Tension between internal auditors and executives makes it more difficult to assess what is going on in the State body and how worried the public should be about its financial controls, writes Colm Keena, Public Affairs Correspondent

SO HOW worried should the public be about financial controls within Fás, the State authority with a budget of €1 billion?

On the basis of two internal audit reports released to The Irish Times under the Freedom of Information Act, and the fact that there are currently two Garda inquiries under way concerning matters to do with Fás, the answer to the question has got to be "quite a bit".

However, the response of senior executives within Fás to the audit reports has been very robust, and trying to assess what may be going on within the organisation is complicated by apparently greater than usual level of tension between executives and internal auditors within the authority.

The most troubling of the reports seen to date is the one released in July last, covering matters to do with the corporate affairs division of Fás, and the senior executive there, Greg Craig.

That report was completed in 2006 and covered the period 2000 to 2004. The audit began as a result of an anonymous letter containing very serious allegations given to the then minister for enterprise, trade and employment, Mary Harney, in 2004.

The inquiry did not find evidence to support the allegations, but, in the course of its work, found other matters, which it investigated and on which it reported.

The eventual report found:

breaches of Fás procurement rules that effectively undermined the procurement process;

instances where Fás did not appear to have achieved value for money;

possible interventions in the staff appointments process of a supplier of services to Fás by Craig.

The report is a lengthy one and the copy released to The Irish Times contained whole sections that had been edited for publication. One of the many findings was that a contract for the Opportunities 2002 fair organised by Fás "was awarded at a cost of approximately €250,000, which was at least twice as much as was paid previously, or since, for such work".

The auditors questioned the development of a website by Fás's corporate affairs division for its Jobs Ireland programme in 2000, when an existing system, they believed, could have provided the service. "Internal audit suggested that Fás probably paid €1 million more than should have been the case."

The work of the auditors met with a mixed reception at the top of the Fás management structure.

A copy of a February 2007 letter from director general Rody Molloy to the chairman of the Fás board audit committee, Niall Saul, was released to Fine Gael under the Freedom of Information Act and has been shown to The Irish Times.

Molloy enclosed a copy of the executive's response to the report. It accepts many of the report's recommendations and outlines the actions that have or are being taken as a result, although it also questions the extent to which the auditors understood the nature of the work done by corporate affairs.

"Frequently this involves the organising of very high-profile events at short notice and sometimes in foreign locations . . . The rigid application of contractual arrangements and public service procurement practices would not be appropriate in all the circumstances."

The response also contained some harsh criticisms. The auditors had moved on from the anonymous allegations to new ones they had discovered "without the courtesy of advising senior management who had initiated the original investigation".

"Objectivity and solid evidence should be the hallmark of an investigation report. There should be no room for words like 'appears', 'believes', 'it seemed', [and] 'probably'.

"A trawl of an individual's e-mails was undertaken at a time when corporate policy in this area was far from clear."

The note said the interviewing by the auditors of individuals outside Fás "caused extraordinary difficulties for Fás management, for example in Independent Newspapers. Management had no prior knowledge that a senior executive of the [Independent] group would be interviewed by the Fás internal audit department. Subsequently a senior executive from Independent Newspapers met with the director general to express annoyance."

The note also observed that many of the issues covered in the report dated back a number of years. One senior figure with knowledge of the organisation said this was a key issue in the whole affair. Around 2000, new government employment and training policies led to a substantial new duties being assigned to Fás, as well as a hugely increased budget.

As a Fás spokesman said this week, it was presented with a "challenge, but Fás worked to ensure that the money was well spent".

This picture of an organisation put under pressure by new remits and a significantly increased budget emerges from the second audit report. The report concerned a new programme put in place by Fás after the government provided an increase of €35.6 million in funding for in-company employee training. Fás had to set up new structures to achieve the results being sought.

The report was completed in June of last year and concerned expenditures in 2006. The issues involved have nothing to do with the corporate affairs division. The response from management to the report was again robust.

The report concerned expenditure on training to be delivered by non-Fás bodies, in the main non-commercial bodies such as Ibec, Ictu, and Chambers of Commerce of Ireland. It found these external contractors were in some cases given advances that were difficult to understand, for work that in the event they were unable to deliver.

"It now appears that many of the submissions were unrealistic and that Fás was exposed to some risk."

The authority paid out €4.5 million in advances in 2006. In one instance a contractor had to return 59 per cent of the money advanced.

The auditors found that some of the money advanced was treated in the Fás accounts as having been spent, and that the tracking of expenditure by the contractors was sometimes done by Fás on the basis of end-of-month phone calls to the organisations, rather than the receipt of documentation.

The report at one stage referred to the monitoring of the expenditure being "out of control".

When the report was given to Jack Horgan, the manager then in charge of the area concerned, he said that, realistically, no risk existed from the provision of advances, as almost all the contractors were social partnership organisations. He described the report as "largely unhelpful, unbalanced, de-motivating, lacking in context and destructively critical".

A high-level source in Fás said this week that its management and its audit team had the full trust of the Fás board. However, the board believes that the necessary dialogue between the two sides should be able to continue without their "tearing lumps off each other".

The board is satisfied that every effort is being made to ensure that every cent of public money is being well spent. Fás staff are well motivated, according to the source, but the negative publicity could affect staff morale and public confidence in Fás.

Fine Gael's enterprise spokesman Leo Varadkar has called for an overhaul of the leadership structure of Fás, but senior figures in the organisation believe that if a forum is provided to allow them present their case, public concern can be allayed.