Rude awakening as IMI forced to restate accounts

IMI cannot shrug off an unexpected €1.34 million demand on its reserves arising from a pension arrangement for former chief executive Barry Kenny, writes Paul Cullen

It speaks volumes for the state of corporate governance in the Republic that the flagship organisation dedicated to improving management standards here has received its own rude auditing awakening.

Unlike other companies, though, the Irish Management Institute is neither big enough nor profitable enough to be able to easily laugh off an unexpected €1.34 million demand on its reserves arising from an additional pension arrangement put in place for its former chief executive, Mr Barry Kenny.

No provision was made for the cost of the additional entitlements agreed with Mr Kenny at the time of the renegotiation of his contract in 1998 to be met from the institute's pension scheme.

In any case, the staff pension fund is already in difficulty, having gone from a surplus of €10 million to a deficit of €2 million within a year.

The cost will therefore have to be met directly by the IMI - provided the Revenue Commissioners give their approval.

That places a massive burden on the organisation at a time of great internal and external difficulty.

The financial toll is evident from the 2003 accounts, due to be published shortly, which have been seen by The Irish Times. These show that the IMI intends to account for the additional cost by making adjustments to previous sets of accounts going back to 1998.

In effect, these adjustments wipe out the small annual profits the IMI has returned in most of these years. The 2002 accounts, for example, originally showed a profit of €149,000; this now becomes a loss of €131,000 in the "restated" accounts.

The reverberations will continue to be felt up to the end of this year, when a final charge of about €160,000 will be made to the income and expenditure account in respect of Mr Kenny's pension arrangements.

Overall, the cost is equivalent to about seven years of profits for the IMI.

Questions now arise as to how so many people in the IMI could have remained ignorant of the deal. Mr Kenny says the deal was known to, and approved by, the remuneration committee and the board.

The chairman of the IMI council, Dr Chris Horn of Iona Technologies, briefed staff on the situation last week, but he only became chairman in the past year.

While Dr Horn told staff the sum was "appropriately approved", this doesn't explain why it didn't appear in the accounts between 1998 and now. The fact that Mr Kenny was chairman of the pension trustees at the time of the deal in 1998 will also raise eyebrows. Mr Kenny last night denied there was any conflict of interest, but staff feel concerned enough to indicate they will write to the Pensions Board next week.

The arrangements, which allow Mr Kenny to retire at full pension at age 55 and to receive "consequential" pension entitlements past the age of 60, seems generous for an organisation which was never hugely profitable. Mr Kenny worked at the IMI from 1993 to January this year.

The latest revelations come on top of a period of considerable turmoil at the institute. Membership is dropping and the organisation's international wing has been wound up.

Internally, concerns have been expressed over the departure of staff and the use of reserves to fund the development of a 50-bedroom accommodation block and conference centre at the IMI's campus at Sandyford in south Co Dublin.

Late last year, the 90-strong staff voted in favour of union recognition. However, the impetus to join one waned following the departure of Mr Kenny, thus sparing the blushes of an organisation that provides consultancy and training for many non-union companies.

It is clear the IMI's annual general meeting, which has been scheduled for later this month, will have plenty to discuss.