NI Water: External auditor offered NIW a retro-fit..

MLAs are preparing to go into discussion of the NIAO’s long awaited report into the ongoing NI Water debacle that led to the sack of four out of five Non Executive Directors (even though apparently there was no fault found inside the organisation). They will find that the total value of the 74 cases investigated by internal Auditor Nicola Brennan in her ‘deep dive audit’, comes to £6 Million more than was orginally found.

Interestingly of these, 41 (that is more than half of the total) were legacy cases from the days when the Water Service was under the direct control of the Department for Regional Development. This chimes very much with Ms Brennan’s belated (and apparently unauthorised) disclosure to Internal Auditing magazine.

It also chimes with that rather frenetic point in the story when Mr Priestly warned his Independent Review team not to allow blame to be apportioned to the Department (rather than Northern Ireland Water) for an offence he later prompted the Minister to sack the four NEDs.

But there’s more. This is a passage from an internal email which specifically discusses how they might overcome the problem of non compliance with Nicola Brennan, then working for the accountancy firm, Ernst and Young. She suggests either evidence that the problems have been resolved, or, intriguingly, a ‘retro fit’. An interesting term for what was then the external auditor to use.

That should give the PAC some food for thought. It will be interesting to hear what the NIAO have to say on that matter, given they spent weeks camped at NI Water going over most of the detail. It would also be interesting to see what they have to say on the matter of the Steria customer services IT contract, since two of the people cc’ed on this letter were, at that time, staff members of Steria.

The Steria contract is where this whole story began. You know that moment when Mr MacKenzie’s antennae went up? It that’s Contracting Out contract which got junked for the entirely unexplained reason that costs were ‘identified’ rather than ‘delivered’.

Ms Brennan’s already incurred the wrath of the Permanent Secretary Malcolm McKibben, as you can see from his letter to PAC chair Paul Maskey for putting her relatively candid analysis (some would say coming pretty close to exonerating the sacked NED) into the public domain before the PAC had completed its ongoing investigation.

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  • Jj

    It seems PP thought the NEDs expendable and advised him as much. Someone had to take the fall, after all.

    Then, the Minister decided PP was expendable, too. It takes on some Shakespearian qualities, all of this, doesn’t it?

  • Cynic
  • Pigeon Toes

    Is “retro fit” where you produce the material *after* the event?
    E.g. Backdating authorising signatures.

    Naughty, naughty…

    Very basic control mechanisms should ensure such errors don’t occur

  • I found this little gem on ‘pushing the retro fit envelope’:

    Out of adversity comes creativity, so the saying goes. And indeed, the adverse global economic conditions have forced facilities managers to look at creative ways to retrospectively cut costs and save energy in their buildings to balance the books.

    I suppose another example of the art would be where the accounts for, say, year 2001 in comparative figures for 2000 and 2001 differed significantly from 2001 in a 2001/2002 comparison. Even civil servants with accountancy backgrounds might miss such a gaffe if they simply relied on others to give the correct answer to, “Are the accounts in order?”

  • “The Steria contract is where this whole story began.”

    There is a Steria connection, Mick, but surely it was the Contracting Out contract that unsettled MacKenzie.

  • inpursuitoftheinedible

    “retro-fit” is bad enough but how about “or production of evidence” …

    Surely this must undermine the credibility of any internal audit reports issued to date by Ms Brennan…

    This provokes a number of questions.

    The IRT should be concerned about that should they not?
    While PP was writing the IRT report was Mackenzie having the internal audit reports written to match?

    Was Ms Brennan appointed Head of Internal Audit NIW on a competitive basis?

    Is there not a conflict of interest?

    Was she transferred while still working for E&Y?

    Perhaps she should be the subject of the “Deep Dive” rather than the author.

    NIAO must be having kittens having predicated their work to the PAC on her report.

    The biblical saying seems apt here: “First remove the log in thine own eye before pointing out the splinter in thy neighbhours”

    @Nevin – Steria and NIW sharing internal audit emails does seem unnaturally close although not as unnatural as an Under Secretary at DFP that was formerly the MD at the same company suing the government under an action he had to have authorised/initiated as MD!

    Are we surprised there was a settlement?

  • wild turkey

    Retro-Fit may be one of norn ironlands most stunning contributions to the 21st century!

    Lets face it, NIs prototype, Retro-grade, just quite didn’t make the nut in the 20th century but it was a good shot guys. (apologies to all offended provincial nayce sensibilities)

    But in Retro-Fit ,this place is a world leader, (InvestNI take note) and in the age of Wikileaks this is no bad thang.

    got a wikileak? ah fuck, lets retro-fit.

    HET?, ah fuck, lets retro-fit.
    Truth and Justice Commission? ah fuck, lets retro-fit.
    Clergy and child abuse?, ah fuck, lets retro-fit.
    Brother Liam and child abuse? ah fuck, lets retro-fit
    Legacies of the conflict? ah fuck, lets retro-fit.

    Without precedent perm sec’ty on long term full paid leave?.
    well he’s paid his dues, how do we get him back?
    ah fuck, let’s retro-fit.

    my ten year old son is starting his first band, and you know what its going to be called.

  • William Markfelt

    ‘my ten year old son is starting his first band, and you know what its going to be called.’

    The McKenzies?

    http://mckenziemusic.com/

    This Americana oriented duo offer ‘contra dance’, which sounds a bit like ‘retro fit’.

  • wild turkey

    william

    close. but no cigar

    the son plays a Les Paul AK47 and his buddy is on the Moog RPG synthesiser…. and neither of them want to be an accountant or senior civil servant when they grow up. but if they did, they’d call their group the Good Germans.

    yeah, i know guys, off topic, apologies, whatever

  • Pigeon Toes

    . Mr J Dallat (East Londonderry):
    http://www.niassembly.gov.uk/qanda/2007mandate/writtenqfora/drd/drdwq3.htm

    To ask the Minister for Regional Development (i) whether NI Water has hired, through a single tender action, the public relations company JPR; and if so, (ii) who authorised the single tender action; (iii) what is the value of the contract; (iv) whether JPR is providing private client public relations support to the Chief Executive Officer of NI Water and if the Head of Communications at NI Water is aware of any such arrangement.

  • William Markfelt

    ‘neither of them want to be an accountant or senior civil servant when they grow up.’

    I admire parents who steer their children towards careers of honour and integrity.

  • William Markfelt

    i’f the Head of Communications at NI Water is aware of any such arrangement.’

    Ooh. There’s an interesting little almost throwaway comment by JD, given the circumstances in which one communications director left and another one was appointed. Didn’t NIW/DRD see fit to remind us all that there WAS a ‘proper’ selection process?

  • NIW’s new board – to be appointed within six months. Are cronies eligible?

  • William Markfelt

    ‘Are cronies eligible?’

    Apparently they’re going (back) into politics Nevin.

  • Pigeon Toes

    “Ms Lian Patterson (Department for Regional Development):

    When the Go-co was set up in April 2007 it was responsible for its own internal audit function and so could no longer draw on the internal audit function that would previously have been provided by the Department when it was the Water Service.

    Therefore, as a new organisation in April 2007 it set up its own internal and external audit functions. Its internal audit function was contracted out to Ernst & Young, a private firm of accountants, for the first two years, 2007-08 and 2008-09. At that time, the audit committee of NIW was responsible for liaising with Ernst & Young in agreeing the amount of internal audit time, which was decided as 360 days in the first year.”

    http://www.niassembly.gov.uk/record/committees2009/PAC/100701_GovernanceNIWater.htm

    So Ernst and Young were the internal auditors, and oh yes those *legacy issues*?

  • Pigeon Toes

    “Mr McLaughlin:

    I want to make two points that relate to the current topic of discussion; there will be more detailed questions to come. NIW has been through significant transformation and changes of direction. With regard to governance failings, are we talking about a long-standing culture that goes much further back than the move towards privatisation that populated the new arrangements; or are we talking about governance that developed or proved to be faulty in the context of the more recent vintage of changes that took place during the past four or five years?

    Mr Priestly:

    From evidence that I have seen as accounting officer, I would say that there is an element of both. Something seems to have happened when Northern Ireland Water became a Go-co, as though it thought that controls were removed. I kept hearing that “we are operating commercially”. I kept pushing back against that and saying that because they were receiving hundreds of millions of pounds of public money, the rules on regularity, propriety and value for money continued to apply. Laurence, what did you find?”

    Um the legacy issues?

  • malairt

    At least we now know (following the NIAO to PAC presentation yesterday) that the Steria settlement was £9m plus costs – yet to be determined.

    Staggering sums involved here. How can the figure go from £20 odd million in NIW’s favour to £9 odd million in Steria’s favour? And nobody seems to care?

  • Pigeon Toes

    At least we now know (following the NIAO to PAC presentation yesterday) that the Steria settlement was £9m plus costs – yet to be determined.

    Mal It’s news to me…Can you shed any more light on what happened at PAC?

  • Pigeon Toes

    http://www.bbc.co.uk/news/uk-wales-11943993

    “Mr Snow was given a payment of over £107,000 when he left his position as chief operating officer at the audit office in September last year, and will be given pension contributions totalling more than £600,000 until he turns 60.

    The WAO’s own auditors, KTS Owens Thomas, are also under scrutiny, as they advised that the liabilities for these payments did not have to be included in the office’s accounts, and continue to maintain that this is the case…A separate investigation by the UK National Audit Office has found no evidence to back up anonymous allegations that the WAO had billed audited bodies for work not completed…”

  • observer

    the letter to the PAC Chair from the department states that Nicola Brennan contacted the Dept to alert it to her published article. What does Laurence Mckenzie have to say about this article – it is written in a style that is flattering towards him. can it be credible that he did not know about this article until it appearerd, published, in a magazine. Who does Nicola Brenan report to – the CEO, the audit committee chair or the Finance Director at NI Water? Surely one or perhaps all three knew what was going on here and this allegedly unauthorised article had in fact been given very senior cover at least to be written and perhaps released to media. This piece looks like it is starting to unravel

  • Pigeon Toes

    There’s also a certain whiff of the story about allegedly wanting to wait on the result of PAC/NIAO report, because of course Brennan/DRD/NIW would have no way of knowing what the conclusions of the NIAO report would be, would they?

  • Would you like £40,000 per year and four days work a month, with or without troublesome online minutes? Conor’ll Fix It is a new TV show for those who think they could run a bath. Tune in next year for this and other exciting challenges.

  • Pink Lady

    Ms Brennans article notifies the PAC and Minister Murphy that DRD failings were indeed a real issue.

    But this information should have been given much earlier, and never in a magazine article. This article has poured salt into the fresh open wounds of the DRD staff who work in water, and the NIW staff, most of whom never had anything to do with the reasons for the bad publicity. This article is written so as to promote only MacKenzie and Brennan, at the expense of the reputations of these 1,600 staff, and all those who worked for DRD Water Service in the years before 2007. It is truly appalling that anyone ever conceived that such an article would ever be acceptable.

    MacKenzie is denying that had anything to do with it. Does anyone believe that? Or if you want to give him the benefit of the doubt, would you agree that it represents an unacceptable failure in procedures?

    Will he personally now take responsibility for this failure, or try to pin this failure on the old Board, or even the interim Board?

  • Pigeon Toes

    “The DRD are completely aghast at another breach of the law.”

    Really? That will make a change then….

  • Mick Fealty

    Can I ask that people moderate their language and accusations.

    For the most part I have to tried to ask legitimate questions based on a publicly disclosed evidence.

    If you know something you think I should know, then email it to me. Don’t try to take the law into your own hands; it could end badly for both of us.

    And can I ask that if you see anything that is offensive or in the least bit legally contentious, hit the offence button and let us know as soon as you see it!!

  • The Department of Regional Development said a “rigorous recruitment process” was carried out.

    Regional Development Minister Conor Murphy said the appointment came at a “critical time in the transformation of the provision of water and sewerage services”.

    “I look forward to Mr MacKenzie, who has considerable experience of operating at board level within another local utility company, taking up his role at NI Water,” said Mr Murphy. BBC 12 Mar 2009

    It looks as if someone queried the quality of the selection process but a ‘deep dive’ investigation by the MSM didn’t take place.

  • Pigeon Toes

    “QUESTIONS TO THE MINISTER FOR REGIONAL DEVELOPMENT

    Questions Tabled For Priority Written Answer
    On Friday 17 December 2010

    1. Mr J Dallat (East Londonderry):

    To ask the Minister for Regional Development, pursuant to AQW 2683/11, to detail (i) whether the external candidate, which the Chief Executive Officer of NI Water met in a local restaurant in December 2009, was successful for the post of Customer Operations Director; (ii) whether interviewers on the panel were told of this meeting prior to the interviews; (iii) the purpose of this meeting and the number of people present; (iv) whether interview questions were discussed at the meeting (v) whether a member of staff booked the table at the local restaurant; (vi) how many other external candidates the CEO met, off NI Water premises, prior to the interviews; (vii) whether it is standard practice for the CEO to meet external candidates, off Ni Water premises, prior to an interview; (viii) whether the CEO met all internal candidates prior to the interviews; (ix) how many people applied for the post of Customer Operations Director; (x) whether the CEO approached potential candidates within NI Electricity to apply for the post of Customer Operations Director, and if so, how many”

  • malairt

    @Pigeon Toes
    Last Thursday the PAC had a closed discussion on the NIAO report on procurement breaches at NI Water. I had thought that the report would be on their website but it isn’t yet.

    As there’s no confidentiality warning on the copy of the report I have, I don’t think there’d be a problem in me sending it on to anyone who wants it.

  • malairt, can you please send me a copy to the contact address on NALIL blog?

  • shamie

    This is a remarkable story.

    Has anyone taken the time to go back and watch the original PAC hearings starring Ms Brennan and the rest after reading this article?

    You should. I have.

    Remarkable. In any other jurisdiction in these islands, they’d all be out on their ears.

  • bittersweet

    Pigeon Toes

    I didn’t mean aghast at the breach of the law -I mean’t aghast at McKenzie being caught out(again!)

  • NIAO report is now online

    There were two aspects of the contractual arrangements with Contracting Out which we consider to be novel and contentious. Under its Governance Letter of March 2007 NIW was not required to adhere to GANI 13 (and subsequently MPMNI). Had compliance with GANI been required DRD Shareholder and DFP approval of these arrangements would have been mandatory:

    the Master Agreement, which was analogous to a framework agreement, was unconventional in that the arrangement was not advertised and was with one supplier only; and

    the payment of a success bonus, as set out in Schedule 7 (see paragraph 3.15), is also unconventional in the public sector.

  • malairt

    Pointless comment – NIW wasn’t subject to GANI, so why mention it. NIW was a GoCoand the whole point was for it to operate as a commercial entity rather than as a Civil Service Department

    Another pointless comment: the Master Agreement was put into place by the then CEO and the NIW Board and DRD were aware of its existence. All it did was establish the T&C’s under which Contracting Out and NIW would deal with each other. Any work performed was under a Schedule which set out the scope of work and remuneration, all of which were authorised as STA’s. NIAO seems to be implying that STA’s are unconventional.

    The payment of a success fee is pretty standard in the private sector. NIW had used it before, for example giving Steria a percentage of the overdue payments recoveries. Nobody has commented adversely on that.

    I’m sure that public sector has also used the services of the energy and phone bill audit companies that look at your invoices for you and take a share of the recoveries.

  • “NIW: Some done; much more to do”, according to Uregni, and Mighty Mouse’s moving finger, having writ, moves on.

  • bittersweet

    It strikes me as a missed opportunity that a Regulator -who is leaving -decides he has nothing to say about what has gone on at N.I.W .
    Did he miss the fact that one of the biggest stories of the year happened on his watch?No doubt he will use the excuse that he wasn’t asked, but is that not the problem?
    The silence of the Regulator gives the impression that he condones what’s happened.Let’s hope his replacement has a bit more cojones-god knows he’ll be the first prominent public figure close to the N.I.W charade ,if he shows any independence of thought.

  • bittersweet, Shane Lynch, the new regulator, used to work for NIE and AES Kilroot.

    AES Kilroot: We are guided by our shared VALUES of Social Responsibility, Integrity, Fairness and Fun.

  • Pigeon Toes

    http://www.niassembly.gov.uk/qanda/2007mandate/writtenqfora/drd/drdwq4.htm
    Mr J Dallat (East Londonderry):

    To ask the Minister for Regional Development whether he, and the Chair of NI Water, are aware of a recently published magazine article, in which the Head of Internal Audit in NI Water stated that many of the current issues affecting NI Water are, in her view, a legacy from the Water Service.

    . Mr P McGlone (Mid Ulster):

    To ask the Minister for Regional Development, pursuant to AQW 2762/11, what legal advice was sought on the information deemed to be sensitive and whether this legal advice supported his Department’s request to the Public Accounts Committee to handle the information appropriately.

    (AQW 3125/11)

    8. Mr P McGlone (Mid Ulster):

    To ask the Minister for Regional Development, pursuant to AQW 2797/11, what direction his Department issued to NI Water after the publication of the article in Volume 34, Issue 11 (Dec/Jan) of ‘Internal Auditing’

  • It would appear that PAC has left the kitchen so far as the governance of NI Water is concerned:

    27 January 2011

    PUBLIC/CLOSED

    Room 144 (2.00pm)

    FINAL Consideration of Report on Measuring the Performance of NI Water and Procurement Governance of NI Water

  • Pigeon Toes

    http://www.niassembly.gov.uk/qanda/2007mandate/writtenqfora/drd/drdwq2.htm

    QUESTIONS TO THE MINISTER FOR REGIONAL DEVELOPMENT

    Questions Tabled For Written Answer
    On Monday 10 January 2011

    1. Mr J Dallat (East Londonderry):

    To ask the Minister for Regional Development (i) how many members of the Independent Review Team met with the Chair of NI Water’s Audit Committee prior to their appointment; (ii) to detail the nature of any meetings; (iii) whether members declared these meeting prior to their appointment; and (iv) what consideration was given to any potential conflict of interest in the appointment of members of the Independent Review Team.

    (AQW 3227/11)

    2. Mr J Dallat (East Londonderry):

    To ask the Minister for Regional Development (i) to clarify what was meant by the term ‘different attitude’ which was applied to the Chairperson of NI Water’s Audit Committee as a reason for not dismissing him; (ii) which members of the Independent Review Team were involved in coming to this ‘different attitude’ conclusion; and (iii) how this conclusion was communicated to the Minister.

    (AQW 3228/11)

    3. Mr J Dallat (East Londonderry):

    To ask the Minister for Regional Development to detail the purpose of any meetings, correspondence and telephone calls that the Chairperson of NI Water’s Audit Committee had during the last 12 months with (i) the Minister; (ii) the Permanent Secretary; (iii) Deputy Permanent Secretaries; and (iv) members of the Independent Review Team, outside of the interview process.

    (AQW 3229/11)

    4. Mr J Dallat (East Londonderry):

    To ask the Minister for Regional Development on what date the Chairperson of NI Water’s Audit Committee was made aware that he was not going to be dismissed; and who advised him of this decision.

  • Pigeon Toes

    Director of Customer Services Delivery within NI Water

    Mr J Dallat asked e Minister for Regional Development, pursuant to AQW 2683/11, to detail (i) whether the external candidate, which the Chief Executive Officer of NI Water met in a local restaurant in December 2009, was successful for the post of Customer Operations Director; (ii) whether interviewers on the panel were told of this meeting prior to the interviews; (iii) the purpose of this meeting and the number of people present; (iv) whether interview questions were discussed at the meeting (v) whether a member of staff booked the table at the local restaurant; (vi) how many other external candidates the CEO met, off NI Water premises, prior to the interviews; (vii) whether it is standard practice for the CEO to meet external candidates, off Ni Water premises, prior to an interview; (viii) whether the CEO met all internal candidates prior to the interviews; (ix) how many people applied for the post of Customer Operations Director; (x) whether the CEO approached potential candidates within NI Electricity to apply for the post of Customer Operations Director, and if so, how many.

    (AQW 2959/11)

    Minister for Regional Development: I have been advised by Northern Ireland Water (NIW) that (i) the external candidate referred to was successful for the post of Customer Operations Director; (ii) the Chief Executive did not formally advise other panel members of the meeting, but panel members were fully aware that the candidate had previously worked with the Chief Executive; (iii) I refer to the answer already provided to AQW 2683/11 and can confirm that two people met with the external candidate; (iv) no interview questions were discussed at the meeting. (v) a reservation was made by the Chief Executive’s personal assistant; (vi) the Chief Executive met no other external candidates prior to the interviews; (vii) NIW has no defined practice in relation to this matter; (viii) the Chief Executive met the internal candidates, on occasion, in the normal course of business prior to interviews taking place; (ix) there were 50 applications for the post; (x) approaches to potential candidates were made by an independent recruitment agent who was engaged to undertake an executive search for candidates.

  • NIW has awarded a contract via a competitive tender process!!

    DLA Piper has been appointed as a preferred adviser to Northern Ireland Water, following a competitive tender process led out of Belfast by the company’s legal director Callum Sinclair.

    The national firm competed with four other firms for the role – Eversheds, CMS Cameron McKenna, Dundas & Wilson and Herbert Smith.”

    Callum Sinclair, Legal Director, added: “This is one of a number of recent high profile appointments in Northern Ireland, which includes business critical projects for departments of the Northern Ireland Civil Service and Viridian/Northern Ireland Electricity.”

    It’s a small world.

    DLA Piper has recently announced a contract with another soap opera – the relocation of the set of Coronation Street!!

  • malairt

    And so farewell D&W – another connection to the Steria case bites the dust.

    I found it quite ironic that one of the “procurement breaches” identified by the Independent Report Team was the contract with D&W, NIW’s external legal advisors. Even more so to see the rush to rectify said breach: it’s taken nearly a year to be resolved!