Official Report: Minutes of Evidence
Public Accounts Committee, meeting on Wednesday, 7 October 2015
Members present for all or part of the proceedings:Ms M Boyle (Chairperson)
Mr John Dallat (Deputy Chairperson)
Mr Roy Beggs
Mr Trevor Clarke
Mr P Flanagan
Mr P Girvan
Ms C Hanna
Mr Conor Murphy
Mr Edwin Poots
Witnesses:Mr David Carson, Department of Culture, Arts and Leisure
Dr Denis McMahon, Department of Culture, Arts and Leisure
Mrs Cynthia Smith, Department of Culture, Arts and Leisure
Mr Paul Sweeney, Department of Education
Mr Mike Brennan, Department of Finance
Mr Kieran Donnelly, Northern Ireland Audit Office
Mr Mervyn Elder, Northern Ireland Events Company
NIAO Report 'The Northern Ireland Events Company': DCAL, DFP, NIAO, NIEC
The Chairperson (Ms Boyle): You are all welcome to today's evidence session in our inquiry into the Events Company (NIEC). Do any members want to declare an interest?
With us today we have Mr Paul Sweeney, who is the former accounting officer of DCAL; Mr Denis McMahon, who is the accounting officer of DCAL; Mrs Cynthia Smith, deputy secretary of DCAL; Mr David Carson, the director of finance and corporate services at DCAL; Mr Mervyn Elder, former chairman of the board of the Events Company; Mr Kieran Donnelly; and Mr Mike Brennan, the acting Treasury Officer of Accounts. Members, the biographies of all of our witnesses are at page 85 of your packs.
Thank you for joining us for our evidence session today. I will open the session with a few questions to the permanent secretary. The failure of the Events Company is a sorry saga and one of the worst cases that I have ever seen come before the Committee. We are here today to learn lessons and to ensure that nothing like this can ever happen again. My question is to the permanent secretary, as the buck stops with you. Senior management in DCAL were completely oblivious to the serious failings that occurred in the Events Company over a number of years. They should not have been: there were whistle-blowers and even a previous PAC session that highlighted serious issues within the Events Company. Not only did the Department not follow this up, it actually considered the company to be at low risk.
Paragraph 4.24 of the report states that:
"From early 2004 onwards there were a number of complaints made to DCAL, from third parties, including individuals involved in promoting major events and members of NIEC's staff".
DCAL did not find evidence to substantiate this at the time. The recommendations from a previous PAC report were ignored. Who should take responsibility for this and for the failure of the Events Company?
Dr Denis McMahon (Department of Culture, Arts and Leisure): Ultimately, Chair, the responsibility for this falls on the Department in the sense of protecting public money. There is no doubt about that. First and foremost, I would like to apologise on behalf of the Department and officials. I know that colleagues here feel the same way.
As my colleague Paul Sweeney has explained to the Committee previously, we take governance very seriously, and we are profoundly aware that the money that we are talking about comes from the taxpayer. People have every right to expect us to put in place appropriate safeguards to protect that resource so that it is used for that benefit. We acknowledge fully that, in this case, we did not get it right. We got it wrong, and the safeguards were not adequate.
Secondly, I welcome this report by the Audit Office. It sets out clearly and comprehensively what went wrong. While I have made no bones about the fact that the Department is ultimately responsible — the report says that — there is clearly a series of lessons to be learned at different levels in the organisation itself and in arm's-length bodies as well. The report should be compulsory reading for anyone who is involved in sponsorship in arm's-length bodies. The Committee will be aware that there is a whole series of arm's-length bodies across Government. We can see the disastrous consequences of a mixture of factors, which we will no doubt explore in more detail.
Finally, we have made changes. The report reflects the fact that the Department has made changes. We have significantly strengthened our arrangements in managing relationships with arm's-length bodies. There is evidence of this in the fact that we have more whistle-blowing, we have much stronger arrangements around whistle-blowing and we have acted on a number of whistle-blowing cases, even quite recently. There have been examples of that where it has led to significant actions. I would not say for one minute that we do not have more to do and more to learn, but we welcome this report as a way of ensuring that this issue does not happen again.
The Chairperson (Ms Boyle): Mr McMahon, you have alluded to significant losses to the public purse in relation to this inquiry. I mentioned the previous PAC report. Did the Department ignore the recommendations in that report?
Dr McMahon: The bottom line is that the controls that we had in place were not sufficient to prevent what happened. That is the first thing. I would not say that the Department ignored the previous PAC report or other previous relevant PAC reports, but we did not have the necessary controls in place to be able to ensure that this did not happen. What this report helpfully does is that it demonstrates how, through the actions of people working in particular organisations, you can test systems to destruction very quickly. In this case, the systems were tested and did not respond adequately to the problems that arose. I do not think for one minute that my colleagues and predecessors would have ignored the findings that came out, but the bottom line is that we did not have the controls in place to prevent this from happening.
Mr Dallat: Chairperson, you indicated at the beginning that this could be a lengthy hearing. Can we get the ground rules clear from the beginning? Are we going to be entertained by a whole series of pathetic apologies, or are we going to use our time usefully to find out why the Department sat on this for six years and why we are only now getting apologies? Are we going to have an open and frank session where we can get to the bottom of it, and not simply hear "We are sorry, and it will not happen again"?
The Chairperson (Ms Boyle): I agree with the Deputy Chairperson. It is good that we also have Mr Sweeney and Mr Elder here. You have both had years to reflect on your involvement in this inquiry with the Events Company. I will start with you, Mr Sweeney: what have you learnt from this?
Mr Paul Sweeney (Department of Education): Chair, like Denis, I very much welcome the report. I would like to feel that I went out of my way to facilitate the preparation of the report. I had the opportunity of reporting to the Public Accounts Committee in March 2008, and the Committee at that time commended me for my candour. I think that my role, in the first instance, was to ensure complete openness and transparency. I regret that it has taken six years. I do not believe that we have been sitting on our hands during that period.
From my point of view, what have I learned? Let me say at the outset, Chair, that this was a comprehensive failure in a triangle of relationships. It was a comprehensive failure on the part of the Department to fully discharge its responsibilities in terms of sponsorship; it was a failure on the part of the board to do likewise; and, likewise, it was a failure on the part of the chief executive and accounting officer of the company. From DCAL's point of view, when faced with this debacle, I felt that my core leadership task was, in the first instance, to be completely open and transparent; secondly, to try and stabilise the function of organising events; and, thirdly, to ensure that, as far as one could possibly ensure, this would never happen again and that not only would there be a major shift in the capacity in the Department to discharge its role, but that whatever lessons we had learned would be shared right across all other Departments. I take some comfort from the fact that there has been a real step change in how the sponsorship of arm's-length bodies is now discharged, partly as a result of the lessons that have been learned from this debacle.
Mr Sweeney: As the accounting officer, I am very personally responsible. That is the nature of the leadership task as permanent secretary. I do not disassociate myself in any way from that responsibility.
Mr Mervyn Elder (Northern Ireland Events Company): My biggest regret is that I could not have been here many years sooner, because this has been a cloud over my private and public life. The events that this report relates to and that are being dealt with by you this afternoon took place eight to 13 years ago. I am 71. Immediately after the discovery of NIEC's overspend in September 2007, and as a direct result of the pressure I as chairman was under in the following few months, I suffered a heart attack in January 2008.
I will endeavour to answer your questions openly and honestly and with the best recall of events that I can. Indeed, I welcome this opportunity to do so today in order that it might address some criticisms — many valid — that have been made against the board and against me as chairman. As chairman, I accept responsibility for the board, because with leadership comes responsibility. There are reasons why I think it all went wrong. There is blame in a triangular series of interfaces, which we will probably deal with later, but I feel responsible. It has been a terrible time in my life, and I am now glad that we have an opportunity to address it.
I take on Mr Dallat's points of view, and, whilst I will be apologetic when I need to be, I will also say that I made mistakes when it is appropriate.
The Chairperson (Ms Boyle): Thank you. As I said, this deficit came to light at a time when the PAC was preparing to report on governance arrangements across all the Departments and arm's-length bodies. The deficit, I have to say, was one of the most serious failures of governance controls that I think this institution has ever seen.
I will move on now. I am conscious that it is 2.30 pm and that this evidence session here today may be very lengthy. There are a lot of questions to be asked and a lot of answers to be listened to.
Mr Murphy: You are very welcome. As I said at our last Public Accounts meeting, this is my third iteration on this Committee over the space of about 15 years. There seems to be a standard script, when Departments come in front of us, saying that lessons have been learnt and that new measures are in place to ensure that these things will not happen again, yet a substantial portion of this was dealt with through a previous PAC report, which actually proves that lessons were not learned and that new measures were not put in place at that time.
I want to go back to, if you like, the beginning of the treatment of the Events Company. First, Mr Sweeney alluded to the fact that there was a capacity issue in the Department, so perhaps you had not got personnel with sufficient skills to properly monitor what was going on within an arm's-length company. Secondly, an arm's-length body is one step removed from the Department, so does the fact that this was a company limited by guarantee make it two steps removed? Would that not then require more of a level of scrutiny from the Department, the accounting officers to be more on their toes and more of a relationship between the accounting officer in the Department and the accounting officer in the company itself? How was that relationship working?
Also, in your experience, is there a difference between remunerated and unremunerated boards? This was an unremunerated board. Did that create more of a degree of laxity in the Department, or was it simply, as Mr Sweeney said, that the Department had not got people with the capacity to do their job properly in terms of protecting the public purse?
Dr McMahon: If you are happy enough, Paul, I will maybe make a few general points, and you can talk about the specifics at the time.
I have talked to Paul and to another former permanent secretary, Aideen McGinley, and it is very clear that DCAL as a Department was coming together with different people from different Departments. What the Department did not have at the time that this was set up was the sort of governance arrangements that we have in place now. For example, we have a dedicated governance support unit, and that was one of the recommendations to come out of previous reports. What it would not have had necessarily was people with the level of understanding about what the sponsorship role was and how that worked. In particular, in the case of the Events Company — the report covers this very well — people had an expectation that because the Events Company was a company, which was supposed to be innovative and was designed to really deliver or fund all these amazing events that had not been delivered or funded before, it was supposed to have this level of distance from Government. Clearly, that was a mistake. There are no two ways about it. You are quite right in saying that, actually, being a company really adds an extra layer of risk, potentially. Either way, it should have been dealt with on the basis that we would deal with any other arm's-length body or any other NDPB in the sense of applying the controls.
Mr Murphy: The bulk of DCAL's money, since its inception, has been distributed through arm's-length bodies.
Dr McMahon: Yes. It is roughly about 80% today.
Mr Murphy: So are you saying that the Department, when it was established in 1998 or 1999 or whenever it was established, did not have the capacity to actually monitor properly the 80% of its money which was being distributed through arm's-length companies? Are there other companies limited by guarantee? I know that you have organisations like the Arts Council and the Sports Council. Are there other companies limited by guarantee in DCAL?
Dr McMahon: There are three companies limited by guarantee. Again, we would apply exactly the same principles to the relationship with them as arm's-length bodies that we would with any other arm's-length body.
Mr Murphy: Yes, but I am interested in the inception of this and the inception of DCAL. DCAL distributes 80% of its money through arm's-length bodies, and you are accepting, or seem to be saying, that DCAL had not got the capacity to properly monitor that. In this case, there was a very serious breach of that. That leads to all sorts of questions about 80% of the money that DCAL was administering.
Dr McMahon: The only thing — Paul will probably want to come in — I would say is that there are probably two aspects. When we are talking about capacity, we could be talking about capacity in terms of pure numbers.
Mr Murphy: We are talking about skills within the Department.
Dr McMahon: It is probably more skills; I agree. In fairness, there has been a change in the level of understanding about arm's-length bodies, albeit with issues like this and other very serious issues that have arisen. A different approach has certainly been taken to arm's-length bodies over the years, and people have tightened up on controls. The problem is that, even when you tighten up one set of controls, sometimes another issue arises. I would say that the understanding generally across the Civil Service was different then. Certainly, within DCAL, which was bringing other Departments together, that was definitely a factor. Not having been there, it is difficult to say exactly how that felt, but, having spoken to my predecessor who was there at the very beginning of the Department, I know that that was very clearly a factor in it all.
Mr Murphy: I take you on to the whistle-blowing policy. DCAL had a whistle-blowing policy from its inception. Did the company have a whistle-blowing policy?
Dr McMahon: I believe that it had.
Mr Murphy: The Northern Ireland Events Company had no whistle-blowing policy.
Dr McMahon: It was a complaints policy. That guidance would have been shared and was shared with the company at the time that it was issued. We shared that with the company.
Mr Murphy: Sorry, what did you share with the company?
Dr McMahon: The guidance; the whistle-blowing guidance.
Mr Murphy: Was there any obligation on the company to adopt that guidance, or was it just for information?
Dr McMahon: There was an obligation in the 2004 financial memorandum. It was attached to that, and it was for the company to adopt that guidance.
Mr Murphy: So, for the first six, seven or eight years of its existence it did not have any obligation to follow a whistle-blowing policy.
Dr McMahon: I would need to check when that whistle-blowing policy or guidance was issued. I am not sure that it was there for the whole of that period.
Mr Murphy: According to the report, the Department was told at one stage that the Events Company had morphed into a promotions company. That was a clear departure from its previous incarnation under a previous chair and the assurance that it gave to the Department about how it saw its remit. Why did that not trigger alarm bells within the Department?
Mr Sweeney: The Department was not formally informed that the company had morphed into a promoter of events. No formal notification was given to the Department.
Mr Sweeney: We became aware.
Mr Murphy: And you had your own whistle-blowing policy.
Mr Murphy: Which meant that there was an obligation on the Department to take that information seriously and act on it. The Department did not do that. Would you have been expected to have been formally told by the board after voting on a view that it was concerned about its own activities? The purpose of a whistle-blowing policy is to allow an individual with concerns about how the public body that they are either working for or a member of is not behaving as expected, and that has concerns for the public purse. You received that information. Are you saying that there is a distinction between being properly informed and being informed through whistle-blowing?
Mr Sweeney: The report talks about "strategic drift". By default, the Department became aware that the company had morphed from sponsoring events to actually promoting them. Indeed, that was largely the case with the board as well. There was not a defining moment when the Department was informed that that had happened. It was by default.
Mr Murphy: Did no one, either someone on the board or someone in the Department talking to the board, say, "Call a halt. Ring the alarm bells on this.. This is a clear departure from our understanding of what this board is doing. It is now time to stop this and see how we got to this position"?
Mr Sweeney: No, because it was permissible that it could both sponsor and promote.
Mr Murphy: It was permissible, but there was a clear undertaking by the previous chair that that was not a direction that the board would go in. It had clearly done an about-turn without having a discussion or informing itself or the Department. When you became aware of that, did that not ring alarm bells for both the board members, who were not perhaps privy to that decision of changing the strategic direction that they should have been part of, and the Department?
Mr Sweeney: As I said, we became aware that the company had moved into the promotion of events largely after the deficit had been declared.
Mr Murphy: I have one final question, Chair. When you became aware of that, were you aware that most of the board members were not aware that the board had taken that strategic direction?
Mr Sweeney: I only became aware of that as a result of the KPMG report, which the Department commissioned at the time to look into the circumstances that gave rise to this. KPMG was able to draw out the fact that a number of the board members were oblivious to the fact that the company had morphed from sponsorship to promotion in a number of very specific events in the motocross and supermoto niche.
Mr Murphy: This is my final, final question. My experience is that Departments allocate someone to liaise on a very regular basis with boards. Either that person was not telling you what was going on in the board, they did not know what was going on in the board or they were not talking to anybody on the board. It was only after you began to investigate that you found that only a small number of members of the board had changed the entire strategic direction, which brought you to a position in which accountability mechanisms around the public purse had been thrown out the window.
Mr Sweeney: I do not think that there was a small cohort on the board that knew about this and was deliberately keeping it from everybody else. As I say, my assessment is that this strategic drift happened by default, if you like, whereby the chief executive entered into undertakings for the promotion of a number of very specific events in a kind of hybrid. There were degrees of sponsorship and degrees of promotion. The situation was one of incremental creep.
Mr Dallat: My interpretation of a hybrid is that it improves performance, not the opposite. Obviously, Paul, you had no idea what was going on. At this stage, it is appropriate to ask the chairperson of the board: did you inform the Department of what was going on, or is the criticism in the report valid, that you were too busy shielding the chief executive from criticism?
Mr Elder: To answer the second part of your question first: no, that was not the case. Whilst I had a good working relationship with the chief executive —
Mr Elder: My opinion is that I had a working relationship with the chief executive, which any board chairman and chief executive should have. I met the chief executive regularly, not just at board meetings. I had weekly one-to-one meetings with her. I would ask whether there were any issues that I should be aware of, and none was brought to my attention. It was discussed at a board meeting on 12 February whether we should move in a strategic shift from funding to promoting. Paragraph 5 of the minutes clearly shows that event management was not considered appropriate by the executive, but hands-on support and coordination were acceptable. The board never supported risk-taking but kept shortfall to an agreed limit.
I agree that the board assumed that that was the case. Any variance in the promotion of events should have been brought to the attention of the board, but it was not. I regularly met the chief executive, as I say, and I was not made aware of any. The board was not aware of any deficits or overspend until October 2007.
Mr Dallat: Can I just stop the chairperson there? In 2006, Jasper Perry met you and informed you of the overspend.
Mr Elder: Jasper Perry and Janice McAleese both said that. When I met them in 2006, they said that there was a short overspend, but it was nothing to be alarmed about.
Mr Elder: As it was a short overspend and nothing to be alarmed about, I did not do anything about it.
Mr Dallat: Mr Elder, you did not routinely attend the quarterly accountability meetings with DCAL. You really did not know what was going on.
Mr Elder: Mr Dallat, I was not invited to attend the quarterly meetings.
Mr Dallat: When this tiny, teeny, little overspend became very substantial, did that cause problems?
Mr Elder: The first I knew of the major overspend was in September 2007.
Mr Dallat: What were you doing? Were you sitting on your hands in the meantime?
Mr Elder: No. I did not think that there was a major issue. There was a small overspend that, the executive assured me, was nothing to concern the board about.
Mr Dallat: You were also aware that personal loans from members of the Events Company had been made. Did that cause you any problems?
Mr Elder: There was a meeting between me, Janice McAleese and Jasper Perry, at which I was told, on one occasion, that they had made personal loans to the company to cover a cash flow problem in meeting the payment of wages. That occurred on one occasion only. Relatively speaking, it was a small amount. As chairman, I told them that that was completely unacceptable. I verbally rapped their knuckles and told them that it should not happen again. I take the blame if that was wrong; I felt that it was not serious enough to inform the board because I had chastised them.
Mr Dallat: The board was not particularly good at attending meetings. Did that concern you?
Mr Elder: I am sorry, will you say that again?
Mr Dallat: The board was not particularly good at attending meetings.
Mr Elder: It is very difficult as chair. The fact is that we inherited a board that was approved by the then Minister. The fact that DCAL's selection did not include anyone with financial expertise was difficult. The fact that I was acting as chairman on a non-remunerated basis and did not have any previous experience of working for a private company did not —
Mr Dallat: Chairperson, can I stop it here? Were you acting as somebody who wanted to contribute something positive to what you were involved in, or was it different because you did not get paid for it?
Mr Dallat: I am glad, because you mentioned remuneration.
Mr Elder: It is important to note that everybody who was on the board was trying to do their best to encourage the aims of the Events Company by promoting events through it. Those aims were to raise the profile of Northern Ireland, internally and externally, to help the economy and to create a feel-good factor. The board that I inherited did not have the necessary skills that I feel that a board, in the present day and having learned from the lessons of the Northern Ireland Events Company, should have. Although the board was made up of high-profile people, we did not have the necessary skills.
The processes and systems in place from 2002 to 2007 were set up, as I recall, in 1997. We had a manual accounting system, but no one — neither DCAL nor the auditors — told us that we were not being financially effective. We did not have the skills, but we had the motivation and the commitment. I heard about the problems for the first time in September 2007. Between October and the end of December 2007, I attended the Northern Ireland Events Company on 51 occasions to try to resolve some of the major problems that we fell into.
Mr Dallat: That was a lot of meetings to attend. In June 2007, you became aware of this motocross monstrosity at Desertmartin.
Mr Elder: Yes, that is right.
Mr Dallat: That was not a good time, because you had just discovered that loans were granted to the company and that all sorts of things were going wrong. Surely, in June 2007, you should have been offering your resignation. This thing was totally out of control. There was no planning permission — no anything. There were no proper contracts — nothing.
Mr Elder: Sorry, are you asking a question?
Mr Dallat: I am asking a question. I am trying, with the help of the Committee, to get inside your mind as at June 2007 when it was obvious that this thing was completely off the rails and all this stuff was being done. What were you doing? Did you tell Paul Sweeney and his friends that you were presiding over a train wreck?
Mr Elder: No, I did not, because I did not feel that I was presiding over a train wreck.
Mr Poots: Madam Chairman, it is frankly a wee bit hard to swallow that the board did not have skills. I am looking at the names of some board members. Paul McWilliams was a director in the Royal Group of Hospitals, spending hundreds of millions of pounds. Eric Saunders was chair of the Sports Council. Alan Clarke was the chief executive, no less, of the Northern Ireland Tourist Board, so he himself was an accounting officer. Gerry Lennon was a senior representative in the Belfast Visitor and Convention Bureau. You were a director in Belfast City Council. Nicky Dunn managed the Odyssey. Jim Rodgers is a long-experienced councillor in Belfast City Council. Catherine Williamson ran her own business: I could go on. You are saying that those people did not have the skills or capacity to oversee a budget of £1·4 million a year when they were doing all those other jobs.
Mr Elder: They had the capacity, Mr Poots, but, as backup in the organisations they led, they had financial expertise, support and systems. We did not have those.
Mr Poots: That is a different answer. A while ago, you said that they did not have the skills. You are now saying that they did have the skills, but that, in the board, you did not have the support mechanisms in place. We will deal with that later.
Mr Flanagan: It is good finally to deal with the issue, because, as other members said, it is the biggest scandal that has yet arisen in the history of the Committee under devolution. Kieran Donnelly put it well when he said that he was unaware of any other accounting officer failing so comprehensively to uphold the Nolan principles of conduct. The level of scandal involved is completely shocking. If you talked to somebody on the street and tried to explain the level of corruption or ineptitude that allowed this to carry on, it would take you about an hour and a half. It is such a big mess that it is beyond comprehension.
Mervyn, most of my questions will be directed towards you. What is your understanding of the key functions of the board of a company?
Mr Elder: The key function of the board that I was on was, through the attraction and promotion of events, to create a threefold return. One was to raise the profile of Northern Ireland as an area —
Mr Flanagan: Mervyn, I will stop you there. I am specifically asking you about the board, not the company.
Mr Elder: As a board, we were tasked with the governance of the company, which was established under memorandums and articles. As a board, we had an overseeing role to make sure that that was carried out in accordance with the articles and memorandums. As chairman, I had special responsibilities, such as chairing the board and interfacing with the executive. As a board member, you take on those responsibilities. The responsibilities and the roles of the board, when that specific board was appointed, were never given to it.
Mr Flanagan: From a governance point of view, the key features of a board are to appoint a CEO, to provide strategic leadership to the organisation and to act in times of crisis. My questions will focus on the appointment of Ms McAleese as the CEO of the organisation. From my reading of the report, that seems to be where the whole thing started to go wrong. Conor touched on the fact that your board members were doing so in a voluntary capacity and were not being paid. It is my understanding that a subcommittee was then set up, as is commonplace in many organisations of that nature, to act as an appointments panel to shortlist and interview candidates and then make a recommendation to the full board for appointment. Did members of the appointments panel receive any specific training on their responsibilities and the wider role involved in selecting a senior executive to lead what is now seen as a complex organisation?
Mr Elder: The appointment of the chief executive took place with the support of a professional HR consultant. The interviews were held in Antrim on 25 November. The interviewing panel comprised me, the then deputy chair and a senior DCAL official, with an observer from the recruitment agency. It was the unanimous view of the panel that Janice McAleese be appointed. I am aware that the report states that there were shortcomings about her length of experience and her not having a relevant third-level qualification in finance. That is true. She had been acting as chief executive, and we made the appointment because she was the best of those who had applied. There was an open advertisement for people to apply. In answer to your question, there was not a staff subcommittee. I found it difficult to have three subcommittees with what was in reality 60% of nine members, so there certainly was not a staff subcommittee. That is how Janice McAleese was appointed.
Mr Flanagan: You are telling me that there was a professional HR agency acting but that it was merely an observer.
Mr Elder: No. The agency took us through the procedure from start to finish — from advertising to appointment.
Mr Flanagan: Did the agency give you much training or guidance on the role and on how to comply?
Mr Elder: No, because, as Mr Poots said, most of the people on the board had experience of appointing senior people.
Mr Flanagan: Did the appointments panel draw up the job description and personal specification?
Mr Elder: It did so in consultation with Parity.
Mr Flanagan: At what stage was it decided that a basic requirement or essential criterion was that the successful applicant needed to have a third-level qualification in finance and business.
Mr Elder: There were desirable and essential requirements, which I think I have here.
Mr Flanagan: The Audit Office report states that they were required, not desirable. I have not seen the specification, so, from my reading of the report, I am led to believe that they were essential criteria, not desirable.
Mr Elder: I would not disagree with that. I took my advice from the professional company.
Mr Flanagan: That was in the setting of what the essential criteria for this appointment were. The question I want to touch on is this: how many applicants were there for the position of chief executive?
Mr Elder: I think that we shortlisted four or five.
Mr Elder: I cannot remember.
Mrs Cynthia Smith (Department of Culture, Arts and Leisure): Perhaps I can assist, if that is appropriate. I gather that there were 15 applicants. This was a three-stage process. There were 15 applicants, and nine were called to initial interviews. After the initial interviews, the number of candidates was reduced to three. They were invited to go to an assessment centre and, subsequently, invited to a final interview.
Dr McMahon: It may be worth adding, Cynthia, that there was a screening stage prior to that. I do not know whether people were meant to be screened out on the basis of their qualifications, which is what would normally happen. That is as far as our records take us. The only thing that I would mention —
Mr Flanagan: What do you mean, Denis, by "as far as our records take us"?
Dr McMahon: In the sense of the information that we hold in the Department. We have letters from the chair at the time, who had written to the Department to say that this is the process, and this is what has come out of the process. For the Committee's information, it is my understanding that Paul McWilliams was also a director in Parity.
Dr McMahon: I believe that he was a director in Parity.
Dr McMahon: On the board of the NIEC.
Dr McMahon: He was not on the later appointments panel. I am not sure; I have information that he was involved in some initial screening interviews, but I do not have details on that. I want to make that clear.
Mr Elder: Yes, I can. Paul McWilliams declared an interest when Parity was appointed and took no part in any of the interviews or screening.
Mr Flanagan: Was he one of the members of the appointments panel?
Mr Flanagan: Was he the person representing the agency that was advising the appointments panel on drawing up the guidance and —
Mr Flanagan: Was that a different representative from his organisation?
Mr Elder: He had absolutely nothing to do with the appointment and declared an interest that he had been a director of the company.
Mr Flanagan: Were the services to provide guidance and support to the board on the appointment of a new chief executive put out to tender? How was that organisation selected?
Mr Elder: I cannot honestly remember.
Dr McMahon: I believe that it went out to tender, and there were four responses. The records show that, when the company was selected by the Events Company, it wrote to Parity and copied it to three other companies, which, I believe, had also tendered. My information is that Paul McWilliams may have been involved in the original screening, but, if you wish, we will check that for clarity and get back to the Committee.
Mr Flanagan: I could go down that road if I wanted to, but I would be diverting from the actual appointment of Ms McAleese, which is my primary interest.
Mr Clarke: I want to go down that road because I am at pains to understand how Ms McAleese got through to the later stage. I wonder whether there was a motive in her getting through to that stage. Of all the other people who applied, did any of them meet the essential criteria?
Dr McMahon: All we have from our records is who got through. Nine people got through from the initial screening.
Mr Clarke: Why do you have such vague records, Denis?
Dr McMahon: In fairness, the Department would normally find out the outcome of recruitment competitions. The actual recruitment exercise is the responsibility of the organisation as the employer. While there was a departmental official on the interview panel, the records are held in the company, but the records are inadequate. That is the reason.
Mr Clarke: As a Department, you had no concerns about the records being inaccurate?
Dr McMahon: No. We have general concerns that we do not have enough records from that period.
Mr Clarke: So why was concern not raised at the time?
Dr McMahon: At the time, the Department got a letter explaining that this was the appointment process and this was where the subgroup of the board had got to. The chair was letting us know that, as a result of the recruitment process, Janice McAleese had been selected. That is the normal process, and that is the normal correspondence that one would expect.
Mr Clarke: You are saying that, if an organisation like the Events Company favoured someone — let us go down that road — it can construe it whatever way it wishes. It can shortlist whomever it does not want —
Dr McMahon: No. To be clear: had there been any inkling that somebody had got through the process without meeting the essential criteria, that would clearly be a serious issue of concern.
Mr Clarke: Denis, the problem here is that you do not have any records to substantiate that one way or the other. Why are you concerned about something that you have no records for?
Dr McMahon: It is only since the process has been audited and since the report —
Mr Clarke: We are finding out in this process that people who legitimately applied and met all the essential criteria could have been set aside because the Northern Ireland Events Company believed that their face did not fit?
Dr McMahon: All I would say is that, if somebody has not met the criteria, that is a problem.
Mr Clarke: You are not aware one way or the other. Why was the Department not across that?
Dr McMahon: If a recruitment process in an arm's-length body goes ahead, and the result is notified to us —
Dr McMahon: No. What we would do today is we would have —
Mr Clarke: On that day, you took their word for it.
Dr McMahon: What we would do today —
Mr Clarke: No. On the day that we are talking about, you took the word of an arm's-length body that it followed the process correctly.
Dr McMahon: Yes. In fairness to the Department, at that stage, there was a process —
Mr Clarke: I do not think that we can be fair to the Department here, because we have an organisation — we have heard an explanation of where the organisation had gone and what it had spent — which went through a process and appointed someone who did not even meet the essential criteria. The Department was not alarmed, and there were no alarm bells, even at the outset.
Dr McMahon: We were not aware of it at that stage.
Mr Clarke: You were not aware because you were not interested.
Dr McMahon: We were not in charge of that.
Mr Clarke: Was anyone from the Department involved in the interviews? Had it anyone sitting on the panel?
Dr McMahon: Yes. Nigel Carson was the official present.
Mr Clarke: If he was at the interviews, he would have been aware that the person who was being interviewed did not meet the essential criteria.
Dr McMahon: In the early stages, the sifting was not carried out by that panel. The sifting process was carried out by Parity. There was an initial sift, which brought it down to nine candidates. There was a half day —
Mr Clarke: Before I hand back to Phil, we have Parity, and you mentioned a board member who had a connection. Was that board member involved in the tendering process when the contract was awarded to Parity?
Dr McMahon: I do not know.
Mr Clarke: Have you any records? Can we find out? This is a very cosy relationship.
We have a situation in which Parity got the contract to do with the employment end of it. Someone on the board of the Events Company had a relationship with Parity, but we do not have any records to know whether he was involved in the shortlisting for the procurement process through which Parity was appointed.
Dr McMahon: Yes, I mean —
Dr McMahon: As part of the inspectors' process and the subsequent audit, the idea, obviously, was to seek out the papers and find out what was there, but there was not a detailed record of the recruitment process.
Mr Clarke: There is an emerging theme with a lack of papers in a whole lot of areas, Denis, as you are aware.
Mr Murphy: Was ministerial approval required for the appointment?
Dr McMahon: Of the chief executive?
Mr Murphy: Was there even a responsibility on DCAL officials to advise the Minister as to who might be appointed?
Dr McMahon: They would undoubtedly have had a responsibility and would have advised the Minister. The primary responsibility would have been for the principal accounting officer in the Department to issue a letter to the chief executive when that person was appointed. When Janice McAleese was appointed, the permanent secretary, at that stage, sent a letter that basically assigned the accounting officer role in the Events Company to Janice McAleese.
Mr Murphy: Therefore, no departmental approval was required to pay someone a salary to be an accounting officer or chief executive of a company, even though it was an arm's-length body of the Department?
Dr McMahon: I would need to check whether there was approval, as such. We were certainly informed about the salary, but I do not know whether we had to approve it formally.
Mr David Carson (Department of Culture, Arts and Leisure): We did not.
Dr McMahon: Not at that time.
Mr Carson: I do not believe that we did.
Mr Murphy: The Department was paying the salary, but it did not have to approve the appointment to the salaried post.
Dr McMahon: The company was paying the salary.
Dr McMahon: The point that I was trying to make earlier is that the company is the employer. One of the things that we often find is that there is a real issue of confusion between Departments and arm's-length bodies. There needs to be an absolute line of clarity to say that the company or the arm's-length body is the employer and that it has responsibility for that.
Mr Murphy: The departmental liaison officer — for want of a better phrase — who sits on the board had the responsibility to inform the permanent secretary or, through him, the Minister, "We are about to pay this person's wage. By the way, the person doesn't meet the essential criteria for this job".
Dr McMahon: I have not spoken to the individual directly, but I do not believe that an official would sit on a board knowing that the person before the board did not meet the criteria and not report that back to the Department. I would be amazed if that had happened.
Mr Murphy: Have you tried to trace the ministerial submission on the appointment of Ms McAleese?
Dr McMahon: No, I have not. We can look at that.
Mr Carson: Yes, I am happy to pick that up.
Mr Clarke: To follow on from that, was the liaison officer taking part in the shortlisting?
Dr McMahon: The departmental person?
Dr McMahon: That would not be abnormal. Even today, if HR Connect were doing this on behalf of an arm's-length body — it would be doing it on behalf of all our arm's-length bodies, as we would not be appointing a recruitment company — it would initially do some shortlisting, or it might have a subset of the recruitment panel or people go through the application forms to check that the basic criteria were met. There are other examples of where the full panel would do that, but it is not unusual for somebody to carry out initial sifting so that the panel, when it comes to meet, is there for the purpose of interviewing the person or people.
Mr Clarke: Finally, you have the number of people who applied for the post. Maybe you can write to us on this one, but can we check whether any of those who applied met all the criteria but were not shortlisted?
Dr McMahon: We will see what is available from the records.
Mr Murphy: Is it not standard practice that, if the applicants do not meet the essential criteria, you simply shut down the recruitment process and rerun it, and, if necessary, you use a recruitment agency to try to find people who do meet the essential criteria?
Dr McMahon: If none of them met them, absolutely. The purpose of sifting out is to make sure that the essential criteria are met before —
Mr Murphy: You do not know, in this instance, whether some of them met them. I certainly thought that the advice, from talking to the auditor, was that none of the applicants met the essential criteria.
Dr McMahon: Again, we will double-check that to see who met the criteria. My understanding was that —
The Chairperson (Ms Boyle): Very briefly, I will allow in Roy and then Mr Poots, and then we will definitely go back to Mr Flanagan's question.
Mr Beggs: I am trying to understand this. My question is addressed to Mr Mervyn Elder. You, as chairman, were in a position to have some role in the appointment. How did you preside over a board that appointed someone who did not meet the essential criteria for the post?
Mr Elder: The person who came top —
Mr Beggs: Sorry, my question was this: how did you preside over a board that appointed someone who did not meet the essential criteria? In your role on Belfast City Council, are you aware of the definition of "essential criteria"? What does it mean?
Mr Elder: It means the criteria that get you past the start line.
Mr Beggs: OK. Can you explain how you presided over a board that appointed a person who did not have the essential criteria?
Mr Elder: The recommendation for appointment would have gone to the board, and, at that time, it would probably have been pointed out that the person whom we recommended for selection did not meet all the essential criteria.
Mr Beggs: In your position on Belfast City Council, what would have happened had there been a selection process for which no one met the essential criteria?
Mr Elder: The committee either accepts the person with the —
Mr Beggs: Sorry, on Belfast City Council, if no one meets the essential criteria, what happens?
Mr Elder: Well, you have to report to the committee to say that that is the case. The decision then is whether to appoint the person at the top of the list or else advertise again.
Mr Beggs: My understanding is that you have to advertise again.
Mr Dallat: Chairperson, in support of Roy Beggs, you cannot drop the criteria. You can raise them, but you cannot drop them. Let us have the record accurate.
Mr Beggs: Very briefly, let us move this point on a bit. Presumably, before the selection occurred, you would have known Janice, through her employment with the company.
Mr Elder: Yes, she was the senior events manager under the then chief executive.
Mr Beggs: You would have known that she did not have four years in a senior management position and financial knowledge.
Mr Elder: No, I did not know that. I did not know her background.
Mr Poots: Are we absolutely sure that none of the five candidates shortlisted met the essential criteria?
Dr McMahon: Thank you for asking that question. I want to provide a bit of additional clarification. The chair had written to the Department to say that there were two other candidates out of the three who were interviewed who would have been acceptable and that the panel would therefore place them on the reserve list.
Mr Poots: Had they met the essential criteria?
Mr Clarke: Sorry, can we get a copy of what was written to the Department?
Dr McMahon: I was going to say that the assumption would be that, because, under any normal process, that would be the case, but —
Mr Clarke: Can we be furnished with a copy of whatever correspondence Denis is reading from now, where the Events Company wrote to the Department?
Mr Poots: It would be quite alarming if people who met the essential criteria had been overlooked for someone who did not. If nobody met the essential criteria, it is quite alarming that no re-advertisement took place.
Mr Beggs: Can we have final guidance from the permanent secretary on what should happen when no one meets essential criteria?
Dr McMahon: What normally happens in a process —
Dr McMahon: If nobody meets the essential criteria, the process should be scrapped and started afresh. That is the case.
Mr Flanagan: To clarify, the road that I did not want to go down was the one about the recruitment company. I was still on the road that everybody else turned me off. I was happy enough to give way.
I think that the problem here is that we are asking the Department, whereas it is Mervyn and the members of the board who will have the inside knowledge. I want to ask you this collectively: is there an acceptance that Ms McAleese did not meet the essential criteria? I am getting mixed messages: maybe she did, maybe she did not or, "We do not know, so we will have to go and check".
We have an Audit Office report that states very clearly that she did not meet the essential criteria. Is there unanimity across all of you that she did not meet the essential criteria for a start?
Dr McMahon: I fully accept the Audit Office report, and the report makes it clear, on the basis of the evidence available, that she did not meet the criteria.
Mr Elder: Yes, I accept the Audit Office report.
Mr Flanagan: Denis, you tell us that you do not know or that you do not have the information here, but this has been going on for eight years. Having read the report, I know that the first issue that is flagged up is the appointment of Ms McAleese as the chief executive officer without her meeting the essential criteria. You must have known that that would be an issue that we would raise today, so I cannot understand why you did not bring the information with you.
Dr McMahon: We have the information that is available to us. What I was saying was that, generally, the records of the Events Company were not good. That is one of the points that the report makes very clearly. Although we are looking back, we are limited to some extent to what is on the record.
Mr Flanagan: Mervyn, do you have any record of what scores each of the applicants received in either the assessment centre or from the interview panel?
Mr Elder: No, I am sorry. I do not.
Mr Elder: Hopefully, yes.
Mr Flanagan: Is there any way in which we can get hold of that information?
Mrs Smith: My understating is that Parity recruitment no longer exists as a company. There is now a company called Parity Solutions.
Mr Flanagan: Surely that information belongs not to it but to the Events Company. Why is it retaining information that is not its property and that the Events Company did not have?
Dr McMahon: The problem is that nobody has it. It clearly was not retained.
Dr McMahon: It should have been. There is absolutely no reason that it should not have been retained.
Mr Elder: No, I have not.
Mr Flanagan: Did any of the unsuccessful applicants for the position of chief executive ever raise any complaints with the organisation or make an allegation of being unfairly overlooked?
Mr Elder: No, they did not.
Mr Flanagan: OK. What message would you send to unsuccessful applicants who may well have met the essential criteria, whereas the successful applicant very clearly did not meet them?
Mr Elder: My opinion is that none of the shortlisted people met the essential criteria. I know that that needs to be checked.
Mr Clarke: We are not talking about the shortlist. We are talking about all the candidates.
Mr Elder: Sorry, none of the 15.
Mr Flanagan: You are telling me that none of the 15 met the essential criteria.
Can you tell me, then, why someone who did not meet the essential criteria was appointed to the position, let alone interviewed? The whole point of having essential criteria is to demonstrate the very basic requirements to carry out the role that is advertised.
Mr Elder: I accept that. What obviously happened in this instance, and this is why I feel that nobody had met the essential criteria — all the essential criteria — was that the people who were scored highest in the criteria that they met, be they essential or desirable, were the five people who were shortlisted.
Mr Flanagan: Were any concerns raised on the board once your appointments panels recommended the appointment of Ms McAleese to the position of chief executive?
Mr Elder: There were no concerns.
Mr Flanagan: You previously said, I think to Roy, that it probably would have been pointed out that the recommended applicant did not meet the essential criteria. Did your panel point it out or not?
Mr Elder: I cannot remember, but I am sure that it did.
Mr Elder: Not really, no.
Mr Elder: Not in that detail.
Mr Flanagan: What detail is kept of the board minutes of that decision?
Mr Elder: I cannot remember.
Mr Flanagan: I ask you to think back to the period when the process was under way. Did any individuals who were internal or external to the Events Company recommend to you, any other members of your appointments panel or the board that Ms McAleese would be an acceptable person to be the chief executive of the company?
Mr Elder: I think that the outgoing chief executive commented that Ms McAleese had done a god job as senior events manager and probably would be able to fulfil the duties of chief executive.
Mr Flanagan: What is the difference? Is it your understanding that there is a difference between being a senior events manager and being the strategic leader and accounting officer of a complex organisation?
Mr Flanagan: Did you merely take the outgoing chief executive's recommendation, and she was then the favourite for the position?
Mr Flanagan: You would deny that there was an unfair recruitment and appointment process.
Mr Flanagan: Did you get any other information on why she would be acceptable, or was it merely the fact that she had done a good job as a manager?
Mr Elder: No, we did not get any other feedback on that from any of the staff. No comment was made by any of the staff who were under her.
Mr Flanagan: Was the fact that she was the internal candidate for the position factored into the panel's or the board's deliberations on whether to recommend her for appointment?
Mr Flanagan: Were any of the other 14 candidates internal candidates, or were the rest of them external?
Mr Flanagan: What skills or experience did Ms McAleese demonstrate to enable the board to think that she was qualified and experienced enough to be the chief executive officer of the organisation?
Mr Elder: She had run her own business. She had what we had hoped was financial expertise. She had —
Mr Elder: She had what we had hoped would have been an understanding of the finances —
Mr Flanagan: How did she demonstrate that? Did she have to submit a CV or an application form?
Mr Elder: It would have been both.
Mr Flanagan: I presume that one of the questions was something along the lines of, "Demonstrate how your experience in financial management will enable you to do this job".
Mr Flanagan: Can you cast your mind back to how she answered that question?
Mr Elder: I honestly cannot.
Mr Flanagan: Are her CV and application form still on record?
Mr Elder: Hopefully they will be, yes.
Mr Elder: I have no idea.
Mr Flanagan: Have you got them, or would they be with the Department?
Mr Elder: No, I have not got them.
Dr McMahon: The company's inspectors asked Parity for all the documentation relating to the recruitment process for the CEO post, with a particular reference to the background of the candidates who were called for interview. They were not able to get —
Mr Flanagan: You are telling me that an organisation that was run by a board member of the Events Company was carrying out the recruitment process. However, he did not retain the information, either as a board member or as someone who was running the recruitment or advisory company.
Dr McMahon: Parity did not retain the information from the process.
Mr Flanagan: It makes it very difficult for lessons to be learned if none of that information is about.
Dr McMahon: We will double-check to see whether there is any raw material that is additional to the company's inspectors' report. The company's inspectors did a very detailed exercise and were able to get very limited information.
Mr Flanagan: I heard about that. I think that it took a week to read. Is that right?
What specific public-sector experience did Ms McAleese have to enable her to carry out the position?
Mr Elder: I cannot recall.
Mr Flanagan: It was specified that one needed five years' experience. I think that what you told me was that she had four or five months' experience in the Event Company.
I am amazed that, within four or five months of her being in that company as a senior events manager, it can somehow be decided by an outgoing CEO that she would be suitable for a severe elevation to the position of chief executive officer in the organisation and that the board simply said, "Oh, that is dead on".
Mr Elder: I do not think that we said, "That is dead on". We went through —
Mr Flanagan: Not one person on the board raised concerns that she did not have either the necessary experience or the requisite qualification of a degree in finance or business. You did say, "Dead on".
Mr Elder: I do not think that it was like that.
Mr Flanagan: I want to take you on to your comments about the board that Edwin Poots picked up on. You said that the board members:
"did not have the necessary skills".
You used that phrase at least three times. You also said that the board did not have a representative with financial experience. When did you realise that the board did not have somebody on it with financial expertise?
Mr Elder: What I said, or what I should have said, was that the members of the board who were appointed, me included, would not have had financial skills to the extent that was required for the betterment of the running of the board.
Mr Flanagan: I accept what you are saying, Mervyn, and I do not take it as a criticism of the members of the board. Everybody who comes on to a board brings a different skill set, and that is understandable. There was nobody on the board with specific experience of dealing with financial matters. That is fine and is not a criticism of any of the individuals. However, that should have led the board to realise that, if it were to appoint a chief executive officer and accounting officer, surely to God that person should have financial expertise. If none of the board had it, the person whom it would be getting advice from on the future direction of the organisation needed to have that financial expertise. You did not have it to be able to hold her and the other executives to account.
Mr Elder: That first came to the fore when we realised that there were financial problems. At that time, there was talk of appointing an audit subcommittee. That was not appointed until after the shortfall was discovered. There were reasons for that.
Mr Elder: In the latter part of 2007, after the shortfall was discovered.
Mr Flanagan: The Cadbury report of 1991 very clearly highlights the need for such organisations to have an audit committee. Why did the Events Company not have an audit committee from the start?
Mr Elder: First, we were not instructed to have an audit committee from the start. Secondly, the work that we were doing with a dwindling board membership was such that other subcommittees were formed. The people who gave their time to the board were involved on the main board. The main strength that we had was in promoting golf events, so there was a golf subcommittee. There were other subcommittees.
Mr Flanagan: You are telling me that golf was more important to the board than auditing.
Mr Elder: At that time, our perception was such. I now know that that was a failing, and I admit that. However, at the time, since there was not a problem and things were going very well in the Events Company, we did not see it as a priority.
Mr Flanagan: We have had a couple of world champions in golf, so maybe you can take some credit for that, but I think that, if a world championship medal for ineptitude were to be handed out, it would go to somebody who was in the Events Company at the time. This is getting worse: you prioritised golf over auditing.
Mr Elder: At that time, the [Inaudible.]
was not seen as a priority.
Mr Flanagan: Can you tell me when the board realised that Ms McAleese was not up to the job?
Mr Elder: When it started to be apparent that there was a strategic shift to organising events. When information —
Mr Elder: That was in 2006-07.
Mr Flanagan: Other members will pick up on the strategic changes in the organisation and the change of emphasis in what it was doing, but I want to focus on the role of Ms McAleese. Can you tell me what steps you took to address the fact that the board, at some stage, realised that she was not up to the job?
Mr Elder: We did not realise that she was not up to the job. We just felt that there were signs that she was becoming more independent, and, by that time, it was past the post.
Mr Flanagan: You thought that she was still a suitable appointment to the role of chief executive and accounting officer in the organisation and that she had the requisite experience and skill set to do that.
Mr Elder: Up until the latter part of 2006, yes.
Mr Flanagan: Sorry, was it in 2006 that your opinion changed or that you thought that she did not have the experience and skill set to do the job?
Mr Elder: My opinion changed.
Mr Flanagan: OK. With hindsight, you are telling me that she did not have the skill set and experience to do the job.
Mr Flanagan: Do you regret appointing her as chief executive?
Mr Elder: Of course I do, yes.
Mr Flanagan: OK. Can you tell me what steps the board took to deal with the fact that, in 2006, you realised that she was not capable of carrying out the job?
Mr Elder: As I said earlier, there was a minute stating that the board was not happy with the direct organisation of events and that that was not a strategic route down which we wished to go.
Mr Flanagan: That was a criticism of, or a change of tack by the board in, how the organisation was functioning, but, regarding her responsibility as the chief executive and accounting officer, what action did you take to rein in what you have described as her "independence"?
Mr Elder: There was not any action taken.
Mr Flanagan: She was allowed to carry on, despite the fact that, in 2006, you acknowledge that there was a problem with her level of independence in the organisation. The board did not take any action to rein that in to ensure that you had oversight of her role as an executive.
Mr Flanagan: Denis, I have a couple of questions here for you.
Mr Poots: Yes. Thank you.
On the audit committee issue not being a priority, in the year that you decided that audit was not a priority, the expenditure of the Northern Ireland Events Company was £4,425,000. The income from grants and other sources was £3,516,000, leaving a shortfall of £909,000, which was approximately 25% of the entire budget. That issue was not a priority?
Mr Elder: We were not aware of that overspend.
Mr Poots: Yes, because audit was not a priority.
Mr Elder: I take your point.
Mr Beggs: On the same issue, do you realise that, in your board minutes, there were nine references to the establishment of an audit committee between October 2003 and December 2006?
So, it has been referred to. You were chair at that time. I refer you to page 43, paragraph 3.33. I am aghast that you are saying that you did not think it was a priority. It had been referred to regularly when you were chairperson, and no action was taken, but at this time, there had been at least 10 meetings of the golf subcommittee. Does that seem to be the right priority?
Mr Elder: The board, on the advice of the chief executive, wished to set up an audit committee. At the time, there were nine board members — three short of 12. The board members' attendance was, on average, 50% to 60%. Active board members were already serving on the main board and on one or two of the subcommittees. There was no way, without a full board membership, that we could have asked active members to sit on another subcommittee.
Mr Beggs: Do you realise that you maybe should have prioritised the committees that you should have had?
Mr Elder: I accept that now.
Mr Clarke: This was on a question that Mr Poots asked Mr Elder. What was that last question you asked him?
Mr Clarke: Yes, sorry — the shortfall. I just took a memory blank there. He was possibly unfair towards Mr Elder; he should have directed it at Mr Sweeney as well. The annual accounts would have been coming in the year you came into post, Mr Sweeney. Did you raise any concerns about the shortfall and the fact that there were no audit procedures in that organisation?
Mr Sweeney: From the audit committee point of view, the Department had, for a number of years, been pressing on the board the importance of establishing a —
Mr Sweeney: We had a quarterly governance accountability meeting with the chief executive.
Mr Sweeney: There was an opportunity through liaising directly between departmental officials and the chief executive of the company, so it had value in that sense.
"Pressing" means that we were encouraging the board, through the chief executive, to set up an audit committee. The reality was that undertakings were given at times, because it was conveyed back to the Department that an audit committee had been established.
Mr Clarke: So, basically, you gave them a pat on the back, they gave you the thumbs up, said that they were going to listen to you, they overspent by almost £1 million, and that was OK.
Mr Sweeney: Let me say — I think I made this clear from the outset — that I would characterise the Department's oversight of the Northern Ireland Events Company as passive. We were insufficiently interrogative, challenging —
Mr Sweeney: Yes, and I am making my position very clear.
Mr Clarke: I suppose it leaves us all concerned, given where you are at now and the level of budget that you are looking after today, that you could not manage the oversight of an organisation that had £4 million when you are now into billions of pounds.
Mr Sweeney: Yes, it is £2 billion a year.
Mr Clarke: Yes. You can understand why we are concerned. If your oversight then was not great, what is your oversight like today?
Mr Sweeney: One can never be complacent about these things, but my record for that —
Mr Sweeney: I respectfully disagree with you, because —
Mr Poots: The scale of this, if it happened nowadays in your current Department, would be around half a billion pounds. That is the scale of what happened here. This was a small company, but the scale of the deception that took place was massive — it is off the Richter scale. You had an oversight, your officials had an oversight, and I suppose later we will get into what officials were actually doing. Mr Elder has been taking a fair bit of the hit here, and deservedly so, but we will get to where DCAL officials were at a later point.
Mr Clarke: Just on that, Mr Elder pointed out, although I do not necessarily agree with his point, that there were doubts about the capabilities within the board. Given that you were funding this organisation, you were surely bound to have the financial oversight to prevent things like this from happening.
Mr Sweeney: There were serious shortcomings in how the Department discharged its oversight function of the Northern Ireland Events Company.
Mr Clarke: But you continually let it go on and on.
Mr Sweeney: Classically, we got the phone call on 20 September 2007 to say that the company was in deficit. Up until then, we were oblivious.
Mr Poots: But the previous year, there was a drawdown of most of the company's funding by — what point in the year?
Mr Sweeney: Yes, but that would not be —
Mr Sweeney: It did not at the time, no.
Mr Clarke: I want to take you back to that word you just used. You said that you were "oblivious". The permanent secretary is now on record saying that he was "oblivious" to the Northern Ireland Events Company's spending capabilities, or incapabilities, in this case.
Mr Sweeney: You were asking me specifically about the overspend.
Mr Sweeney: I was oblivious to the scale of the overspend in the Northern Ireland Events Company until 20 September 2007.
Mr Clarke: What confidence will it give to the public that you, in the post you are holding today, are on record as saying that in 2007 you were oblivious to the Northern Ireland Events Company being in 25% deficit of its total budget?
Mr Sweeney: I think the confidence that it will give to the public is that there is a permanent secretary who is completely open, transparent and factual —
Mr Sweeney: — in reporting to the Assembly.
Mr Sweeney: Yes, I was totally unaware — just to be clear, oblivious — of this deficit and the scale of it until 20 September 2007.
Mr Poots: Had any whistle-blowers approached the Department before September 2007?
Mr Sweeney: As you know from the report, several people had approached the Department and the company. I am more than happy to go into detail on the specifics, depending on the appetite of the Committee.
Mr Flanagan: I think members are starting to get hungry all right.
Mr Flanagan: I have a couple of questions about the appointment of the accounting officer, then that is me finished. Denis, can you tell me whether DCAL approved the job description and business specification or whether that was purely a matter for the board?
Dr McMahon: That was a matter for the board, I believe.
Dr McMahon: I do not believe we did. Having said that, the exception would have been the official who was participating in the panel. Obviously, that official would have had sight of it.
Mr Flanagan: Mervyn says that it probably would have been pointed out to the board that the recommended applicant did not meet the essential criteria. Is that something that was brought to the attention of the Department prior to her appointment?
Mr Flanagan: I want to move on to the employment of Ms McAleese as accounting officer. We have been given a letter from the then permanent secretary, Aideen McGinley, to Ms McAleese on 4 February 2004 informing her that she was being appointed as the accounting officer. Was it Aideen McGinley who appointed her as accounting officer? Who made that decision? Was it the board?
Dr McMahon: No, the principal accounting officer in the Department makes that decision. When a new chief executive is appointed, the permanent secretary in the Department writes a letter.
Dr McMahon: It was Aideen who wrote the letter.
Mr Flanagan: Sorry, the permanent secretary of the Department of that time.
Dr McMahon: Who was Aideen, yes.
Mr Flanagan: OK. Have you a record of what checks or due diligence DCAL undertook when making that appointment?
Dr McMahon: Not that we have a record of, no.
Dr McMahon: To be honest, I would be amazed if some check was not done, but there was not a formal —
Dr McMahon: I do not know the detail, because I was not there at the time, but I expect, as would be the case today, that the sponsor team would make a recommendation, so —
Mr Flanagan: How can we find out what background checks or due diligence took place prior to the appointment?
Dr McMahon: I am happy to speak further to Aideen McGinley as well maybe on that specific point.
Mr Flanagan: And you will come back to us in writing with clarity on that?
Mr Flanagan: We have been told, in its lengthy report, that the companies inspectorate concluded that Ms McAleese did not meet the criteria for appointment. Can you tell me how somebody with the experience of Nigel Carson from DCAL did not identify that Ms McAleese did not meet the essential criteria for the post of chief executive?
Dr McMahon: That is what I am saying. I cannot believe that Nigel would have gone through a process knowing that the candidate —
Mr Flanagan: But Mervyn tells us that the board was probably told that she did not meet the essential criteria. There was a DCAL member on the appointments panel. So, the appointments panel knew and the board knew, yet you are telling me that you cannot believe he was involved in this process. Which is it?
Dr McMahon: The actual letter of 9 December 2003 from Mr Elder, with which I am happy to furnish the Committee, talks —
Dr McMahon: It is to Carol Moore, a senior official in the Department. It talks about the people who came through the process and states that three people came through it. The other two candidates would also have been acceptable and, therefore, would be placed as reserves. Nowhere in that letter does it suggest or indicate that any of those candidates who got through that process to that point — obviously, the same applies to Janice McAleese —
Dr McMahon: That she did not meet the criteria?
Dr McMahon: I would need to check with him, but I do not believe he would have. I cannot see a situation where an official would sit on a panel knowing that the process was flawed and allow it to continue. I just cannot believe that would happen.
Mr Flanagan: If he did know, what would it mean for the Department?
Dr McMahon: We would have to find out exactly what happened.
Mr Flanagan: Can you tell me why, eight years later, you still have not tried to establish whether that is the case?
Dr McMahon: The company inspectors looked at the issue. They went through it in great detail and had the powers to interview people. We have taken the analysis —
Mr Flanagan: What finding did they come to about whether Nigel Carson was aware or unaware that Ms McAleese did or did not meet the essential criteria?
Dr McMahon: As you said, it is a very big report. I did not see a specific reference to Nigel Carson being aware or unaware; it simply concluded that the candidate, Janice McAleese, did not meet the criteria.
Mr Flanagan: I am trying to find out from you specifically about the DCAL representative, who was a representative on the appointments panel, a representative on the board and your representative on it. They sat through that process. You are telling me that you cannot believe —
Dr McMahon: I do not believe for one minute; I am sorry —
Mr Flanagan: Mervyn says that he knew. Mervyn says that they told the board.
Mr Flanagan: Now you are telling me that the DCAL official did not apparently know.
The next point I want to bring you on to is the letter from Aideen McGinley on 4 February informing Ms McAleese that she was being appointed accounting officer. Are you telling me that that appointment was being made? There is a vast difference between being appointed the chief executive officer and an accounting officer.
Dr McMahon: I can tell you that that would not have happened. Aideen McGinley had no sense of that in writing that letter out. I have spoken to Aideen. The reason why I am struggling a wee bit with this question is because it is so outlandish the idea that an official would know that the process was flawed, a recommendation would come in and an accounting officer would —
Dr McMahon: I will ask this, but I have not asked the specific question, "Aideen, did you or did you not know that this was a flawed process?". I will tell you the reason why I have not asked that question: it is so unthinkable that a permanent secretary would send out a letter to an accounting officer on the basis of a flawed process to choose a candidate who was not qualified. That is why I have not asked.
Mr Flanagan: Somebody somewhere knew that she was not qualified for the job, but she still got it. Where do you think the problem emanated from? Do you think that nobody in the whole process knew? Do you think the appointments panel knew?
Dr McMahon: If records had been kept, the real questions for me would be these: did it happen at the initial sifting phase? Was there an initial sifting phase, and were people selected out at that point?
Mr Flanagan: Do you disagree with Mervyn? Mervyn says that the appointments panel knew. He says that it probably told the board. Nigel Carson, the DCAL representative, was a member of the appointments panel. If Mervyn knew, as a member of the appointments panel, surely the DCAL representative knew as well.
Dr McMahon: As I said, I cannot believe that was the case, but I am happy to check the facts on the very specific questions that you asked.
Mr Flanagan: The letter from Aideen McGinley to Ms McAleese clearly set out the expectations and requirements of Ms McAleese as the accounting officer. It informed her that she should:
"take advantage as soon as possible of the Civil Service College (CSC) course 'An Introduction to Public Accountability for Chief Executives.'"
"The College can also provide a fuller training package specifically tailored to your experience and needs."
To your knowledge, did Ms McAleese ever avail herself of that training?
Dr McMahon: I believe that she did, but we can double-check that.
Mrs Smith: I believe that the chair and she did.
Dr McMahon: They went to the board training as well.
Mr Flanagan: Did Ms McAleese avail herself of the training that was offered by the Civil Service college on an introduction to public accountability for chief executives?
Mr Elder: I do not honestly know that. The only training that I know that Janice McAleese and I did was the one-day training on the Nolan principles.
Mr Flanagan: The permanent secretary in DCAL brought it to the chief executive's attention that a course existed on an introduction to public accountability for chief executives. Your board appointed her to that position knowing full well that she did not meet the basic criteria for the position. Why did your board not insist that, as a very basic requirement, she participate in those training programmes?
Mr Elder: One, we did not know that the then permanent secretary had sent the chief executive that letter, and two, we probably would not even have been aware that such a course was available.
Mr Flanagan: The problem that is going to be touched on later is that the Department was in touch with the chief executive, the chief executive was in touch with the Department and the board was not involved at all. You cannot tell me whether Ms McAleese ever availed herself of that training.
Mr Elder: No, I cannot tell you that.
"the designation of you as Accounting Officer may be withdrawn if I" —
"conclude that you are no longer a fit person to carry out the responsibilities of an Accounting Officer or that it is otherwise in the public interest that your designation is withdrawn."
Was that action ever considered within DCAL?
Dr McMahon: In terms of another arm's-length body?
Dr McMahon: No, because, as Paul indicated, by the time that all these issues had come out, the chief executive had gone.
Can I make one point, because it is relevant? Again, if you look at the wording of that letter, you will see that the idea that the permanent secretary would have appointed a chief executive and sent out that letter on the basis that they thought that this person was not fit is just — again, I cannot see that in any way being a sensible scenario.
Mr Flanagan: I would like to find out from you, as soon as you can tell me, where the gap in communication was, because the appointments panel knew that Janice McAleese did not meet the essential criteria, but you are telling me that that was not fed back up to the DCAL permanent secretary.
Dr McMahon: I would need to check that with the other members of the appointments panel.
Mr Poots: Chair, this is an assumption that is being made. We should not be operating on the basis of assumptions, with respect, Mr McMahon. We should be operating on the basis of facts, and you should not be stating something that is merely an assumption on your part.
Dr McMahon: That is a fair point, and I will find out that fact.
Mr Murphy: Is the offer of the training from the permanent secretary to the chief executive standard?
Mr Murphy: If anyone is appointed to a post like that, they are offered training.
Dr McMahon: All accounting officers go for training.
Mr Murphy: That does not assume some deficit in that type of knowledge in advance of their being appointed.
Dr McMahon: Over the years, that training has improved and developed, and it uses these hearings as a —
Dr McMahon: It is a requirement.
Dr McMahon: I would need to check that point for the specific wording. I would expect that it was a requirement, but whether it was followed up on is the key question.
Mr Dallat: How long have you been preparing for this hearing?
Mr Dallat: Why is it that you do not have the answers at hand today to most of the questions that are being asked? This is the worst I have ever sat through. We have to check everything, yet you knew that this was coming up. I have no doubt you were rehearsing for a couple of weeks.
Mr Clarke: Mr Sweeney responded about the demise of Ms McAleese before she left. Is there any chance that someone in your Department warned her and she resigned before you actually came after her?
Mr Sweeney: The words "demise" and "coming after her" —
Mr Sweeney: This is my understanding of the context. First of all, let me say that I found her an impressive individual.
Mr Clarke: I am not really worried about how you found her, because I found her impressive as well when I read this report, since she hoodwinked, or was part of the organisation that hoodwinked, the Department. So, she was impressive, but go ahead.
Mr Sweeney: I was going to set the context —
Mr Clarke: I am just setting a different context for you.
Mr Sweeney: If I may respond.
I found the individual impressive. Certainly, during 2006 — I am thinking in and around the summer of 2006 — officials within the Department became aware that the individual had a serious health issue. Indeed, there was a time towards the end of 2006 when she went part-time. Then, going into 2007, she came back full-time again. When she resigned in May 2007, my understanding at the time was that she was resigning on health grounds because she had a serious underlying medical condition.
I am here to help and facilitate the Committee. I was party to a farewell luncheon for her organised by the board to acknowledge the contribution she made and to acknowledge the difficult circumstances within which she was resigning. The context of her resignation at that time had nothing to do with awareness of the debacle that was about to unfold.
Mr Clarke: The first thing I will observe is that you are not a very good judge of character, but anyway.
Mr Sweeney: Are you saying that of me?
Mr Sweeney: That is your opinion, and I respect that.
Mr Clarke: That is my opinion. I think the evidence is there that you are not a very good judge of character, but anyway.
Mr Sweeney: Forgive me, but that is a very serious accusation against any individual.
Mr Sweeney: You have not heard my evidence, so —
Mr Clarke: I have heard your evidence. I have listened to you, and I have listened to you before as well.
The Chairperson (Ms Boyle): Mr Clarke, we will get back to the inquiry. I appreciate where you are coming from, and you allowed Mr Sweeney to respond, but we want to stick to the inquiry and the evidence that we have.
Mr Sweeney: Chair, I am here to help the Committee today, but opinionated views like that cannot be left unchallenged.
Mr Clarke: But, sure, you have an opinion as well. I am just saying that I do not see you as being a good judge of character. There you are. OK?
Mr Sweeney: I did not express them.
Mr Sweeney: With respect, I disagree entirely.
Mr Flanagan: Michaela, I have one last question, and it is about the future, instead of the past. We have seen here that an individual was appointed as an accounting officer without any due diligence being carried out on her ability to do the role. Is the situation the same today, in that somebody's appointment as an accounting officer is nearly rubber-stamped, or can you tell me what safeguards have been put in place to prevent that happening again when an individual is put in as an accounting officer?
Dr McMahon: The safeguards are, first, the actual appointment itself. That would be made on the basis of a sponsor team. I have talked about the sponsor arrangements being much stronger than they have been in the past. The second thing is that we have functioning audit committees. We make sure that they are functioning right the way across the arm's-length bodies, and we monitor them. We have people attending them as well. So, basically, we now have an ongoing monitoring of the process and much tighter financial monitoring. We know exactly where we are with each of the budgets of the arm's-length bodies, what their profile is and what they are actually spending.
To be fair, a lot of the mechanisms came out of this and were put in place as a result, and Paul started that process. It is a much tighter regime now, which ensures that we keep an eye on it on a regular basis.
Mr Carson: I will just add that, where accounting officer responsibilities are concerned, we will work with an arm's-length body on the person specification for the chief executive and ensure that it contains the criteria necessary for an accounting officer. Then, once the preferred candidate is appointed and, obviously, has met the criteria, we ensure now that they receive the accounting officer training.
Mr Flanagan: Is it merely a matter that the chief executive of an arm's-length body or an NDPB is automatically appointed as the accounting officer, or is there a competitive process in the organisation to apply separately to become the accounting officer?
Dr McMahon: When a chief executive is appointed [Inaudible.]
Mrs Smith: Yes, it would be made clear in the specification that the person would be the chief executive and the accounting officer. As colleagues said, part of the process is making sure that the criteria and characteristics for the accounting officer are built into the job description to ensure that the necessary skills and experience are there. Those are tested during the interview.
Mr Flanagan: What is to stop an appointments panel and a board appointing somebody who does not meet the criteria and saying, "We still think that she should have the job"? That is the same thing that happened here, where an underqualified person was appointed as the accounting officer. I do not hear from you how that is being protected against.
Dr McMahon: All the appointments are made through HR Connect, which is a shared service that the Civil Service uses. It documents very carefully every appointment process, and all the documentation is available. It simply would not happen today that you could go through a process with HR Connect and come out the other end and say, "Well, we do not like the result of the process, so we are going to appoint that person anyway." It just would not happen.
Mr Murphy: The appointment letter was signed off by the perm sec in 2004 when there was direct rule, so is it the case that the perm sec would not sign off on something now — it would be the Minister who would have to sign off on something? So, was it the case in 2004 that direct rule Ministers were content to allow perm secs to handle this sort of stuff and not to bother themselves too much with it?
Dr McMahon: No, in fairness, it would be the same process today, because the line of accountability here is from the accounting officer directly to the Assembly and then from the principal accounting officer in the Department through to the chief executive.
Mr Murphy: But the letter to appoint the person was signed and sent to them by the permanent secretary. Would that be the case today?
Dr McMahon: I think that there are two separate letters of appointment. There is the letter of appointment that the employer — the NIEC — sent, and then there is the letter of appointment to the role of accounting officer in the NIEC. The second one is the one that the permanent secretary in the Department signs.
Dr McMahon: The permanent secretary would sign it.
The Chairperson (Ms Boyle): OK, members. At this juncture, we will take a brief comfort break for 10 minutes, if that is OK, and reconvene back here at 4.05 pm. That will allow us time to change the top Table.
The Committee suspended at 3.56 pm and resumed at 4.15 pm.
(The Deputy Chairperson [Mr Dallat] in the Chair)
Mr Poots: Thank you. As is on the public record, I was Minister of Culture, Arts and Leisure from May 2007 to May 2008, when these issues were discovered. Mr Sweeney was my permanent secretary during that time. Mr McMahon worked in the next Department that I went to, the Department of the Environment, where Mrs Smith also worked with me. That will not make any difference to the questions that I will ask, because we have a duty here to hold people to account. I do not have any interest to declare, as such, but I wanted to place on record that I was the Minister in the Department at that stage, which perhaps gave me access to information that will be discussed during the meeting.
The Deputy Chairperson (Mr Dallat): Thank you. Does anyone else have an interest that they wish to declare? No? OK. We will resume.
I would have been next on the rota to ask questions. I apologise for asking them from the Chair, but that is the way that it worked out. I will try to keep to the report and avoid anything outside that.
I think that you, Mr McMahon, mentioned at the outset that the accounting system was manual, probably clapped out and hopelessly inadequate for the job for which it was needed. Why did no one notice that? Surely the immediate, initial issue should have been to have an accounting system in place, presumably computerised, that was able to give you the information that you needed.
Dr McMahon: Those were not my comments, Chair. However, I will say that the problem with the Department not identifying those flaws was down to the lack of an audit committee and, clearly, the auditors not picking up some of these issues during their work.
Dr McMahon: The question is the same. I take your point.
The Deputy Chairperson (Mr Dallat): Perhaps leading on from that, you will be aware that four members of the board and the chair approved a second overdraft on 14 November 2005, yet there was no board meeting.
Dr McMahon: Yes, the inference from that was that there was documentation there that did not reflect the decision of the board, even though it claimed to. That was not brought to the Department for approval. Indeed, the original overdraft had been brought to the Department for approval, and I believe that it went to DFP as well. However, in this case, there was no approval, and the fact that the board did not meet suggests that the documentation had been fabricated.
The Deputy Chairperson (Mr Dallat): Yes. In fact, that is the question that I was going to ask. I put it to you again, although I think that you have answered it: in view of the requirement to have four signatures, what is your assessment of what happened?
Dr McMahon: I accept the report completely. I think that it accurately identifies the fact that this —
The Deputy Chairperson (Mr Dallat): Like the rest of us, I am sure that, on your way to work this morning, you heard about the slashing of funding to DCAL and the groups that will not have money, including the Ulster Orchestra. However, at that stage, Mr McMahon, or maybe Mr Sweeney, it was Christmas Day every day at DCAL — it just gave people's money away.
Dr McMahon: There were controls in place. They were not adequate controls. A financial memorandum set out the relationship between the Department and the organisation. Grants were issued to the organisation. Grants, in turn, should have been issued in line with the guidance that was there, and there was a lot of guidance. Clearly, however, the grants were, first, not issued in line with good practice and the requirements of the financial memorandum, and, secondly, the Department did not have systems in place to identify when and why that was going wrong. The one thing that I will say, in fairness, is that the company had some successes as well. That does not detract at all from the disastrous financial consequences —
The Deputy Chairperson (Mr Dallat): We will give you every opportunity to tell us about the successes, in case we have missed them. A former Comptroller and Auditor General once told us that, when King John was travelling around the country with his chest of gold, it had a triple lock to make sure that it would not be stolen. You had no locks on.
Dr McMahon: We did not have adequate locks, that is for certain.
Dr McMahon: Yes. I suppose that that is the thing about it. The systems that we have now mean that there has to be a level of trust — there just has to be when working within and between organisations. A zero-trust culture leads to nothing but bureaucracy, and you do not get anything done. However, that has to be informed trust. The problem in this case was that the trust was not backed up by measures. From reading the material, I also think that — this is speculation — it is clear that people were receiving information but did not understand the full import of that information. Now, for example, to make sure that people join the dots, we sit in a room without necessarily having paper in front of us. A lot of paper flows through the system, such as biannual assurance statements and all sorts of different material, to provide comfort and assurance to the accounting officer. We sit without any paper and just get an assessment. If we are worried about an organisation, we ask, "What is your assessment of that organisation?", and people from different parts of the Department will give their assessment. We call it hothousing, and the idea behind it is that you find out what is really going on, because, too often, you are swamped in the detail without necessarily taking that step back and saying, "What do we really think is happening here?" Unfortunately, we were not doing that then.
The Deputy Chairperson (Mr Dallat): Let us go back through the tunnel of time to September 2005. The Events Company lost £400,000 promoting two motocross events. It then set up an overdraft of £200,000 and, in December, had to borrow tens of thousands of pounds from staff members. Do you agree that that was complete chaos? Why did the Department not know what was going on?
Dr McMahon: As the report quite rightly identifies, we had a chief executive about whom the report states that the Audit Office had not observed such a comprehensive break from the Nolan principles. I do not have the direct quote in front on me, but it is in paragraph 11. The net result was that it led to a test of the system. You had people taking decisions without necessary approvals, the falsification of documents and accounts being doctored and presented to the Department. That is not to let the Department off the hook, because the problem was that we did not have the controls in place to make sure that we were identifying those things, and, when information came to us in the form of whistle-blowing, we were not interpreting it in that light.
At the beginning, you asked what went wrong. All along, people had a belief that we were dealing with governance systems and with a chief executive who was more or less operating in the way that you would expect a chief executive to operate. That was not happening, and the systems were not there to identify that or to enable the Department to take a step back and ensure that we understood what was happening.
The Deputy Chairperson (Mr Dallat): Mr McMahon, this was a long time ago. Even the dogs in the street knew then what was going on. I knew what was going on because I was one of the whistle-blowers. Why, so many years later, are we only now having an opportunity to ask questions about it?
Dr McMahon: We would all have preferred the Audit Office report and the company inspectors' report to be produced earlier. I know that you will be talking to your colleagues from DETI about this, but, clearly, it was important in terms of natural justice to make sure that —
Dr McMahon: For all of the people concerned. It was important to have a proper process. Paul commissioned a report as soon as all this broke. We had a detailed report saying, "Based on the evidence that is there, this is what happened". The problem with that was that, without being able to compel witnesses or compel people to interviews, without being able to use the Police and Criminal Evidence Act 1984 (PACE) procedures and without being able to compel the production of documentation, that could go only so far. The Department, in consultation with DETI, decided to pursue this through the company inspectors route.
The Deputy Chairperson (Mr Dallat): I will let Trevor in in a moment. Mr Elder, you have heard that there was fraud all over the place. You were the chairperson. How on earth did you allow that to happen?
Mr Elder: I allowed it to happen because I did not know that it was happening until the balloon went up in 2007. This report and this Committee are dealing with the events that unfolded from 2005 to 2007. Whilst it is not in the remit of this Committee, I think that it is fair to say that the Events Company operated in a very successful way from 2002 to 2005. I have to reiterate, bearing in mind that I may incur the wrath of Mr Clarke, what Paul Sweeney said: we all had a high respect for Janice McAleese in the early days.
I do not want to go into the detail, but there were reports such as the Strategic Leisure report in 2002, which showed that, for £1·6 million funding in a year, we brought in £11 million. For three events — the senior British Open golf, the men's cricket and the soccer — and investment of £852,000, we brought in £3,600,000. I accept that things went wrong from 2006 onwards —
The Deputy Chairperson (Mr Dallat): May I bring you back prior to 2006, to 2005? There was a Supermoto event in 2005 from which there was no income. Are you telling me that there were no spectators at the event?
Mr Elder: There were spectators, and, indeed —
Mr Elder: No, that did not come out until 2006; I am talking about 2002 to 2005.
Mr Elder: I have no idea.
Mr Elder: Yes, but I was not the chief executive, and I was not involved in the event. I was relying on the chief executive to give a report.
I knew that there were whistle-blowers. I knew that you were a whistle-blower. Indeed, I asked Janice McAleese to write to you and formally invite you to come in so that we could discuss this, and I got no response.
Mr Elder: It is just a pity that we missed that opportunity. One can only assume that Janice McAleese did not carry out my —
Mr Elder: I accept that, Chairperson.
The Deputy Chairperson (Mr Dallat): — because I have spent the past six or seven years trying to bring this to a head. I am grateful to the Audit Office that, in the last year, and only in the last year, it was able to do so. Yes, I knew that there was skulduggery all over the place.
Mr Clarke: I want to come back to something that Denis said, but, Mr Elder, you will not incur my wrath on account of your last remarks, other than the fact that you are talking about Janice McAleese and the wonderful job that she did in 2002. She was not appointed until 2003, from my reading of the report, so I do not think that we can hold Janice McAleese in high regard for something that she did not deliver.
Mr Elder: She was involved as a senior events manager.
Mr Clarke: She was not the chief executive. Whoever the former chief executive was, I think that you could possibly hold them in a higher regard for their scrutiny and management of the project. It all fell apart when you, as chairman of the board, and some of your colleagues, appointed someone who did not even meet the criteria. By appointing Janice McAleese, you destroyed what could have been a good organisation.
The example that you cited was from the year before she was appointed, so I think that, if you want to applaud anyone, you should applaud the former chief executive of the organisation; not the one whom we are talking about today.
Mr Elder: I am not going to waste the Committee's time, but I could give you chapter and verse of a number of events that happened between 2003 and 2005 that were successful —
Mr Elder: I am not trying to justify —
Mr Clarke: You certainly cannot give us much about the 2005 one. I do not want to steal the Chairman's thunder, but I could hear it from my house. It is within two miles of my house, and I could hear the motorbikes that day. I am appalled to find out now that they must have been riding around without an audience: there must have been no one there because there were no takings on that day.
Mr Elder: The 2005 UEFA European Under-19 Championship games were an investment —
Mr Clarke: I am talking about the motocross at Moneyglass.
Mr Elder: I accept that —
Mr Clarke: The media said that thousands of people attended, but there were none.
Mr Elder: You asked me how I could justify —
Mr Clarke: My point about your justifying was that you made a statement about something in 2002, when Janice McAleese was not the chief executive. Chairman, I was not going to pick up on that point, because it was yours.
I want to get back to Denis about falsifying records.
Mr Clarke: Denis, Mr Dallat is in the Chair now, and I am surprised that he let you gloss over the falsifying of records so lightly. You now know about the falsifying of records, but you did not go into much detail about that. Will you elaborate on what you meant by that, what evidence you have and when you first found out or became aware that the records were falsified?
Dr McMahon: A number of cases in the report identify the falsification or the potential falsification of records. One was the overdraft that we talked about and the fact that there was —
Dr McMahon: The one that I referred to in answer to a previous question was the falsification of the papers. We have to assume that they were falsified: the board did not meet, but the papers claimed that it met to agree the £200,000 overdraft.
Mr Clarke: Whose signatures were on those reports?
Dr McMahon: The board's. Sorry —
Dr McMahon: The papers. I am talking about the papers. The papers stated that the board met to agree the £200,000 overdraft.
Dr McMahon: They were, supposedly, signed by the board, but the board said that it did not meet on that date.
Mr Clarke: You will not have a signature of "the board". You will have someone who represents the board.
Dr McMahon: Presumably, it would have been the chair's signature.
Mr Clarke: We are hearing that there were falsified records, your board did not meet and you signed those off.
Mr Elder: I do not remember doing that. I am not aware that I did that.
Dr McMahon: In fact, that is exactly what was said to the inspectors, so the implication is that those papers were falsified.
Mr Clarke: It is a very damning statement to say that records were falsified, and we need to explore that further. On the signature — it now turns out that it was Mervyn Elder's signature — was there any forensic work to find out whether it was Mervyn's signature or somebody had falsified it?
Dr McMahon: The company inspectors and this report simply concluded that the board did not meet.
Mr Clarke: We are putting Mr Elder in the frame here, which may be unfair —
Mr Elder: I do not think —
Mr Clarke: Let me finish my point, Mr Elder, I am trying to help you.
Dr McMahon: To be clear, I am not putting Mr Elder in the frame.
Mr Clarke: We are talking about records that were falsified. People will be interested to hear that. We then find that they came from the board. Mr Elder was the chairman of the board, and we are inferring that they came with Mr Elder's signature. What I am trying to establish —
Dr McMahon: Sorry, I am not —
Mr Clarke: Sorry, you are, because you said that it was the chairman of the board.
Dr McMahon: Chairman, may I please clarify that?
Dr McMahon: I am simply saying that the papers that recorded the board's decision could not have recorded its decision because the board did not meet on that date.
Mr Clarke: You found that out only afterwards. What I am trying to establish —
Dr McMahon: I am not for one second suggesting that Mr Elder —
Mr Clarke: Sorry, Denis, all that I am trying to establish is — I am trying to be helpful to Mr Elder.
Mr Clarke: We are inferring that there were board minutes, and, unfortunately, Mr Elder was the chairman of the board, so he, you would agree, is implicated in this until we establish otherwise. Was any work done to prove or disprove that it was Mr Elder's signature on those falsified documents?
Dr McMahon: The report simply refers to the fact that there was no board meeting on 14 November. The inspectors concluded that it appeared that both the NIEC board and DCAL were unaware of the second £200,000 overdraft.
Dr McMahon: The conclusion —
Mr Clarke: I am not interested in what it said. In a comment to the Chairman, you said that there were falsified records. When I pressed you on that, you indicated that they would have come from the board. When I pressed you on who would have signed that —
Mr Clarke: You did. It is on record and in Hansard. You indicated that it would have been the chairman of the board. I am trying to establish that, if it was not the chairman who signed them, we need evidence that he did not sign them. The only way to do that would have been to have them forensically checked.
Dr McMahon: We have not had them forensically checked. The inspectors' report did not refer to them being forensically checked.
Dr McMahon: Sorry, just to be clear, may I please put it on the record that I did not mean to imply for one second that —
Mr Clarke: I do not think that you did it on purpose —
Dr McMahon: I am sorry. I want to be absolutely clear that I am not implying for one second that Mr Elder or the other board members were involved in that. I am simply saying that I am taking the report at face value. I made the point previously that I accept it. So, please, I would like to be clear about that so that I am not accusing —
Mr Clarke: I am trying to be helpful to Mr Elder because, when you talk about falsified records and board meetings, there is an inference to be made. I am trying to establish whether we can get a copy of that record and have it checked for clarity to rule out Mr Elder being involved and establishing whether someone else may have signed Mr Elder's name as a representative of the board.
Dr McMahon: We will follow up on that point. That is a fair point.
Mr Elder: May I offer information, please, through the Chair?
Mr Elder: The inspectors brought this document to my attention during interviews and showed it to me. I was able to confirm that it was not my signature.
Mr Clarke: That is helpful, but, for complete clarity, Denis, you are now in that position, and we need to completely seal that one away so that we can exonerate Mr Elder. There is only one way to do that. With no disrespect, I do not think that Mr Elder can verify or otherwise that it was his signature. The only way to rule that out is to have it checked.
Dr McMahon: That is a very fair point.
Mr Poots: Did any of the board members know about the £200,000 overdraft?
Mr Elder: We knew that there was one overdraft that might have been £100,000.
Mr Poots: Was the board aware that a second overdraft had been taken out?
Mr Elder: No. Not that I can recall.
Mr Poots: Was it not demonstrated in the accounts?
The Deputy Chairperson (Mr Dallat): The point has been made. Very briefly, Mr Elder, may we go back to just a few moments ago? This is on record, so it needs to be accurate. Did you instruct Janice McAleese to write to me, as a whistle-blower?
Mr Elder: I realise that.
Mr Elder: I wish that we had done that.
The Deputy Chairperson (Mr Dallat): So do I, so we are definitely in agreement on that.
At what stage did you become aware that the Events Company was promoting events? I am leading on to Moneyglass.
Mr Elder: As I said, there was a reference to it in the minutes of 12 February 2005. It showed that, while we felt that we were getting into events management, it was not considered appropriate by the board. Therefore, the board said that the chair was not to get involved with the promotion of events but that we were to support that.
Mr Elder: May I continue?
Mr Elder: One of the reasons why I was brought on to the board was that I was very au fait with the promotion of events. I was a member of the United Kingdom's major events sporting group. As you know, through my Belfast City Hall contacts, I brought many world championships to Belfast. The nature of events is that they are, dare I use the word, entrepreneurial, and you have to be very aggressive when trying to get events: for example, if I may give you an example, when I sent the chairman of the golf subcommittee to Stockholm to put down our marker for the Solheim Cup, we were offered the Solheim Cup there and then for £1 million. We could not take it because we had an agreement with EventScotland that it would take it and we would get it the next time. We held back, and, with the new golf centre at Lough Erne, we prepared our bid of £1·5 million, only to be usurped by the Government in the South of Ireland, who offered over €3 million. That is one example of how you have to move quickly.
There is, unfortunately, a degree of risk, and there is a thin line between just funding and trying to access events. When you access an event, there are very well-intentioned event organisers who have an event but not the expertise. My take to the chief executive — the board supported me on this — was that we could sit on our backsides and give funding and let them get on with it, but, if we had expertise, as we showed in the IFI funding for the North West 200, we should get involved.
So we passed a board minute to say that we would help to coordinate and support, but we fell short of saying that you must get into the realm of promoting. Of course, as we all know now, that is where the whole thing went wrong. That happened in 2006.
Mr Elder: Absolutely not, but I think that you will agree, Chair, that the IFI money that provided the superstructure for the 800 people to enjoy corporate hospitality was a very useful addition to the North West 200.
The Deputy Chairperson (Mr Dallat): Correct. I could not agree more. Moneyglass is a place that all of us associate with success, with AP McCoy, horse racing, thoroughbreds and all that.
Mr Elder: Not at the time they made the bid, no, but I was —
Mr Elder: I was made aware of that latterly, yes.
Mr Elder: I tried. I went to one meeting that was held in Ballymena with the Department of the Environment to see whether there was any way that we could untangle it, but, unfortunately, as the record shows, the damage had literally been done. The event and the people involved in it had been funded without the knowledge of the board. The whole thing had taken a life of its own, unfortunately.
Mr Elder: I cannot remember his name, but I think that he had an association with our then chief executive.
The Deputy Chairperson (Mr Dallat): Maybe we should not go there. I am not sure. Was there a proper contract? Was there an appraisal? Maybe it is a question that I should put to Mr Sweeney, because you did manage quite a big Department and you would understand procurement, tendering, planning permission and all that. Were you aware of that craic?
Mr Sweeney: I became aware of it when the KPMG report was presented to the Department in April 2008. Then there were the circumstances surrounding the Moneyglass situation, the issue of not having a licence, the contaminated soil, and the direct conflict of interest with the contractor.
The Deputy Chairperson (Mr Dallat): In hindsight, was the Events Company, or Janice McAleese, really funding something that would be a capital investment for the future, or was she just financially supporting people "close" to her?
Mr Sweeney: The rationale at the time was that we were landing those Grands Prix for Northern Ireland in the hope that one would catch a world event for motocross. Indeed, the company eventually did land that in 2008, but, of course, at that time, it was not able to conduct it. The rationale, as I understood it at the time, was that the previous event had been held in Draperstown and Draperstown was seen to be too small for the ambition of the company. It moved to Moneyglass on the presumption that the capacity of spectators there could be up to 40,000, which might attract that kind of world event in the future. That was the justification for the capital investment of £120,000 to construct the track, which would be used not just for the 2007 event but for future events. That was the rationale at the time.
The Deputy Chairperson (Mr Dallat): That sounds like a convincing story, but even the foxes, badgers and hedgehogs knew that it was a laughing stock. It was never going to produce anything. Why did you not know that?
Mr Sweeney: Again I am here to help the Committee. The event did take place. It was perceived to have been moderately successful, and, ultimately, the Events Company did land the world event scheduled for 2008, which, of course, did not happen.
Mr Clarke: It sounds impressive when you listen to it again. However, I do not understand the backdrop of what you are talking about here, Mr Sweeney. It still did not enjoy planning permission. Your Department sanctioned expenditure of £120,000 on a site that did not enjoy planning permission and probably had no likelihood of ever enjoying it. Who was asleep at the wheel in your Department then?
Mr Sweeney: The operational responsibilities for organising and coordinating, to use the Chair's terminology, lay with the Northern Ireland Events Company.
Mr Elder: The board was asked this very question by KPMG, and the response to the board, which I concurred to, is that the board was never asked to give approval to build a track, and therefore it never asked for news updates on planning issues connected with materials. That demonstrates a breakdown of communication between the board, the chief executive and DCAL.
Mr Clarke: Why would DCAL direct the board to pick a site-specific place to drive forward a pipe dream that someone in your organisation has for Moneyglass? Why would DCAL do that?
Mr Elder: As I say, the board was not aware of —
Mr Clarke: The board was the driver behind the Moneyglass venture, not DCAL. DCAL has questions to answer in relation to sanctioning expenditure of £120,000 on the basis of no planning permission; but, Mr Elder, please do not come here and try to pass that one onto DCAL. DCAL has a lot to answer for, but on that one, the board is wholly responsible.
Let us get back to this. You worked up a plan — a pipe dream, whatever you want to call it — on the basis of a site at Moneyglass, known as, I think, the demesne. You went to the Department and asked for money, which did not ask you about it but just wrote you a blank cheque and said, "Go spend that money; we do not care what you are going to do with it, we are just going to give you a cheque." You all did this on the basis of there being no planning permission.
Earlier, you were applauding yourself on your experience of bringing in events; I am not trying to knock that down. However, I suppose that anybody could run an event if they did not do it properly and did not have the proper controls in place — health and safety, planning, Roads Service, or traffic management. Anybody could open a field and have an event that turns out to be very successful and make money. However, this is public money, Mr Elder, and there is a lot of public interest in it. So, convince us how you went ahead with this without the proper planning approvals.
Mr Elder: I cannot convince you because the board itself was not convinced. You say that the board was responsible; that may be so, but the board was not given information that obviously was required.
Mr Clarke: If the board was not convinced, why did it let this chief executive do a solo run?
Mr Elder: We let the chief executive continue with the event on the basis of the first report that she brought to us, seeking the cap funding, but that was surpassed. We only agreed to a cap funding for the event, and that was —
Mr Clarke: You agree that on the basis that you had no planning permission for the site.
Mr Elder: No, we did not. We did not know that there was no planning permission for the site.
The Deputy Chairperson (Mr Dallat): Mr Elder, we are talking about a quarter of a million pounds of taxpayers' money, and you did not ask whether there was planning permission? There were no appraisals or business plan? There was nothing, not even a board meeting.
Mr Elder: Chairman, there is the weakness, I have to confess. We had faith in the chief executive that things like planning permission would have been a pre-requisite for coming to the board to seek funding.
The Deputy Chairperson (Mr Dallat): Mr Clarke, let me cut across you for two seconds. Who got the dosh? I have seen the place, and a quarter of a million was not spent on a digger going round it. Who got the loot?
Mr Elder: I have no idea.
Mr Clarke: You do not know. So you spent the money, and you do not know who got it.
Mr Clarke: Let me take you back, Mr Elder, to your days in Belfast City Council where you were director of environmental services.
Mr Clarke: Mr Elder is saying that there was no expertise or knowledge about planning permission, but, surely, in your time in Belfast City Council, your department will have been involved with some of the large events around Belfast. There will have been permissions of all sorts needed for some of those. Is that not right, Mr Elder?
Mr Elder: For the record, I was director of leisure and community services.
Mr Clarke: That is worse, actually. Anyway, go ahead.
Mr Elder: The other department will have been involved more with planning.
Mr Elder: We had large leisure events, yes.
Mr Elder: We had international table tennis and international basketball and badminton.
Mr Elder: Off site, there were, for example, concerts on Boucher Road.
Mr Clarke: You were using your regulatory authority to have those, were you not?
Mr Elder: The promoter would have sought approval from the controlling department, which was my department, for the use of Boucher Road. If the department gave approval, it would be up to the promoter to seek the statutory approvals from the Department of Health and the Department of the Environment.
Mr Clarke: In your days at the council if a promoter did that you would just take their word for it.
Mr Elder: The promoter would have to do that.
Mr Clarke: No, you would just take their word for it.
Mr Elder: Yes, and it never failed.
Mr Beggs: Reading the report, I see that there was a capital grant of £160,000 from DCAL. Mr McMahon, what conditions were attached to that capital grant? I know that if you are a small community group and you want to extend a kitchen you have to prove that you have planning permission and that you have the lease for the property etc. What conditions did the Department put on this capital grant of £160,000, which, presumably, was used for building the new course?
Dr McMahon: The answer is that not enough conditions were attached. Even at that stage under most capital grants, as you quite rightly say, in advance of that you would have an economic appraisal that would be signed off and would include a reference to planning permission. Clearly, that was not available in this case.
Mr Beggs: What conditions were attached? None? Was it just a blank cheque?
Dr McMahon: It was not necessarily a blank cheque, but it will not have had the full suite of conditions that you would expect.
Mr Beggs: Can you furnish the Committee with a copy of what conditions were attached?
Mr Girvan: That point brings me to a point where I feel that I need to delve into it from the Department's point of view. Is this the norm in the Department? Was there a structural problem at that stage that allowed what I call a very light touch? It is not even an arm's-length body. I do not think that there was even eyesight, never mind arm's-length. Was this a structural problem in the Department at that stage that it allowed this type of very light touch management to go on without question to ensure that proper governance was in place?
Dr McMahon: The report quite rightly identifies that the Department treated this particular organisation as a low risk. With hindsight, obviously that was a mistake. A more general point is that there was not close enough working between the finance and administrative and sponsorship teams. That comes out in a whole range of different ways — how finances were tracked and in the drawdown arrangements as well. You can see that.
Clearly, the sponsorship arrangements that Paul initiated on the foot of this, and which have since come into place, have focused on much, much closer working where you do now have very rigorous requirements. Every time money goes out the door, there is a very clear appraisal process and a clear understanding of what the levels of delegation are when a business case needs to come to the Department. There are clear drawdown procedures, and they are implemented and audited.
Mr Girvan: I appreciate that that is now; I am talking about then. Paul, maybe you can come in on the point. I appreciate that we are dealing with one payment of £120,000 for that one event. Do you have an idea to whom a large payment like that would have been made? Would you have questioned it?
Mr Sweeney: I want to give a broader context and assessment of what was happening with regard to the overall oversight of DCAL and its arm's-length bodies. Of a budget of around £110 million, 83% went to approximately 16 arm's-length bodies at that time. Some of those bodies were huge. One was so large that it got a £20 million a year grant from the Department. The Events Company got approximately £18 million. When all this broke in September — and I have to say that it had a catastrophic impact in the Department at the time — my priority was to ensure that it was not happening in the other arm's-length bodies: were we being passive there? Were we on the cusp of potentially collapsing the governance of the other arm's-length bodies? I did two things at the time. I commissioned an independent review of governance in the arm's-length bodies that we sponsored. That gave me some comfort because it concluded that, fundamentally, the governance in the other bodies was sound.
I also commissioned an independent review of the manner in which the Department discharged its oversight role. It concluded that although, in some areas, the oversight role was strong, for the most part, overall, our oversight of our arm's-length bodies was weak. The report drew attention to serious capability shortcomings, skills deficits and training. It came up with 41 recommendations that would enable the Department to improve dramatically its capacity in discharging its oversight role. That is the kind of context within which we were working. The Events Company, as Denis said earlier, had the fundamental governance structures in place, but they clearly were not being consistently applied. The Department was insufficiently challenging of the board about adhering to the structures that we put in place. That was the context.
Mr Girvan: I appreciate that breakdown. With regard to the payments that would have been made — we have referred to one fairly large payment — were you able to identify who that payment was made to?
Mr Sweeney: The lion's share for the construction of the course in Moneyglass in 2007 went to one contractor, and the report draws attention to the fact that there was a personal relationship between the chief executive and the contractor.
Mr Sweeney: I can, Chair, if you so wish.
Mr Girvan: I would like that to be on record, yes.
Mr Sweeney: I understand that the name of the contractor was Joe Cockburn, who, at the time, was in a personal relationship with the chief executive.
Mr Girvan: I want to ask about the board, which brings me back to the point. I apologise, Chair, for following this line. Because it was of such value, it should have gone out to tender. The board should have been aware of that. Did it ever go through the board that there was a tender process associated with the expenditure to promote and run this event?
The Deputy Chairperson (Mr Dallat): Perhaps before you answer that, Paul, can you tell me whether you were even aware of this construction? I ask the question because it was widely reported in the media. I would have thought that there were people in your Department who clip out news items, and so on and would draw attention to the fact that, "Hey, we're spending a quarter of a million pounds in Moneyglass and we know nothing about it."
Mr Sweeney: The extent of my knowledge was in that context that I explained earlier. The franchise was held by an organisation called Youthstream. The way in which it was presented to the Department was that it had been investing in motorcross for some years, the Grands Prix that it had run in Northern Ireland could land a world-class event, and it needed to move to a site that had greater capacity. It needed to make an investment in the construction of the site, not just for the 2007 event but in the hope that it would land future events. Indeed, at the time, Youthstream, as I understand it, was conveying to the Events Company that it was on the right trajectory here. That was the context in which the Department approved a capital investment of £120,000 initially in the Moneyglass site, not just for a one-off event, but in the hope that that would be a consolidated site that would then be capable of hosting future events, perhaps even grander than a Grand Prix.
Mr Girvan: Just to come back on a point to Mervyn about that type of expenditure. As a board, would it have had some input in ensuring that tenders were submitted for such a sizeable contract?
Mr Elder: The board's understanding was that there was a cap funding and that Youthstream would do the event. Therefore, as I said earlier about the events that happened in my Department and in the city council, it was up to the promoter. We would have thought that the promoter would have to dot all the i's and cross the t's for that.
Mr Girvan: I am now starting to see that the Department seemed to use arm's-length bodies as a way of doing a Pontius Pilate act — we have passed the money over and our hands are clean; it is up to you. Now that we have identified what did happen, was any disciplinary action taken against any member of staff in the Department, or has anybody been sanctioned as a consequence of the misaction that took place?
Dr McMahon: In the Department, no.
Mr Girvan: I was expecting that answer. On the basis of that, lessons have been learned. Is there an indication that the Department is taking a micromanagement position towards future arm's-length bodies in its delivery of capital projects and things like that?
Dr McMahon: We certainly do take a very detailed approach. I am being totally open about this: it is one of the things that we have to look at, because the danger is that you lose the wood for the trees. That is one of the reasons why I referred earlier to the special processes that we are trying to put in place now. Yes, we certainly have much better records, much better processes, really good sponsorship manuals, biannual insurance statements and all those things. The problem is that that, of itself, will not ensure good governance. It is about how we get the appropriate balance. You made the point earlier about Pontius Pilate. There is a really important point here because, particularly in a devolved situation that you referred to earlier, Ministers and political leaders have a much closer interest in these organisations, and that is something that we can look at.
Mr Beggs: I want to follow the £160,000 again. Mr Sweeney indicated that £160,000 of capital funding was passed by the Department to the Events Company specifically to build this new track. OK.
Mr Sweeney: Forgive me; I can check. It may be more in the region of £120,000 of capital grant. It was £123,000.
Mr Beggs: OK. It did that without any business case and without planning permission in place. Did you not feel uncomfortable about that?
Mr Sweeney: Denis has undertaken to check the documentation. I have to assume that there would have been a business case of sorts presented to the Department, and it may well be that we still have that on the record.
Mr Beggs: Did it identify that the soil type in this particular site is unsuitable?
Mr Sweeney: I very much doubt that that was the case, because this debacle emerged after the KPMG report.
Mr Beggs: My question to Mr Elder is this: you have been given this £160,000 potential capital expenditure, so how did the board manage the expenditure of that additional capital funding?
Mr Elder: From recollection, as I said, the board gave our capital funding, which was — I cannot remember — £150,000 or £120,000. We would have seen that as going towards Youthstream with our money and, therefore, it was for the chief executive to supervise the contract with Youthstream.
So, as far as we were concerned, it was a fairly clear-cut case. We gave our part into the middle. There was additional funding coming from DCAL for the track, and that was going to go into the pot of money, which was to produce the event under the banner of Youthstream.
Mr Beggs: Are there minutes to support that line of thinking?
Mr Elder: Hopefully. I am sure that there are.
Mr Sweeney: Chair, can I say something at this stage? There is the whole issue of the vested interest in terms of who constructed the track. I said earlier on in the session that I found Janice McAleese an impressive individual.
Mr Sweeney: That is a different question. I will develop the evidence-base for my assessment at the time, if I may. I will be very brief, Chair, but I think that it will help the Committee if I give an idea of the context within which the Department and the board were operating. There was a major grant paid through the Northern Ireland Events Company to an organisation called Rally Ireland for two events, one held in the latter part of 2005 and one in early 2006. It was about £900,000 of grant aid. To cut a long story short, Rally Ireland found it very difficult to get money released out of the Northern Ireland Events Company for the two events that it had hosted. Indeed, such was the seriousness of the situation that the Department asked an independent auditor to look at how the Events Company was overseeing this grant of £900,000. BDO Stoy Hayward undertook that exercise. Again, I am being very brief here. The long and the short of it is that BDO Stoy Hayward was able to document that this was not a chief executive who was unaware of the responsibilities governing accounting in Northern Ireland or unaware of the responsibilities of an accounting officer — things like appraisals, procurement etc. In point of fact, the evidence, in this particular instance, was that this person, the chief executive of the Events Company, was assiduous in discharging the responsibilities of the role. So, we have this paradoxical situation, where, on the one hand, a number of people in the Department and the board, and BDO Stoy Hayward independently, were able to document that this person was potentially impressive in terms of discharging her accounting officer responsibility. Yet, to repeat the terms I used when I reported to this Committee in 2008, paradoxically, you could be best in class in some instances and completely cavalier in others, and that is the context within which we are operating.
Mr Poots: I remember Mr Sweeney explaining this to me back in 2008. I remember that conversation very clearly. Mr Sweeney, when was the first time whistle-blowers approached the Department?
Mr Sweeney: I have a number of incidents. The term, "whistle-blower" was not always used. So, I will use the generic term, "whistle-blowing" to cover what might have been described at the time as complaints. This would be my position on it. I am working from the most recent backward, from 2006 back to 2004. If it meets with the members' approval, I would like to give a flavour of what I am now calling, whistle-blowing, although at the time it was a mixture of complaints and people raising concerns.
In November 2006, an MLA approached the deputy secretary at the time to say that two former employees of the company had concerns about the manner in which the chief executive was behaving both in terms of her management style and in terms of her documentation, recording paperwork, etc. The MLA approached the deputy secretary, and on the back of that, the deputy secretary arranged to talk to one of the individuals and had an extensive telephone conversation with the other. The two individuals at the time explicitly said that they did not want this to be treated as a "whistle-blowing case". They did not want to be overtly associated with their complaint, but they wanted to be assured that the Department would do something about it. The deputy secretary at the time undertook to commission an internal audit of the governance arrangements in the Northern Ireland Events Company. He gave that undertaking in November 2006, and the audit fieldwork took place during the summer of 2007. That was one case. Will I go through the others?
Mr Sweeney: In August 2006, and I am not naming names now, Chair, but if the Committee wishes to delve into detail, I am more than happy to do that.
Mr Poots: Is there any reason why people do not want their names going out there?
Mr Sweeney: The two individuals explicitly asked not to be named.
Mr Poots: But if others do not want their names to be held back, there is no reason to hold them back.
Mr Sweeney: In the spirit of what you have just said, Mr Poots, in August 2006, Matt Bates alleged that an unfair advantage was given to a company called Schism. Schism comes through this report on a very regular basis and has, as a matter of public record, received hundreds of thousands of pounds from the Events Company. So, Matt Bates alleged that there was an unfair advantage to Schism. The deputy secretary at the time met with Matt Bates and his solicitor in August 2006 and the Department referred what was treated as a complaint, because there was a commercial dimension to it where Mr Bates felt that he had been commercially disadvantaged, to the chair of the Northern Ireland Events Company, because that was the first course of exhausting the complaints procedure. Shall I continue, Mr Poots?
Mr Sweeney: I am going to combine April 2005 with June 2006.
The Deputy Chairperson (Mr Dallat): Sorry, can I interrupt you, Paul? We need to be extremely careful that we do not go too close to a current police investigation. I am sure that you are professional enough to know what I mean.
Mr Sweeney: Chair, thank you for that healthy reminder. I hope that members are hearing today that what I am —
Mr Sweeney: What I am trying to do is be as absolutely forthcoming as possible here today. Maybe I will not mention names at this stage.
Mr Poots: The whistle-blowers' names are not a problem; it is perhaps some of the things around it.
Mr Sweeney: I mentioned the dates there. In 2005 and, subsequently, in 2006, a promoter of a major sporting event held in Belfast took the view that the company had been discriminatory against her in respect of grant aid and had commercially impugned her character. Those were very serious allegations. I understand that, in 2005, those were raised with the company and they were not substantiated, but, when they re-emerged again in 2006, I thought that the seriousness of the accusation was such that I would commission an independent review of those accusations.
Interestingly enough, that independent review concluded that there was no substance to the claims of discriminatory action or impugning the commercial character of the individual, but, at that time, as a side product of that investigation, that set us on a path about a particular irregular payment, which, to roll forward, fell into the context of this No 2 account being opened by the chief executive without the knowledge of the board of the Department. We were subsequently able to become aware that that No 2 account was being used for purposes that I would describe as unorthodox.
There are two final ones.
Mr Poots: The reason for the question, Chairman, was that Mr Sweeney has given us three incidents where four people came forward to whistle-blow. There was a separate incident where an MLA came forward and two incidents that he has not had the opportunity to explain.
Mr Poots: Yes. The point that I am getting to is that there seemed to be a blind faith in Janice McAleese because she did such excellent work on the World Rally Championship (WRC). She was then left to her own devices in spite of the fact that a considerable number of people came forward with very serious complaints. No one did a forensic audit of the books, and no one thought it was worthwhile having an audit committee. It is quite remarkable that any one individual was allowed to lead a Department and a board made up of eminent people on such a merry dance.
The Deputy Chairperson (Mr Dallat): Before you answer that, the confidence in the Events Company did not end when Janice McAleese left. I understand that Jasper Perry was her successor. Am I right?
Mr Elder: Yes, that is right.
The Deputy Chairperson (Mr Dallat): Well, he certainly was no friendly ghost; he committed you, chairperson, to £2·2 million seven days before he informed you, Paul, of a deficit of £1·2 million. It was not entirely that lady who had a great influence over people. The train wreck continued after she left. There is a question for both of you. How on earth, Mr Elder, did Jasper Perry commit you to £2·2 million when, seven days later, he told DCAL that it was in deficit by £1·2 million?
Mr Elder: I do not think that, at that time, the board or I was aware of the deficit.
Mr Elder: In terms of his appointment, from recall, I think that that was a time when there was discussion as to whether the Northern Ireland Events Company would remain in DCAL or transfer across to DETI. It was decided that Jasper Perry would be appointed acting chief executive to shore that up.
The Deputy Chairperson (Mr Dallat): Please do not take this personally, but I need to put it to you: did you know considerably more about all this craic than you shared with your board?
Mr Elder: Because I did not know.
The Deputy Chairperson (Mr Dallat): I suppose that that is logical enough.
When you were in the chair, how often did you meet Paul and people in DCAL? It was written down, no doubt, in copious files about what was going on.
Mr Elder: Initially, we had about eight to 10 board meetings a year. Subcommittees needed to be formed. Say what you will about golf; it is our strongest suit. We got big money, investment and economic return through golf. We formed a golf subcommittee. There was a fund, which you will be aware of, called the events growth fund. There were a considerable number of requests for that, so a subcommittee had to be set up. There was also the IFA money. Latterly, we were told that we were to manage community festivals, which came from local authorities to us. With a dwindling board, it was difficult to manage all that.
From the board's inception in 2002, we were very keen that we would have a representative from DCAL at our board meetings.
Mr Elder: Unfortunately, that did not take place —
Mr Elder: — with the exception, maybe, of an early meeting. You have heard about the accountability meetings. I knew of them, but I certainly did not realise that I was invited to the table, so I did not attend.
I found it difficult to engage with DCAL in trying to negotiate our budget and give a high-profile strategic review. However, I managed to do that once or twice a year. I met the permanent secretary and senior staff, and we outlined what we thought we would want to do and how much money we would need. So, I am certainly not blaming DCAL for not interfacing with us more. With hindsight though, and I think that DCAL will agree, it would have been much better for us to have had a much closer and more constant dialogue and interface.
There were three legs to the stool — DCAL, the board and me, and the chief executive. Unfortunately, on very few occasions were those three legs on the ground simultaneously.
Mr Elder: The board did meet the auditors. Conor Dolan came along and presented the reports. I know that it is in the report that they did not meet, but it is a fact — you can check it in the minutes — that the auditors came to see us, I think for the 2005-06 accounts. We asked if everything was in order and were given an assurance.
Mr Elder: Finegan Gibson.
Mr Elder: I could not answer that, Chairperson.
Mr Poots: Mr Sweeney indicated that when two of the whistle-blowers raised the issues the deputy secretary said that he would carry out an audit. Was that audit carried out, and what did it find?
Mr Sweeney: Yes, the audit was carried out in summer 2007 and reported in October 2007.
Mr Sweeney: November 2006.
Mr Sweeney: It gave limited assurances. It drew attention to a number of shortcomings in the governance arrangements, particularly —
Mr Poots: Did it identify the serious problems that existed?
Mr Sweeney: I was going to go on to say, for example, the failure to establish an audit committee. At that stage, by the time that they completed the report in October 2007, they were fully aware of the —
Mr Poots: How often did somebody from DCAL go as an observer to Northern Ireland Event Company board meetings?
Mr Sweeney: Mervyn talked about the Department being given the opportunity to go along as an observer in the early part of 2002-03. We did not take up that offer because, at that stage, in terms of good practice there was a major debate about proper oversight of government accounting and the merits or otherwise of departmental officials attending board meetings. However, the arrangement that was eventually put in place was that the deputy secretary would meet the board formally twice a year. I personally met the board, as Mervyn said, in a planning strategic workshop in autumn 2006. The assistant secretary also met the chief executive of the company quarterly each year. So those were the broad arrangements. The deputy principal met the company's financial supervisor monthly.
Mr Poots: What lessons have been learned? From today, what is to prevent somebody else falsifying signatures, presenting false audits and millions of pounds again being lost? We are hearing that processes were in place, but they demonstrably failed. You were dealing with a particular kind of individual that you probably do not come across very often. However, what would happen if another individual of similar ilk were to do the same thing today and falsify signatures? Are we all going to sit here in five or 10 years' time querying somebody else about a similar type of incident?
Mr Carson: May I take that, Chair?
Mr Carson: As was stated earlier, this has created a seismic change within the Department. Now, right from the word go, when appointing the chairman of an arm's-length body, we ensure that the chairman and the board members are aware of their responsibilities when serving on the board. We ensure that there are professional finance staff and that they are responsible for the accounting systems. We have also ensured that there is a good governance regime and that there is now an internal audit service in each of our arm's-length bodies. We have audit committees, and we attend those audit committees. All of the accounts are now required to meet the requirements of the government financial reporting manual. We have governance statements which set out how the board has exercised the control within the organisation. We also have biannual assurance statements, which are signed off by the chief executive. They go to the audit committee and the board to be countersigned. Finally, we have a governance assurance which comes directly from the chair of the organisation. That looks at how risks are being managed, the issues that have arisen and how they have been dealt with. So, there is now a completely different regime in place.
The Deputy Chairperson (Mr Dallat): Mr Carson, having listened very carefully to that, would it be unfair to say that you ran a rather loose ship before the Events Company taught you how to defraud?
Mr Carson: The key issue is that we have learned from our mistakes. We have learned lessons that were apparent from what happened.
Mr Carson: No, I do not. It would be much better if these things had not happened.
Mr Carson: I think there was a systemic failure in what happened at that time. It would be very difficult to place the blame on one individual.
Mr Beggs: Mr Elder, you have said that the board met the auditors in 2005-06, if I picked you up right, but my understanding is that auditing standards require auditors to communicate the results of their audits to those charged with governance. So, that should have been happening from year one, from 1997 until you eventually met them. So, there were many, many years when that basic requirement was not happening. Why was that?
Mr Elder: The accounts were presented to the auditors for auditing and, at the board meeting, we got a written report from the auditor. That is what happened. The point I was making is that they say we never met the auditors, but we actually did meet a representative of the auditors in person, with reference to 2005-06. That was Conor Dolan. On a number of occasions, they were asked by the board if things were in order, and they assured us that they were. So, Mr Beggs, we did have a regular communication with the auditors. The point I am making is that it was not in person each year, and perhaps it should have been. It was their reply to us for presentation at the AGM.
Mr Beggs: I am a member of a small community group. My understanding is that, normally, an auditor is at the AGM, in case anybody wants to ask a question about the audit that they are presenting. So, do you accept that there were failings up until that time?
Mr Elder: I accept that, with the benefit of hindsight, it would have been much better to have had the auditors there every year, not just in that individual year.
Mr Beggs: There is a lot of discussion about the additional £200,000 overdraft account. Mr McMahon, at what point did transactions move from it into any of the other accounts?
Dr McMahon: We had identified the year with the additional expenditure of £400,000 that had not originally been picked up, so, clearly this was cushioning the —
Mr Beggs: So, it was latter years; OK. I picked that date up myself. I am just wondering if the auditors could have picked that up earlier.
I see from the report that, technically, the Events Company was insolvent in the financial year ending March 2005. The financial statement that was lodged with Companies House reported a surplus of £17,000, but the inspectors estimated that it should have been a deficit of more than £436,000.
Dr McMahon: There was movement between the numbers to indicate that there was a higher level of trade creditors. I believe that is the way that it was —
Mr Beggs: Yes, there were grants that had been committed.
Dr McMahon: Absolutely. That was the point. They were not signed, but we received them and we —
Dr McMahon: They were not signed by the auditors. I think that that is referred to in the report.
Mr Carson: That was the 2006 accounts.
Dr McMahon: Oh, sorry. The point was that the accounts were not an accurate reflection of the financial position of the company at that time.
Mr Beggs: Those accounts were produced by Finegan Gibson.
Dr McMahon: I should qualify that and say that there were two versions of the accounts. Whether both versions were produced by Finegan Gibson or whether one of them was subsequently fabricated is another issue.
Mr Carson: The 2005 accounts were audited by Finegan Gibson. The inspector's report found that there were liabilities that were not reflected in those accounts, and that was the reason why the deficit was higher than the reported position.
Mr Beggs: You indicated that the liabilities were not reflected. Technically, the company would have been insolvent, and I understand that, under company law, it should have ceased trading in 2005, perhaps saving the public purse hundreds of thousands if not millions of pounds. Have you pursued that or do you intend to make a claim against Finegan Gibson for negligence in its auditing of the accounts.
Dr McMahon: We are going through the process of referring it to the Chartered Accountants —
Mrs Smith: One of the recommendations in the report was to refer the accountants to the Chartered Accountants Regulatory Board (CARB). That process is under way.
Mr Beggs: Dr McMahon, do Finegan Gibson audit any other public-sector accounts at present? Are you aware of it having responsibility for the accounts of any of the other arm's-length bodies within your Department?
Dr McMahon: No, it does not audit the accounts of any arm's-length bodies within our Department, but whether it is auditing wider in other Departments —
Mr Carson: The position has changed a bit since then. The Audit Office is now the auditor of most public-sector bodies. That was not the case at that time.
Mr Beggs: Given the concerns that have been raised about negligence, do you accept that there could be doubt about any other public-sector accounts that it audited prior to the Audit Office taking over? Have you transmitted that concern to other Departments so that we can seek reassurance that no other arm's-length body may be at risk?
Dr McMahon: We have not referred it to other Departments; we have not alerted other Departments to this. There is a live process under way with the Chartered Accountants Regulatory Board, so we need to see what comes out of that. It is not an unreasonable point, and I will raise it at the permanent secretaries group as a result of this. It is a good point.
Mr Beggs: Going back to Mr Elder, I want to deal with the basic financial information that came to the board. In my experience of some small community groups, you see the bank statement at each board meeting and have a projected expenditure cash flow throughout the year so that you can manage your accounts and stay solvent and afloat. Did the board every do anything like that? Did you ever see a bank statement? Did you ever have a cash-flow projection that you monitored at each board meeting?
Mr Elder: Yes, Mr Beggs. We were given an A4 sheet that showed the various categories of grant aid that we were given under the major events fund, the events growth fund, the IFI, the community festivals fund and the ancillary spends. We were shown on a spreadsheet the in-year position, what was committed and the balance. Having been given those at each board meeting, there was no reason for concern because they did not reflect a major overspend. The information that we were getting was that we were within budget.
The Deputy Chairperson (Mr Dallat): Well, I will put this question to Paul: would that not have been a basic necessity in any organisation? A bank reconciliation statement is absolutely critical to ensure that the figures are balancing.
Mr Beggs: In terms of managing your financial situation, in examining the expenditure and comparing your income, I find the situation around expenditure with the various events quite astonishing. There is a huge difference between the budget and the actual cost. How closely did you monitor each of those financial events?
Mr Elder: Under normal circumstances, the procedure was that, if an event was coming forward for the board's consideration for funding, there would have been an investment appraisal showing whether it was going to produce an economic return for the investment. If that was presented to the board, the board would have agreed, and there would have been a recommendation from the executive of how much capped funding we would have given. The event would then have proceeded, either at arm's length or, as I said earlier, with some intervention by the staff in support.
At the end of the event, the norm was that a post-event evaluation was done, which showed how the event had worked in terms of the funding having been provided, the bed nights, the media coverage, the income, that sort of thing. That would have been the cycle: there would have been a presentation of the event to be funded; an agreement for capped funding; the event would take place; and there would then be a post-event evaluation. That is how individual events would have been monitored.
Mr Beggs: Did that post-event evaluation include the budget that you had set aside for each of your events, the actual expenditure for each event and the variance?
Mr Elder: For that individual event, yes.
Mr Beggs: Did alarm bells not start ringing when, after the Supermoto event in 2005, you had -£110,000, and, after the motocross event in 2005, -£451,000?
Mr Elder: The problem was that, to be quite honest and transparent, we did not get a complete post-event evaluation with those details.
Mr Beggs: Again, to go back to a point that other members have raised; for the Supermoto 2005, there was no evidence that any cash receipts were paid into your bank account. If you are going to have a post evaluation, you are bound to have looked at what income came from this event into your account. Did alarm bells not start ringing whenever you did your post-event evaluation in 2005?
Mr Elder: I cannot recall the detail of that post-event evaluation but, yes, that would have been the case. The number of spectators at that event would have been anticipated and, with the normal ticket price, we would have expected to see a sum of money in the income column for that.
Mr Beggs: Are those evaluations still available, permanent secretary?
Dr McMahon: Page 21 of the report specifically refers to the fact that there were no post-project evaluations available. Again, that is based on the investigation by the company inspectors.
Mr Beggs: Looking at figure 4, I see that none of the events had post-project evaluations, Mr Elder. How come the report is saying that there were no post-project evaluation reports?
Mr Elder: There were no post evaluation reports for some events.
Mr Elder: For the moto and the Supermoto events.
Mr Beggs: I am simply looking at figure 4 on page 21, which indicates that there were no reports. There is an "X" against each of them, anyway. I am reading that as there having been no post-project evaluation. If I had been on such a board, I would be very surprised that I was not learning what the income was and that there was no deposit going into the bank account at that time. Did none of your board members find that strange?
Mr Elder: From recollection, no. The financial statement from April to June 2007 is there; it includes the spreadsheet, which I tried to explain earlier.
Mr Beggs: I acknowledge that, if someone was feeding you information and it was wrong, that would create difficulties. That is why, as the Deputy Chairperson has indicated, some raw information is essential.
Where do we go from here? Mr McMahon, the Events Company never had an audit committee or an internal audit service. Why was that allowed to go on for so long?
Dr McMahon: Looking back on it — Paul can comment on this as well — it came down, as Paul said, to a series of occasions when the Department sought to press the Events Company to do this. Ultimately, I suppose, this would come down to sanctions against the chief executive.
Mr Beggs: How did you seek that that would happen? What did you do?
Dr McMahon: Well, there was a series of meetings, as we mentioned, with the chief executive and the sponsor teams. There was various correspondence as well, which sought to get them to instigate. To be fair, the chief executive was reporting that the audit committees were meeting. The Department was told at one stage that the audit committee was meeting. The issue was not so much that they were not asked to do it; the issue was about follow-up, making sure that it was happening and, when it had not happened, escalating the issue to the point where the chief executive was involved. If it was happening now, we would call the chief executive in and de-designate that person as an accounting officer.
Mr Beggs: Did you not think it would be important that your contacts included detailed meetings involving the chair as well to ensure that such issues were moved forward?
Dr McMahon: There is no doubt about it. As we said earlier, what we have here is a situation where the chief executive was meeting the Department and the executive was meeting the board auditors, and a lot of that being separate apart from those whistle-blowing cases where the communication was crossing those boundaries. That was what was happening, and everybody was placing trust in that individual.
Mr Beggs: Going back to the very early situation, there was to be corporate governance training back in December 2003, but it was cancelled. Then, the chair — I assume that was you, Mervyn — had assured the permanent secretary, Mr Sweeney, that the training would be included in the board's next awayday, but the records indicate that that training does not appear to have ever been provided. My question to the permanent secretary is this: why was that allowed to happen?
Dr McMahon: Well, the simple answer is that it should not have been allowed to happen. Again, and we talked about it earlier, the issue was about failing to understand the warning signs and failing to follow them up.
Mr Beggs: OK. I want to put that question to the acting Treasury Officer of Accounts. Do all public bodies now have an audit committee?
Mr Mike Brennan (Department of Finance and Personnel): They do, yes. In fact, DFP guidance going back to the early 1990s said that that was best practice. It had a code of best practice that said that all public bodies should have audit committees.
Mr Beggs: My question was not about whether they should have audit committees but whether they do have them.
Mr Brennan: Yes, they do now. Looking, for example, at the point that you just made about the training courses, the Comptroller and Auditor General and the Treasury Officer of Accounts, for example, have mandatory training courses for newly designated accounting officers, which set out their responsibilities.
Mr Beggs: OK. I have a question for Mr Sweeney. There has been a big focus on motor sports events by the Events Company in a relatively short period of time. Did that not seem strange? What was the expertise? What was the knowledge? Why should there have been such investment in motor sports?
Mr Sweeney: I do not know. The lion's share of the deficit materialised as a result of the investment in those motor sports events. I appreciate that I am repeating myself, but the prize was always the idea that, if we successfully hosted grand prix events in Northern Ireland, we might land world-class events.
So, certainly, if you are asking me for the rationale and whether departmental officials understood why there seemed to be a disproportionate amount of money going into motor sport, it was on the basis that it would land these world-class events. I have no intelligence beyond that.
Mr Beggs: To be fair to the Events Company, in terms of golf, it spotted that we had international stars who have risen to fame. We had something different; we had a connection, and we had some excellent courses. Did anyone on the board have a particular expertise? Was there anything special about Northern Ireland and motor sport in terms of motocross? Why did we go to motocross?
Mr Elder: I will answer that, if I may. There was expertise in golf; there was no doubt about that. That was our prize. In terms of motor sport, there was not. Nobody on the board really had any idea of motocross. I had never been to one. Too much reliance was therefore placed on the expertise of the chief executive.
Mr Beggs: What expertise did she have in motor sport?
Mr Elder: She was a regular visitor to motor sport and motorcycle events. That was her hobby.
Mr Beggs: She was just pursuing her hobby, was she?
Mr Elder: She had leathers and she had a bike. That was her thing. We did not know very much about motocross and motor sports. That said, another strong suit of ours is rallying. We did get the World Rally stage, and it shows the flexibility that we enjoyed with DCAL. When another £900,000 was needed to secure that, it was found.
Mr Beggs: Motocross is quite a niche area. As a youth, I had a scrambler. Would I be right in saying that you maybe assisted the chief executive in pursuing an interest that she had? Why did the board members not question the direction that the board was taking?
Mr Elder: I can understand and see where you are coming from. I understand your perception, but that was not the case. As far as we are concerned, we knew the potential, because we knew from the search the potential audiences and the media coverage, which was huge. There were 2·5 million people who watched the first motocross event that we put on. So, we knew that there was potential. I think that I am right in saying this, and I stand to be corrected, but we have world champions in these disciplines.
Mr Beggs: I should probably declare an interest.
Mr Clarke: Are you a world-class rally driver? [Laughter.]
Mr Beggs: Jonathan Rea is the son of a cousin of mine. He was involved in motocross at times, so I had better put that on the record. I did not realise that there was a connection and that I might have to declare something. When you mentioned that, I thought, "I will have to declare that." However, there is an issue. Just because 2·5 million people watch it on TV does not mean that they are going to come to Northern Ireland and that there is going to be feedback from them.
Mr Elder: Sorry, that was only half of the story. There were predictions of large spectator numbers as well.
Mr Beggs: Yet, for each of the events, you failed to return the income from the doors that you had predicted. Were you not learning a lesson?
Mr Elder: The number of spectators anticipated may not have materialised, and one would have to say that there is a disparity between how gate receipts were received and logged.
Mr Beggs: How did the company allow that to happen?
Mr Elder: The board allowed it to happen because, first, it did not know that the event was being managed by the chief executive, basically, and not by Youth Stream, and, secondly, there was no report back giving us the information that we needed in terms of gate receipts.
Mr Beggs: You would have known that there was no report back.
Mr Beggs: So, you accept that there has been a failure on your part.
Mr Clarke: If I may interject, that is not entirely true, Mr Elder. If I look at figure 4 on page 21 of the report, you got verbal post-evaluation reports on three out of the six.
Mr Elder: You are quite right. I sit corrected, Mr Clarke. We did get a verbal report. I am talking about a detailed written report, which —
Mr Clarke: In the verbal reports, did you get any information about the gate moneys? It would be useful if we could get a copy of the document that was shown today, just for the benefit of members and so we can see the detail. Is income mentioned in that document?
Mr Elder: Sorry, which one?
Mr Clarke: The one that you held up to Roy a few moments ago.
Mr Elder: Yes, I have it here and you certainly can have a copy of it.
Mr Elder: "Programme cost"; "budget"; "committed to date"; "balance available". No, income is not mentioned on it.
Mr Clarke: You had expertise from varying backgrounds on your board. My colleague laid out reasonably well at the start that the board members all came from varying backgrounds. He certainly held in high regard the expertise that they should have had. None of you felt that you should have been pressing the chief executive to produce an income column?
Mr Elder: In a detailed, written evaluation, there would have been an income column but, in the verbal report, we accepted that it was not given.
Mr Clarke: Did you ever attend any of the events, Mr Elder?
Mr Elder: Are you talking about the motocross events?
Mr Elder: I never went to any of those events.
Mr Beggs: I have a final point on the income that was reported to have been received. The number of spectators indicated would always diverge from the number of spectators reported in the media. Did board members ever raise any issues about that?
Mr Beggs: OK. Let us turn to the issue of the personal loans. I was shocked when I read this in the report; absolutely shocked. It would set off alarm bells in any organisation when personal loans are made to cover salary payments or whatever and keep the company afloat. When did you become aware that personal loans were being made to the Events Company?
Mr Elder: The only time I became aware that a personal loan had been made to the Events Company was on one occasion. As I explained earlier, not only did I go to committee and subcommittee meetings and attend many events on behalf of the company as chairman but, on a regular basis, but I called into Redwood House on my way home, because it was on my way. I had interface with the chief executive. Normally, I would meet her and Jasper in the office and ask, "How are things? Is there anything that I need to know?" There were some things that could be sorted out but, obviously, the large things that bring us all here today were not raised with me, except on one occasion, when she said that there was a slight overspend. I said, "Is there anything to be alarmed about? Do we need to tell the committee?" The answer was no. At one of those meetings, I was told that there had been a cash-flow problem and that the she and Jasper had lent the company a sum of money. It was not a huge sum of money; I cannot recall how much it was. I would say that it was a maximum of £15,000; I do not know what the minimum was.
Mr Elder: Yes, but I did not know about that; that is the point I am making. That was the only occasion when I knew that they had given a loan. Had I known that there were other loans of that magnitude, it would have obviously precipitated me taking it to the board. I made an incorrect decision at that time to admonish them. I told them they were bloody stupid and it was not to happen again. That was the action that I took after the one time that I was told.
Mr Beggs: OK. When you were told about it, did you see that there was a need for careful budgeting and cash-flow projections going forward?
Mr Beggs: Do you not see that as pretty obvious?
Mr Elder: It is obvious now, yes, but at the time, my judgement was that it was a one-off and I had taken the action internally with them and that is the way that I left it.
Mr Beggs: I have a question for Mr McMahon and Mr Sweeney. The report clearly states that the board did not have anybody with detailed financial skills, although there were some fairly senior people who, you would have thought, were more experienced, although not specifically with financial skills.
Why was such a major deficit in essential financial skills allowed to happen?
Dr McMahon: I will start and Paul can then comment. The board comprised ministerial appointments. Altogether 90 applications were issued, 43 were returned, and 24 applicants were interviewed. They were asked about previous experience of a board with financial resources, or their understanding of cultural events issues, or their experience in developing and implementing business plans and corporate strategies. With hindsight, it is the word "or" that is part of the problem here, because it meant that you could tick one or other of those boxes.
At the time, the Minister was provided with 12 names as a result of the process and was asked to select six and a chair. There were also Sport NI and NI Tourist Board nominations. In addition, a further three members were co-opted by the Minister. Janice McAleese had requested from the Department that members with practical business skills be considered. So that was how the board mix —
Mr Beggs: Do you accept that the Department had a major role in setting up a board that did not have anyone with detailed financial skills in managing that company?
Dr McMahon: I accept that to be the case. However, and this reflects comments made earlier, when you look at the calibre of the board, it might not have been unreasonable to expect that there would have been financial skills among the members. Notwithstanding that, I accept your point.
Mr Beggs: With there being no detailed financial skills, and the failure to take up corporate governance training and appoint an audit committee, what did the Department do over that entire time?
Dr McMahon: Paul, I am happy for you to come in on this if you want to do so.
At that stage, I suppose there were attempts to encourage the board to do the training. The chair and Janice McAleese, as said earlier, attended the On Board training, but the basic issue is that we did not press hard enough as a Department and did not ensure that these things were happening. That is the bottom line. We did not escalate the issues when we needed to do so.
Mr Clarke: To go back to the financial issues, Mr Sweeney; paragraph 4.21 of the report refers to a 2003 internal audit report that stated that reports should be conducted and presented monthly. However, no reports were received until December 2006, which was certainly under your watch. How did you let that happen?
Mr Sweeney: Well, again, there is a context point to be made. This is not meant to be an excuse. Extenuating circumstances existed at the time. The company was in flux. The function was due to transfer from DCAL to DETI/ Northern Ireland Tourist Board. The chief executive was suffering from a very serious health condition. So, although the Department was pressing on things such as the audit committee, the internal audit function and the monthly financial reports, it was nothing more than requesting those verbally. The Department did not receive them in a timely manner and did not then take sufficient sanctions. It may well be that the culture at the time was mitigated by the fact that the company was in flux, as it was due to transfer, and because the chief executive at the time, as we understood it, was dealing with a very serious personal health issue. I want to make it clear that I am not trying to give that as an excuse.
Mr Sweeney: You can interpret it whatever way you wish. I am trying to be as helpful as possible, right. However, at the very start, I made it clear that the Department comprehensively failed.
Mr Clarke: Let me give a bit of context for the benefit of Hansard. The report says:
"A 2003 internal audit report recommended that DCAL should receive from NIEC monthly expenditure profiles which detailed planned monthly spend versus actual spend. Despite the NIEC Board receiving monthly financial reports from June 2004, DCAL did not receive monthly reports until December 2006".
If I read that and listen to what you have just said, the only way in which you can describe what you have said is as an excuse. Regardless of the circumstances, the flux and the unfortunate position that Janice was in with her health, the 2003 internal audit office report was very clear: you should have been in receipt of monthly reports. Can you give me a valid reason why you did not follow that up, given that you came into post in April?
Mr Sweeney: We did see monthly reports, but we did not receive them in a consistent manner. That was a failure on the part of the Department to be a lot more demanding of the Events Company.
Mr Clarke: For the benefit of the record, "consistent" means that you did not receive them from 2004 to the end of 2006. That is certainly inconsistent. I anticipate from your answer that you think that this was a reasonable period of time not to receive monthly reports. Even in your excuse, you described the organisation as being in flux.
Mr Clarke: But you did not deem it necessary to press it on the monthly reports.
Mr Sweeney: During 2006, there certainly was a period when we were not getting those monthly reports regularly.
Mr Clarke: According to this report, you were not getting them at all.
Mr Carson: Could I maybe add something to this point, Chair?
Mr Carson: The 2003 audit report also had a number of recommendations in relation to the grant drawdown process. From reading through the records from that time, that is where the Department appears to have focused its attention. As a result, we put procedures in place that required a certain level of documentation to be provided with each application for a grant drawdown. That involved the reconciliations to the bank statements. This was the primary control at the time. There was some resistance to providing that information from the company. A debate took place in relation to the provision of that documentation, but we persisted with that and received, right up until, I think, 2005, the full range of documentation in relation to the grant drawdown process.
Mr Clarke: You will be stopping short, Mr Carson, because the same report you are referring to states:
"The Inspectors stated that from May 2005 until September 2007 no bank reconciliations were provided to DCAL."
You are trying to bail out Mr Sweeney with another excuse, but you have omitted the fact that you again failed to get your bank reconciliations from 2005 to September 2007. Instead of helping him, you are muddying the waters.
Mr Carson: All I am saying is that, in the earlier part of that period — from 2003 — the focus went into the grant drawdown process. I accept that, in 2005, we did not follow that up. It is the same issue: robustly challenging the company and its representations.
Mr Clarke: Well, you did get a conclusion three months before the other one. You want to refer to the part about the drawing down of the funds. You did not elaborate on it, but the report also states:
"the supporting information submitted by NIEC was insufficient."
That terminology is used in the report you are referring to. You talked about the process of drawdowns, but the report draws the conclusion that the information you were provided with was insufficient. It states:
"This was not adequately challenged by"
your Department and that you were not in receipt of the bank reconciliations from May 2005 to September 2007.
Mr Carson: I accept that point.
Mr Clarke: What I am saying is that you have actually muddied the water for Mr Sweeney.
Mr Carson: All I would say is that, prior to that, we got those bank reconciliations regularly.
Mr Clarke: It was a case of being OK for two years, so "we don't need to worry about that." Those two years were very interesting because it was during one of those years that the very successful event was held in Moneyglass, which thousands of people attended but where no money was received. Those were the monthly reconciliations that would have made for very interesting reading, but, of course, the Department was not interested in those. There was an attitude of, "We'll just continue throwing more public money at them and let them squander it by whatever means they want". I think I am finished, Deputy Chairperson.
The Deputy Chairperson (Mr Dallat): The witnesses have been here for four hours. I ask you to be concise, please, if possible. I should tell that to myself. Mr Elder, if somebody is coping with a personal illness, it is a very serious thing.
Mr Elder: Sorry, say that again.
The Deputy Chairperson (Mr Dallat): I think that you and Paul offered, as an explanation, that Janice McAleese was coping with personal illness. Nobody in their right mind would question that, except, in her case, was there supporting medical evidence of that?
Mr Elder: If I may answer that.
Mr Elder: Yes, I am in possession of a doctor's certificate, which allowed Janice to take two weeks off work. However, when I was having a meeting with her and she indicated to me —
The Deputy Chairperson (Mr Dallat): You do not have to go into detail. The only reason I am asking the question is that a lot of things were not done, and you have offered, as evidence, the reason being ill health. That is a very serious matter, but, listen, I will not pursue it further. Trevor, have you finished?
Mr Girvan: I want to come in on a point relating to the drawdown of funding from the Department. I appreciate that there had been a number of occasions when it drew down a sizeable amount of its funding in a very short time. In fact, there was one case in which the Department paid out £318,000 to the company twice for the same thing. How was that picked up? How long did it take for the Department to realise that it had double paid? I am asking that because this is not the first occasion that we have heard about groups getting funding — arm's-length bodies drawing down funding — and ending up getting double payments.
Considering that £318,000 appeared in somebody's account, did they not say, "By the way, you already paid that last week"? Does it not show that there was a major problem in relation to how you were policing it? The Department was not necessarily paying out just on application every time, because there obviously was some mechanism that was not right.
Mr Carson: If I can just explain how the duplicate payment arose.
Mr Girvan: There was not one; there were two. My understanding is that there were two duplicate payments. There was one that you never got back.
Mr Carson: No, I do not have any information on that.
Mr Carson: The report refers to one in April 2007. It is case example 8 on page 51 of the report. There was a duplicate payment at that time. These were the days before Account NI, when our payments were processed by the Department of Education. DCAL used DE. We faxed the payment authorisation to the Department of Education, as, essentially, had been agreed. That was the basis on which the payment was made. We then sent them the hard copy payment authorisation, which they obviously needed for their audit records. But, they paid out on the hard copy version as well. Obviously, that would have been picked up by our budget procedures, but, before that took place, there was an accountability meeting. I think that that was on 27 April. At that meeting, the chief executive brought it to our attention. That is how the payment arose.
Mr Carson: We allowed them to retain the payment. The company reported that it was deducted from future payments.
Mr Girvan: That would mean that they received 43% of their annual funding in the first month of their financial year. Is that correct?
Mr Carson: I would need to check the numbers. Are you picking that up from the report?
Dr McMahon: Figure 10 shows the drawdown figures around that.
Mr Clarke: Even on that, David, that happened in April 2007. You always seem to leave a wee bit out when you are reading stuff here. Case example 8 also refers to the fact that Janice — the chief executive — was asked to report to an accountability meeting and that the Events Company was allowed to retain that payment but with an explanation and supporting documentation. That did not happen until six months later. Were there no alarm bells, again, in DCAL that you had given a duplicate payment of over £300,000, asked for an explanation, but could quite happily sit back for six months?
Dr McMahon: There should have been a more robust challenge.
Mr Clarke: There should have been. Maybe I should direct this at you, Mr Sweeney.
Mr Sweeney: Well, it was an administrative error —
Mr Sweeney: Do you want to answer your own questions?
Mr Clarke: No, I am just asking you is it the flux again? Is that what you are going to tell me?
The Deputy Chairperson (Mr Dallat): Order, please. At this late stage I ask people to make their remarks through the Chair. I will try to make sure that the questions are relevant.
Mr Sweeney: First of all, this was an administrative error by the Department, period. It should not have happened, but it did. David has outlined the mechanisms of that. To be fair to the chief executive at the time, she brought it to the Department's attention immediately. The Department, then, took a decision that the company would retain that money. The company's expenditure profile meant that most of the events it organised would take place in the spring and summer of a year. Again, this is an indication of DCAL's passive, light-touch approach in its oversight of the Northern Ireland Events Company. I have not come here today to be anything other than very candid and frank about the culture that pertained at the time.
Mr Sweeney: Very much so. I was the permanent secretary at the time.
Mr Poots: It was more than being part of it. You were the accounting officer.
Mr Sweeney: That is what I said. I was the permanent secretary/accounting officer.
Mr Poots: The accounting officer has responsibility for signing off on all the accounts and spending that the Department has.
Mr Poots: Ultimate responsibility lay with you.
Mr Poots: Others below you failed in the course of the work that they did as well.
Mr Sweeney: As I say, I commissioned CIPFA to come in at the time to do a fundamental assessment of how this happened and to assess the failings in the Department. I said earlier that this report came up with 41 recommendations as to how the Department could fundamentally improve the manner in which it discharged its functions. Denis used the term earlier and I will use it now; there was a systemic failure in the Department to discharge its oversight role in the case of the Northern Ireland Events Company. This was a house on fire as far as I was concerned and my leadership task at the time was to make sure that we consolidated the other arm's-length bodies and to take steps to ensure that this fundamentally could not happen again.
If there is some positive that can come out of this debacle, it was the fact that, organisationally, we transformed DCAL. Not only that, but we were able to use the debacle that was the Northern Ireland Events Company to inform how the sponsorship role, not only of the arm's-length bodies in DCAL but across the Northern Ireland Civil Service could be dramatically improved. We used that as a blueprint for how horrendously badly this went wrong and we sought then to identify what steps could be taken, not just in DCAL but across the whole of the Northern Ireland Civil Service to ensure that we could mitigate the possibility of this happening again.
Mr Girvan: My question will be a very short one for Mr McMahon. The report recognises that you sought to put controls in place to ensure that this would not happen again with the arm's-length bodies. One accounting officer has resigned recently and one is suspended. Is there any coincidence there? You might expect to have one, but when you have more than one it looks like a wee bit of a pattern is starting to arise. Is there any indication that there are other people in the wings ready to do the very same thing?
Dr McMahon: There is one thing that I think is worth saying: having the systems in place is not about stopping human behaviour. The reality is that human behaviour comes in all sorts of forms, but, if we stop these problems today, somebody else will come along tomorrow with a different set. Of the two cases that you referred to, one was a result of whistle-blowing and was associated with an outcome, which resolved a serious problem. There was a serious problem there with a particular governance issue.
The other issue is about the suspended chief executive, and we talked about this earlier. The Department is not the employer of these organisations. Sometimes, they would quite like that to be the case, because when there is a grievance issue, or something like that, where there is a fall out at senior management team level, you will often see that happening across Departments. That issue will come to a Department; they have tried to get the Department involved in it. So, we have a clear line of accountability there where the employer has responsibility.
The final point is that, in that particular case, there were some major decisive actions taken in relation to the organisation in order to shore it up and ensure that the personnel issues at the top did not then translate into wider governance issues through the organisation. That is a very direct example —
Dr McMahon: There are always issues, and we are constantly getting reports of whistle-blowing. In fact, we are getting more reports of whistle-blowing now; partly because we are encouraging it, to be fair. It is not all a bad thing, but there are issues. Issues come out of organisations all the time and we investigate them. As recently as yesterday, I personally received a report of a whistle-blowing case, and I immediately went to the auditors to —
Mr Poots: DCAL was the first Department that I became Minister of; I moved on to Environment and, later, to Health. I want to ask Mr Sweeney a question here: in my opinion, the capacity in the latter two Departments, particularly in Health, but also in Environment, was a significant step up. Mr Sweeney has now moved on to Education. Does he believe that there was a lack of capacity in DCAL?
Mr Sweeney: Again, the danger is that this comes across as an excuse, but I am going to give my professional assessment of how I found the situation in the Department. I found it to be a small Department. I found it to be stretched; I found that the command span at director level was very stretched. We were dealing with some very fundamental issues in a whole range of other arm's-length bodies. I could go into a great deal of detail — Museums Northern Ireland being transformed, the investment that we were making in culture, the Olympics came along, there were two North/South bodies.
I will give my professional assessment, and it is not meant to be an excuse, because the manner in which I have deported myself today and when I reported previously to this Committee is and has been completely open. Here was a Department, small in nature and very stretched, in my opinion, which was dealing with some very complex, politically-charged, sensitive issues. In that regard, the Northern Ireland Events Company was — with hindsight, wrongly — categorised and perceived to be a low-risk entity. Frankly, the focus at the very senior level of the Department was on a whole range of other very pressing issues.
So, not only do I believe that there was a capacity issue in the Department, the Chartered Institute of Public Finance and Accountancy (CIPFA), the organisation that I independently commissioned to come in and do a review of our capacity, drew attention to this and came up with 41 core recommendations about how the Department was —
Mr Poots: Were there skill sets that were deficient?
Mr Sweeney: There was a range of skill sets. There was a range of issues about —
Mr Sweeney: In some instances. That was what CIPFA concluded. I could quote from the report if it was helpful, but, that is the short answer.
The Deputy Chairperson (Mr Dallat): Thanks. Now, before I conclude, there is one more question. Mr McMahon. I understand that DCAL was still settling Events Company creditors after the company inspectors report concluded in March of last year. What is the final outcome and ultimate cost to the taxpayer of the Events Company's failure?
Dr McMahon: Well, we have just settled the final payment, and the final figure — do you have the exact figure?
Mr Carson: It is £1·6 million. There are still some costs to be finally determined, but it is in the order of that figure.
The Deputy Chairperson (Mr Dallat): So, we are still mopping up.
What the Events Company tried to do was laudable — I agree with you, Paul — but the impropriety and mismanagement relating to its activities are frankly shocking. We are clear that there cannot be another case of this type before the Committee, and certainly not one where the time span has been so dreadfully long. In this Committee's opinion, all public sector management boards, sponsor departments, chief executives and accounting officers should be constantly alert to the important lessons that can be learned from the failure of the Northern Ireland Events Company.
In conclusion , I thank our witnesses for coming here today. I am particularly grateful to Mr Elder, who told us at the beginning of the inquiry that he had suffered a personal injury. I think that we all agree that we are particularly grateful to him for having to sit through more than four hours. Thank you very much for coming. We wish you all the best in the future.