Auditors had no history of issues with Anglo directors
TUESDAY
The man in charge of auditing Anglo Irish Bank for seven years told a jury last Tuesday (February 14) that he would have considered an alleged refinancing arrangement of loans to Sean FitzPatrick as significant to the audit.
Mr FitzPatrick (68), the bank’s former chairman, is accused of misleading auditors about multi-million euro loans from 2002 to 2007. He has denied all charges.
On day 79 of the trial at Dublin Circuit Criminal Court, Dominic McGinn SC, prosecuting, showed Kieran Kelly, a partner with audit firm EY (previously Ernst & Young) a number of loan facility letters from Irish Nationwide Building Society for the years 2002, 2003 and 2004.
The purpose of the loans from Irish Nationwide were listed variously as the refinancing of Anglo loans in the name of the accused as well as loans in the name of Triona, J and D FitzPatrick and loans linked to the accused’s shareholding in the Beacon partnership.
The loan facilities, offered in September of each year, went as high as €18.3m in 2004. The jury saw the figure for directors loans was given in the bank’s 2004 annual accounts as just over €10m.
Mr Kelly said in 2002 that he was not aware of a €4.4m loan arrangement Mr FitzPatrick had with Irish Nationwide (INBS).
The witness also viewed documents, known as letters of representation, presented by the bank to the auditors. He said representation letters were ‘very important’ for confirming ‘important aspects’ of an audit.
Mr McGinn told the witness that it will be for the jury to decide if the prosecution has proved what the INBS facility letters amount to and whether those refinancing arrangements should have been part of the letters of representation.
He asked Mr Kelly about the significance of the loans to his audit in the case where the jury were to conclude Mr FitzPatrick’s loans were in existence during the financial year and Mr Kelly had not been told about the loans during the audit process.
Mr Kelly said that the drawing down of the loans from Anglo wouldn’t have had a big impact on the audit.
‘Directors may take loans during the year and may repay, whatever their personal circumstances may have been and there may well have been a pattern of such activity,’ he said.
Mr McGinn then asked Mr Kelly would his view change if the jury were to conclude that arrangements were put in place at the year end specifically for those loans to be refinanced.
The witness replied: ‘I would consider that to be of a greater significance to the audit.’
He said he would first seek to understand the precise nature of the ‘refinancing’. He would also seek to understand ‘ that all accounting and disclosure obligations in relations to our duties as auditors have been properly addressed.’
He added that if he judged what was happening to be unusual he would be obliged to make reports to the bank’s board and audit committee.
Concluding his direct evidence Mr Kelly told Mr McGinn that he stood over the truth and accuracy of a statement made by him to investigators and described by lawyers defending Mr FitzPatrick as contaminated by coaching.
The process used to put the statement together has been ruled ‘unlawful’ by the trial judge, Judge John Aylmer.
He said that colleagues from EY, lawyers from A&L Goodbody, a legal firm representing EY, Kevin O’Connell and garda colleagues from the Office of the Director of Corporate Enforcement were involved in the process of producing the statement.
He said he knew at the time that he was signing a declaration that he could face prosecution if he stated anything in the statement that he knew to be false or misleading.
‘I believe that the contents of this statement at the time I made it and I believe now, to be true and accurate,’ he said.
Mr Kelly completed his direct testimony at lunchtime and Bernard Condon SC, defending, asked the case to adjourn. The court heard that the defence had been served with a new disclosure of a ‘considerable amount of documentation’.
‘I need to be fully prepared,’ Mr Condon said, referring to his cross-examination of the witness.
Mr FitzPatrick of Whitshed Road, Greystones, has pleaded not guilty to 27 offences under the 1990 Companies Act. These include 22 charges of making a misleading, false or deceptive statement to auditors and five charges of furnishing false information in the years 2002 to 2007.
THURSDAY
An auditor for Anglo Irish Bank denied that he engaged in ‘performance theatre’ while speaking to investigators who were examining alleged offending by the bank’s former chairman Sean FitzPatrick.
Defence counsel Bernard Condon SC put it to the bank’s auditor Kieran Kelly, who is a partner with firm EY (previously Ernst & Young), that he put on a ‘pantomime’ and engaged in ‘some sort of performance theatre’ when meeting with investigators from the Office of the Director of Corporate Enforcement (ODCE).
Mr Kelly said he wasn’t trying to engage in an act and denied that he was trying to ‘ buy time’ by asking that he be allowed examine certain documents.
He said his solicitors had told him before the meeting that he should examine the documents to understand them and ‘if I needed to reflect I was to do that.’
Mr Kelly also denied that he was given a ‘ tutorial’ by his lawyers before meeting with investigators. Mr Condon pointed to notes from his meeting with the lawyers which state ‘ the less you say the better’ and ‘ think things through.’
Mr Kelly said the lawyers were advising him on how to answer to the best of his ability.
The witness accepted that he gave ‘misleading evidence’ to Judge Mary Ellen Ring during a earlier trial.
Mr Condon said he was ‘not for a moment’ suggesting Mr Kelly wilfully perjured himself or intentionally misled the court. Mr Condon said he believed his earlier evidence was down to a ‘ lack of recollection’ which he later tried to correct.
Mr Kelly accepted he had inadvertently given misleading evidence in the previous trial about how his garda statement was compiled.
Mr Condon put it to the auditor that during the 2015 trial he was ‘rather stark’ in his evidence that the statement he gave to gardaí and officers from the Office of the Director of Corporate Enforcement (ODCE) was entirely his own words in response to questions put to him.
‘You seemed to suggest the statement was taken in oral meetings where you were asked questions and the gardaí and the ODCE wrote down the answers,’ counsel said.
Mr Kelly accepted this was his evidence. He said he also now accepts that the evidence was not entirely accurate and that he had seen portions of another EY auditor’s statement prior to making his own.
‘You now accept you did see Vincent Bergin’s statement in advance of making your own statement when you said you didn’t before?’ Mr Condon asked.
Mr Kelly said that he did. He said that when he gave the previous evidence he ‘didn’t remember the entirety of the process of taking the statement.’ He added, ‘ to that extent…my recollection wasn’t complete.’
The witness agreed that his draft statement was prepared by the solicitors firm A&L Goodbody and then emailed to him and various other people including others within EY.
Mr Kelly said that when giving his statement he would have been happy to meet with ODCE and garda investigators without lawyers being present.
Mr Condon said that the lead investigator with the ODCE, Kevin O’Connell, didn’t believe he would have met with him without lawyers.
‘Presumably you are annoyed that he is saying your not telling the truth,’ Mr Condon asked.
‘I’m surprised at that, yes,’ Mr Kelly said.
FRIDAY
An auditor never told the board of Anglo Irish Bank that they may face prosecution if they lied to auditors, the trial of former Anglo chairman Sean FitzPatrick heard last Friday.
On his second day under cross-examination, one of the banks auditors, Kieran Kelly, accepted that guidelines state that auditors may wish to remind directors of an organisation that it is a criminal offence to provide misleading information.
Mr Kelly told Bernard Condon SC, defending, that he didn’t remind Anglo’s board of this. He said he believed he didn’t need to because they were ‘experienced directors’ and because the warning was contained in other documentation provided to them.
‘You don’t think you should have told them there’s a risk of going to jail? Is that your position?’ Mr Condon asked. Mr Kelly confirmed that it was.
The court heard that the Anglo board submitted ‘ letters of representation’ to the auditors between 2002 and 2007 which stated the amount of loans to directors. Mr Condon put it to Mr Kelly that the 2002 letter contained a clear contradiction in one declaration and was essentially ‘gobbledygook.’
Counsel continued that the 2002 statement was ‘illiterate’ and asked Mr Kelly why he didn’t raise this with the board of Anglo.
Mr Kelly said the letter was ‘perhaps crudely worded’ and contained a double negative in one sentence but that it gave him the information he needed.
Mr Condon said Mr Kelly’s failure to question the letter had led to the current criminal prosecution of Mr FitzPatrick. He said he found this ‘chilling’.
The witness replied that the prosecution of Mr FitzPatrick was a result of a decision by the Director of Public Prosecutions, not him.
MONDAY
On Monday, the former auditor of Anglo Irish Bank told the trial that loans linked to Sean FitzPatrick made up a very small portion of the bank’s loan book.
On his third day under cross-examination one of the banks auditors, Kieran Kelly, agreed that Mr FitzPatrick’s loans made up a ‘very small’ percentage of Anglo’s entire loan portfolio.
He said it would be around 0.20 per cent of the bank’s loan book, which in 2002 stood at around €19bn.
Bernard Condon SC, defending, put it to Mr Kelly that the loans to directors represented a very small figure in the context of the overall balance sheet of the bank and that any likely impact was considered small.
Mr Kelly replied: ‘We didn’t consider loans to directors as being a significant audit risk area.’
He said that the disclosure of loans to directors of the bank and related parties was considered a low risk area.
TUESDAY
A former auditor of Anglo Irish Bank told the trial on Thursday that auditors had no history of issues with loans to the bank’s directors.
On day 84 of the trial Vincent Bergin, who is a partner with audit firm EY (previously Ernst & Young), told the jury that he led the audit of Anglo for the years 2005 to 2008.
He told Dominic McGinn SC, prosecuting, that in respect of Anglo the auditors assessed the risk in relation to directors’ loans as being low.
He said this was a qualitative assessment rather than a financial one and was based on a number of factors. These included the routine appearance of the transactions and the fact that ‘we encountered no issues with them in the past’.
He said the aggregate balance of the loans, in so far as the auditors were aware, would not have had an impact on the balance sheet.
He said that a document called the letter of representation was ‘ hugely important to us as auditors’.
Mr Bergin said that its primary purpose was to ensure that the understanding of the directors who were responsible for preparing the bank’s financial statements or accounts and the understanding of auditors was the same.
He said if directors from a company did not sign the letter of representation the auditors would not issue the audit opinion.
The trial continues before Judge John Aylmer and a jury.