Central Bank will not seek fee repayment over Custom House Capital report

Bank paid €60,000 to KPMG for report in advance of failed investment group being placed into liquidation in 2011


The Central Bank of Ireland will not seek repayment of a near €60,000 fee from KPMG for a report it produced in relation to Custom House Capital in advance of the failed investment group being placed into liquidation in 2011. This has emerged from a letter sent in late June by deputy governor Matthew Elderfield to the chairman of the public accounts committee (PAC) John McGuinness.

It followed an appearance by Mr Elderfield before the committee on June 13th. The letter was published on the PAC’s website in recent days.

The Central Bank paid KPMG €60,203.25, including VAT, for a third-party report into CHC before its collapse.

Mr Elderfield, who has since left the Central Bank to take up a position with Lloyds Banking Group in the UK, said the KPMG report “relied upon a letter from CHC confirming that all equity monies received had been accounted for in the firm’s books and records”.

He said, with hindsight, this provided “unjustified comfort to the Central Bank regarding the safety of client funds”.

Mr Elderfield said the terms of KPMG’s engagement letter specified that the review would not “necessarily reveal errors or irregularities in the underlying documentation and financial records seen”.

"In cases of potential fraud or misappropriation of funds, the extent to which a review or audit can detect the true extent of the problem when documents have been falsified is a significant challenge with the supervisory process," Mr Elderfield added.

Raised concerns
He said KPMG made conclusions that raised concerns regarding the records and systems and controls relating to client assets, which triggered follow-up regulatory action of "various sorts".

Mr Elderfield said that in light of the "explicit scope of the report", the fact that it raised a number of issues, and the "likelihood of success and the potential costs of such action", pursuing KPMG for repayment "would not be appropriate".

Staff complaint
Separately, Mr Elderfield confirmed that the Central Bank had investigated a complaint from a staff member about how the last set of bank solvency stress tests were conducted in July 2011. The Central Bank assisted the European Banking Authority in carrying out these tests. "Based on the report of this investigation . . . Central Bank management was satisfied that while the complaint was made in good faith, there is no reason for concern with the figures provided by the EBA," he said.