Michael Fingleton admits not reading audit reports at INBS

Former Irish Nationwide Building Society (INBS) managing director Michael Fingleton has admitted he failed to read internal audit reports at the society and signed letters to the financial regulator without reading them.

A Central Bank inquiry into the lender's €5.4 billion collapse is looking at whether the society's credit committee failed to scrutinise large commercial loans in arrears, its exposure to specific customers, or highlighted risks.

The inquiry has established that INBS told regulators in 2005 that its credit committee saw regular reviews of its commercial loans, even though this was not happening.

Inquiry senior counsel Brian O’Moore asked Mr Fingleton on Thursday about a letter received from the financial regulator, which referred to the credit committee having a “credit risk management role”.

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“I may have glanced at it,” said Mr Fingleton of the letter. “I can’t remember. I would certainly have passed it on. I can’t recall.” Asked why he did not inform the Central Bank in reply that it was “barking up the wrong tree”, Mr Fingleton said he “just signed the document and off it went”. He said he didn’t believe he read the letter.

Mr O’Moore asked Mr Fingleton whether it was “slightly economical with the truth” for the replying letter to suggest the credit committee reviewed all reports submitted to it, when it in fact received no reports. “I can’t comment on that,” said Mr Fingleton.

“Well you can Mr Fingleton, because you signed the letter,” said Mr O’Moore. “We know that there were no reports submitted to the committee in relation to the credit risk management role. Isn’t it a bit sharp to suggest the credit committee is reviewing all reports when no reports are submitted to it?”

Mr Fingleton agreed that there was no “good reason” as to why “this misinformation” was included in the letter to the regulator.

No benefit

Mr O’Moore asked Mr Fingleton why the terms of reference of the credit committee, which were approved by the board, included a reference to considering commercial loans that were in arrears or deemed non-performing.

“There was no benefit,” said Mr Fingleton. “Those matters were readily available in the commercial department, and all that information was available to the board.” There was “no purpose” to that particular section.

Asked why it was therefore included in the terms of reference, he said: “It was put in by whoever it put it in. If I had focused on it myself, I would have concluded there was no need for it.”

“You sat around the board and approved these terms of reference,” said Mr O’ Moore. “You hardly did so mindlessly, Mr Fingleton?”

“I don’t think I would have done anything mindlessly,” said Mr Fingleton.

Mr O’Moore asked Mr Fingleton whether he raised the issue of credit reviews with the committee when he attended its meetings at the end of 2007.

“Did you know what credit reviews should be provided to the credit committee?” he said.

“Not in that context, at that time,” said Mr Fingleton. “You were the ranking member of the committee,” said Mr O’Moore. “I was only a member of the credit committee,” replied Mr Fingleton.

Mr O'Moore continued: "You were the managing director of the society. You had no recollection of anything, from [auditor] KPMG, or records that credit reviews should be provided to the credit committee? That was all airbrushed from history, gone from your memory at that time?"

“I had no reason at that time to have a recollection,” said Mr Fingleton.

“Mr Fingleton, isn’t it just a wee bit dysfunctional,” said Mr O’Moore. “You personally signed a letter on May 12th, 2007, undertaking that the credit committee would review all reports submitted to it, including the credit reviews.

“You walk into the meeting seven months later and you’ve forgotten about it. Isn’t that an unacceptable form of practice?”

Total focus

“It may be,” said Mr Fingleton. “It may reflect what was happening within the society and where my focus was. I didn’t do it, and that’s it. By 2007, my total focus was on the sale of the society.”

Separately, Mr Fingleton was asked about an internal audit report in August 2007. Mr Fingleton said he couldn’t recall the report and was “not clear” on whether it was brought to his attention.

“This report was probably left on my desk or left with someone in my office before audit committee meetings,” he said.

“I have no recollection of seeing that report. If I looked at it, I would probably read the minutes, flicked through it. If it was deemed good or satisfactory, I would have put it down.”

The “overall rating” in the audit report was “good”, and so, Mr Fingleton said, he would then have “put it down”.

“I wouldn’t have looked at it in detail,” he continued. “I would just have looked at the overall rating. That was the extent of my involvement, unless something was brought to my attention.”

Before Mr Fingleton began giving evidence, Marie Phelan, the inquiry's registrar, said oral submissions would take place in September, before Mr Fingleton objected. "That's my holiday month," he said.

Ms Phelan said that “with the greatest of respect”, the submissions would take only a week.

The inquiry is focusing on Mr Fingleton, former finance director Stan Purcell, Tom McMenamin and Gary McCollum, who ran the society's UK business.