A loan increase of £10 million was approved by Irish Nationwide’s chief executive Michael Fingleton and paid to a customer without sufficient backup documentation and without receiving credit committee approval, core documents published by the Oireachtas banking inquiry show.
This was flagged in both a review of lending by Deloitte in May 2008 and an internal audit report in January 2009.
The reports also identify a large number of other weaknesses in the operation of the building society’s credit committee and legal department, along with loose lending practices.
The Deloitte review found that the loan amount to an unnamed customer was increased from £71 million to £81 million with the approval of Mr Fingleton.
“This is in breach of the rules of commercial lending policy as the increased approval can only be given by the credit committee,” Deloitte stated.
In response, the management of Irish Nationwide said that in future all amendments to the original terms of a loan would have credit committee approval before any payout.
Deloitte also noted an instance where the interest rate was manually changed and signed by Mr Fingleton on the loan offer, with no date noted of the change.
“We were informed that the change was made before the client signed the offer,” Deloitte said.
The consulting group also found several instances where there was a discrepancy between the amount of the loan approved by the board or credit committee of Irish Nationwide and the actual loan amount.
“We noted in one case the loan offer of €6.25 million was higher than the credit loan approval of €6 million,” it said.
“We observed in several cases that the application date on approved commercial loan applications was later than the letter of offer signed by the customer.
“In several instances we noted that the date of the letter of offer was earlier than credit committee/board approvals, as applicable.”
The internal audit report found that the committee met only five times between July and December 2008 and was not meeting with “enough frequency to fulfil all its duties”.
“In the absence of regular credit committee meetings, loans may be advanced which were not approved in accordance with the society’s lending policies,” the report said.
In addition, a loan amount advanced to refinance existing borrowings exceeded the credit committee’s approved amount.
The amount approved in July of 2007 was £3.75 million but the amount advanced was £4.02 million at the redemption date in July 2008.
An earlier internal audit – dated September 2008 – of Irish Nationwide’s legal department highlighted a number of key weaknesses.
“The department has no system for following up on [a] solicitor’s undertakings to ensure its security is correctly registered within a reasonable time frame,” the audit said.
In addition, it found an excessive number of legal files were logged out to individual staff members at any one time. One person had more than 100 files logged out to them, with several dating back to 2006.
It also noted that some files were not being stored in a secure location, and that a large number of active legal files containing title deeds were being left in unsecured locations at the close of business each day.
In addition, the legal department had no procedure to compare and verify the signatures of borrowers who had signed solicitors’ undertakings.
The department did not have any current law directory to verify solicitors’ qualifications and addresses, other than those available to the building society’s solicitors.
The internal audit noted that three legal files did not have any evidence of the undertaking solicitors’ professional indemnity cover prior to the issuing of the loan cheque. And the audit found the legal department did not maintain a record of solicitors who had been struck off by the High Court.
The Central Bank is conducting an inquiry into alleged regulatory breaches at Irish Nationwide, which was nationalised in 2010 having received a €5.4 billion bailout.
Mr Fingleton, who ran the institution from the 1970s until 2009, was controversially paid a €1 million bonus by Irish Nationwide in November 2008, two months after the State’s blanket bank guarantee was issued.