Official Report: Minutes of Evidence

The Chairperson (Ms Boyle): Do members wish to declare an interest in the matter? None. OK.

I welcome Mr Andrew Hamilton, temporary accounting officer at DSD; Mr Jim Wilkinson, director of housing strategy policy; Mr Clark Bailie, acting chief executive of the Housing Executive; Ms Fiona Boyd, counter fraud and security adviser in the Housing Executive; Mr Kieran Donnelly, the Comptroller and Auditor General (C&AG); and Ms Alison Caldwell, the Treasury Officer of Accounts from DFP. Later today, we will hear from Mr Colm McCaughley, former director of housing and regeneration in the Housing Executive. Members, there are biographies of all the witnesses in your packs.

Mr Hamilton, I believe that you want to address the Committee with a short introduction.

Mr Andrew Hamilton (Department for Social Development): Thank you very much, Chair. I will just clarify that Mr Clark Bailie is not the acting but the permanent chief executive of the Housing Executive.

The Chairperson (Ms Boyle): My apologies, Mr Bailie.

Mr A Hamilton: I am grateful for the opportunity to make some opening remarks before taking questions. All of us around the table are very aware of the serious weaknesses in the Northern Ireland Housing Executive (NIHE) governance systems in the last decade. This is not the first time that the Committee has had cause to consider these issues. The C&AG's report is a further indictment of the way in which the NIHE was governed during that period and provides further evidence that the Department's own oversight arrangements were not what they ought to have been.

The heart of these matters, in my view, was issues of conduct, behaviour and action of those charged with governance responsibilities, which the Housing Executive's board and management oversight arrangements were not robust enough to identify and respond to effectively. This was manifest in a conflict of interest that was not properly managed by the individual himself, nor by the organisation, and in a seemingly cavalier approach to the rules and procedures associated with land disposals, issues found to be so serious when fully investigated that the Housing Executive referred a number of cases to the PSNI. Clearly, at the time, the governance culture in the Housing Executive was flawed.

The C&AG's report demonstrates that the effectiveness of our governance systems relies heavily on the actions and behaviours of those entrusted with governance responsibilities. It is not enough simply to rely on assurances; evidence of compliance must be sought. In that respect, the lessons to be learned are not only for DSD and the Housing Executive; the report has lessons for the wider public sector, and I very much welcome its publication. I would have preferred that things done and not done in that period had occurred differently, but I cannot change the past. I can, however, learn lessons from it, and I want from the outset to provide an assurance that lessons have been learned. Changes have been made. The systems in place for governing land disposals are much more robust now than in the period 2004 to 2010.

That is all that I wish to say in my opening remarks. No doubt we will get into all the detail later, and I am happy to take your questions. Once again, thank you for the opportunity of making the remarks.

The Chairperson (Ms Boyle): Thank you, permanent secretary. The cases outlined in the Audit Office report we believe, as a Committee, are quite frankly shocking. What assurances can you now give to the Committee that there was no corruption in any of these cases?

Mr A Hamilton: The cases were investigated in detail and referred to the police. There were very extensive investigations. There was a belief, certainly in four cases, that the conduct was not acceptable and, indeed, that it could be criminal. The police took those referrals and considered them, and in a number of cases there were referrals — I think, in two cases — to the Public Prosecution Service (PPS). However, the view was that there was not sufficient evidence to sustain a prosecution. That is the factual position of the matter: the evidence presented was not sufficient to sustain a prosecution.

The Chairperson (Ms Boyle): Are you happy with that outcome? I appreciate that there was no case to answer in terms of corruption. Had you any concerns yourself? Were you happy that the PSNI had fully investigated the cases?

Mr Clark Bailie (Northern Ireland Housing Executive): The investigations were carried out by people we brought in — agency staff — who had no connection with what happened before. They were experienced criminal investigators. They compiled the files to criminal standard. They were submitted to the PSNI under the memorandum of understanding. On the basis of the information that we provided, the police instigated a criminal investigation and submitted a file to the Public Prosecution Service. The letter back from the PPS to the then chief executive, Dr McPeake, set out what Andrew has just explained, but it also advised that:

That was in relation to the Nelson Street investigation. We took it as far as we could with our investigative powers, but obviously the police have much stronger, wider powers. I take comfort from the fact that it was thoroughly investigated, and that was the conclusion of the PPS.

Mr Dallat: I know that I come in later, but maybe it is appropriate here to refer our visitors to paragraph 1.24. Could you explain to members the practice of sellotaping signatures to disposal schedules approving land sales? My goodness, tell us what that was about.

Mr Bailie: That was totally unacceptable and, at one level, daft. It was simply something that one of our administrative staff at headquarters decided was necessary to get the papers through to the appropriate committee. It was not a widespread practice. As soon as it was discovered, it was stopped. In itself, it was nothing sinister. They have been investigated. As a practice, however, it was totally unacceptable, should never have happened and has not happened since.

Mr Dallat: Is that not tantamount to signing blank cheques and leaving them out there for anybody to take one?

Mr Bailie: I agree that it should not have happened. It has been stopped, and it has not happened since.

Mr Dallat: You are missing the point. Did no one realise that sellotaping signatures to land disposals was not just bad practice? It was a vehicle to do anything you liked.

Mr Bailie: To clarify, it was wrong, but the sellotaped signatures referred to papers going to the chief executive's business committee, for example. They were not sellotaped on to the legal documents. That said, the practice was totally inappropriate, should not have happened and has been stopped. I stress that it was not widespread; there were a few isolated examples, to the best of my knowledge. That was picked up during the investigation.

Mr Dallat: Apart from the sellotaping of signatures on to the documents, was the information available to the PSNI so sparse that there was nowhere for the bobby to even start his investigation?

Mr Bailie: The police can give you a more specific answer —

Mr Dallat: It is all set out in paragraph 1.24.

Mr Bailie: We undertook our investigations to a very rigorous standard. Some of the issues that the PSNI highlighted were the very things that triggered the investigations, were included in the investigations and were referred to the police for further investigation. This reflects the failings, deficiencies and weaknesses that we accept happened then and have been corrected.

Mr A Hamilton: By way of an addendum to that, notwithstanding the points that the PSNI has made and which are reported at 1.24, I draw your attention to 1.22, which shows that one of the two Glenalpin disposals that were referred to the PSNI was then referred to the PPS. That, together with the Nelson Street issue, suggested that the evidence and the views of the police were strong enough in those cases to sustain a referral to the PPS.

The Chairperson (Ms Boyle): I have a brief supplementary from Mr Beggs.

Mr Beggs: It is on the issue of sellotaped signatures. You seem to be taking some comfort from the fact that no corruption was found. Do you acknowledge that the fact that they were not real signatures means that there was not an audit trail that would stand up in court? Therefore, that may be why no one was successfully prosecuted.

Mr A Hamilton: Is that addressed to me or —

Mr Beggs: To both of you.

Mr Bailie: The sellotaped signatures were not, as far as I understand, a factor in the cases that were presented to the PPS. That issue did not arise, but, as a general point, I agree totally: no one should have sellotaped signatures to papers. It is totally wrong. I cannot excuse it.

Mr Beggs: If a small community group wanted a £50 grant to organise a litter clean-up in its area, would you accept a sellotaped signature for that money?

Mr Bailie: No.

Mr Beggs: So, why did no one in your organisation, at whatever level, see that there was a problem with a sellotaped signature?

Mr Bailie: I do not know what possessed them to stick the sellotaped signatures on. We have looked at it. It was an administrative convenience because the person was not in the office, for example. I stress that it should not have happened; I am not condoning it for one second. One of the things that our investigation drew out was that that limited practice happened. It should not have, and it has not happened since.

Mr Hussey: You referred to the sellotaped signatures as an "administrative convenience". I do not know how many people had their signatures sellotaped, but how many cases in total were there of sellotaped signatures? You say that there were a few. How many do we know were involved?

Mr Bailie: I am aware of only one.

Mr Hussey: Therefore, there could be a hell of a lot more hiding in the files somewhere.

Mr Bailie: We have no information to suggest that. The phase 1 investigation, which looked at a range of documents, did not, as far as I know, discover any more sellotaped signatures.

Mr Hussey: If there was only one case of a sellotaped signature, why was the practice started? Clearly, if somebody felt that there was a need to have sellotaped signatures available, there was more than one case. Common sense suggests that. It also suggests that it was a practice that was used fairly widely. You are not going to have just one sellotaped signature in the documentation file. There is a paper trail here somewhere that nobody has looked for.

Mr Bailie: The information uncovered by the investigation did not indicate that it was a widespread practice.

Mr Hussey: The fact that there was one indicates to me that there were more. I do not understand how, at any level of supervision at all, in an organisation like the Northern Ireland Housing Executive, we would have even one sellotaped signature. That is bad, but, clearly, it was a practice that was established. You referred to it as an "administrative convenience". That does not ring true to me. You said that it was only papers going to the board. The practice of sellotaping signatures to disposal schedules approving land sales is a very serious practice. Clearly, there was more than what you are declaring here now that you are aware of. I think that there is a lot more to this.

Mr Bailie: The investigation pointed to what I believe were a limited number of occurrences. I have stressed that it should not have happened. There is absolutely no excuse for it.

Mr Hussey: You are referring to a limited number of occasions, yet you cannot tell me the exact number of occasions on which it was done.

Mr Bailie: I will come back to you on that.

Mr Hussey: Chair, that is the least that we require.

Mr Clarke: Can I take you back, Clark, to your response to Mr Dallat? I think that you said that the sellotaped signatures had nothing to do with the police investigation not being taken forward. I draw your attention to paragraph 1.24. It is quite clear from that paragraph that that is one of the reasons that the police have cited. For the benefit of the record: it says that the procedures used by the Northern Ireland Housing Executive were not sufficient and that there was a lack of information provided to the board about land sales. It goes on to talk about "the practice" of sellotaping signatures, which suggests —

Mr Dallat: Plural.

Mr Clarke: It is plural rather than singular. Maybe your colleague Fiona can help us, if she has something to do with countering fraud. What are her comments on the practice of signatures being sellotaped?

Ms Fiona Boyd (Northern Ireland Housing Executive): I agree wholeheartedly with Clark: it is absolutely unacceptable. In the cases that were referred to the PPS via the PSNI, sellotaping of signatures was not an issue. That refers to the Nelson Street investigation. Paragraph 1.24 refers to sellotaping signatures to disposal schedules. We carried out a full criminal-standard investigation of all 12 cases that were referred to us, and in only one case did we find that a signature had been sellotaped to a disposal schedule. These are papers that went before committees —

Mr Clarke: So, there is something on the disposal now with sellotaped signatures.

Ms Boyd: I am sorry, but the bullet point that you referred to is about sellotaping —

Mr Clarke: Yes, but Clark said that they found only one case where sellotaped signatures were used. You are now telling us that there is another one and that it was to do with the disposal of land.

Ms Boyd: That is the case that we are referring to. We are talking about the same case. It is one of the cases in Glenalpin Street.

Mr Clarke: I thought that Clark's response to the Deputy Chair was about something that was going to the board. Is that the same document?

Ms Boyd: It could be the same document.

Mr Clarke: Could we clarify whether it is the same document?

Mr Bailie: Of course we will.

Mr Clarke: Do you not know now?

Mr Bailie: I would prefer to go back and confirm that exactly, in case I inadvertently mislead you. My understanding is that the practice of sellotaping signatures was limited and that the cases that went to the PPS were not affected by sellotaped signatures. I will come back and clarify that.

Mr A Hamilton: This issue about sellotaped signatures is not something that the Housing Executive was trying to hide. The Housing Executive exposed that as part of its investigations. That will have been included in some of the referrals that it made to the police. My understanding is that the practice of sellotaping signatures to disposal schedules was observed by the PSNI in one disposal. The Housing Executive referred that case to the PSNI.

The Chairperson (Ms Boyle): Thank you, Mr Hamilton. Very briefly, Mr Flanagan and then Mr Beggs, and then I am taking no more supplementary questions on the matter.

Mr Flanagan: Aside from sellotaping signatures onto contracts and other documents, what other form of activity was going on? Were signatures being forged?

Mr Bailie: We found no evidence of signatures being forged.

Mr Flanagan: What were the other cases that did not involve sellotaped-on signatures?

Ms Boyd: Can I correct you there? They were never sellotaped onto contracts. We are talking about a disposal schedule, which is an administrative schedule listing land disposals that is going to either the chief executive's business committee (CXBC) or to the board; it is not a contractual document.

Mr Beggs: I am sure —

Mr Flanagan: Sorry, I am still waiting for Clark to answer the question.

Mr Bailie: Can you repeat your question, please?

Mr Flanagan: You said that there were cases referred that did not involve sellotaped-on signatures: what did they concern?

Mr Bailie: We initially referred the Nelson Street case to police.

Mr Flanagan: OK, so it was not to do with tampering with signatures.

Mr Bailie: Not at all. In fact, the Housing Executive did not own the land on Nelson Street. It was the intervention in the planning process. The other cases relate to Glenalpin Street.

Mr Flanagan: No, that is fine. I thought that there was something else to do with signatures.

Mr Beggs: There has been an attempt to comfort us by saying that the legal documents did not have sellotaped signatures.

No solicitor would accept a sellotaped signature, of course. There should be no comfort from that. It is about the process of agreeing the price and who is involved in the sale. Paragraph 1.24 states that the PSNI explained:

One of the four bullet points that follow is the practice of sellotaping signatures. Do you acknowledge that the police were unable to take some of the issues forward because of the sellotaped signatures? Yes or no.

Mr Bailie: Yes, that is what the police told us. I accept that.

Mr Beggs: You seem to be saying that this did not really have any bearing on legal cases. It may not have had a bearing on one particular case, but it certainly could have had a bearing on others.

Mr Bailie: The point that we were trying to clarify was that the sellotaped signature was not on any legal documents.

Mr Beggs: It would not be. No solicitor would accept that.

Mr Bailie: It was on an internal paper, and I stress that it should not have happened. The investigation referred to it.

The Chairperson (Ms Boyle): We talked about —

Mr Dallat: Chairperson, I am sorry for talking over you. I will not do it again.

The Chairperson (Ms Boyle): Can I have that in writing?

Mr Dallat: This was not a legal document, but we are splitting hairs here. The sellotaped signatures were on disposal schedules, approving land sales. How much more important could a document be than that?

Mr Bailie: If I have inadvertently given the impression that this was not a serious matter, that was not my intention. This should not have happened. This was identified through our investigation and clearly highlighted, and the police picked up on it. I accept what Mr Beggs has said, and I accept what you are saying. I am certainly not trying to downplay the significance of this.

Mr Dallat: That is fine. We are getting it back into perspective because these documents were in fact the key that triggered the sale of the land.

Mr Bailie: Yes.

Mr Dallat: Thank you.

The Chairperson (Ms Boyle): We will move on. Members, we have quite some questions to ask and get answers to today. Mr Bailie, can I take you to paragraph 2.1 of the report? There is a litany of bullet points that outline what are the most basic controls that should routinely be applied to all public sector land disposals. How did the Housing Executive governance systems not pick up and address these issues before 2010? Obviously, it beggars belief because there are sales without legal representation and no valuations; this is no way to sell a house never mind millions of pounds worth of public assets. Can the Housing Executive now confirm how these weaknesses were allowed to happen, and how were they addressed?

Mr Bailie: There were several reports during the period reviewed by the Audit Office prior to 2010 that clearly indicated that there were deficiencies in the arrangements for disposing of land. It is quite clear that, on occasion, those warning signs were not actioned and that changes to procedures were not made. That takes us back to the late 1990s and early 2000s. During that period, there are signs, particularly towards the end of it, after about 2007 or 2008, that the systems were improved quite significantly. Indeed, an internal audit report was produced in September 2009 that acknowledged that "positive steps" had been taken in the housing and regeneration division to address many of the issues that had been identified over the preceding years. We have established in the Housing Executive, through our investigations, that these arrangements were unsatisfactory. They did not meet best practice, and they did not meet the guidance being issued by DFP, Land and Property Services and the Department. There was a lack of compliance, and that should not have happened.

When I arrived in the Housing Executive towards the tail end of 2007, many of these items were being addressed through the audit committee. There were issues around economic appraisals, which was one of the outstanding issues in 2009. It was quite clear that a proportionate economic appraisal should have been carried out. The advice given to the audit committee by the then director of housing and regeneration was that Land and Property Services had told him that the Housing Executive did not need to do an economic appraisal. That was clarified and found to be untrue. I can assure the Committee that going on from 2010 as a watershed, we have an extremely robust process in place to deal with land disposals. A 10-point green book economic appraisal is completed for every disposal, except where the disposal is to a housing association through a transfer, and that scheme is subject to a separate intensive business case.

We have reviewed our structures in the Housing Executive. We no longer have a housing and regeneration division. In its place, we have a landlord services division, and asset management. Responsibility for land disposal is within regional services. In terms of segregation of duties and spreading the responsibility across the organisation, that has been put in place.

We have reviewed our systems, procedures, policies and controls in our land management section. That has been subject to ongoing review by internal audit. Over the last five or six months, we have had four separate internal audit reports. One looked back to recommendations from a variety of sources that were made from about 2007 until that date. There are about 39, of which 37 have been implemented and completed. Two are ongoing because they relate to the Land Terrier, which is a major piece of work that is ongoing.

Mr A Hamilton: Chair, I am trying to be as helpful as I can, and we are getting into a lot of detail. When I first saw the report, I was appalled. I have spent a lot of time trying to understand exactly what went wrong. I would be keen to share my assessment.

Where does the responsibility lie? The failure to adhere to the existing control framework in land transactions should have been identified by the board and improvements sought. It is the board that sets the value and standards of the organisation, and, to be honest, it should have instilled a culture of compliance to ensure its obligations to sponsors, including the Assembly, Ministers and the Department, for the management and stewardship of publicly owned assets in its care.

That formally has to be the position. It did not set that culture. That meant, in effect, that the executive team set the culture. The fact that the board was not given the information is mentioned and referred to in the C&AG's report as maybe explaining the failure. That said, it does not remove the responsibility of the board at the time for ensuring the —

Mr Clarke: May I come in, Chairperson? It sounds easy for Andrew to sit here and blame a board. We are all familiar with a lot of public bodies and their boards. There is always a cosy relationship between the senior management and the board, and, unfortunately, there is an awful lot of trust. I am waiting for the punchline, Andrew, when you are going to blame some of your senior management team.

Mr A Hamilton: I am coming to that. I am trying to be as comprehensive as —

Mr Clarke: That would be more interesting than continually referring to the board.

Mr A Hamilton: I started with the board.

The Chairperson (Ms Boyle): Let Mr Hamilton finish. Yes, continue.

Mr A Hamilton: Responsibility does not rest with only the board.

Mr Clarke: At last.

Mr A Hamilton: There were issues of personal conduct and behaviour at play, too. There was a significant conflict of interest that was not properly managed by the individual or the organisation. It was identified but not managed. The individual continued to engage with developers in the conflicted area. That was combined with what — the source of my comments is the evidence that I have seen here — seems to be a cavalier approach to the rules and delegated authority levels within which that individual operated. To my mind, that was offensive to the Housing Executive's code of conduct and certainly to the seven principles of public life. That was a senior director in the organisation, and rather than giving effect to the organisation's governance systems, he seemed to place himself above those and circumvent the rules to the extent that, I think, he placed himself in jeopardy as a result.

After extensive investigation, his actions were referred to the police. However, it is not only him. I am taking a bit of time here, but I am trying to be as comprehensive as I can. Who else? I will come to the Department. I am not excusing the Department, but I do not believe that the accounting officer of the Housing Executive at the time was what they ought to have been. He did not respond appropriately to the —

Mr Poots: That is Mr McIntyre.

Mr A Hamilton: — conflict of interest.

Mr Poots: That is Mr McIntyre. Just to put it on the record.

Mr A Hamilton: That is Mr McIntyre. I do not know if he knew that the individual was conflicted, but he ought to have made it his business to know.

The other point was that, when an opportunity presented itself with the production of the Housing Executive's internal auditor's report in 2007-08, he got himself on the wrong side of the argument on that, challenging the findings of the audit rather than ensuring that they were presented properly to the audit committee and board.

We come now to the Department. The Committee has previously expressed its views on the adequacies of the Department's oversight arrangements during that period. The report further provides evidence to support the weaknesses that were identified then — I am referring to the response maintenance report. We were not alert to the lack of compliance in that area, although structures were in place that reflected best practice at the time and were verified as such. Even in 2007, the Comptroller and Auditor General commented on them and highlighted them as good practice in his report on governance.

Mr Dallat: Chairperson, I am sorry for interrupting —

Mr A Hamilton: I will just make the point very quickly —

The Chairperson (Ms Boyle): Deputy Chairperson, I will allow Mr Hamilton to continue because there are other people to come in.

Mr A Hamilton: There was a further review of the overriding governance system that included DFP involvement in the assessment, in 2009, which again confirmed that the overall systems were right. Those systems provided for us to be given assurances, but what we did not do, and what we have recognised and changed our practice since, is that we now test the assurances. We look for evidence to substantiate the assurances that we are being given as part of the overall oversight arrangements. That is my assessment of what went wrong.

The Chairperson (Ms Boyle): So basically what you are saying is that you had a complement of staff who did not act with integrity and honesty as they should have around the principles of public life. I have a few people looking to get in here, and I want you to keep your supplementary questions very brief. I have Mr Poots, Trevor, Ross and the Deputy Chairperson. That is the order in which you raised your hands.

Mr Poots: Paragraph 3.4 notes that the DSD's internal audit had concerns about the Department's oversight of land disposals. Had that been red-flagged to your Department?

Mr A Hamilton: That is correct. The Department commissioned internal audit to have a look at the arrangements that were in place. As a result of that, internal audit reported back and said, "Hang on. There is a real problem here. Your monitoring arrangements for this area of the Housing Executive's activities are not fit for purpose. You simply do not have the information that you need to ensure that things are being done properly." That was identified. We picked that up and engaged with the Housing Executive almost immediately, and there was a work plan associated with that and the report was signed off and implemented by June 2008. However, I come back to the issue that we accepted the assurances that we were given at the time. We should be able to get to a position where we accept those assurances, but we accepted those assurances. What we did not do was test them. Even a year later, we were told —

Mr Poots: Why not?

Mr A Hamilton: Well, it is just that we did not. A year later, we were told that our systems were still OK.

Mr Poots: The report said to you, Mr Hamilton, that:

You accepted assurances from the Housing Executive in 2008, yet in 2010 we were dealing with the Nelson Street situation, where all sorts of shenanigans were going on. We will deal with that in due course. There was a two-year gap after it was flagged up by officials in your Department that there were fundamental weaknesses in the system, and you accepted an assurance from the Housing Executive that it was going to sort itself out. Then you continued to ignore it. Meanwhile, this carry-on continued and public assets were sold off at a considerably lower cost than they should have been.

Mr A Hamilton: I accept the point that, at the time of the 2007-08 review, we should have carried through more. We accepted that the changes were made. The control that you mentioned was restored, the information flows were put in place and we were given assurances about the system that applied in the Housing Executive. What we did not do at that time — and we recognise this — was to say: "OK, that is fine. We hear your assurances, so we are going to test them."

Mr Poots: Was an audit opinion given?

Mr A Hamilton: No, this was just a consultancy exercise that we asked internal audit to do at that time.

Mr Poots: Why was an opinion not given then?

Mr A Hamilton: I cannot say. This was well before my time. All I can do is report the outcome of it. You are quite right in what you say, because those assurances were not worth it. Ultimately, there was no substance to them. We know ourselves that, in 2010, we did our detailed governance review, and that was when we realised that we had to dive deeper into the systems of the Housing Executive to really find out whether there was substance to its governance systems. In 2010, we looked at land transactions in the period 2009-2010 — that is, after the internal audit review and after we were given assurances. That identified the same weaknesses. It identified approvals that were not being properly sought and economic appraisals that were not being done. That is what I am saying: this is the learning that I have got out of this. Our systems now are radically different. We do test the assurances. We look for evidence that what we are being told as part of this process has substance to it, and, furthermore, we actually go in and look. Post the response maintenance review, we are subjecting the Housing Executive to the same sort of regulation and inspection regime that we apply to housing associations. We are going in, we are looking, we are auditing and we are getting the assurances.

Mr Poots: I do not accept that learning was required in this instance, because it was flagged up to you that there was a problem, and basically nothing was done about it. It is clear that DSD failed in its oversight of the Housing Executive. You indicated that the Housing Executive had its own systems in place, and it should not be the case with any organisation that an individual or individuals can play rogue and the organisation suffers as a consequence. What checks and balances were in the Housing Executive system? You indicated, for example, that the accounting officer should have been over this issue, and he had not dealt with it. You also referred to the board. What was the role of the board? What was the role of its chairman in overseeing all this? Public land was being sold at a lower value, so what was the board's responsibility and, in particular, what was the responsibility of the chairman?

Mr A Hamilton: Do you want to deal with the board responsibility, Clark?

Mr Bailie: Prior to 2010 and what it is now? The board is responsible for ensuring that there is proper governance within the organisation and that there are systems in place and schemes of delegation that identify at what level decision-making power is available to the named officer. The board is responsible for holding the executive team and the chief executive to account and for receiving regular reports. The board sets up its audit committee, which receives reports from the internal audit team on a regular basis. That is the role of the board. The board is, on some occasions, dependent on the information that is provided to it. One of the issues that were highlighted by the governance review in 2010 and by this report is that the supply of information to the board prior to 2010 was not sufficient to allow it to discharge its duties fully. That is an observation. To address that, we have —

Mr Poots: The board was a puppet of the directors.

Mr Bailie: I was there for a few years at the end of that period, and I certainly did not feel that the board was a puppet of the directors.

Mr Poots: Well, you said that it did not have the information. Who was in control: the directors or the board?

Mr Bailie: Certainly the board should have been better informed. There are occasions, highlighted in this report, where the board made decisions and was not kept apprised of subsequent developments. That was a major failure and one that we have addressed.

Mr Poots: A major failure on whose part?

Mr Bailie: On the part of management to provide that information.

Mr Poots: Who was responsible for getting the information to the board?

Mr Bailie: The chief executive bears the prime responsibility for making sure that the board is kept fully informed. That is a responsibility that I now fully accept as the accounting officer.

Mr Poots: What is the chairman's role?

Mr Bailie: The chairman's role is —

Mr Poots: The chairman has power to go at any time and demand any papers.

Mr Bailie: The chairman and the board can ask for anything; it is as simple as that. That is the attitude that I take and always have. That is about showing respect to the responsibility and powers of the board.

Mr Poots: Were the chairman and the board completely blindsided on these things? Did they not know what was going on? I recall quite a number of conversations going on about the Housing Executive. This has not come as an entire shock to people, because conversations were going on about the Housing Executive for some years. Was the board not across these issues and doing a bit of extra digging?

Mr Bailie: I can comment only from when I started attending the board at the end of 2007. Looking back at historical cases, there certainly were occasions — the case studies have highlighted it — where the board was not kept fully informed. Since I have joined, I have noticed that there has been a significant change in the quality of information that goes to the board and in the challenge function that is exercised by the board. I cannot comment with any authority on what happened prior to my appointment, but judging from the information on the files it would appear that, on key occasions, the board was not kept fully apprised.

Mr Poots: Was there too close a relationship between the directors and the board? Was it too trusting a relationship?

Mr Bailie: Again, I can comment only from 1 December. That was not my perception.

Mr Poots: I just do not understand how the board was so inept and so ineffective in identifying that there was a problem. Was the board asleep at the wheel? What was going on?

Mr Bailie: I think, obviously —

Mr Poots: Are you exonerating the board in this?

Mr Bailie: What I am saying is that, first, I do not have personal information prior to 2007. The board needs to be provided with meaningful, reliable, accurate and complete information. The investigation in this report shows that, at times, that did not happen.

Mr Poots: And the board did not ask for it.

Mr Bailie: It might be that the board did not know because it was not told, but you need to look at whether the board exercised its scrutiny powers to a sufficient degree. As Andrew said, the board had certain responsibilities. Was the board being made aware of issues that were happening through internal audit reports? I said earlier that my reading of the file is that there were indicators and warning signs but they were not always heeded. I am not in a position to attribute blame for that.

Mr Poots: OK. So the warning signs did not appear to have been heeded, and the board did not carry out appropriate scrutiny.

Mr Bailie: That would, on occasions, appear to have been the case, yes.

Mr Poots: On occasions that cost the public considerable hundreds of thousands of pounds or more.

Mr A Hamilton: Can I come back to the issue of how much was lost, or are you going to come to that?

The Chairperson (Ms Boyle): No. Mr Poots's question was a supplementary question, and I have given him a lot of grace. A few other members want to ask supplementaries, but I ask them to hold those. I want to move on with the session and get into your areas of questioning, starting with Mr Hussey. With members' indulgence, if they could hold their supplementary questions until we get into the session or into their areas, I would appreciate it. I want to get things moving. We are an hour into the session, and we have not opened up for formal questions.

Mr Hussey: Do you want me to move on —

The Chairperson (Ms Boyle): Yes, to your questions.

Mr Hussey: I am going to deal with Hardcastle Street. Paragraph 1 of the background to case example 3 states:

You have seen that entire paragraph. Can the executive or, indeed, DSD explain to me how that sort of thing can happen? There is nothing that I can see in there that shows me that the executive would gain anything from using vesting powers in that case. Why did it use vesting powers to the advantage of a private developer? That is clearly what happened. Why is there no documentary evidence that supports the rationale behind vesting? I will come back to that point specifically at the end, but I want some form of answer about why the Housing Executive would use its power to vest that property. What was the purpose of that?

Mr Bailie: Again, this is going by my reading of the files and the investigations. It would appear that the Housing Executive was approached by the developer, who had identified a piece of land. By all accounts, it was a bit of waste land and the ownership could not be established. The investigation determined that there is nothing on file to evidence the approach by the developer; there is simply a note. That is the starting point. The Housing Executive took the decision to vest the land, I assume as part of its wider housing role. The reason that is contained in the file is that it was to facilitate car parking relating to that housing development. The vesting would have gone to the board and would have gone through DSD. As you can see, a decision was taken at a meeting of the chief executive's business committee, and confirmed on a separate occasion, that that land should be placed on the open market. It was wrong that a decision was taken to sell it by direct sale to the developer.

Mr Hussey: I will stop you there. There is a fag packet or a Post-it note in a file saying, "We are going to vest this bit of land". There is a note. What does that mean? What is a note? Is it a £5 note, a £10 note or a sticky note? What is that note?

Mr Bailie: There is a file note on the file that sets out some of the documentation.

Mr Hussey: Is it a piece of paper? A form?

Mr Bailie: It will be a typed note that sets out information on that subject.

Mr Hussey: How much information is on that note? I am no expert, but there is a note. There is no documentary evidence that supports the rationale behind vesting, but there is a note.

Mr Bailie: There are references on the file indicating, as I said, that a developer approached the Housing Executive and asked for the land to be vested.

Mr Hussey: Was the information about who the developer is noted?

Mr Bailie: As far as I recall, yes.

Mr Hussey: So Joe Bloggs comes along and somebody creates a note, but there is no paper trail.

Mr Bailie: There is nothing. There is not, for example, a letter from the developer making a formal request. There is simply a note contained within the file that states that the Housing Executive was approached by the developer.

Mr Hussey: You then moved on. The chief executive's business committee made a clear decision to sell the land on the open market.

Mr Bailie: Yes.

Mr Hussey: That is what the decision was.

Mr Bailie: Yes.

Mr Hussey: Who decided to ignore that? Was there another wee note on a Post-it saying, "Let us ignore it and just do it"?

Mr Bailie: No. One of the issues that we had during the investigation was that the documentation was not always complete. One of the lessons that we have learned from that is that it is vital to have a good audit trail that sets out the rationale and the approval mechanisms for key decisions. These cases went back some time. Some of the people involved were no longer in the Housing Executive at the time of the investigation. I share your frustration and agree with your criticism that the documentation on the files should have been better, but that is what we had to work with.

Mr Hussey: Andrew mentioned best practice earlier. I was a proponent of best practice. I worked in the insurance industry and, at times, I was an auditor. Let me tell you, if I was as incompetent at the audit as you have been, I would have been gone. You said that the overall systems were right and that you then accepted assurances. I never accepted assurance from anybody. If I went into an office to do an audit, I started with the petty cash and made my way up. I checked everything, even the postage. That is how miserable I was. I looked for evidence. Here, what has clearly happened is that somebody has phoned Roy Beggs and said, "Roy, is that OK", and Roy has said, "Dead on", and on they have moved. There is absolutely no audit. In fact, Nelson's eye comes to mind. Somebody has got the view against their blind eye and has seen nothing. The more you tell me, the more irritated I get. A note on a file, instructions given directly by the chief executive's business committee, and somebody somewhere decided to ignore that. Is that correct?

Mr A Hamilton: Can I just —

Mr Hussey: No, I am not asking you at the moment. I am asking Clark. Somebody chose to ignore that.

Mr Bailie: Yes, that is what we know from the investigation.

Mr Hussey: Right. How many people have been disciplined within the Northern Ireland Housing Executive in relation to those inquiries? How many people have been sacked? How many people have been disciplined?

Mr Bailie: There have been no disciplinary sanctions.

Mr Hussey: That is a surprise. It is more than a surprise.

Mr A Hamilton: Can I —

Mr Hussey: No, I am not finished yet. Look at paragraph 1.22:

By opening an empty file you will prove nothing. Here we have a fag end, a fag packet, a Post-it note and a deliberate disregard for instructions. No wonder there could not be a prosecution. No wonder nothing could be taken forward, because there was absolutely nothing on file to indicate that anybody had done anything wrong, because there was absolutely nothing on file to indicate that anybody had done anything.

Mr Bailie: I completely concur with your view. I had responsibility for the investigations during part of phase 2, and that was the evidence uncovered during the investigation. When we look back to some of those events, which are quite old, there is an incomplete audit trail.

Mr Hussey: An incomplete audit trail. Let us go back, then, to Andrew. Andrew, there is an incomplete audit trail. In my view, there is no audit trail there. How did DSD allow that to happen?

Mr A Hamilton: DSD was not aware of those failings at that time.

Mr Hussey: Why not? Here we have a public arm's-length body, under the control of DSD, and we have highly paid civil servants. It appears that the Northern Ireland Housing Executive was like a game of Monopoly. Mr Poots and I decided to play with property, so we did it. Nobody bothered to check what we were doing. We went to the chance and opportunity cards, and a lot of opportunity cards were used, because nobody seems to have been checking on it. I really do not understand how the Department allowed an arm's-length body to play with millions of pounds of real money — it is not Monopoly money — and you are telling me that there is no audit trail.

Mr A Hamilton: Let me try to explain that. As I said, the Department was not sighted on those individual transactions. There is a very clear demarcation of responsibilities. The Housing Executive itself is responsible for taking forward the operational aspect of its business. What the Department is responsible for is ensuring that it has adequate systems of governance in place.

Mr Hussey: Hold on two seconds. The Northern Ireland Housing Executive was paying the developer's planning costs here. Is that correct?

Mr A Hamilton: That is correct.

Mr Hussey: Did that not —

Mr A Hamilton: We did not know that.

Mr Hussey: You did not know that. And the executive knew this?

Mr A Hamilton: Only after the investigation was done.

Mr Hussey: And the executive did not know these costs were paid until it did the investigation?

Mr Bailie: Obviously, some people within the Housing Executive would have been aware of that.

Mr Hussey: And nobody was disciplined because of that either.

Mr Bailie: On that occasion, the investigation brought what had happened to light. That information was not visible.

Mr Hussey: But nobody was disciplined.

Mr Bailie: No one was disciplined as a result of this.

Mr Clarke: Would the director of finance not have known at that time?

Mr Hussey: Can I finish here? I am on a roll here.

We know that the developer flipped the site. Can you tell me who they flipped the site to, and for how much?

Ms Boyd: It was to Dado Ltd for £120,000.

Mr Hussey: Where are we going with this? What further actions are we taking? A site has been flipped and we know that, after the £120,000, a hell of a lot more money was made on this. If this is not corruption and if this is not fraudulent —

Mr A Hamilton: That was the conclusion of the investigation team and, as a result of that, the Housing Executive referred this particular case to the police.

Mr Hussey: It took long enough to do it, though, because clearly the prisoners were in charge of the prison and nobody seems to have bothered to discipline anybody. Apparently if you are a civil servant you can do whatever you like without any fear of being disciplined.

Mr A Hamilton: It is important that we get all of this on record. With regard to the issue of discipline, what we had, once these issues surfaced with the Nelson Street case, was a situation which had to be fully investigated. As part of that investigation, the issue of conflict of interest was clearly prevalent. At that point in time, I think, and Clark can keep me right on the detail here, the Housing Executive could have stopped there and said, "Here is a conflict of interest. This person is not adhering to the code of conduct". It could have then begun a disciplinary case. Instead it chose to say, "Hang on a minute here. If there is a conflict of interest in this particular area, do we not need to ensure that there are not other, clearly more serious behaviours?" So they moved to an investigation to see if there was any criminal conduct and, as a result of that, very quickly passed the issue on to the police.

Mr Hussey: The conflict of interest is one element. When we look further down, we see that there has been gross incompetence, let alone conflicts of interest or anything else.

Mr A Hamilton: I am not disagreeing here. I am just dealing with the question of why someone was not disciplined. Having referred the matter to the police — and in fact the police action vindicates the referral, because the police felt that the Nelson Street case should be referred to the Public Prosecution Service. However, because it was referred to the police, they could not carry out a disciplinary investigation because that could have undermined the police investigation.

Mr Hussey: As we go further down and we find the note in the file that is not a note etc, there is gross incompetence.

Mr A Hamilton: In addition to that, the Housing Executive commissioned two disciplinary investigations into two staff members carried out by an independent person, who I believe was from CIPFA. No, sorry, it is not.

Mr Hussey: Does this include Mr Sellotape? Was he disciplined?

Mr Bailie: No, but they were told that they were not allowed to do it again.

Mr Hussey: Oh well, that is safe enough then.

The Chairperson (Ms Boyle): Ross —

Mr Hussey: Sorry. Chair. I will let you go on at this stage.

The Chairperson (Ms Boyle): Mr Beggs and Mr Clarke are looking for a very brief supplementary.

Mr Hussey: I am happy to allow that.

Mr Beggs: We learned that the Hardcastle Street site was vested because the developer made an approach to the Housing Executive.

Mr Bailie: Yes, that is our understanding from the file.

Mr Beggs: Who was the developer? Was it the developer who bought it at below the market rate?

Mr Bailie: It was the developer of Somerset Studios, a company called Wendleford. It was the purchaser who sold it on to Dado.

Mr Clarke: How long after the purchase did they sell it again?

Ms Boyd: Wendleford? I think that the deal was completed in late 2004 or early 2005, and then it was sold on to Dado, but, if you research the company structure of Dado, you will find that it has the same directors as Wendleford Ltd.

Mr Clarke: Cosy. While Ross was asking questions, I was looking at your profile, Clark, and you were the director of finance in 2007.

Mr Bailie: Yes

Mr Clarke: Did you not have sight of some of the transactions that came out at that time, given that you were in a very senior position in the organisation?

Mr Bailie: Certainly, when I joined in December 2007, responsibility for disposals was under the control of the director of housing and regeneration. Internal audit reported to the director of corporate services, the deputy chief executive. As the director of finance, I was certainly responsible for having good accounting systems in place so that we were recording the money coming in and monitoring that against the fairly challenging capital receipts target at the time.

When I arrived, my major immediate task was to address the very sudden reduction in capital receipts caused by the economic crash. I was not aware that the auditors had raised issues in early 2007, because the draft report was never developed into a final report. I was certainly not aware at that time of the report on the Houses for Land scheme issued by the local government auditor. It was only as we went into 2008-09, in September 2009, that I saw the internal audit report, which, as I mentioned earlier, outlined the positive steps that had been taken to address the issues.

I have looked back and I have spoken to colleagues, and there were no indicators or signs of serious conflict of interest issues or a lack of compliance. That information did not find its way through. As soon as I became aware that there were issues, in early 2011, I went to see the chief executive, with Stewart Cuddy and Dr John McPeake, and we made him aware that we had very serious concerns about what we had discovered.

Mr Clarke: Who was the chief executive then?

Mr Bailie: Mr McIntyre.

Mr Clarke: He was one of the guilty parties.

Mr Bailie: He was the chief executive at that time.

Mr Clarke: He was also one of the guilty parties. I accept your account of all that. I am just wondering about something else, but I will wait.

Mr Flanagan: Paragraph 2.12 refers to a NIHE board meeting in 2007, when Mr McCaughley explained that the Hardcastle Street sale was fine, given that the board agreed that enabling would be finalised as a written policy. Can you tell me why that formal written enabling policy was never put in place?

Mr Bailie: I cannot. I just cannot. It appears to have been raised by the board, but there was no mechanism to capture that and to inform the board that the action had not been completed. It was addressed, I think, in the 2010 governance review. Now, we have in place a "brought forward" system for matters arising, and it captures any decision reached by the board, so the board can track when a satisfactory response is provided. That was another administrative deficiency, and, looking back, it appears that the board raised it, but there was no mechanism to bring it back to the board. That is the only explanation that I can give.

Mr Flanagan: Who was it agreed would action that in the Housing Executive?

Mr Bailie: Ultimately, that would have been the responsibility of the chief executive or the director of housing and regeneration.

Mr Flanagan: Have you made any efforts to establish why a formal written enabling policy was not put in place, other than saying that you do not know?

Mr Bailie: We have not found anything that provides a reason why it did not proceed, so we are forced to assume that it just did not happen.

Mr Flanagan: Was it discussed at any subsequent board meetings that you are aware of?

Mr Bailie: No, not that I am aware of.

Mr Flanagan: Has anyone checked?

Mr Bailie: We checked, and we were not able to find any reference to it.

Mr A Hamilton: Sorry, there were two papers. There was one in February 2007 and a further paper in April 2007.

Mr Flanagan: Was that April 2007?

Mr A Hamilton: Yes. The outcome was that the issue was not completed. The executive team was commissioned to produce a paper and a policy, and they were never delivered.

Mr Flanagan: Was it commenced?

Mr Bailie: Not to my knowledge.

Mr Flanagan: Paragraph 2.12 also states that the paper that Land and Property Services (LPS) prepared gave a definition of enabling. The footnote on page 41 states:

Where did the definition of enabling derive from?

Mr Bailie: I apologise for saying this, but that was also before my time. Having spoken to colleagues, I know that it was stated more eloquently by Dr McPeake in his statement, which he prepared at the request of the PSNI, when he said that there was a generic concept known as enabling. That was the Housing Executive using its statutory powers — its assets — to facilitate housing developments generally. There was no formal policy. Having spoken to colleagues, I know that there is an acceptance that there was a sense that the Housing Executive could facilitate appropriate projects.

Mr Flanagan: Is there a policy now on enabling?

Mr Bailie: No.

Mr A Hamilton: The report clearly says that no work has been done on this. To be honest, I think that that is a lacuna in our arrangements. We need to decide formally whether the Housing Executive should be engaged in that type of activity and, if it should, what the parameters are within which it should operate. That is not in place at the moment. We would welcome your views on that as part of your investigation, but I want to move fairly quickly after this to a determination of whether this type of activity should be justified and whether it should be the Housing Executive or the Department that engages in it.

Mr Flanagan: Do you think that the Department or the Housing Executive should be engaged in those practices?

Mr A Hamilton: Ultimately, that is a policy decision, but it is not for me to make; it will be a decision for the Minister of the day.

Mr Flanagan: Enabling seems to have been a concept, as Clark said, rather than a written policy, and there is no agreement on what it is. Andrew, can you tell us what DSD's interpretation of enabling is?

Mr A Hamilton: Again, I go back to John McPeake's statement, which sets out the history of this. It was being talked about in the early 1990s. There are references to the enabling role in various annual reports. One of the references in the C&AG's report is to Ligoniel. That is formally referenced as having been taken forward as part of the enabling role. I understand that as the Housing Executive intervening to make something happen better than would otherwise be the case. If there were issues with land assembly or access, they could be addressed, which would allow private development — potentially, mixed-tenure development — to happen, which would not otherwise be the case. That is the type of activity that we are talking about.

Mr Flanagan: Which of you knows how many Housing Executive land sales took place on the basis of enabling?

Mr Bailie: I do not have a figure for that. We have not gone through all the records and tested that. It certainly was put forward in the case of Hardcastle Street; we know that. It was also referenced in the Ligoniel bridge disposal. However, we have not gone through all of the transactions and identified references to enabling.

Mr Flanagan: Have you any idea when the most recent act of enabling was?

Mr Bailie: The only references that I am aware of are to Hardcastle Street and Ligoniel bridge. Having spoken to colleagues, I know that there was a sense at that time that it was a philosophy, a concept or a generic idea, but we do not have a policy.

Mr Flanagan: Is it normal business in the Housing Executive that thousands of pounds of assets can be sold on the basis of a policy that does not exist — on the basis of a concept as opposed to a formalised written and agreed policy?

Mr Bailie: No, you simply would not dispose of assets on the basis of a policy. There would have to be a rigorous assessment of why the disposal was needed.

Ms Hanna: I will look particularly at the Annadale case study and the paragraphs before that. I am particularly concerned about the imbalance of risk in those transactions and the failure to put in clawback clauses. I am looking at the first paragraph of the case study: in 2002, what was the LPS valuation based on 60 terraced houses on the site?

Mr Bailie: That will have looked at the potential use of the site and anticipated the market values at that time in the location. It will have been obtained to confirm that best consideration was being achieved.

Ms Hanna: Do you have a figure for the LPS valuation in 2002, before the beginning of the contract the following year?

Ms Boyd: We have it on file: in 2002, the Valuation and Lands Agency (VLA) valued that site at £3·5 million.

Ms Hanna: Did it occur to the Housing Executive that the developer might go for planning permission for over and above the 60 units discussed, as he eventually did? Was it factored into your consideration that he might enhance it?

Mr Bailie: It is difficult to provide evidence of any such consideration or discussion. I am reliant on what is on file, as is the investigation team. There might have been discussion, but we do not know. We certainly used a commercial marketing agent to assist and provide advice on how the site should be disposed of.

Ms Hanna: Paragraph 2.33 shows that the Annadale contract was extended for over four and a half years from 2003. Why was that allowed, particularly when house prices and the market value of the land were rising throughout that time? Was there any benefit at all for the Housing Executive in allowing the developer to retain the balance?

Mr Bailie: It was allowed for in the contract. It is quite common that the contract will be agreed on the basis of staged payments, which are triggered at key events. My understanding of that disposal was that there were difficulties obtaining planning permission. The outcome was that social housing was provided on the site. One of the issues that I referred to earlier was that those were significant events that should have been brought before the board. It is not immediately clear that they were. On that occasion, granting extensions was permissible.

Ms Hanna: Do you know by how much the land increased in value in the four-and-a-half-year period from 2003 to 2007?

Mr Bailie: Yes. As part of the phase 1 investigation, one of the lines of inquiry was simply to do some sample testing of values. My understanding is that we brought in another valuer who estimated at that time that the land would have been worth in the region of £17 million.

Ms Boyd: It was £17·4 million.

Ms Hanna: You mentioned that it was fairly common practice to build in contract extensions that facilitate the developer. Was that —

Mr Bailie: It certainly was not commonplace. The extensions were in the contract, but they would be exercised within the contract.

Ms Hanna: Was it normal practice to have those in such contracts?

Mr Bailie: There were facilities to allow some flexibility in the contract. The issue here is that it was over such an extended period.

Ms Hanna: Was there any benefit to the Housing Executive in having that in the contract?

Mr Bailie: It certainly provides some flexibility to avoid contracts lapsing.

Ms Hanna: Who approved those contract extensions?

Mr Bailie: They were approved by the assistant director at the time.

Mr Girvan: I want some clarification on that one wee point. Clark, you mentioned zoning. Was that land zoned solely for social housing? You said that the planning permission stipulated social housing. I appreciate that land value can make a difference to whether it will be for social housing or private housing. I am aware that a lot of zoning goes on, but it is identified for industrial use, housing use or whatever.

I would like to see the planning approval that stated that it was for social housing only.

Mr Bailie: Maybe Fiona can help me on this. My recollection of the files is that the land was not zoned for social housing. The social housing element came about as a result of the planning deliberation.

Ms Boyd: That is right. As part of the consultation process, there was an agreement reached with the developer to include provision for social housing, which was then encompassed in the overall planning.

Mr Girvan: Who put that to the developer? Was that in negotiation with the Planning Service?

Ms Boyd: The Planning Service and the community.

Mr Bailie: The community was involved in identifying a desire to have social housing on that site.

Mr Girvan: What was its previous zoning?

Ms Boyd: It had been Housing Executive flats, as far as I know.

Mr Bailie: Yes, the site had previously been used for Housing Executive flats.

I cannot answer your other question. If you want, I can come back to you.

Mr Jim Wilkinson (Department for Social Development): Maybe I can help. My understanding, from reading the papers, is that it was zoned for residential development. As part of the planning process, planners will have engaged with the developer to seek an article 40 agreement to provide some social housing in their development.

Mr Girvan: "Some" social housing. That is at their discretion.

Mr Wilkinson: It is at their discretion as part of the planning process.

Mr Girvan: I appreciate that — because that would have a material impact on the value of the land. Sorry about that.

Mr A Hamilton: I was going to make a point about the approvals. You asked who approved the extensions. That was one of the weaknesses recognised in the fundamental review, and there is an issue of whether the officer had the delegated authority to make those judgements or whether it should have gone back to the board.

Mr Girvan: Who was that?

Mr Bailie: It was the assistant director.

Mr Girvan: Who was that?

Mr Bailie: It was Mr Gerry Flynn.

Mr A Hamilton: That is a governance issue that we need to come back to and make sure that we have covered in the future.

There is also the issue of the extent to which there was wriggle room in the contract: if you do not provide an extension because a planning issue has been raised that is outwith the control of the developer, what are the options? A potential option is that we will terminate the contract. There is, then, the issue of whether the developer would have a right to sue. All those issues make that quite difficult, with hindsight, to resolve.

Mr Bailie: We had already had one failed attempt to sell that site and taken legal action against the first would-be purchaser, and, in the wake of that, this purchaser came in.

Ms Hanna: I suspect that the developer knew that he was on to a winner and probably would not have been the one seeking to break the contract. If the valuation of each apartment was £184,000, and all 216 were included in the valuation, the developer made around £40 million in sales. Do you accept that the public purse lost out substantially by not having any share in the increase in value that was due to the enhanced planning permission? We are focusing on the lack of clawback.

Mr Bailie: It is hard to quantify the loss. I understand the figures that you quoted. That illustrates to me that we need to make sure that, when we are dealing with substantial land disposals, we follow the Land and Property Services guidance. We have on file clearly documented reasons for what decisions have been reached. We have evidence that clawback has been considered and why it has or has not been applied.

Ms Hanna: Was the LPS and DFP guidance followed in this case?

Mr Bailie: There is nothing on file to indicate that there was consideration of clawback.

Ms Hanna: It just did not come up.

Mr Bailie: The only thing that I can say is that there is nothing on the file to indicate that it was considered.

Ms Hanna: Was the board aware that the guidance existed? Do you not have anything to show that the board was aware that it existed?

Mr Bailie: I am not aware of anything.

Ms Hanna: No papers were tabled at the board. I suppose that we do not know whether the absence of any minute of that implies that it was never discussed by the board, that it was not aware of the guidance or that it did not follow the guidance.

Mr Bailie: I cannot say exactly what the board did or did not do, because I was not there, but, on this occasion, no clawback clause was included in the contract.

Ms Hanna: No, there certainly was not.

Mr A Hamilton: There are levels of detail that I think are worth mentioning. First, part of the investigation done some time later was to look at the issue of clawback, and its determination was that clawback is difficult to assess. The investigation noted, having taken advice from various people, that it appeared that clawback would not have been a constructive approach to the sale of the land, but that was some years hence. An important point that Clark made earlier is that we do not have evidence of the extent to which clawback was considered, and that is the learning: there should always be on file a reference to the consideration of clawback, and that was not in place at the time.

Ms Hanna: So we do not know whether the board ignored it or did not bother considering it. Might the Department or DFP have been aware of it? Was there any mechanism for them to enquire whether clawback had been considered?

Mr A Hamilton: We would not get involved in those —

Mr Wilkinson: At the time, the focus of the guidance was that best consideration was being achieved, and best consideration would have been either open market sale or sale at an LPS valuation. I think it worth pointing out that, at the time, this was a decreasing market, not a rising market. The Housing Executive had agreed to sell in 2001, I think, for £5 million, but, by 2003, the site was valued at £3·4 million, and the original buyer had to pull out. It was a fluctuating market. The point was well made that it should at least have been considered. Although you still might not have put it in the contract, you need to have evidence that it was considered.

Ms Hanna: There is no such evidence.

Mr Wilkinson: No. There was retrospective evidence to suggest that it may not have worked had it been tried.

Ms Hanna: Was the board being kept in the dark, or do we just not know?

Mr Wilkinson: We just do not know.

Ms Hanna: It is very worrying. Eventually, after the developer had made the estimated £40 million in sales, a housing association paid over £9 million for 50 apartments at £184,000 each. How much of that £9·2 million was public money in the form of grants from DSD to that housing association?

Mr Wilkinson: We can come back with the detail of that. At that time, it was probably about 60%, which was the average grant rate. At that point, any grant for that sort of quantum to a housing association came with a full economic appraisal, with approval lines through the Department, the Housing Executive and DFP. Those figures will have been justified in terms of the market sale.

Mr Murphy: This was part of a scheme that was originally intended to attract private sector finance to the social housing programme, providing land for developers in exchange for social housing. That went on for some time — probably a decade or so.

Mr A Hamilton: Is this the Houses for Land scheme?

Mr Murphy: Yes. The evidence that you, Clark and Andrew, have given today is that part of the reason why this appalling state of affairs across all these cases has arisen is that the board was uninformed, and the Department was unsighted, on all of them. Andrew, if I am quoting you correctly, you said that the Housing Executive had examples of best practice on how to do business around that time — in the first decade of the millennium from 2000 to 2010. Yet, in 2001, the Department asked local government auditors to examine the Housing Executive's Houses for Land schemes on the basis that:

What prompted the Department to ask the auditors for a report in 2001?

Mr A Hamilton: It was prompted by concerns about value for money and probity. This was something new. There were four schemes — it is my understanding that this was quite innovative at the time — related to the regeneration of inner city Belfast, with almost 100 social houses being the desired outcome. It was novel at the time.

Mr Murphy: Any new scheme is novel, but any new scheme does not necessarily prompt the Department to say that it is concerned about probity and essentially not knowing what the hell is going on and that it wants to safeguard public funds. What triggered the alert in the Department prior to 2001 to a series of practices that continued for the rest of the decade essentially?

Mr A Hamilton: No, this one did not —

Mr Murphy: I know that this is in relation to a particular scheme, but we are talking about schemes that reflect a general practice in the Housing Executive. These are schemes and practices that were not picked up by the board because, it says, of lack of information. However, I am sure that the board was aware that the Department had asked for an audit based on its concerns in 2001. That audit reported in 2004. It took three years. The Department was obviously sitting waiting on the report. The board of the Housing Executive at that time was waiting on the report. The audit confirmed that there was:

The very things that became the answers in 2010 were things that were investigated in 2001 and reported on in 2004. When you joined the board in 2007, Clark, a further audit report found that:

Your argument to date has been that the board was unsighted or lacked information. Obviously, the board was aware of the Department's concerns. Whatever prompted this in 2001, it was not just the novelty of the scheme. There are novel schemes in Departments all the time, and they do not merit asking auditors to find out what the hell is going on in a Department. So, there were some concerns. As yet, the evidence for what caused the alarm bell to ring in DSD in 2001 has not necessarily been made available to us. However, the argument that people were unsighted and unknowing, and that what was going on the Housing Executive was described by someone else as best practice, is contradicted by the number of audits that were being carried out and the number red flags that were being raised as a consequence of those audits, both to the board and to the Department across the decade that these things were happening.

Mr A Hamilton: I do not know the specific reason or what triggered this. What I do know is that, in the engagement, it was saying, "Look, this is novel. This is new. We are not really sure what is going on." That is the language that was used at the time. I spoke to people who were there. I was told that, at that time, there was a reliance on the local government auditor to do this type of quite technical, detailed work, presumably on the assumption that the Department did not have the skills to do it at that time.

I think that the Department behaved appropriately at that time. There was something there. It believed that it needed to get assurances about these schemes. To be honest, its concerns were verified by the auditor's report. The outcome was that there were no further schemes of that nature. That report ended in the stable door being locked. I know and have agreed that the staff were told by the local government auditor when he signed off on that report that improvements had been made to the evaluation, which is really the whole procurement process.

Mr Murphy: Yet, in 2007, the Department was still sufficiently concerned to ask for an audit of monitoring arrangements.

Mr Hamilton: I am coming to that. Just to finish this off, that matter on the staff side was then closed. The schemes were not going ahead any more: job done. What we did not do was the read across, and I hold my hands up on that. There was an opportunity for us to say, "Hang on a minute. If all of this is going on in these houses for land schemes, what about other development sales? Should we not be looking at those?" As the C&AG quite rightly points out, that opportunity was not taken. Roll on then to —

Mr Murphy: Sorry, I will take you back. Your evidence is that it was the novelty of the scheme, and the fact that people did really not know how it was being managed, that prompted the Department, but you specifically stated that it was around probity and protection of public funds. In my view, this indicates a much higher threshold of concern.

You say that it took three years, and I think that some of the issues were dealt with in that three-year period, certainly some of those we are dealing with. After three years, that was closed down, obviously reflecting the more serious concerns. Why then did it not trigger a general sense of concern in the Department? It seemed that the Department and the board were prepared to sail on for the next five, six or seven years, unconcerned by the lack of information that they were receiving, unconcerned by the need to step up the level of scrutiny that was being applied in the Department. In 2007, whatever prompted a further audit, specifically on the level of scrutiny from the Department, that seemed to continue on for another couple of years. Across that period, the cases that we are dealing with happened.

You argue about closing the stable door, but it seemed that the stable door was eventually closed in 2008, 2009, or 2010. Coincidentally, that was when the bottom fell out of the property market. Perhaps some of the practices and schemes were no longer as attractive.

Mr Wilkinson: There are a lot of issues here. It is worth putting some of this in context. Two things were happening. On the one hand, there was the normal practice for disposals — how the Housing Executive should dispose of land it no longer needs? There were controls in place, and we have heard how some of those controls, and oversight, were circumvented.

The land for sale scheme was a very specific proposal, because it was going outside the normal way of disposing of land. Rather than disposing of land that you no longer need, what the land for sale scheme — and why it was novel — was saying was that, if you have land that you do not need, then instead of simply selling it to a developer, see if you can do a transaction with the developer to take that land, and he will use other land that he owns in an area of housing need to build social homes. That is why, I assume — and I can only go back — officials in the Department thought that it was outside the normal disposal scheme.

Andrew has quite rightly said that the findings should have been applicable to the normal scheme of disposals and should have been read across; and that is where the failings were. The 2007 audit went back and said, "Your normal scheme of disposals is not operating effectively. You are not getting the information."

Mr Murphy: That is different from what you said in your initial evidence statement. You said that the Department was not aware and that people had reported that best practice was going on in the Housing Executive. Clearly, best practice was not going on in the Housing Executive. The Department was sufficiently aware, over that decade, to ask for at least two separate audits. Clearly, the board, whatever information it was receiving from senior executives in the Housing Executive, had to be aware that the Department was asking for audits into practices in the Housing Executive. To come here and say that at that stage people were not aware, that they did not know that these things were going on and that it was only at the end of the decade, when really serious investigations into this started and when police were called in, is contradicted by the evidence in this document.

Mr A Hamilton: No, I think they are consistent. We had concerns about that scheme at that time. What we were not sighted on was the fact that, for example, the director of housing and regeneration was not working within his delegated authorities for taking forward land disposals. That level of detail was not given. That is what I meant by being concerned.

Mr Murphy: The Department was also concerned about its own oversight.

Mr A Hamilton: In 2007, yes. The internal audit report references the rationale for taking that forward. There was the C&AG's report on private finance and a Treasury document at the time. Those were the alerts that were saying, "Hang on a minute; maybe we should be looking at our own arrangements". I think that was the gestation. It was not because the Department was aware that things were going on that it was concerned; it was those external alerts that prompted the internal, according to —

Mr Murphy: The reality is that there were either internal or external alerts throughout the decade. You cannot say that the Department was not aware; it instigated the audit reports. I presume that the Housing Executive board would have had to receive the audit reports, including their conclusions and findings. They were not simply put on to a chief executive's or a senior official's desk and buried there.

Mr A Hamilton: We have recognised that there were opportunities. The wording in the report is that the opportunities were "not fully exploited".

Mr Murphy: I will take you to the case of Millmount House and the lands attached to it. It was purchased back in the 1960s or disposed of back then, but was subsequently bought back in 1996. Sorry, it was sold around 1996, but the Department repurchased it in 2000.

Mr A Hamilton: The Housing Executive.

Mr Murphy: Well, the Department is ultimately responsible for the Housing Executive. It was repurchased. This is not a case that came across the desks of either the Housing Executive or, indeed, the Department in the distant past and that people were not aware of recently. There was a house and, I think, 156 acres of land and an access, which had been bought by the Housing Executive, sold and then repurchased in 2007. The issues in and around the land — its nature, the house, the land surrounding it and what it might be used for — were all relatively recent to the Housing Executive. In 2003, someone in the Housing Executive took the decision to sell only the house and access point. What was the impetus for doing that?

Mr Bailie: Reading from the files, it seems that the Housing Executive bought the property in 1960, and it had been run as a nursery to grow plants and shrubs. It was decided that that was not working. The decision was taken to dispose of the site. Reading from the file —

Mr Murphy: The decision was taken to dispose of the entire site in 2003.

Mr Bailie: Reading from the file, it was clear that the decision was taken that the house, which was a listed building — an 18th- or 19th-century farmhouse with some land around it — should be disposed of separately.

Mr Murphy: It had 156 acres of land around it.

Mr Bailie: Sorry —

Mr Murphy: There was some land attached to the house.

Mr Bailie: Millmount lands were 156 acres in total. On part of the land, down towards one of the corners but landlocked without the access road, there was a listed building that was in a state of disrepair. A decision was taken, reading from the file, that a proportion of the land immediately around it would be sold as a separate lot.

Mr Murphy: Is there any reference in the file to the access issues in relation to the rest of the site?

Mr Bailie: When the property was sold, because of its location, the new owner had to be given access over a small bit of road owned by the Housing Executive to get to their property. The owner of Millmount House then moved in. I understand that he obtained a grant to refurbish it, to bring it up to standard.

Mr Murphy: He was paid a grant by —

Mr Bailie: Not by the Housing Executive. It was an environmental heritage type of grant.

Mr Murphy: Public funds again.

Mr Bailie: The owner of the property made a claim to the Police Service that he had been intimidated out of the property. The certificate was issued by the Chief Constable, and the property was bought under the special purchase of evacuated dwellings (SPED) scheme. At that point, the ownership of Millmount House came back to the Housing Executive.

Reading from the file, there was some discussion as to how Millmount House should be disposed of a second time. At that time and currently, when a SPED property was purchased, there was an obligation on us to put it back on the market as soon as possible, because SPED purchases are made from a complementary budget; the acquisitions are funded by the sales. However, there is a file note saying that Valuation and Lands Agency (VLA), as it was then, suggested that there would be merit in retaining Millmount House for consideration as part of the wider disposal on the assumption that it could be disposed of quickly and within a reasonable time period. I think that is what it said in the file.

Another view expressed in the memo, in the briefing on the note, was that including Millmount House in the sale of the Millmount lands, would "confuse" the sale of Millmount lands. That is because the disposal of Millmount lands —

Mr Murphy: Whose advice was that?

Mr Bailie: That was from Mr McCaughley to Mr McIntyre. Mr McCaughley was the director of housing and regeneration.

Mr Murphy: Was it his view that the disposal of the entire package would confuse the sale and that the house needed to be disposed of separately?

Mr Bailie: Yes, marrying the house with the bigger piece of land could confuse the sale and provoke what he referred to as article 31, which we believe is a reference to article 31 of the planning legislation to do with significant developments and the need to put a local public inquiry in place. That is all that it says on the file. We know that Millmount House was sold separately; it was put on the market.

Mr Murphy: Is there any reference to the fact that people were aware that there was an access and right-of-way issue?

Mr Bailie: Yes, there was knowledge that it had links to the wider site.

Mr Murphy: Yet, the sale went ahead, selling the right-of-way access.

Mr Bailie: Yes.

Mr Murphy: Is there any reference to why that happened? Essentially, the sale was constructed, or at least, accepted and delivered in such a way that it effectively landlocked 156 acres of the rest of the site.

Mr Bailie: The only thing we found was the note on the file which indicates that the view expressed was that including it within the bigger disposal would "confuse" — that was the word used — the disposal.

Mr Poots: Who made that note?

Mr Bailie: It was Mr McCaughley. It was a note to the chief executive.

Mr Murphy: There is no professional opinion to back that up from somebody in the industry, such as an estate agent, who was skilled in buying and selling properties.

Mr Bailie: There is a note on that memo. The first paragraph in that note is a reference to the VLA. The VLA had suggested that the executive should hold on, and consider it as part of the wider package.

Mr Murphy: OK, as far as the Housing Executive was concerned, there was a difference of opinion between two public bodies. The VLA recommended selling the entire lot as a job lot —

Mr Bailie: The internal advice seemed to be to sell it separately.

Mr Murphy: — and the internal advice disagreed with that, and just says that it would confuse the sale. However, it provided no professional evidence other than, perhaps, the official's own opinion.

Mr Bailie: Not that we have discovered, by going through the files. That was part of the investigation.

Mr Murphy: Do you accept then that the people in charge of disposing of and valuing land, the professional people within the Department, were the VLA, as it was at that time?

Mr Bailie: Yes, of course.

Mr Murphy: However, its opinion was trumped by officials in the Housing Executive.

Mr Bailie: All I can say is that the decision was taken to sell the SPED property separately.

Mr Murphy: Who took the decision, then, on the official's advice?

Mr Bailie: I can only conclude that it was based on the memo and that the decision was taken then. But again it goes back to —

Mr Murphy: Do you think that the decision was taken by the board or by officials?

Mr Bailie: It would have been taken by officials, I believe.

Mr Clarke: Which one?

Mr Murphy: Do officials not have to refer a sale of that magnitude to the board?

Ms Boyd: It was not referred to the board because it was a SPED disposal.

Mr Murphy: But you were not into a situation [Interruption.]

Sorry, just to clarify this, I understand that the SPED disposal related to the property that had been bought back under SPED arrangements. However, when it came to the Housing Executive considering following through on the SPED and reselling that, the Valuation and Lands Agency stepped forward to say, "Listen, you are much better to sell that as an entire lot. You own all the land around here". An official decided that that was not the best way to go forward in his opinion.

Ms Boyd: The little addendum was that the VLA said that it was OK, provided it could be done in a reasonable time period, because Millmount House, the SPED property, was a huge outlay for our SPED programme; it was over £500,000. We then had to bear the annual security costs to protect the House, because it had been subject to an EU grant. It was a listed building and I believe that the annual security costs were about £76,000 per year. At that stage, the disposal of Millmount lands was going to be held up by an ongoing legal process, leading potentially to judicial review. So, there was nowhere on the horizon — the near horizon — of the chance of Millmount lands being imminently put up for sale. From the file, we can only assume that the decision was taken to dispose of the Millmount House as quickly as possible.

Mr Murphy: I accept what you are saying about the costs at that time. When the lands and the house were eventually disposed of together, after the Housing Executive had sold its right-of-way access and, essentially, left itself with a ransom strip to buy out, the lands were then sold for £36 million and resold, within 10 months, for £96 million. In excess of £1 million per week of profit was made on those lands, and that was set against a decision of £76,000 per year security for the property.

Ms Boyd: I will just make one slight correction there. We talk about the right-of-way issue: to sell Millmount House, we had to give the purchaser the right of way to get to that dwelling. We had to; we could not have sold it otherwise.

Mr Murphy: You should not have surrendered it. There is a difference between selling someone a right of way across your property and then surrendering the ownership of that right of way.

Ms Boyd: We did not surrender the ownership. What happened was that, in common with all rights of way, it could not be altered without the permission of the person who purchased Millmount House.

Mr Clarke: There is a difference between giving them a right of way and giving them ownership. All they needed was a right of way —

Mr Murphy: The person who purchased Millmount House had right of way across your property.

Ms Boyd: To get to their house.

Mr Murphy: To get to that house, yes. You subsequently owned Millmount House and the right of way and the entire property, yet you resold Millmount House against the advice of VLA along with the right of way and left yourself landlocked for the rest of the property.

Mr Bailie: That was the consequence of that decision, yes.

Mr Murphy: Then someone — a developer, an unnamed tax control that was based in the Isle of Man — made a profit of over £1 million per week over 10 months.

Mr Bailie: Yes, that is what happened.

Mr A Hamilton: It subsequently went bankrupt. There was not a value of £96 million in the property.

Mr Clarke: It was 10 months later, Andrew.

Mr Murphy: Ten months later, he, — or they, or whoever they are; it is an unnamed entity based in the Isle of Man for tax purposes — sold it for £96 million. They made over £1 million a week profit on a property that you had owned the right of way for and, for some inexplicable reason, you relinquished the right of way to the subsequent purchase of Millmount House.

Mr Bailie: For completeness — and this went to the board — senior counsel opinion was obtained to see if the right of way and access road issues could be resolved in some way. Two options were considered. The first option was whether the Housing Executive could build a road to get round this.

Mr Clarke: Sorry, Clark, let me stop you there. The problem came about when you disposed of it, not after you disposed of it. You were trying to fix a problem that someone in the Housing Executive had created.

Mr Bailie: Yes, you are absolutely right.

Mr Clarke: So, do not make the argument now that you were trying to seek legal opinion to try to fix this as if there was a problem. The problem was created by someone in the Housing Executive. Conor has been so kind as to not ask you which officials in the Housing Executive were involved in all those transactions.

Mr Murphy: We heard that earlier.

Mr Clarke: Was it Mr McCaughley again?

Mr Murphy: The person who argued for the separate sale against the VLA advice was Mr McCaughley.

Mr Bailie: It was his memo in which he put forward a view that it would confuse the sale.

The Chairperson (Ms Boyle): Roy is itching to get in here. It will be Edwin after that.

Mr Beggs: There has been mention that millions of pounds were lost from the public purse because of the £76,000-a-year security cost to protect that house, which had been bought through the SPED scheme. Am I correct in saying that the Housing Executive runs the SPED scheme?

Mr Bailie: Yes.

Mr Beggs: You run the SPED scheme.

Mr Bailie: Yes.

Mr Beggs: You owned that property and, knowingly, the Housing Executive sold it off giving that right of way and creating all these difficulties instead of standing back and looking at what was best for the public good. Was there any referral to the then Minister for guidance if there was a need to deviate from the policy at the time because millions of pounds could be saved and that could be good for the public?

Mr Bailie: There is nothing on the file that I am aware of that included a reference to the Minister.

Mr Beggs: Were there any questions to the Housing Executive board?

Mr Bailie: The Housing Executive board was kept aware of the issues that subsequently emerged in terms of the access and title issues around Millmount House.

Mr Beggs: Is there any common sense in selling a right of way with a property with potentially tens of millions of pounds? Is there any common sense among those taking those decisions? Did the sale follow the then policy in the Housing Executive or did it breach it?

Mr Bailie: The practice at the time was that the SPED properties were purchased and were disposed of as soon as possible. That was one practice overlaying that. In my opinion, looking back — and I am sorry to use that term — the strategic importance of Millmount House was not appreciated.

Mr Beggs: And the opportunity to correct the original sale was not spotted.

Mr Bailie: The file indicates that there was an awareness of its role within the wider site.

Mr Poots: It is pretty amazing that you sell something to save £1,500 a week and the purchaser manages to make over £1 million a week as a result of it. You mentioned article 31 and said that a case was made that, if Millmount House was included in the overall lands, it would involve article 31.

Mr Bailie: There is a reference to article 31. It is not explicit, but we know that article 31 refers to significant developments.

Mr Poots: Why would the inclusion of 150 acres with Millmount House make an article 31 application more likely?

Mr Bailie: The reasoning behind that is not sufficiently detailed. It is simply a reference to article 31.

Mr Wilkinson: My reading of the file is that 51 acres and the outline planning permission for 500 dwellings, which the Housing Executive made in 2002, was an article 31. It appears from the memo that the thinking was, "Putting the house in the planning application might confuse the article 31, so let's sell them separately". That is just my understanding of what the memo says. The Audit Office highlighted the issue. The way leave was understood; the significance of it apparently was not.

Mr Poots: I do not think anybody could have seriously sustained an argument that article 31 would have been a greater factor as a result of retaining Millmount House than it would have been otherwise.

Mr Bailie: The only response that I can give you is that it is mentioned in the memo. As I mentioned earlier, one of the difficulties in trying to reconstruct and understand what happened in most of these cases is that the record is not sufficiently complete and detailed.

Mr Poots: I have been at many a meeting where a bully wants to get something. They throw out a knowledgeable comment but, when investigated, it does not have any standing. It strikes me that that is one of those things that has been thrown out and that someone has said, "This could precipitate an article 31 and cause us all sorts of problems". The scale of the development was likely to lead to article 31 in any event, regardless of whether Millmount House was included. It seems catastrophic that you did not know the significance of Millmount House if you had 156 acres of land and were selling off your access to that land. I cannot find words to express how catastrophic a decision that was.

Mr Murphy: The eventual sale to the person or people — the offshore consortium that bought this — was done through a novation agreement in a closed contract situation. That was in 2006-07. It was a couple of years after the audit report, which was initiated in 2001, albeit in relation to a different scheme. It was pointing up serious flaws in management in the Housing Executive, economic appraisals and land valuations, and highlighted the need for closer liaison across Housing Executive divisions. Were there no alarm bells ringing on the Housing Executive board? Was the board even aware that this novel arrangement was being brought in to sell the site? Given that these offshore consortiums are used to reduce or avoid tax in some way or other —

Mr Bailie: Are you referring to the novation agreement in the Isle of Man company?

Mr Murphy: Yes.

Mr Bailie: My understanding is that the board was informed —

Mr Murphy: Yes, so the board sat for two to three years —

Mr Bailie: — and approved it, sorry.

Mr Murphy: The board was sitting for two or three years after receiving a report that questioned probity. The report was directed, initially, by the Department, because, for some unknown reason, alarm bells had rung in relation to practices going on in the Housing Executive. There was a report in 2004; there was a series of failings and concerns; then it decided to get into this type of arrangement with an offshore consortium — an arrangement, which, obviously, was being used to reduce or do away with some of the tax it might have paid on the property. Was there no sense within the publicly appointed, publicly accountable and publicly funded body that there was something immoral in getting into this type of arrangement in order to reduce tax coming back into the public purse?

Mr Bailie: Again, going from what is on the file, board approval was sought and obtained. I believe that assurances were given that there was nothing untoward in the arrangement.

Mr Murphy: There was nothing untoward in the arrangement.

Mr Bailie: And the proposal to novate it to the company.

Mr Murphy: Yet the entire arrangement, not just this aspect, managed to net a £60 million profit for these people within a period of 10 months.

Mr Bailie: Yes.

Mr Clarke: Chairperson, these questions are very useful, but why is the chief executive of that time not here today, rather than Clark Bailie? It is difficult to probe into some of this stuff. I do not mean to be disrespectful to Clark Bailie, but we are hearing a lot of the likes of, "My reading of the file". I would like the person who was in charge at the time to be here. Why do we not have them here as opposed to the current chief executive?

The Chairperson (Ms Boyle): When we were deliberating on what witnesses we would invite, we decided that it would be the panel that is in front of us today, but that is not to say that we cannot extend that to past executives.

Mr Clarke: The only reason I say that is that, to be fair and to dig into it right — I am not being disrespectful to the current chief executive, but we could have got the same answers from the Audit Office or from reading the file ourselves. It is about trying to get the understanding of the person who was responsible and who was supposed to be heading up the organisation at that particular time. It is getting more difficult to get to that, given that we are trying to get someone else who is coming in fresh, reading a file, reading Post-it notes or whatever and giving us their account of what they believe has happened, as opposed to actually getting the person who was there and in charge of that organisation at that time. I suggest, Chairperson, that, as we move forward, we should pencil into our diary that we need to bring the then chief executive to the PAC.

Mr Bailie: The reason I prefaced those remarks is that I believe that it is important to advise you of where I have personal direct knowledge of something and have gained that through the investigations.

Mr Clarke: I am not saying that for any reason as a slight on you, but I think it would be useful for us as a Committee to get the person who was ultimately responsible, and may even be implicated, at that particular time. It seems unfair that we are directing questions to you and you are reading a file, as opposed to actually having the knowledge of what took place, albeit that you were in the organisation covering some of the period that is covered in the report, but, as your answers indicated earlier, you had no responsibility, given that you were the director of finance and had nothing to do with corporate services or anything like that. That is the reason why I make that point.

The Chairperson (Ms Boyle): I appreciate that. As you are aware, Trevor, there are others who have written to us seeking to give the Committee oral or written evidence. That is something that we have to decide on as a Committee at another stage, after today's evidence session. We might consider that.

Mr A Hamilton: I think that I just need to add one further thought on paragraph 9 of case example 6, which states that:

Mr Clarke: Sorry, Andrew, that is the police policing themselves.

Mr A Hamilton: No, those are the investigators who were employed by the Housing Executive.

Mr Clarke: Yes; employed by the Housing Executive, so there is no independence, Andrew.

Ms Boyd: I could maybe answer that and say that the land disposals review was specifically set up with phase 2 having independence in mind. That is why they were externally recruited via an agency.

Mr Clarke: Where were they from?

Ms Boyd: They were all ex-police officers — ex-detectives — most of whom had previous experience within the PSNI's investigation unit. That is the reason why we did that: so that we could say that it was not the Housing Executive investigating itself.

Mr A Hamilton: I just wanted to emphasise that but —

Mr Murphy: Sorry, is that paragraph 9 in case 6?

Mr A Hamilton: Yes. There are issues about the judgements that were made, which you have quite rightly raised with us. I am not seeking to undermine those, but I just wanted to say that, after all of the detailed investigation, there might well be issues such as you have raised, but there is no evidence of criminal conduct.

Mr Murphy: It says that the NIHE:

Would NIHE investigators be empowered to decide what was criminal or not criminal in an investigation?

Ms Boyd: Yes. Our job is to prepare evidence under the terms of the memorandum of understanding with the PSNI. We have achieved the best evidence that we can in the circumstances but, as already outlined, we do not have any enhanced powers of investigation. We can only really investigate within the Northern Ireland Housing Executive.

Mr Murphy: You can decide that you believe something is a criminal matter.

Ms Boyd: We would make a recommendation and refer case papers, which are prepared to the evidential standard with the evidence properly laid out and with continuity statements etc, and with a recommendation on where we feel that the police could take the investigation forward.

Mr Murphy: Yet, when the police investigated all of those matters themselves, they found that they were hampered by a lack of proper laid-down procedure and proper accountability mechanisms. Therefore, it is very hard to prove, if someone is not being held to account, that they have actually contravened a very definite set of procedures.

Ms Boyd: I absolutely understand that.

Mr Murphy: You were unlikely to reach any other conclusion. If the police could not find criminal activity, you were unlikely to find it.

Ms Boyd: Just to be clear, this case was not referred to the PSNI because the NIHE team did not find any evidence to suggest that any criminal conduct had taken place within the Housing Executive.

Mr Murphy: Did you find any evidence of incompetence in terms of someone mistakenly or otherwise selling off a piece of property and access rights that subsequently, in hindsight — you cannot decide these things as they are happening — lost the Housing Executive £60 million within a year?

Ms Boyd: I think that it is fair to say that the Audit Office accurately reflected the findings of the Housing Executive investigation team. Its conclusions were broadly similar.

Mr Murphy: If it did not reach the level of criminal charges being brought, did it reach the level of incompetence or disciplinary action being taken?

Ms Boyd: A number of referrals were with the PSNI at the time when the investigations were taking place, and we could not then intervene and take any disciplinary action against the individuals who were involved in those other cases. We did not want to contaminate any police investigation and had to await the outcomes. Once those investigations reached their conclusion, any member of staff who would have been liable for disciplinary action had left the organisation and the disciplinary avenue was closed to us.

Mr Poots: You can suspend staff when investigations are taking place.

Mr Bailie: One senior member of staff was suspended.

Mr Murphy: That is a very common theme for all of us who sit on the Committee. You get a lengthy police investigation and, by the time that it has concluded with no evidence of criminal transgressions because of the nature of the monitoring and the procedures that people have, it goes back to the Department and, by that stage, the horses have long gone out the door. That is the consistent experience of the Committee.

Ms Boyd: We understand that.

Mr Clarke: Conor, you left a part out there: it is usually with an enhanced package.

Mr Murphy: Whatever about that, it is not an issue for you but for the Civil Service. However, that is a common experience. These things take so long to investigate that, by the time that you get the possibility of taking action against the people involved — huge amounts of public money were involved here — those people have gone, and that is the end of the action. It is a merry-go-round.

The Chairperson (Ms Boyle): Hence the question that you asked earlier, Mr Clarke. That is the reason why we have the panel in front of us. The previous individuals we spoke about have long gone, and we have the accounting officer.

Mr Clarke: There is nothing to preclude us from having them here.

The Chairperson (Ms Boyle): No, there is nothing to stop us having them here.

Mr Clarke: We should do that.

Mr Wells: Let us move on to something more serious: Nelson Street. I thought that I had heard everything during my brief time on the Committee but, in terms of mishaps, mistakes and, frankly, sometimes incompetence, you are right up there with the Northern Ireland Events Company, and that is saying something. Going back to September 2004, what was the situation with social housing in north Belfast?

Mr Bailie: It was an area of high housing need and it was difficult for housing associations to locate suitable sites for development. When we had a major site in Nelson Street, it was seen as a fantastic opportunity to address social housing need. It was in our development programme and something that we were working with the housing association to try to progress.

Mr Wells: Of course, that all ended in tatters, did it not? You got permission for 66 social housing units, which works out at just under £45,000 per site. Mr Gilligan then appears on the scene; he was invited in by one of the tenant community associations.

Mr Bailie: Yes.

Mr Wells: That is quite a surprise and an amazing coincidence. He was invited in to provide an expert view on the site and then — surprise, surprise, and totally unrelated to that — Mr Gilligan ends up buying the site. That is an extraordinary coincidence, is it not?

Mr Bailie: That is what happened.

Mr Wells: That is exactly what happened. He was buying a site and, had it been based on the values of the properties that had been approved, he would have bought them at £53,000 per site if he had simply implemented the 66 social housing units.

Mr Bailie: Yes, I understand your maths.

Mr Wells: Do you think that Mr Gilligan, being a very wise property developer, would have bought that if he genuinely thought that all he was going to get was 66 units of social housing?

Mr Bailie: I cannot speak for Mr Gilligan. We know that the site was sold for social housing. Mr Gilligan's company's proposals put forward a much different use of the site.

Mr Wells: Yes it did, because he came in for 238 apartments rather than 66.

Mr Bailie: Yes.

Mr Wells: That is a little bit of a change.

Mr Bailie: Absolutely.

Mr Wells: So, Mr Gilligan took that phenomenal risk of buying a piece of ground with 66 units passed on it, without any indication that was going to change, and then stuck in an application for 238, knowing, of course, that the Housing Executive had a very firm policy that it had to be used for social housing. Yet, knowing that, Mr Gilligan took the risk of buying a phenomenally expensive piece of ground to get 66 units.

Mr Wilkinson: It is worth clarifying how the social housing development programme works. It identifies sites, not necessarily with planning permission, that are suitable for social housing. This site was identified as meeting a need for social housing. The housing association put a marker down that it would try to acquire the site for 60 units but had not submitted a planning application, so it was all non-planning permission zoning, if you like. It was identified for social housing, the housing association was interested, had priced it out and was going to move forward with an advanced land purchase. It was in advanced negotiations with the owner.

Mr Wells: Then, one day, Mr Gilligan was walking down Nelson Street, happened to bump into the site, and offered his services as an expert adviser to one of the community groups.

Mr Wilkinson: That is what would appear to be the case.

Mr Wells: Was there any contact between Mr Gilligan and anybody in the Housing Executive before that happened?

Mr Bailie: I do not know. I just do not know.

Mr A Hamilton: My understanding was that Mr Gilligan was referred to this by a civil servant who was working for the Irish Government.

Mr Wells: Remarkable; a person who was obviously very interested in the situation in Nelson Street.

Mr A Hamilton: There was a referral. She had some engagement with the local community and that was how it happened. I am just reflecting back to you my understanding.

Mr Wells: So, this agent from the Irish Government is sitting in Leinster House and the first thing on her mind is the development in Nelson Street.

Mr A Hamilton: I am not sure whether she was sitting in Leinster House.

Mr Wells: What is her name?

Mr A Hamilton: I am happy to share that, but I have not got it with me. It is my recollection of the events here.

Mr Wells: So, Mr Gilligan arrives. We know that there is a clear conflict of interest with Mr Gilligan from a senior Housing Executive official. That is taken as read. Do you accept that?

Mr Bailie: It had been disclosed that Mr McCaughley had a close relative who worked for a company that we now know was associated with Mr Gilligan.

Mr Wells: Right, so could it have been the case that this gentleman who worked for the Housing Executive may have been in contact with Mr Gilligan before he was engaged with the community group?

Mr Bailie: I cannot answer because I just do not know.

Mr Wells: Could it have been the case that the Housing Executive official could have given Mr Gilligan some guidance on what the likely approach of the Housing Executive was to its view that it should be 66 social housing units rather than 238 flats?

Mr Bailie: Again, I do not know. The Housing Executive position was clear: we supported zoning of that site for social housing and that is something we tried to defend all the way through as the Housing Executive.

Mr Wells: Meanwhile, in the Housing Executive, the gentleman concerned is writing memos and emails saying it is unwise of the Housing Executive to stick to its guns on social housing; that it was unreasonable.

Mr Bailie: Yes.

Mr Wells: And you know that there is a clear conflict of interest between that individual and the gentleman who bought the site and wanted to put up 238 apartments.

Mr Bailie: The extent to which that conflict of interest was known is not clear. I was there at the time and was not aware of it. That would have been disclosed through our annual disclosure system. I know that Mr McCaughley disclosed the interest. That is a matter of record.

Mr Wells: When Mr McCaughley — I hope that I have his name right; I have never seen it in print — declared that, why was he allowed within 10 miles of having anything to do with the application?

Mr A Hamilton: That is the problem. In my opening remarks, I made reference to the fact that the individual concerned had not managed the conflict properly and nor had the organisation. He should have stepped back completely from this — completely, not directing staff to deputise for him. To be honest, the organisation should have ensured that there was no involvement at all. This was not handled properly.

Mr Wells: Was the board aware at that time of the link between Mr McCaughley and Big Picture Developments?

Mr Bailie: I do not know. I have seen nothing that indicates that the board had been informed. I just do not know.

Mr Wells: Who was on the board at that time?

Mr Bailie: Which individuals?

Mr Wells: Yes.

Mr Bailie: If my memory bears up, the chair was Brian Rowntree, and the vice chair was Anne Henderson. We had a number of political representatives from the Housing Council.

Mr Wells: Out of interest, can you name me the four political representatives?

Mr Bailie: This was in 2010. I can recall some of them, but, rather than testing my recall, we can send you a complete list. That is a matter of public record, and it will be in our annual report for that year.

Mr Wells: Given awareness of that obvious conflict of interest, why was the final decision on the Housing Executive's view on this site not signed off at board level rather than by the directorate that had somebody in it who clearly was up to his neck in an investigation?

Mr Bailie: This was the reason why I went with Stewart Cuddy and John McPeake to see the chief executive. What happened was completely and utterly unacceptable. The policy was that corporate services were involved in interfacing and engaging with the Planning Service. As far as I am aware, this was not a matter for housing and regeneration. As Andrew has said, there was a clear conflict of interest, and it was not managed well at all.

Mr Wells: It was not managed at all.

Mr Bailie: It was not. I agree. I totally agree with you.

Mr Wells: Given that, at the very least, it should have rested with corporate services or, I think, in this case, the board, it was actually signed off by the housing and regeneration division.

Mr Bailie: Are you referring to —

Mr Wells: Nelson Street.

Mr Bailie: — the letter to the Planning Service or the Assembly question?

Mr Wells: Only the letter.

Mr Bailie: The letter to the Planning Service should not have been issued through that route. It did not reflect the Housing Executive's position.

Mr Clarke: To take you back one stage, we understand Barry Gilligan's involvement with the senior member, but, before Jim goes too far, the bit that is puzzling me is that, given that the area was zoned for social housing and there was an opportunity for so many units, why was it not taken to the open market?

Mr Wilkinson: It was a private site. It was not owned by the Housing Executive. This is a different one. All of the others were land disposals. This is engagement in a planning application.

Mr Clarke: So, this is facilitating a private developer. OK.

Mr Bailie: The Housing Executive never owned the site at Nelson Street. We made representations to the Planning Service that it would be a suitable site for social housing, and the site had been given zoning on that basis. The site had been owned by a private individual or family — I think that it might have been a trust — and it was sold to the company.

Mr Clarke: When it started, you were doing it for a housing association first, were you not?

Mr Wilkinson: A housing association was attempting to buy it.

Mr Wells: There is no way that Mr Gilligan would have taken the risk to buy that site unless he had a very clear indication that the Housing Executive would not pursue its objection to it being private rather than social.

Mr Bailie: The position of the Housing Executive, one which we re-emphasised by writing to the Planning Service and calling back the letter, was that that was a site zoned for social housing. That was the position of the Housing Executive.

Mr Wells: I suspect that Mr Gilligan was receiving information from a senior level of the Housing Executive to say otherwise and that that is why he bought it. There is no way that he could have made money at that price on 66 social housing units.

Ms Boyd: The investigation that was carried out before we referred the matter to the police referenced a meeting where it appears that Mr Gilligan did not know that the site was zoned for social housing at the time that he bought it. That is certainly the recollection of the two members of staff who were involved.

Mr Wells: The report indicates that the assistant director attended a meeting with Big Picture Developments and did not declare it. Could it have been perhaps that, during that meeting, which we now know existed, the first obvious question that Mr Gilligan would have asked would have been on what the designation of the land was and what the Housing Executive's approach to it was?

Mr Bailie: The investigation established that that meeting had taken place in 2007. At the meeting, Housing Executive officials advised Mr Gilligan and his colleagues that the site was zoned for social housing. As Fiona said, what we were being told was that that was quite a surprise to the company. I was not at the meeting, but that is what I have been told.

Ms Boyd: If you look at the zoning and the way that BMAP set it out at that time, on cursory examination, unless you were doing your due diligence check particularly thoroughly, the social housing zoning is not immediately apparent because the remainder of the Nelson Street site is covered by what I think is called an "opportunity site". Is that the right term?

Mr Bailie: It may be called a "development site".

Ms Boyd: You would need to have drilled down, within that, to see the smaller portion that was zoned for social housing.

Mr Wells: So he then applies for 238 apartments. That was a huge risk he took, without checking to see the designation of that land and without getting some assurance. I find it quite difficult to believe that someone would take that huge risk.

Mr Bailie: I am sorry, but I cannot explain the rationale behind his decision to purchase the site. All I can say is what the Housing Executive position was, and we tried to hold that as strongly as we could. As you know, it went to the Planning Appeals Commission, and a different decision was reached. We were extremely disappointed by that decision.

Mr Wells: Meanwhile, your senior official was doing all he could to facilitate that development.

Mr Bailie: Yes, and that is what caused me and my colleagues so much concern. That was the impetus for launching the major investigation that we undertook.

Mr Girvan: Just on that point, on the understanding that the Housing Executive was objecting to the additional housing being added to the site, how was that relayed as a decision to do a u-turn and, instead of being an objector, be a supporter of moving it forward?

Mr Bailie: The Housing Executive had consistently maintained its position that this was a social housing site. A letter was sent to the Planning Service which withdrew our support for social housing. That letter should not have been sent.

Mr Girvan: Who made the decision to send that letter, or how did that come about? Obviously, somebody in an office one day did not just say, "Give me a piece of headed notepaper; I am going to type a letter and sign it off.". It had to be signed by a senior official.

Mr Bailie: There is an email on record, in which Mr McCaughley instructs a more junior officer to send a letter to the Planning Service.

Mr Wells: Just for the record —

Mr A Hamilton: Sorry, may I cut across you? This was the incident which was the catalyst for all the detailed investigation work. I think that it is worth saying that the senior management team, having seen what had gone on here, put their hands up and said to the chief executive, "Look, we are seriously concerned.". Stewart Cuddy, Clark and John McPeake went to see Paddy McIntyre about that, and, as a result, there was a detailed investigation. All the details that you are reflecting back at us are the results of the investigation work that was done.

Very quickly, after the internal auditor was involved, there was an inquiry, which was escalated to an investigation, and, I think, within six weeks of the start, it was referred to the police. The police picked this up and subsequently presented a case to the Public Prosecution Service.

Mr Dallat: Mr McCaughley instructed a junior officer to send the email to the Planning Service. Is there any record to suggest or indicate what motivated Mr McCaughley to do that, effectively lifting any embargo on, presumably, private development?

Mr Bailie: I believe that Mr McCaughley was articulating an argument which reflected the position of the developer. He was claiming that, because of procurement issues, it was no longer possible to develop social housing on that site, and that that decision was blighting the site and, therefore, the Housing Executive should withdraw its support for social housing. That is something that we did not accept. There were other options to deliver social housing on that site.

Mr Dallat: I am not very au fait with Belfast — in fact, not at all. Is Nelson Street in an area of high social deprivation and housing shortage?

Mr Bailie: Very much so.

Mr Dallat: Somebody in the Housing Executive sent a letter to the planners saying that it was no longer interested in social housing there. I am almost in tears. I have been about a long time, and I know that when the Housing Executive came into being, it tackled the worst social housing problems in Europe, and it did so extremely well, transforming the life of many families, including my own. I cannot come to terms with the fact that, so far on, and after the Housing Executive's very proud history, an individual was able to instruct a junior member to turn the planning thing upside down. Yet nobody has been disciplined, and there have been no criminal prosecutions. How seriously did that individual, and whoever was involved with him, damage the organisation — an organisation that I would die for because of its achievements in the past?

Mr Bailie: Once we discovered that the letter had been sent, another letter was sent very quickly to the Planning Service, putting the position right.

Mr Dallat: I presume that the Planning Service was then totally confused as to what the needs were in Nelson Street.

Mr Bailie: It accepted the letter, but the matter subsequently went to the Planning Appeals Commission.

Mr Dallat: That was outside your control.

Mr Bailie: Yes.

Mr Dallat: Do you know if the Planning Appeals Commission had any letters of support from people who wanted to influence change on the designation of the land?

Mr Bailie: I do not quite follow your question, sorry.

Mr Dallat: I imagine that all the great and the good would turn up at the Planning Appeals Commission to give evidence, saying, "Well, social housing is not needed here. This is for private development". Did Mr McCaughley, or did anybody, figure in that? Sorry, Chairperson for not addressing my remarks to you. Look, we know that the Planning Appeals Commission is independent; we are not challenging that. However, it would be useful to know what personalities influenced it.

Mr Bailie: All the relevant parties would have been given an opportunity to put forward their views and opinions. At the Housing Executive, we again emphasised our support for social housing. I am not absolutely certain, but I would be surprised if local residents' groups did not use the opportunity to state their view. Obviously, the developer would have had an opportunity to put forward their opinion. The Housing Executive support for that site continued all the way up to the Planning Appeals Commission decision.

Mr Dallat: I think that it is probably important that, despite the transgression of one individual, the Housing Executive remained in support of social housing.

Mr Bailie: Very much so.

Mr A Hamilton: As the issue was raised, I would like to draw the Committee's attention to appendix 2 of the C&AG's report, which reflects the outcome of the Planning Appeals Commission decision and the consideration of the position of the Housing Executive. In the end, however, the determination was that:

Essentially, the appeal went against the Housing Executive.

Mr Beggs: Can you detail the subsequent action taken by the Housing Executive management against Mr McCaughley for the email that he instigated, which was against Housing Executive board policy?

Mr Bailie: Three of us — Mr Cuddy, Dr McPeake and I — went to the chief executive to make our concerns known and to ask for an inquiry, and that is exactly what happened. As Andrew explained, there was an initial-look review by internal audit. The matter was then passed over to the counter fraud unit, and a detailed file was submitted to the PSNI.

At the start of the process, Mr McCaughley went off on sick leave, and he was subsequently suspended. He then decided to retire, as he had reached the age that gave him entitlement.

In terms of other investigations, the board brought in the Chartered Institute of Public Finance and Accountancy (CIPFA) to look at Mr McCaughley's conduct during this and a number of other matters, and that report was submitted to the board. We also brought in an independent personnel expert to look at the actions of two people who were involved in the event: the colleague who sent the letter to the Planning Service and the colleague who added the paragraph to the Assembly question. That independent review said that no further disciplinary action was required and that both officers had acted in the appropriate fashion. That was the conclusion of that report.

Mr Beggs: The appropriate fashion?

Mr Bailie: That the first officer was acting under the instructions of a director, and the second officer added the paragraph to reflect the fact that the letter had been sent. He believed that adding that paragraph was more accurate because the letter had been sent. We accept — and I feel strongly about this — that that letter should not have been sent, but he believed that he was reflecting the accurate position at that time.

Mr Beggs: It is difficult to protect yourself against a junior member of staff ever sending an email that has a major impact on a planning application. Have you a protocol in place with the Planning Service so that, for instance, contact at only a certain level will be deemed to be appropriate? How are you protecting yourself against this in the future?

Mr Bailie: These matters are dealt with by a different division. Planning Service traffic — approvals and decisions — are monitored constantly. Indeed, that is how the letter was detected. We had what might be described as a whistle-blower, who came forward and advised Stewart Cuddy that the letter had been sent.

A lot of this strikes very much at the culture of the organisation: that there is openness and transparency, and that staff know what is expected of them. We have undertaken extensive governance training. We have probably reached the point where we need to start refreshing that. There is also the idea of a challenge function and that staff, at any level, feel confident in challenging what they feel to be inappropriate behaviour or actions. That is the culture of the organisation.

One issue that we learned from this is that we had controls, systems and procedures in place, but it is that culture of compliance and knowing what is right. I will take your comment on board and will see exactly what arrangements are in place, but we have done a lot of work to create the culture of compliance.

Mr Murphy: Both of you said that this was the catalyst that started serious investigations, as if nothing untoward had happened up until then. However, you had the alarm bells in 2001. You had an audit report in 2004. You had an audit report in 2007. How many catalysts were required before somebody eventually took this issue seriously?

Mr Bailie: To me, that is fair comment. There were clear indicators that were not heeded. That emerges strongly in the report, the investigation and the comments by the C&AG. What we focused on since 2010, which I see as a watershed, is developing the new arrangements, putting robust procedures in place, creating that culture of openness, and having an audit team that has direct access to the audit committee. There are also simple, practical things. For example, all draft audit assurance reports go to the Department, so there is external monitoring. All the audit assurance papers go directly to the audit committee. They are not changed by management. I put in place an escalation process. Where there is disagreement between management and auditors, which can happen, the reasons are clearly documented and that is brought to the attention of the audit committee.

In terms of conflict of interest disclosure, something straightforward that I did was that I sat at the chief executive's business committee and told everybody around the table what the declared interests were, so every person round that table now knows what their colleagues have declared. While it is the individual's responsibility to self-police, as it were, it is my responsibility, as chief executive, to manage the situation. However, I am also conscious that I could be on leave and do not realise the conflict. It is that openness and transparency that is at the heart of good governance.

The Chairperson (Ms Boyle): Jim, I am going to allow you up to 5.00 pm, and then we will stop for a comfort break.

Mr Wells: OK. For the record, the five elected members were Brendan Curran, Jenny Palmer, Dr Wilson, Eamonn O'Neill and Jim Speers.

Mr Bailie: Dr Wilson was not elected.

Mr Wells: Is she an appointed member?

Mr Bailie: Dr Wilson, I think, was an appointed member; I do not think she came through the Housing Council.

Mr Wells: OK. The four were Brendan Curran, Jenny Palmer, Eamonn O'Neill and Jim Speers. Those were the four at the time.

Mr Bailie: Yes.

Mr Wells: It is interesting that, in April 2009, the housing and regeneration division, a very powerful unit — gosh, it has such powers that it sounds like a Department to me — wrote to the Northern Ireland Housing Executive legal department asking it to consider the reasonableness of its decision. The developer's reaction was interesting. In September 2009, he came straight back in with a second application again for 238 private apartments. Could it have been that the developer was aware of the fact that your housing and regeneration division had been asking you to take a more, in his opinion, reasonable approach to designation and zoning?

Mr Bailie: That is possible, but I have no evidence to confirm that.

Mr Wells: It would strike me that, if the developer had been told, "Look, we are digging our heels in here; we are not going to budge", it would be highly unlikely that he would spend the vast amount of money required to submit a second application for 238 apartments. It is interesting that, less than six months later, he is back, and he seems to be back with a confidence that the Housing Executive is taking steps to remove its objection to that being private housing.

Mr Bailie: I honestly do not know.

Mr Wells: Can we move on then to the Assembly questions? I hope that you understand that AQs and Westminster answers are taken as being accurate, honest and as not attempting to create a false impression. If officials are not happy about being candid, they tend to just not answer the question. So, it is very serious to tell an untruth in questions for written answer. The MLA for North Belfast who asked these questions was Carál Ní Chuilín, who was an MLA rather than a Minister at that time. Clearly, something alerted her to deep concerns about what was going on in Nelson Street. I assume — I am not putting words in her mouth — that that was because there were 1,500 people on the social housing waiting list in North Belfast at the time, and I presume that she, like other representatives, was keen to get this to go ahead. Do you accept that the answers given to her questions were inaccurate?

Mr Bailie: Yes. Well, could I just clarify? One of the questions was about contact with the developer. The person who provided the answer made an assumption that that was a reference to recent contacts and did not include the reference in 2007. As we said earlier, we have been told that, at that meeting, Housing Executive officials told the developer that the site had been zoned for social housing. That was an omission. Personally, again, judging from what emerged during the investigation, I do not believe that that was any attempt to mislead. There was no intention to mislead. That was a genuine misunderstanding of the question.

Mr A Hamilton: May I add to that, because I looked at this very carefully? I agree: misinforming the Assembly is a very serious issue. When it happens, we usually take action as quickly as possible to correct things. I was looking at this in preparation for the Committee, and what I came across was a further question raised by the same MLA two months later. From memory, the question number was AQW 5536/10, and it asked exactly the same question about contacts with the developer. The process is that we seek input from the Housing Executive for that, and the input we got was that it fully disclosed the meeting that happened in 2007 and, indeed, a further one — a telephone call — in February 2010. So, there was detail there, and there was full disclosure from the Housing Executive about that meeting at that time. In the event, because of the ongoing police inquiry, a more general response was provided to the MLA at the time. I do not think that there was anything sinister about the issue the first time round. There was a genuine view that this AQ was clearly about rezoning. Were there any contacts about the rezoning? No; but there was this meeting three years previously, the purpose of which was, as I understand it, to tell the developer that the land was zoned, not that it was being rezoned.

Mr Wells: Having discovered that, what did you then do to redress that issue with the Member for North Belfast?

Mr A Hamilton: We did not —

Mr Wells: You did not do anything to redress the —

Mr A Hamilton: We put our hands up. That is something that we maybe should have done, but —

Mr Wells: Maybe?

Mr A Hamilton: This is speculation on my part, OK? Having taken the very detailed disclosure from the Housing Executive, the actual response to the second question by the MLA was very general, because we did not want, in any way, to compromise the police investigation. That is on the file, and the records are there that those were considerations. So, we could not correct the first question because that would have also disclosed and potentially undermined the investigation. I am just surmising; I do not know whether anyone thought at the time to say, "Hang on a minute, we need to correct this".

Mr Wells: You compounded the problem because you had misled the Assembly — you now know that you misled the Assembly — and you contacted neither the Speaker nor the Member for North Belfast —

Mr Poots: Or the Minister.

Mr Wells: — or the Minister, indeed, to say, "Hold on here, we have got this wrong". You could, at the very least, have sent an internal private letter to the Minister.

Mr A Hamilton: It should have been corrected at the time.

Mr Wells: And it was not.

Mr A Hamilton: It was not.

Mr Wells: Now, you know how suspicious this all looks. There are so many mistakes and instances of a lack of judgement that all lead to the one target, Mr Gilligan, to get his permission and his 238 flats there. A reasonable person looking at this, if he applied the Wednesbury test, would say that this was all going the wrong way. I would dread to think that there are other instances in which the Housing Executive has misled the Assembly in this way and they have not been redressed. I suspect that until this report was published, the Member for North Belfast was unaware that she had been misled. She is not a member of my party, as you know, but I regard the whole issue of honesty with the Assembly as absolutely crucial to the functioning of democracy. What was told was genuinely, blatantly untrue, and you did not do anything about it when you discovered it. You did not tell anybody that, frankly, a falsehood had been put in writing.

Mr A Hamilton: My understanding is that, at that time, the first answer was not corrected, but this was some time later, I think.

Mr Wells: This lady is still a Member of the Assembly and still a representative for North Belfast. Clearly, she should have been told that she had been given false information. I do not know the lady that well at all, but I am sure that she had been approached by local people who were very concerned about the lack of social housing and that she was exercising her duty to those constituents. She has, no doubt, given them that answer, which is untrue. That is a very serious situation. In Westminster, heads would definitely have rolled had that happened. In Northern Ireland, however, I do not know what you need to do in the public sector to have anything but early retirement inflicted on you. That is something that we could all live with.

Mr A Hamilton: I have presented to you my assessment of what happened at that time.

Mr Wells: I have only got two minutes left, so —

Mr Dallat: Good. [Laughter.]

Mr Bailie: I do not mean to steal your time, but, with regard to the second question, where the Housing Executive had inserted the additional paragraph, that was removed by the Department. No one — neither the Assembly nor the Member — was misled. That was corrected before the answer went.

Mr Wells: Yes, but what was going on behind the scenes looked desperately suspicious.

Mr Bailie: Which is why we instigated the investigation.

Mr Wells: Of course, the slump came, and we do not know how this would all have finished. The site is not worth tuppence now because of what has happened, but we were not to see that happening.

You found that there were no issues of concern after the investigation. Are you still holding to that, following the issuing of this report?

You carried out your own disciplinary investigation, and you found that there were no issues of concern.

Mr Bailie: The disciplinary investigation looked at the actions of two officers: the one who sent the letter under instruction, and the other officer who inserted the additional paragraph. The conclusions reached by the independent reviewer were that there had been no breach of our code of conduct and no further action was required.

Mr Wells: And do you still hold to that viewpoint, even having seen the report?

Mr Bailie: I believe that the reasons put forward by the two officers were acceptable and that they were not the instigators of those actions.

Mr Wells: That is my time up.

The Chairperson (Ms Boyle): Members, at this juncture, we will conclude the session. Some members did not get an opportunity to ask you questions, but we will write to you in due course with those questions, and, hopefully, we will receive a prompt response. Some of the areas that were not covered today will be covered in written correspondence to you.

Mr Bailie, Hansard sent us an email while the session was ongoing. In your opening statement, you read out a letter from the PSNI —

Mr Bailie: It was from the Public Prosecution Service to the then chief executive.

The Chairperson (Ms Boyle): Hansard did not hear the quote from the letter, so we have been asked to get a copy of that letter today, if possible.

Mr Bailie: Absolutely.

The Chairperson (Ms Boyle): It is just for Hansard purposes. They did not get what you were quoting.

Mr Bailie: I am sorry that I did not speak more clearly.

The Chairperson (Ms Boyle): Members, we will conclude the session for 20 minutes and have a comfort break. Thank you all for attending today. There are some other action points around areas where you have conveyed to us that you will put responses in writing. The Clerks will be in contact with you in the coming week with that information. Thank you for attending today.