Approval for €1m loan from INBS not found in 2006 audit, inquiry hears

No approval for a €1 million loan advanced to a developer in 2006 by Irish Nationwide Building Society (INBS) was found by the society's external auditor at the time, an inquiry into alleged regulatory breaches at the building society before the financial crisis has been told.

Vincent Reilly, who audited the accounts of Irish Nationwide between 2004 and 2008, told the inquiry it was his role, as part of his audit function, to establish whether loans were authorised or not by the credit committee and the society's board.

Giving evidence for a second day on Friday, Mr Reilly of KPMG said as part of the society audit in 2006, one particular loan of €1 million given to a property developer was flagged as not having approval from the credit committee or the society's board.

In response to questions from former INBS chief executive Michael Fingleton, Mr Reilly said his understanding was that the loan was approved by Mr Fingleton, overriding the various bodies responsible for approval. He said that written on the file was a note saying "see Mr Fingleton".

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Mr Fingleton disputed the evidence, however, saying the board “had to approve every loan at that time” to which Mr Reilly said: “maybe I spoke out of turn”.

Explanation

He queried why Mr Reilly didn’t enquire with Mr Fingleton at the time of the evaluation to get an explanation. Mr Reilly noted it was included in the audit findings report addressed to the board of directors. “As far as I’m concerned that would be enough,” he said.

Mr Reilly was also quizzed over his understanding of Mr Fingleton’s roles and powers in the society and said that when there was a handover for the audit in 2004, the previous partner said to him that the then chief executive had “fairly wide ranging excessive powers”. However, he also noted it wasn’t excessive when he was conducting his audit work.

The inquiry is seeking to establish if Mr Fingleton and three other former managers were involved in seven so-called contraventions at INBS between August 2004 and September 2008.

The first module of the inquiry is looking at whether the society’s credit committee failed to adhere to internal policies by not reviewing cases of large commercial loan arrears, exposure to specific sectors or customers, or issues raised by internal audit, outside advisers or regulators.

Mr Fingleton is one of four individuals subject to the inquiry. The others are former INBS finance director John Stanley Purcell, one-time commercial lending manager Tom McMenamin, and Gary McCollum, who once led the society's UK lending activities from Belfast.

The inquiry will resume on Monday with Patrick Neary, a former financial regulator, giving evidence.