Undisclosed loans and IL&P deposits led to investigation

BACKGROUND:Accountancy regulator hired former CAG to examine Anglo auditor's role in ever-growing list of controversial issues

A WAVE of revelations about undisclosed loans to former Anglo Irish Bank director Seán FitzPatrick and billions of euro in deposits moved between that institution and Irish Life Permanent sparked the investigation into Ernst Young.

The accountancy firm was Anglo’s auditor. Its job was to ensure that the bank’s accounts gave shareholders, the markets and the public a true and fair view of its financial position.

The Chartered Accountants’ Regulatory Board, responsible for ensuring that members adhere to the Institute of Chartered Accountants in Ireland’s rules, engaged former comptroller and auditor general John Purcell to investigate Ernst Young’s performance as Anglo’s auditor. The firm and its partners are institute members.

The regulator hired Purcell in February 2009 to investigate loans, at one point worth up to €120 million, from Anglo to Seán FitzPatrick, a former chief executive who served as chairman until late 2008.

The bank did not publish details of the loans. FitzPatrick temporarily repaid them by borrowing from Irish Nationwide before Anglo’s balance sheet date on September 30th, and then borrowed the money from Anglo and repaid Nationwide once this date had passed.

These transactions, which continued over eight years, allowed the bank to hide the liability from shareholders. FitzPatrick resigned as chairman in December 2008 when details of the loans became public.

From that point, Purcell was asked several times to widen his net. In March 2009, the regulator asked Purcell to extend his investigations to €7 billion in desposits placed by Irish Life Permanent (ILP), owner of Irish Life and Permanent TSB, with Anglo shortly before the bank’s year end.

This included €4 billion which ILP deposited with Anglo just hours after the Government announced its controversial bank guarrantee in September 2008. The desposits helped strengthen Anglo’s ailing balance sheet.

Ultimately he ended up investigating loans to other directors, including former finance officer Willie McAteer, and to the so-called Maple 10, a group of business people whom the bank asked to buy its shares to prop up its value.

Of seven issues, Purcell told the regulator that he believes Ernst Young has a case to answer regarding three. A disciplinary panel of three board members will ultimately adjudicate on whether or not the firm has broken any of the institute’s rules.