NI Water: Board prevented from acting on contents of Internal Audit?

The Coalition government at Westminster clearly attach great public importance to Non Executive Directors on Departmental Boards. On his appointment as lead Non Executive Director to the Government, Lord Browne of Madingley laid out this description of the role of NEDs to departmental boards:

“This is a role within Government but also independent of it. Its purpose is to assist in the delivery of policy using relevant experience from business. There is a great need for the best of the business community to be involved during these challenging times for the UK.”

Hmmm… Anyone reading the debacle inside NI Water/DRD should be well warned that is not the way it works right across government. And certainly not in the case of Northern Ireland Water, where the non executive directors appear to have been treated as wholly owned chattel of the Department for Regional Development.

Now, before anyone goes all soft and sentimental it should be noted from the outset that non executive directors lead a precarious life. They are generally employed (and handsomely reimbursed) for their variety of experience and their willingness to speak hard truths to the management of the company they are employed to keep oversight on.

But ultimately their continued existence on the board is, quite rightly, in the gift the shareholder.

And in the case of Northern Ireland Water, a Government Company, there is only one shareholder: the Department of Regional Development. In this regard Mr Priestly, the Permanent Secretary, was always perfectly within his rights to recommend to his Minister Conor Murphy that he dismiss the whole board because he was displeased with their general performance.

So in that respect the actual sacking of the four NEDs is not the issue at play here. Rather it is the precise manner in which they were sacked that is of public interest, if the Northern Ireland Civil Service expect to continue drawing upon the talent and expertise of the private sector.

Back in March, Pete was prompted to ask whether this was “an attempt to deflect criticism from the Department itself?” And this remains the primary question hanging over this story. Of course it cannot be completely answered until the Department begins to respond to the FOI requests it has received in the weeks since the Public Accounts Committee sat on this matter.

But there is enough information already in the public domain to suggest the Department has been a great deal less than above board in the way it discharged its duties with regard to NI Water. Okay, preamble over. So, why is this a story?

There is no doubt there has been a serious problem with the way the company has handled its procurement processes. But put in context, it still has a 96% compliance rate.  Indeed at the beginning of this ‘crisis’ in September, the Department for Finance and Personnel awarded NI Water Exemplar status for their procurement practice.

If you examine the timeline, at first the problem is handled appropriately within this downbeat frame of reference. The Board is appraised of a process issue on the 27th October but it is not flagged to them as a serious issue nor are they informed by anyone in Laurence McKenzie’s management team that there is anything specifically to do with procurement.

In fact, nothing much happens until Nicola Brennan sends her audit report to McKenzie (who during this time has been appraising his friend Peter Dixon of his difficulties with staff) on 12th January. Within three days McKenzie calls a meeting with his senior management team.

Three days later on Monday, 18th January, McKenzie circulates a summary report to the Board (i.e., a two page email) and later that morning to the Chief Accounting Officer (ie, the Permanent Secretary) in DRD. At 9-40am he tenders his resignation.

McKenzie’s resignation appears to be the fulcrum for what follows.

Up until this point, the auditing process had chundered on for months. During this period NI Water and DRD were in almost constant contact. And yet neither the Chief Executive of NI Water (Mr McKenzie) nor the Chief Accounting Officer (ie, Mr Priestley) of DRD saw fit to inform the Board.

The crisis mode only begins with Mr McKenzie’s resignation, such that the Permanent Secretary can – within the space of just twenty four hours – name the members of the Independent Review Team (including the Chief Executive’s friend Mr Dixon) and provide them with Terms of Reference that implausibly shoe-horn the Directors into an issue about which the Board of NI Water has still not been informed.

At a stroke – because the IRT is now sitting – the Board is prevented from acting on anything they might find within the internal audit by the time they get to discuss and officially respond to it on the Monday of the following week.

So why the haste? And why cut the Board out of the loop before they had had a chance to feed their opinions and views into the process?

In normal circumstances, a meeting would have been the first port of call, not least to ascertain the real attitude of Board to the issues raised by the internal report. And, then, and only then, decide whether the Board members were taking the issue seriously or not.

Now, look at the timeline around the publication of the IRT’s report:

Monday 5th February – Paul Priestley confirms to NI Water’s Chairman that Peter Dixon and Laurence McKenzie had met on 15th January. The Permanent Secretary does not believe this brings into “question the independence of the review”.

Monday, 15th February – IRT submits the first draft (v1) of its report.

Tuesday, 16th February – McKenzie accepts this (v1) draft of the report is factually correct.

Wednesday, 17th February – After reading the first draft, at 8.30 Priestley writes to the IRT suggesting that they should not feel constrained by the (already Gerrymandered) Terms of Reference.

Thursday, 18th February – At some point during the day, the IRT submits their second draft (v2). This is the report the Permanent Secretary refers to as the final report. And this is when Priestley tells the PAC he took action, even though the IRT continued to take submissions until the following Monday. DRD still has not furnished the PAC with the text of these two early drafts.

Friday, 19th February 2010 – Don Price complains in an email about “how the IRT [seem] determined to find Governance failures by the Board rather than working with the Board to ensure the necessary corrective actions”.

Monday, 22nd February – Deadline for comments on submissions on v2 of the report.

Thursday, 25th February 2010 – Final draft is published.

As ever, we await the arrival of those FOIs…