a whole year of process, in this case, because of the need to go through that. That is an obligation under case law. Each year has its own explanation. There is plenty of detail that could be given as to why this all had to happen. Of course, it would have been desirable to move faster.

Mr Poots: But it is not being given, and I would not hang my hat on the Chilcot report. It is something which has been discredited already, given the length of time that that process has taken. I have to say that, when I read the final report, I learnt nothing that I did not know about three months after the whole thing had happened. I learnt nothing new. Are you telling me — and is this good practice — that you only carried out interviews after five years?

Dr McCormick: No, sorry. Let us be clear. The interview process —

Mr Poots: You said that it was a busy year because you were doing the interviews then.

Dr McCormick: The penultimate year of the work involved a lot of the interviews.

Mrs Kerr: Mr Poots, those were the formal interviews. There had been interviews and engagement with key figures throughout the process from the very outset. One of the characteristics of this case that has already been touched on was the very poor quality of the records and the task that the inspectors faced, in terms of developing the evidence base, which is now fundamental to a number of other investigations, such as: the directors disqualification investigation that our Department has undertaken; the PSNI investigation; and the investigation that the Chartered Accountants Regulatory Board (CARB) has undertaken in terms of the auditors. Dr McCormick referred to the interviews at year 4 or 5. Those were the formal interviews that were recorded. Again, those were all fundamental to the process of evidence-gathering and providing robust and strong evidence that can be used by other regulatory authorities as well. That is where the value has come out of that inspection. It is the purpose that it can serve for other regulatory functions.

Mr Poots: I do not mean any disrespect, Mrs Kerr, but formal interviews five years after an incident has happened cannot ever be good practice if they can reasonably be carried out at an earlier point. Aside from anything else, people's memories of what took place five years after the event will not be as good. Why did those formal interviews not take place until after five years? There must be really good reasons that you are going to tell us now as to why those did not happen.

Dr McCormick: I will run through the sequence of events and how it unfolded. The inspectors were appointed in November 2008. After the issue was referred to DETI by DCAL, a process was required to engage, appoint and go through the judgement process as to how to proceed. That began in November 2008. From that point onwards, they had introductory meetings with the key individuals and stakeholders and did a desktop review of the documentation. It would be wrong to go into interviews without having at least done a pretty thorough assessment of the documentation that was available.

Mr Poots: How long did that take?

Dr McCormick: That took from April 2009 through to January 2010.

In February 2010, the police made contact with us and said that it was necessary to protect the integrity of their investigation and asked the inspectors to pause and not proceed further with their interview process at that time. So, from February 2010 through to May 2011, the inspection process was paused. From June 2011 onwards, they moved into the process, and the first formal interviews with the people under investigation happened in August 2011. They conducted the interviews over a 20-month period, completing the last formal interview on 15 March 2013. There was then a year —

Mr Poots: That was year 4, not year 5.

Dr McCormick: I think that I may have said the fifth year.

The Chairperson (Ms Boyle): Can we get a copy of that timeline?

Dr McCormick: We can get you that timeline and some further details on it.

Mr Poots: We lost 15 months to the police, who we cannot actually question. Aside from that —

Dr McCormick: The process was moving —

Mr Poots: — it would be pretty difficult to justify why it took so long to get to formal interviews.

Dr McCormick: Given the scale of the documentation and the inadequacy of the material, to have risked going into a formal interviews on the basis of half-baked preparation, especially with people who were not cooperating, would have been ineffective. The idea was to make it an effective process, and preparation was required.

Mr Poots: I have not seen anything new. I indicated that there is nothing in the report that I would not have known, and that DCAL did not know, three months into the process. What have we got from the seven years and the £1·24 million?

You tell us that it was money well spent. That is a fairly brave and bold statement. In what you started and ended with, can you point out where the massive differences are from what DCAL presented to you as, "This is what we think caused it. This is what we think were the problems. This is how we think the money was lost." Did you find something fundamentally different at the conclusion of this? I cannot see it.

Dr McCormick: It moved from being a clear analysis to something that was authoritative and firm, based on evidence that has a better chance of standing up to robust resistance in future processes, assuming that that is what unfolds. I am not prejudging anything, but if there were to be further processes, we needed to be sure. Part of what we paid for is greater certainty. I do not disagree that the fundamental concern about what might have happened emerged pretty quickly after the debacle unfolded, but to be sure of one's ground in pursuing further statutory and court-based processes required detail and certainty. Effectively, that is what we paid for.

Mr Poots: We knew that the board was not meeting and that it did not establish an audit committee.

Dr McCormick: Yes.

Mr Poots: We knew that way back. That was not new.

Dr McCormick: No.

Mr Poots: We knew that the board was not well attended and that members did not turn up particularly well for meetings. That was not anything new. We knew that Ms McAleese was left to her own devices in running those events. We knew that they had started to organise events, as well as being the key sponsor of them. We knew all those things. We believe that things have been signed off that were not signed by particular individuals. That was, I think, learned during the process, but did we spend £1·24 million to learn that somebody signed someone else's name?

Mrs Kerr: In that context, when KPMG concluded its report, which, as you quite rightly said, highlighted those issues at that time in 2008, it recognised and put into its recommendations that it was constrained because it did not have the powers of a company inspector. It identified the difficulties and problems that existed in the quality and existence of records that were critical to establishing an evidence base to go further on any of the issues that were emerging. KPMG recommended that the company inspection be commenced for that reason: because the company inspectors would have the statutory powers to compel witnesses to cooperate, to compel the release and provision of information and documents and to be able to do the thorough investigation that they did to provide a sound evidence base that could be used for any further proceedings, such as —

Mr Poots: It has taken you seven years to come up with something that should have been blatantly obvious to you after about seven weeks.

Mrs Kerr: We now have an evidence base. That is the difference.

Dr McCormick: It may have been blatantly obvious, but it would not have stood up.

Mr Poots: Excuse me; there was considerable evidence from the outset.

Dr McCormick: I agree that there was evidence, but it was a matter of getting the best available evidence, such that it would stand up to robust challenge in future processes.

Mr Poots: Was it a semi-colon in an email, instead of a comma or something? How detailed did you have to be, in terms of spending public money, to identify what went wrong? That is the bottom line. Something went seriously wrong and we — Northern Ireland plc — lost £1·4 million. How do we avoid that happening again? Oh right, we will spend £1·24 million. The £1·24 million did not tell you anything that you did not know beforehand.

The best that you can come up with today is that you have a thorough evidence base. Frankly, that is not good enough. That is not a good enough reason for the expenditure, nor is it a good enough reason to take seven years over that particular process. Some of us would be cynical enough to think that it may be a means to let some people out in the smoke who were heavily involved and should have ensured that that money was not squandered by the Northern Ireland Events Company, and that, maybe, civil servants are looking after other civil servants.

Dr McCormick: I would refute that completely.

Mr Poots: I thought you might.

Dr McCormick: What else can I say?

Mr Poots: You are a very decent civil servant; I know that. You are an honourable one who always seeks to look after his colleagues.

Dr McCormick: We judged very carefully, stage by stage through the process, whether it was right to pursue it. We were well aware that costs were increasing, but, without that inspection, there would be no clear foundation for the next stages of process. Yes, there was belief —

Mr Poots: Are you saying that, without your inspection, the police could not bring a prosecution?

Dr McCormick: I want to say as little as possible about the police process. You will understand why.

Mr Poots: They have a separate process.

Dr McCormick: They have, but they have benefited from the approach that has been adopted by the inspectors, as has the Audit Office. The Audit Office report, which was said to be done quite quickly, was only possible —

Mr Poots: Were you both doing the same thing in your inspections? Were you doing something that had been left to the police and vice versa?

Dr McCormick: There are aspects that only the police can do, including the investigation of the falsification of documents and so on. There are aspects that are clearly for them to do, and not for inspectors. But value was obtained from the work of the inspectors on behalf of the police and of CARB as the audit regulatory body. I still hold to the view that this was the right thing to do and that there was absolutely no deliberate delay. The delays were for the reasons that I have given, which were legitimate and outside anybody's control. There was a need to protect and respect the police investigation, hence that gap. We had a genuine difficulty in getting the interview with the former chief executive. Again, I do not have a full and detailed explanation, but it is a matter of fact that it was not possible to get the interview with her until well into 2012. That is just what happened. I cannot see how this could have been done more quickly. It is complex and detailed work. Yes, the main elements of what had gone wrong were known, or were believed or understood, but they were not proven. What we are looking at is whether — ultimately, the committee can express a view on this — there is a value in proving these things or not.

Mr Poots: Probably 98% of the evidence was there at the outset. I think you have spent seven years finding the last 2%. We have known each other long enough, Dr McCormick, for you to know that you have not been able to sell this to me. Never mind me; I do not think that you will sell it to the Northern Ireland public, full stop. You are very brave trying to do that, but, really, I do not think that it is achievable.

I will ask one final question, with your indulgence, Madam Chair. DETI no longer has the statutory responsibility for company inspections. Are there any inspections outstanding?

Dr McCormick: No.

Mr Poots: Thank you.

Mr Flanagan: I have a load of questions, and they are all over the place. I have lost my train of thought, I have been writing so many of them. Paragraph 1.9 states that DETI is considering potential disqualification proceedings. Can you tell us the current state of those proceedings?

Dr McCormick: As I said in my opening statement, we have issued pre-proceedings letters to a number of individuals. In fact, we are considering the initial responses to those letters. That is the stage that we are at. It would be wrong to go further at this time, because we are at an important and delicate stage. There are decisions still to be taken on whether any of the points made in response to the pre-proceedings letters will change our view of the issues and whether there are public interest considerations. It is at an important stage at the present.

Mr Flanagan: I will try to pursue it a bit further. Just to confirm, the pre-proceedings letters were sent on 28 September. Is there any link to the fact that we had our initial evidence session with the Audit Office on 30 September? Would it be cynical to think that you did something because we were starting to look into this issue?

Dr McCormick: It is important that the process is separate and protected and that there is no risk of anyone saying that we only issued letters because of things that emerged through the public accountability process. That would have been wrong. They were ready, and it was the right time to do it. I think your first session was two weeks ago, so —

Mr Flanagan: Was there an urgency in the Department to get the letters out before the Committee had any public hearing on this issue?

Dr McCormick: It was desirable to make sure that there was a clear separation of process.

Mr Flanagan: What does that mean?

Dr McCormick: The letters were ready.

Mr Flanagan: How long had they been ready before they were sent?

Dr McCormick: They were ready just at that time. Serious work had been undertaken on those letters through the summer.

Mr Flanagan: What does one of those letters look like?

Dr McCormick: It is a formal letter to an individual. The letter itself covers the procedural points and sets out their options in response to it, including any considerations that they might want to raise in their representations to the Department. Then there is an annex that sets out the evidence on which the DDU has concluded that there is a case to answer.

Mr Flanagan: What is the next process?

Dr McCormick: It is for the Department to consider the responses and —

Mr Flanagan: How long is an individual given to respond to one of those letters?

Dr McCormick: They are informally called "21-day letters". That is not a hard-and-fast or absolute deadline.

Mr Flanagan: Have you had responses yet?

Dr McCormick: We have had responses, and there is still reasonable time for reasonable representations to be made.

Mr Flanagan: What kind of responses have you received?

Dr McCormick: They vary. I do not think that it would be wise to comment on the nature of the responses.

Mr Flanagan: The public are rightly alarmed at the length of time that the investigation has taken. It ran from November 2008 to March 2014. The fact that it has taken from March 2014 to September 2015 for these pre-proceedings letters to be issued only compounds people's lack of faith that justice will be done to some of the individuals involved. Why has it taken so long to commence disqualification proceedings? I hear what you say, but I am not getting a rationale or any clear understanding.

Dr McCormick: This requires detailed work and preparation, involving consultations with legal advisers and looking at the issues that arose from the company inspection report. It is detailed work that takes time.

Mr Flanagan: A pile more work has been done since the report was completed in March 2014.

Mrs Kerr: Chair and Mr Flanagan, the proceedings that we will take forward are in the context of directors' responsibilities under the Companies Act, so they involve matters of unfitness. When we received the inspection report, we had to look at the evidence and findings of the report through that prism. We had to look at what matters of unfitness could be identified for each director, which would form the basis of any allegations or legal proceedings that we would take forward. That legal process has to be taken forward very thoroughly and carefully, because the outcome becomes the basis of proceedings that will go through the court. We cannot simply take the inspection report; we have to look at it critically for a robust case that we can take forward.

Mr Flanagan: Have you both read the inspectors' report?

Mrs Kerr: Yes.

Dr McCormick: Yes.

Mr Flanagan: How many people have been sent the pre-proceedings letters that were sent at the end of September?

Dr McCormick: It would be inappropriate to give you a number because that might allow identification of individuals. Please excuse me, but I will not give you that number today.

Mr Flanagan: How many of the directors have been interviewed? You talked about key individuals and stakeholders.

Dr McCormick: The inspection process involved interviewing all the directors for the relevant period.

Mr Flanagan: What is the relevant period?

Mrs Kerr: It is from March 2004 to March 2007. That is the basis on which the company inspection report —

Dr McCormick: Yes. It is the so-called relevant period.

Mr Flanagan: The period that the inspectors' report looked at started in March 2004. Did it not include any of the actions that predate that?

Dr McCormick: This is another reason why it took quite a long time. In looking at and understanding the circumstances of the period that the inspectors had been commissioned to look at, it proved necessary to go back further into the records. I think that it was mentioned that they went back as far as 2002.

Mr Flanagan: Did they go back to before Janice McAleese being appointed as chief executive?

Dr McCormick: Yes. They had to do that. They had to look at the root-cause issues. Maybe it would be helpful to say that, in a more routine case, the statutory time limit for working on proceedings for disqualification used to be two years. Between a complaint arising and a decision on whether to proceed, the limit used to be two years, but it was recently increased to three years. That is for cases of considerably less complexity than this one. The legislature has envisaged that this process can, in some circumstances, take quite a long time, so the parallel that I would draw is that, between March 2014 and —

Mr Flanagan: Have we exceeded those three years yet?

Dr McCormick: We have not because —

Mr Flanagan: When does that time run out?

Dr McCormick: In this case, the starting point is the receipt of the inspectors' report.

Mrs Kerr: Let me clarify this. In the case of a bankruptcy, when the case is referred and potential factors of unfitness are identified, the statutory time limit is now three years. Once the Insolvency Service is advised of potential matters of unfitness, it has three years to get the case to a point at which it can file it in court.

Mr Flanagan: Are you telling me that people were notified only in March 2014, when the inspectors' report was complete, that there was potential unfitness of activity of board members?

Mrs Kerr: No. To clarify: I am talking in a general sense, Mr Flanagan; in company inspections, there is no statutory time limit. It is different and is a recognition of the inspection process and the complexity of cases.

Mr Flanagan: Does that time limit not apply in this instance?

Mrs Kerr: It does not apply in this instance. In any event, as —

Dr McCormick: I was merely seeking to use that as an illustration of the fact that the legislature has recognised that this is a complex process and that time is required. Of course I understand the concerns about the time taken in this case. Nobody wanted this to take any longer than it had to, but the process involves being careful with detail in order to give the best possible chance of the thing working. That includes being fair to those against whom the complaints are being made. It is important to have fair process for all parties.

Mr Flanagan: I am very keen to establish how many of the 12 directors who served through this period have been issued with pre-proceedings letters and how many of those 12 will face action for their activities as board members. When will we be in a position to find out what the story is?

Dr McCormick: As I said in my opening comments, this becomes public if and when we proceed to file the affidavits, and a case is listed for hearing. When the case is listed for hearing, that is the point at which —

Mr Flanagan: When do you expect that to happen?

Dr McCormick: I would not like to put a definite date on that.

Mr Flanagan: We would like some reassurance on a timeline.

Dr McCormick: That will be moving as quickly as possible. That will be a matter of a few months.

Mr Flanagan: You have also told me that considerable additional work has been carried out since the inspectors' report was completed in March 2014. Is that included in the £1·24 million cost, or is that additional?

Mrs Kerr: That is additional; it is a DETI cost. The £1·24 million is the cost of the inspection.

Mr Flanagan: Is that all internal?

Mrs Kerr: Yes.

Mr Flanagan: I will turn to the findings of the investigation. Has it identified a point in time when things started to go wrong in the Events Company?

Mrs Kerr: The inspectors focused on the period between March 2004 and March 2007, which they saw as the critical period in terms of the deficit.

Mr Flanagan: Who decided that that was the critical period?

Mrs Kerr: It was based not only on the analysis that the company inspectors did but the analysis that KPMG had done. In taking forward the investigation, they were constantly agreeing a work plan and their approach with the Department. The Department was content, and, as Dr McCormick said, at a strategic level, we had progress meetings that involved not only the DETI permanent secretary but the DCAL permanent secretary and the C&AG. There were safeguards throughout the process.

Mr Flanagan: So KPMG carried out an analysis that does not appear to have flagged up the appointment of Janice McAleese as chief executive and accounting officer despite not having the basic skills and experience established by the board for appointment as a chief executive. Why was that not one of the key aspects that you wanted the inspectors to look at during their investigation?

Mrs Kerr: The inspectors did look at that aspect as part of their investigation.

Mr Flanagan: You are telling me that their remit was from March 2004 onwards. Why were they not asked to include the appointment of Janice McAleese as chief executive in their initial work?

Mrs Kerr: They did look at that —

Mr Flanagan: I know, but they were not asked to at the start.

Mrs Kerr: As Dr McCormick said, they looked back as well. They focused on that period as the period when the deficit arose. It was what actually happened in that period that caused a significant proportion of the deficit to arise. It did not limit their work —

Mr Flanagan: What happened was that an inexperienced chief executive was appointed. Was that not the causation factor?

Dr McCormick: Yes. The analysis now shows that. From my understanding of the case, I am not sure when that point emerged as a big concern. I do not know whether that was before the inspectors were appointed or later. I honestly do not know; that is more a matter for DCAL than DETI. The clear point is that the remit that was initially given to the inspectors was based on the work that had been done up to that point, including what KPMG had investigated.

Mr Flanagan: Did KPMG not identify that as an issue?

Dr McCormick: I am sorry; I do not —

Mrs Kerr: I have the report here. I cannot recall whether that was in the KPMG findings.

Mr Flanagan: If KPMG had identified the appointment of a chief executive without the requisite skills and experience, do you agree that the inspectors should have been asked to investigate that period of time as well?

Mrs Kerr: They did look at that.

Mr Flanagan: Not within their original remit.

Dr McCormick: You are talking about their remit. What you are saying is reasonable.

Mrs Kerr: Would it be helpful, Chair, if we shared with you the terms of reference for the appointment of the inspectors? It might give you a better understanding of how they were appointed. They were appointed under the terms of reference, and their work focused on making sure that they were focused on the critical period to understand the reasons that gave rise to the deficit. As Dr McCormick said, that did not preclude them from looking at what happened before that as well.

Mr Flanagan: The role of the inspectors was to look at the role of the company directors.

Mrs Kerr: It was also to look at the role of DCAL and the auditors.

Mr Flanagan: Yes, but surely the role of the inspectors was to look at the role of board members, and a key board action is the appointment of a chief executive. I cannot understand why the inspectors were not asked to look at that specific action.

Mrs Kerr: Mr Flanagan, just to clarify: it was not the case that they were not asked to look at it. It might be helpful if we give you the terms of reference. The inspection report looks at, and the inspectors in the process considered, the role of the board, the executive — that is, the company itself — DCAL and the auditors. They focused their work and their evidence gathering on a critical period to try to understand what gave rise to the deficit. That did not stop them assessing the role of the various players in the process before that. The terms of reference are not prescriptive to looking only at 2004 to 2007, but that was the major focus in understanding what caused the failure of the company.

Mr Flanagan: The problem with the deficit was that an internal candidate who did not meet the essential criteria was hand-picked and cherry-picked for the job. I genuinely cannot understand why that was not included in the inspectors' initial remit.

At the time of Janice McAleese's appointment and the 2004 period when you started to look at things, were there any concerns about the 12 former directors being current board members or senior executives in any public or private organisations?

Dr McCormick: There are a number of individuals, each with their own status. A number of them have retired from most of their previous other public involvement.

Mr Flanagan: Is that not very convenient?

Dr McCormick: A number have not retired. I am afraid that that is just a matter of fact. I would rather not get into details on individuals. I think that that is —

Mr Flanagan: I am not asking about individuals, and I do not need specifics, but does the Department have any concerns, which might generate a bit of urgency, that some of the directors in the Events Company failed to take appropriate action to rein in the actions of a chief executive who had, it seems, gone rogue and that those people are now serving as directors in either public or private organisations?

Dr McCormick: Of course there are concerns, and that is exactly why it is so vital to do the process properly and thoroughly rather than rush a process and lose more cases on failure of process than anything else. That is a lesson learned from many hard cases in the past, especially when you get down to issues that affect individuals' rights. It is essential that all the work that we are doing and that anybody else is doing in this context is thorough.

Mr Flanagan: How are we trying to address those remaining concerns?

Dr McCormick: At this point, all concerned are innocent until proven guilty. They have not yet been subject to a formal process of this nature, so it would be wrong to act based on emerging evidence. You have to act on a conclusion, so we are trying to get to a proper conclusion by a proper route. That either means that people are exonerated or that the case is established, and people are then disqualified. At that point, it is a matter of clear and transparent public process. If that were affecting any of us, each of us would want to make sure that the process was thorough, careful and proper.

Mr Flanagan: Yes, and delay it for as long as possible. People would also request that.

Dr McCormick: This is being done as quickly as is reasonably possible.

Mr Flanagan: To the best of your knowledge, has any disciplinary action been considered in the wider Civil Service for the civil servants who were also serving on the board and their action or inaction as board members?

Dr McCormick: There were no civil servants on the board; there were others in various public service capacities. I do not think that there were any civil servants.

Mrs Kerr: At the very early stages of the company, there were civil servants on the board, but, as I said, in the period that is the focus of the investigation, there were no civil servants.

Mr Flanagan: When Janice McAleese was appointed chief executive, an individual from DCAL sat on the appointments panel and was a board member. I think that he is still in the Civil Service, based on what we were advised two weeks ago by the DCAL permanent secretary and the chair of the board.. An individual from DCAL, who I believe is still in DCAL, was on the appointments panel and was a board member.

The Chairperson (Ms Boyle): Sorry, if I may come in, and just for clarity: that individual may have been an adviser to the recruitment panel.

Dr McCormick: Yes, but that individual has retired.

Mr Flanagan: Was his name Nigel?

Mrs Kerr: That was not the board of the company.

Mr Flanagan: Can you advise me if the inspectors looked into whether any of the directors at that time used the fact that they were serving as a company board member as experience on a CV to apply for any other roles in the public or private sectors? Is that something to look into?

Mrs Kerr: That would not have been within the scope of the inspection.

Mr Flanagan: Why not?

Mrs Kerr: The inspection was focused on the events that led to the deficit emerging in the Events Company.

Mr Flanagan: Is the inspection not looking at the actions of directors?

Mrs Kerr: It is looking at how they discharged their responsibilities as directors on the board of the Events Company, but not in a wider sense of —

Mr Flanagan: Has it not looked at how these individuals might have used their position on this board to further and advance their own careers?

Mrs Kerr: No.

Mr Flanagan: Has the inspection specifically looked at the absence of an audit committee in the organisation?

Mrs Kerr: Yes, it has considered the roles of the board and the auditors.

Mr Flanagan: Is that being taken up with the directors through the pre-proceedings letters? Is that some of the evidence that is being brought before them?

Mrs Kerr: Please appreciate that we are not going to get into the details of the evidence while we are at the stage that we are with the case. However, the inspection covered those issues.

Mr Flanagan: Did the inspection look at the appointment of Janice McAleese not only as chief executive but, just as importantly, as accounting officer?

Mrs Kerr: Yes, the inspection report addresses that.

Mr Flanagan: There were conflicting reports from DCAL and the former chair of the board here a fortnight ago about the knowledge that the DCAL member had regarding Janice McAleese's experience. Did the inspection find that Janice McAleese was a suitable person to be an accounting officer when she was appointed by the permanent secretary of DCAL at the time?

Mrs Kerr: What is in the Audit Office report is reflective of what is in the inspection report. You will know from that that it considers such factors. The inspection report does look at the —

Mr Flanagan: You will forgive me, but we have not had sight of the inspection report because it has not been published.

Mrs Kerr: No, I appreciate that.

Mr Flanagan: I am trying to establish whether the report will clarify that contradictory evidence that we were given: was the individual from DCAL aware or unaware that Janice McAleese had not met the essential criteria for appointment as chief executive and, as such, would not have been an appropriate person to be nominated as accounting officer by the permanent secretary of DCAL?

Dr McCormick: The inspection report records the essential criteria for the chief executive appointment, which include a requirement to have at least four years' senior management experience, gained in both the public and private sectors. It seems obvious to me that all those concerned with the selection process would have had knowledge of her experience and the fact that her only public-sector experience was in her short time in the company. That seems reasonably straightforward, as a matter of fact.

Mr Flanagan: That is everybody involved in the appointments process.

Dr McCormick: Including —

Mr Flanagan: What about the DCAL officials and the permanent secretary? Would you include those in the appointments process?

Dr McCormick: If the individual was present and participating in the selection process.

Mr Flanagan: The permanent secretary of DCAL was not.

Dr McCormick: DCAL would have been relying on information from its representative.

Mr Flanagan: Did the inspection report clarify whether the permanent secretary of DCAL was or was not given that information before appointing Janice McAleese as accounting officer?

Dr McCormick: I do not think that that is covered specifically.

Mrs Kerr: No, it is not. That question is more for DCAL. The appointment of the chief executive was made by the panel in the company, and it is correct that a DCAL member was on the panel. The accounting officer appointment is a different issue. The report does not discuss whether the permanent secretary of DCAL at that time had the full information on the shortcomings that the inspectors identified in relation to experience.

Mr Flanagan: During the initial period of the Events Company from May 1997 to March 2000, there was only one director. Is that common?

Mrs Kerr: No, not for a company.

Dr McCormick: That is not normal practice at all.

Mr Flanagan: Did the inspectors look into that in any way?

Mrs Kerr: No. We would need to check the constitution of the company in 2001. In the company's very early stages, civil servants assumed the roles —

Mr Flanagan: The company was established in 2001, but, if you look at appendix 2 of the Audit Office report, you will see that the board members go back to 1997. Can you clarify that?

Mrs Kerr: We will clarify that for you. It is probably a timing issue as to when it was constituted as a company. Maybe it operated in a shadow period before that. I need to check that from our inspection report.

Mr Flanagan: I cannot understand how it was operated in shadow form by one individual, and then it was suddenly taken over by the Civil Service. That individual retained his role as a board director and then used his position, it seems, when another company of which he was also a director was appointed to advise on the selection and appointment of a chief executive who did not meet the criteria. Surely an organisation hired to advise a board on the appointment of a chief executive would notice that. This individual was there from the very start. I find that very strange. Did the inspectors look at that?

Mrs Kerr: Mr Flanagan, could we clarify the position between 1997 and 2001 and come back to the Committee rather than talk in the abstract?

The Chairperson (Ms Boyle): That is OK. Thank you, Mr Flanagan. I was waiting for the "and finally" after every question.

Mr Girvan: I appreciate that we are dealing with something that is really a history lesson because it goes back so far. As a consequence, some of the individuals of whom we should be asking questions are no longer in post and are not at the top of the table. That creates a big problem for me.

How many company directors has DETI disqualified in the last 12 months — the last year, roughly?

Mrs Kerr: If you bear with me, I can give you the actual figures. In 2014-15 — the last financial year — 71 disqualification orders were obtained by the Department. In the first six months of the current year, there have been 21.

Mr Girvan: What is the average cost to the Department to deal with the disqualification of a director?

Mrs Kerr: It depends on the case and its complexity. The average is around £8,000 a case, but those are usually small companies, and you are talking about two directors.

Mr Girvan: I would not call the Northern Ireland Events Company a large company. Going by its turnover, it was not a large company. To be honest, many people in this Building are turning the equivalent in a small business. I do not see the complexities of the whole issue. A number of invoices would be created to make that spend. There is a large volume of emails, and the email system seems to show that they had a very active social life. We know how many people work through Facebook; many of us receive contacts in that way, which could be deemed as emails in one form or another, and we have to sift through them. I do not wear some of the costs that are associated with the investigation for what has probably not been a large expenditure. It is a big loss of money to the public purse that we cannot identify, but I do not see the complexities that people are attempting to weave into the investigation process. I cannot see how it could be that, as my colleague said.

Within the first few weeks of a whistle-blower coming forward and identifying a number of those points, it was clearly evident. I appreciate that you must have an evidence-based case to identify it, but £1·24 million was spent.

That is the other point that I want to be sure about. When somebody is brought in, are they simply tasked to do a job and complete it at whatever cost, or are they told to conduct a forensic audit to a level that can be used for prosecution or as an evidence base? I would like to know that. Sometimes, such situations can be seen by some in the private sector as an opportunity to bleed the public sector. It is as if there is an open chequebook and they can bill for as many hours as they need to, reading somebody's emails about doing their shopping on the way home on a Friday afternoon. The business case that Edwin mentioned earlier does not necessarily back up what I see here.

We are saying that costs averaging around £8,000 —

Mrs Kerr: If I may clarify, Mr Girvan, the £8,000 related to our taking disqualification proceedings. That is not for a company inspection; it is a different issue.

Mr Girvan: No, I understand that.

Mrs Kerr: The company inspection is a different process, and it precedes disqualification proceedings.

Mr Girvan: I appreciate that.

Mrs Kerr: You asked whether we simply say, "Finish the job". I go back to what I said earlier about the control mechanisms that were in place. As well as the strategic oversight of the progress of the inspection, there were three points during the life of the contract at which we stopped, independently looked at it from a budgetary and expenditure perspective and asked the kind of fundamental questions that you get in a business case: whether we should do nothing, continue, scale back or reappoint. That, too, was informed by the strategic oversight function, which received progress reports from the inspectors on what they were finding, what the key issues were and what the difficulties were. There were control mechanisms and day-to-day controls of what the inspectors were doing, how much time it was taking and the invoices that were coming in. Control mechanisms for the spend were set at three different levels.

I clarify again that the £1·24 million inspection cost was not the cost of a disqualification, which is a different process.

Mr Girvan: That takes me on to my next point. How much will it cost, or has it cost, to deal with the disqualification of directors in this case? Is that proportionate to what we have heard previously about the average cost of disqualification?

Mrs Kerr: I come back to your earlier comment that it was not a big company, and, from the perspective of turnover, I accept your point. When I referred to smaller companies, I meant that, in disqualification cases, we usually look at one, two or three directors. Most cases are more contained, relatively, than this one. As we explained, we cannot talk about the number of directors whom we are considering because we need to protect the legal process and ensure fairness to the individuals, but we are talking about a larger number than is typical of the disqualification processes that we normally take forward. Off the top of my head, spend to date on the disqualification work is £70,000.

Mr Girvan: How many does that total cost relate to?

Mrs Kerr: For the reasons that we explained, I cannot tell you how many directors we are looking at.

Mr Girvan: I am not looking for names; just a ballpark figure.

Dr McCormick: You know the total number of directors, so, if we give the number against whom we are taking proceedings, it will identify individuals.

Mr Girvan: I appreciate that.

Dr McCormick: That is why I will have to duck that one for now. Apologies.

Mr Girvan: We are talking about around £73,000.

Mrs Kerr: It is in the region of £70,000.

Dr McCormick: That was up to September and is the cost so far. There will be more legal costs, and those will depend on what happens next. There is no other way to do this, and the alternative is not to fulfil some of what the Committee would want to happen to ensure the protection of the public interest. I say that without prejudice.

Mr Girvan: Are there lessons to be learned from this type of investigation? I hark back to what might happen in the private sector, where, if something went wrong, nobody could afford to wait that length of time to get the detail. Has the Department learned any lessons in ensuring a time-bound approach to investigations? I appreciate that some investigations will be far more complex, but I cannot see how it could be that complex to deal with one company that organised a small number of events over that period. It is not as though it was inundated with events to organise every other week; only a few key events were promoted and driven by it. I wonder whether there is a lesson here: should the Department set a maximum time for investigations?

Dr McCormick: The position has been overtaken by the change in legislation, which means that this is no longer a matter for DETI.

Mr Girvan: I appreciate that.

Dr McCormick: It is now for the Department for Business, Innovation and Skills (BIS) across the water to do these things. It has had a few of these investigations in its time. Some even more expensive company inspections have been undertaken at UK level. Those were very big companies, so I do not pretend that that is, necessarily, a parallel.

I think that we have to look at each case on its merits and pursue a process whereby we ask the right questions at the right time: for example, is the work necessary; and how can we pursue it as rapidly as possible?

I come back to the fact that this was considered very carefully by the strategic oversight group that Jackie mentioned. In December 2011, one of its meetings was attended by David Sterling, who was the permanent secretary, other senior officials in DETI and the C&AG. Our people recorded that the Audit Office stated that it wanted the inspection to continue and that the costs were not an issue. We were asking these questions, and it was the Department's responsibility to make that judgement, but it was informed by strategic consideration and discussion, including with the Audit Office, and knowing that the work of the inspection would facilitate and support the public audit process as well.

I noted the comment that it had taken the inspectors many years to do their work and the Audit Office only one year to do its work. The fact of the matter is that, because the inspection had been so thorough, the public audit function was then capable of being taken forward expeditiously. That was a benefit obtained by the Audit Office, so it was highly rational of it to ask us to continue. That was part of what was happening and why it is different from what would apply in the private sector context, where people cannot afford not to be more expeditious. It is not that anyone was trying to delay this; people were working in good faith and seeking to pursue the issues as faithfully and firmly as possible, but the standard required was genuinely high and will be put to the test, we expect, in future processes. We could not live with the risk of doing a half-baked job.

Mr Girvan: I appreciate that you wanted to do a thorough job, but the public perception is that so much stir is kicked up, or fog created, that those involved in the process can get away in the aftermath because of the delay.

Dr McCormick: I understand that — [Inaudible.]

Mr Girvan: There is, genuinely, a perception among the public that, when something runs on for this length of time, it is being deliberately delayed to ensure that those responsible for or involved in such a deception — or whatever word you might use; I am not using that exact word — use it as an opportunity to make good their escape, and that those tasked with oversight can get clean away with their halo shining and no questions to answer. That is why you are here today: others who were involved in this process have moved on to greener pastures or hung up their boots.

Dr McCormick: I think that there is still process to unfold. We have to be very careful because we cannot prejudge any of the future processes. My hope and expectation is that, in another year or two, you will not be saying that.

Mr Beggs: I want to follow on from what Paul said. This company was limited by guarantee and publicly funded. Had all this happened in a private company, would you not have expected, given the degree of scrutiny expected of directors, some to face disqualification fairly quickly, without a £1 million investigation? That is the point that I am making. Would you expect directors of a small private company who behaved like that to face disqualification much sooner?

Dr McCormick: Each case has to be looked at on its merits, and you have to go through the process. As I said in my opening comments, if the evidence is straightforward and clear, the Insolvency Service can, and does, proceed to initiate disqualification proceedings quite quickly. The reason why this took a long time is that we were asked by DCAL to initiate a company inspection. We then commissioned the process, and it took its course. That is just what happened. Had we gone ahead without a company inspection — solely on the basis of the prime facie case that [Inaudible.]

was available initially — we would have run the risk of not fulfilling the responsibilities effectively, and that would not have served anybody's interests.

Mr Beggs: Do you not agree that there may have been sufficient evidence against some directors right from the start, in those very early months, to question their ability to continue as company directors elsewhere?

Dr McCormick: The police initiated their process at quite an early stage.

Mr Beggs: That was not my question.

Dr McCormick: What could we have done? To have proceeded with some and not all would have run the risk of the court proceedings becoming very confused.

Mr Beggs: Do you also agree that not taking action risks some directors continuing to operate? You were permitting some to continue to operate as company directors. Was there not sufficient evidence at an early stage that some could have been ruled out and, as such, dealt with, and that, as other evidence emerged, others would face potential disqualification? Was that not the case?

Mrs Kerr: I will pick up on a couple of your points, Mr Beggs. First, it was not just because the company had public funds that it was referred for an inspection. A private company can also be referred for a company inspection if a complaint has been received. An inspection process was under way, and that process has to conclude before starting to look at the process of disqualification. You have to see what comes out of the inspection process — that is critical.

As Dr McCormick said, there are factors that we have to take account of in taking proceedings. Looking at the whole picture in this case has been important because of the nature of it.

The other factor relevant to this case is, as you pointed out, that public funds were involved, and other concerns had been raised back in 2008, such as matters of potential criminality and so on, which added to it. The Department is fully apprised of the importance of taking forward this work — the company inspection and disqualification proceedings — because of the potential risk to public funds.

Mr Beggs: That is my frustration: I do not think that you have balanced all the risks involved. The length of the process meant that individuals continued in post, and, as they may not have behaved appropriately as a director, they posed a risk to that organisation.

Dr McCormick: I understand the point that you make.

Ms Hanna: You have covered a lot there, but I want to come back briefly to the weaknesses in DCAL's oversight. Will you outline the reasons why you referred the Event Company's auditors to the Chartered Accountants Regulatory Board ?

Dr McCormick: That is another process that emerged from the inspection, which provided evidence relating to that issue. However, that, too, is subject to that process, so I cannot give any detail on what is going on in there. The company inspection report drew out the evidence in relation to the auditors, and that has been referred, but it is now a matter for the CARB process to unfold. I am not sure whether it would be prudent to add anything to that.

Ms Hanna: It is not that I want you to comment on that process; I am interested in your rationale for making that referral.

Dr McCormick: That, too, emerged as a recommendation from the company inspection.

Ms Hanna: The report took six months to go to the Comptroller and Auditor General after publication. What was the reason for the delay? Do you not think that the C&AG could have been examining it a lot earlier, it could have been brought to the Committee a lot earlier and the delays that others outlined could have been prevented?

Mrs Kerr: There were processes that we had to go through in relation to the release of the report. As Dr McCormick said at the outset, the inspectors were appointed on the basis that the report would not be published. For us then to take a decision to move away from that, we had to take legal advice, not just on the requirement in the Companies Act but on data protection, which is a critical factor in this.

The inspection report includes significant amounts of personal and sensitive data, all of which is subject to data protection. Although we went through the necessary processes to ensure that we had addressed all our obligations under the Data Protection Act before sharing the report with the Audit Office, we were engaging with the Audit Office throughout. It was always our intention to facilitate and support the Audit Office as much as possible in its obligation to report to the Committee.

Section 29 of the Data Protection Act 1998 allows for the release of the report if it is required for law enforcement purposes by the PSNI. Section 31 does the same for regulatory purposes, for the likes of CARB and other Crown bodies, where there is an interest for the discharge of their duties. In all that, we had to consider very critically that, in relation to our data protection obligations, we had to prove that any failure on our part to share extracts of the report or the report in full would actively prejudice those various agencies in the discharge of their function. There was a process that we had to go through. It all comes back to fairness because there is so much personal data in the inspectors' report. We must be very mindful of our obligations under the Data Protection Act 1998. The report was shared in full with the Audit Office and the PSNI.

Dr McCormick: In the legislation that governs reports commissioned on the basis that they are not to be published, a lacuna in how it is worded took us into the detailed consideration of data protection that Jackie described. I accept that it was probably undesirable for it to have taken that length of time. It should have moved more quickly to the Audit Office because, as Jackie said, we always worked very closely with it throughout the process. We had, however, some complexities in the interpretation and application of that slightly oddly worded legislation. That was unfortunate, but we will not have to go through that again because we know where we stand on that now. We now know exactly what the principles are, but we ran into a loop of process that, to be honest, did take too long.

Ms Hanna: The complexities aside, it could still have gone earlier.

Dr McCormick: It probably should have and could have, but there is nothing that we can do about that now.

The Chairperson (Ms Boyle): That concludes our questions, unless members have anything more to ask.

Dr McCormick, there is no doubt that the company inspectors' report was of a very high standard and was effective. However, from what the Committee has heard today, I have to conclude that there were clear failings in DETI's oversight of its company inspection process — the fact that the process took over five and a half years. The Committee believes that that was far too long and that DETI could have been managing that process much sooner and much better to ensure that the ongoing investigation was proceeding at a reasonable rate.

Dr McCormick, you said earlier that you believed that £1·2 million was value for money. As some members have said today, they question that. DETI should have been monitoring the cost of the investigation process more closely and rigorously. It is clear that the cost of the report escalated out of control — that is the Committee's opinion. In the end, it totalled over £1·2 million. We believe that had DETI been more vigilant, the cost could have been kept under control and the report might have been delivered at a cost that represented better value for money for the public purse. Dr McCormick, you mentioned to Mr Girvan that lessons have been learned. I hope that similar mistakes will not be repeated.

Members, we have all had an opportunity to ask the witnesses our questions, and there are no final issues that we want to address. At this point, I ask the Treasury Officer of Accounts, Ms Caldwell, whether there is anything that she wishes to add.

Ms Alison Caldwell (Department of Finance and Personnel): No, thank you.

The Chairperson (Ms Boyle): As Comptroller and Auditor General, Mr Donnelly, is there anything that you want to add?

Mr Kieran Donnelly (Northern Ireland Audit Office): Yes, I would like to add a few things. Dr McCormick rightly said that the Audit Office was involved in the process throughout and that it received an unredacted copy of the very lengthy inspection report.

On whether this was this the right thing to do, I certainly agreed with DETI back in 2011 that there was no question that it could be abandoned at that juncture. It was the right thing to do, and there was very important public interest in it. Dr McCormick said that we may have said that cost was not an issue. At that juncture, I was not aware of what the cost would eventually amount to. As Dr McCormick said, the cost crept up in the final stages, particularly in 2013. However, I agree with Dr McCormick that this was the right thing to do — it had to be done. I also agree that process is important, particularly when there are legal proceedings. Too often, cases collapse because of a breakdown in process.

Yes, there must surely be lessons learned. If this sort of thing were to happen again, could it be done more expeditiously? There are bound to be lessons from that. That is really all that I want to say, Chair.

The Chairperson (Ms Boyle): OK. Thank you, Mr Donnelly. On the Committee's behalf, I thank you for attending today. A number of action points have come out of the meeting, and the Clerk will contact you in relation to those. All the information that we have gathered here today is useful, and we will use it in concluding our evidence on the report. Mrs Kerr and Dr McCormick, thank you for attending.