Statement by Minister Edwin Poots on Northern Ireland Events Company
Tuesday, 3 June 2008Mr Speaker, I am grateful for the opportunity to make a further statement to the Assembly about the Northern Ireland Events Company.
Members will be aware that last September the acting Chief Executive and Accounting Officer of the NIEC notified the Department that he had become aware of a significant overspend and that the Company was in a budget deficit position. An emergency Board meeting was convened on 5 October 2007 at the insistence of DCAL, and the company was directed, by DCAL, to establish the extent of overspend and to provide an explanation as how this arose. The Departmental Accounting Officer informed the Comptroller and Auditor General and I verbally briefed the Executive on 8th November 2007. On 22 November, following consultation with the Minister of Finance and Personnel, I presented a paper to the Executive.
At its meeting on 22nd November the Northern Ireland Executive agreed that DCAL will “meet the liabilities of the NIEC, as identified by the external auditors appointed by the company as presented at today’s Executive, and to be verified by the professional financial adviser appointed by DCAL, with a view to the company being wound up at the earliest opportunity.”
The Northern Ireland Events Company were instructed not to enter into any further financial commitments without the express permission of the Department, and that its activities should focus solely on winding up the affairs of the Company in an orderly fashion.
Subsequently I made a statement to the Assembly on the 26th November 2007, informing Members of the Assembly of the background to the financial deficit of the NIEC, and the steps agreed by the Executive to address the matter.
In my statement I said I wanted to have a comprehensive and authoritative review of the financial affairs of the company to enable me to fully assess the position and that I would advise the House further when the position becomes clearer. I also said that I would commission an independent comprehensive review of all the circumstances surrounding the deficit accumulated by the NIEC, and report back to the House at the earliest opportunity on the findings of this review.
Independent professional financial advisers KPMG were engaged on 28 November 2007 to carry out a comprehensive and authoritative review of the financial affairs of the company, to advise on meeting the existing liabilities of the NIEC and the most appropriate method of winding-up the Company in an orderly manner; and to carry out a comprehensive review of all the circumstances surrounding the deficit accumulated by the NIEC.
It had been anticipated that the report on the independent review of NIEC would be completed by the end of February 2008. Essential to the review were interviews with the Board of the NIEC and the former Chief Executive where they were given the opportunity to answer some specific questions in relation to their knowledge and understanding of how the deficit arose. Because of the time required to conduct these interviews, and the complex and sensitive matters being examined the report was not completed within the original timescale.
The Department has now received the draft independent review report. It contains matters of some public concern that Members will wish to be fully informed about. I have a duty to ensure that these matters are bought to this House’s attention, and to ensure that they are dealt with rigorously and urgently. The report contains matters of a sensitive legal and financial nature, on which I have sought advice. In making my statement I must be mindful of the possibility of further investigative work and I do not wish to prejudice these continuing investigations in what I say to this House. It may be that, as a result of these investigations, certain matters will be referred to the PSNI and ultimately to the Public Prosecution Service. Furthermore matters may also be referred to the Department of Enterprise, Trade and Investment for further action under Companies legislation. As a Government Minister I do not wish to prejudice these further investigations or the potential for properly holding those responsible to account. I must therefore restrict my public comment at this stage. These are serious matters, with potentially serious financial and other consequences.
However, I wish to assure Members that I will be as open and informative as I can be within these constraints and circumstances in outlining the key findings of this report.
The financial deficit is estimated by KPMG as being £1,662,450 by 31st March 2008, a figure which excludes non-quantifiable contingent liabilities, and one that has accumulated since 31st March 2005, when it was £440,337.
The deficit occurred because of a fundamental breakdown of controls and procedures at a number of levels.
The company began to directly manage and carry out activities in relation to certain events which the Board have stated was without their knowledge nor with their proper approval, as opposed to the normal practise of providing grant aid to third parties to do so. The company did this without the knowledge or approval of DCAL as well.
The NIEC entered into future years’ commitments without accounting for such commitments properly, without proper departmental authority to do so or clear budgetary provision for this commitment. One contract was even entered into as late as last September, one week before informing the Department of the financial deficit. This contract committed the company to run certain motocross events for each year up until 2012.
The deficit was not uncovered for a number of reasons: there were inaccuracies in the accounts; a lack of clarity and understanding of the accounting policies; excess funding was drawn down from DCAL; in-year bids were made to DCAL for additional funding; sponsorship and other income was used by the Company and payments were deferred from one financial year to the next.
Under company law the board are ultimately responsible for the Company’s affairs. The Chief Executive and subsequently the Acting Chief Executive were the Accounting Officers of the Northern Ireland Events Company in respect of the relevant periods, and they appear to have enjoyed the full confidence of the board. As Accounting Officer the Chief Executive had a particular responsibility for informing the board on all matters relating to the financial management of the company. However, the Board may have been denied relevant information about the true financial position within the NIEC. In addition, the evidence strongly suggests that the Board were not sufficiently involved or informed prior to major funding commitments being entered into. There is nothing on the record to indicate that they were made aware of the substantial financial obligations being taken on in the name of the NIEC and there is some evidence to show that by the time they were consulted in some of these cases, a commitment had already been entered into. If the Board had been more robust in its interrogative approach they may have been alerted to these issues earlier.
The Company’s Accounting Officer also had a particular responsibility to ensure that the Department was notified promptly of under spends and overspends.
Why these responsibilities were not properly exercised will be a matter of some public concern, and will be subject to further investigation.
The operational controls lie very clearly with the Northern Ireland Events Company directors and the accounting officer of the company. The Department was very heavily reliant on both the accounting officer and the directors discharging their responsibilities effectively. The Department’s role was to ensure that the fundamental architecture of governance was put in place.
The KPMG report found that although there was a framework of governance and controls put in place by the Department, there was a break down in the operation of these controls and good governance leading to fundamental breaches of extensive parts of the Company’s constitution, rules and authorities. This led to a sum of money amounting to an estimated £1,662,450 which the Company’s Accounting Officers were personally responsible for controlling, being committed on behalf of the NIEC without proper control or authorisation. The lion’s share of this was used to finance a small number of motorcross type events from 2004 onwards.
The situation was allowed to continue for some time until effectively the Company ran out of funding in September 2007. In KPMG’s opinion the management of the Company finances, financial reporting and financial controls were poor; the Directors did not fully discharge all of their Director obligations; they placed an over reliance on the former Chief Executive and the external auditors; and delegated powers to the former Chief Executive without proper controls. The duties set out in the Accounting Officer designation letters were not performed adequately and the Accounting Officer’s Statement on Internal Control and reliance on representations at regular monitoring meetings provided the Department with assurances which have proved to be unfounded. The Department did not identify the shortcomings due to the lack of a sufficiently interrogative and robust challenge of the Company’s Accounting Officer and the Board.
The report raises serious questions in relation to the conduct of named individuals and suggests further investigation. It does not discount the possibility of fraud, criminal activity or civil proceedings, and the Department will need to consider carefully whether it can seek to recover monies which may have been unlawfully obtained or payments which may have been made on the basis of misrepresentations by certain parties. The potential for recovery will require careful consideration, and, if appropriate, vigorous pursuit. It is therefore vital that the Department, myself, and this House, take no action that would inadvertently prejudice those investigations or that we take no action which would make any recovery more difficult.
In my Statement to the House on the 26th November I also reported that the Executive had agreed for my Department to assist in meeting the existing liabilities of the NIEC as verified by an appropriate independent professional appointed by my Department. I can report to the House that there are a total of 144 creditors owed a total of £938,008.87 of which 135 (or 94%) have been paid a total of £884,221.95. Those creditors that have not been paid are being investigated by the NIEC, under the direction of the Board and in consultation with my Department. As these become verified, the Department will be in a position to deal with these in the same way as for other creditors.
The Department is also aware that there are a number of contingent liabilities on the NIEC identified by independent financial advisers some of which are at this stage unquantifiable. These include any costs arising from potential legal action, as well as winding up costs. The Board, in conjunction with DCAL, are examining and dealing with each of these (and the unverified creditors) on a case by case basis, and with legal advice on handling, with a view to resolving or otherwise their claim.
Because the precise nature and extent of contingent liabilities remain of some concern, the manner in which they are handled by the Company will have a significant impact on whether the Company will be wound up in a solvent or an insolvent state. In the first instance this remains, legally, a matter for the Board of Directors.
I also reported last time that an external review of the monitoring arrangements between the Department and the other arm’s length bodies for which the Department is responsible had been commissioned. This was carried out by the Chartered Institute of Public Finance and Accountancy, a professional accountancy body which specialises in the public sector. This report is still being finalised. However, I understand there are, as a result of this review, identifiable areas of improvement required to address areas of weakness in DCAL’s sponsorship of its Arms Length Bodies. In line with commitments made to the PAC, the Departmental Accounting Officer will be taking forward these recommendations as a matter of urgency.
In reporting these matters to this House I am conscious of the significant benefits that have arisen in attracting and supporting major events to Northern Ireland. The rationale for taking such urgent and decisive steps has been in order to ensure that events do proceed if worthwhile, but I remain adamant that these will have to be within a properly controlled financial framework. Therefore I have also given urgent consideration as to how the events function will be delivered in the future, ensuring that the transition to any new arrangements agreed under the Review of Public Administration, is managed in a manner that secures the continuity of attracting and hosting major events in Northern Ireland. Under the RPA the assumption was that the function in relation to promotional activities and events will transfer from DCAL to DETI to be discharged by the Northern Ireland Tourist Board. Under this arrangement the Company was to be dissolved (in a solvent state) by the current Directors. DETI has indicated that it remains committed in principle to the transfer, but that, in light of ongoing disclosures, this is subject to being satisfied with the results of due diligence enquiries.
Consistent with the Executive’s decision to protect, as far as possible, the business continuity of imminent events and those in the pipeline, and in due course to transfer the events function to DETI / NITB, subject to the agreement of myself and the DETI Minister, I agreed that my Department take on the management of the events function on an interim basis. A DCAL Events Unit has been established to deal with outstanding grant funding agreements and outstanding applications made to the NIEC up until the end of October 2007. Further grant funding programmes have been launched for funding available from the Major Events Fund and the Events Growth Fund. A total of 26 applications have been received by the closing date of 2nd May and these are currently under evaluation with a view to grant funding decisions being made by 13th June. The Events Unit will not engage in directly running events: this will be the role of appropriately experienced and qualified event promoters and organisers.
Finally, Members will be aware that the Standing Committee of this Assembly responsible for examining these matters is the Public Accounts Committee. It has given early consideration to the Northern Ireland Events Company in its “Report on Good Governance - Examining the Effective Relationship between Department’s and their Arm’s Length Bodies” dated 15 May 2008. I share the view of the Committee that this is one of the most serious failures of control in an arm’s length body in recent years, and I understand the Committee intends to revisit this matter in some detail once the investigatory process is complete. I am sure that this House will not wish to pre-empt the further investigations required or the findings of the Public Accounts Committee, and I am assured therefore that this matter will be thoroughly examined and the lessons learned identified and applied.
Connect with US
