PUBLIC ACCOUNTS COMMITTEE NORTHERN IRELAND AUDIT OFFICE MEMORANDUM ON GOVERNANCE OF NORTHERN IRELAND WATER INDEPENDENT REVIEW TEAM SUBMISSION 2 August 2010Contents 1 IRT Submission to Public Accounts Committee Ld Overview, ovanssanncansceconseut 1.2. IRT Approach to the Review sno 13 Analysis of Changes between Drafts I and the Final IRT Report 14 C1OSiNE wa snenstunnnnnnnnnennennaiee 1 1 wed Independent Review Team Submission to PAC — 2 August 20101. IRT Submission to Public Accounts Committee Li Overview In response to the issues raised at the Public Accounts Committee (PAC) hearing on | July 2010 into the Northen Ireland Audit Office's memorandum on governance of Northern Ireland Water (NIW), the Independent Review Team (IRT) has documented its overall approach to fulfilling its terms of reference and summarised the suostantive changes that were made to the draft IRT report 1.2 IRT Approach to the Review ‘The Committee may find it helpful to have the following information on IRT"s approach to fulfilling its terms of reference for this important review. Following our appointment as members of the IRT on 20 January 2010 and an initial commissioning meeting with the DRD and NIW Accounting Officers, the review commenced on 25 January 2010. ‘The IRT's approach to the review included: establishing 2 secure office base and secretariat independent of NIW and DRD; + agreeing the modus operandi and timetabling activity ~ we were appointed as equal members of IRT arid we operated on that basis throughout the reviews + identifying information needs and obtaining the relevant documentation from DRD and NIW through their nominated contact officers; «conducting desk analysis of the considerable voluine of material available to the IRT to establish the evidence base; + arranging and conducting fact finding interviews with 27 individuals, some of whom were interviewed more than once ~ the list of interviewees is at Table 1.1 of the IRT Report — and agreeing the notes of those meetings with 26 of the 27 ~ the agreed notes formed an important addition to IRT"s evidence base; + assuring that its analysis and findings were fully evidenced; + ensuring that the DRD and NIW Accounting Officers and NIW Board had the ‘opportunity to examine the draft reports (Sections 1 to 4) for the purpose of validation; ancl = considering and testing all comments received through the validation process and ‘making approptiate amendments to the draft and final reports, Independent Review Team Submission to PAC ~ 2 August 2010 7‘The key activities during the review are outlined in the following Timeline, Date ‘Aetivity 2010 720 Jan TRT members appointed by DRD and NIW Accounting Officers. IRT members attended commissioning meeting with DRD and NIW Accounting Officers. 25 Jan IRT commenced review. Desk Research commenced. 25 Jan 0 9 Feb | Series of fact finding interviews held as recorded at Table 1.1 of the IRT Report dated 25 February 2010. T Feb IRT attended checkpoint meeting with DRD and NIW Accounting Officers TOFeb TSFed | IRT issued Report Draft | (Sections 1-4) for validation to DRD and NIW Accounting Officers and NIW Chait. _| 16 Feb | NIW Accounting Officer responded to Draft 1 17Feb | DRD Accounting Officer responded to Draft 1 IRT met DRD Accounting Officer to discuss DRD"s response to Draft 1 18 Feb | NIW Chair responded to Draft 1 IRT wrote to DRD Accounting Officer responding to his comments on our Draft 1 IRT issued Report Draft 2 (Sections 1-4) for validation to DRD and __| NIW Accounting Officers and NIW Chair. 19 Feb | DRD Accounting Officer responded to Draft 2. NIW Accounting Officer responded to Draft 2. IRT authorised an extension of time for the NIW Chair to respond to Draft 2 22 Feb __[NIW Chair responded to Draft 2. 23 Feb | IRT agreed Final Report subject only to final proofing and printing 25 Feb IRT forwarded Final Report to DRD Accounting officer. Independent Review Team Submission to PAC — 2 August 2010 213 Analysis of Changes between Drafts 1 and the Final IRT Report As noted previously, the IRT defined its approach to the review to ensure that the summary and analysis of findings was evidence based. The key to this was the validation process where the IRT offered the Accounting Officers of NIW and DRD and the NIW Board the ‘opportunity to validate and comment on the draft ‘evidence based’ analysis of findings before the IRT determined its conclusions and recommendations, Draft 1 of the IRT report (Sections 1 to 4) was issued on 15 February. Draft 2 contained substantive changes and the IRT decided to have a second round of validation. Draft 2 was issued on 18 February and the final report issued on 25 February. Draft 1 ‘The draft reports of the IRT comprised three core sections within which the analysis of evidence was presented and summarised, the analysis of context for the review (Section 2); analysis of the governance failures (Section 3) and analysis of failures by DRD as shareholder (Section 4). Draft 1 of the report detailed the following key findings: "That there was a serious disconnect between the NIW Board and its CEO that must be rectified; * That the failures in procurement “are of a significant nature and represent a serious breakdown in the governance and control framework of NIW” and also recorded the view that the breakdown in the application of the governance and control framework “is a serious matter for those responsible and accountable; and That DRD as shareholder was slow in its response to a number of events (strengthening of NED capacity, appointing a new chief executive and the appointment of the CEO of NIW as Accounting Officer. Jn summary, the IRT considered that the evidence underpinning Draft 1 was compelling and reflected a serious breakdown in the application of the organisation’s governance and control framework by those accountable. The IRT had formed the view at that stage that the contextual and environmental factors within and impacting upon NIW did not represent an excuse for the non application of the control framework, Changes to Draft 1 n by The IRT was aware of the deep dive audit and its early findings from its fact finding interviews. ‘This work was progressing in parallel to the IRT fieldwork and the IRT had requested to be updated on the emerging findings on @ number of occasions prior to the Independent Review Team Submission to PAG — 2 August 2070 3Inclusion of the Material Emerging Findings from the Deep Dive Audit to the IRT’s Evidence Base: Upon release the IRT incorporated the emerging findings of the deep dive audit within the evidence base of the review, the ei the deep dive audit ifieant_ad ie view of the IRT these increased substantially the finding of significance and seriousness in the failure, of those responsible, for applying the governance and control framework of the Company. In Draft 1 of the report the IRT recorded the view that the exceptions “are of a significant nature and represent a serious breakdown in the governance and control framework of NIW” and also recorded the view that the breakdor the application of control. fmewor DUAN Naa Upon consideration of the significance of the emerging findings of the deep dive audit IRT added to its summary of findings the view that “the position is of utmost concern and that urgent remedial action is needed in NIW. The IRT also further clarified its view of who ‘was responsible and accountable for the serious breakdown in governance and control as being the Board of NIW and the Executives responsible for ensuring compliance. In addition, given the significant and growing number of additional instances of potential procurement breach identified in the emerging findings of the deep dive audit and the then overall scale of issues identified when added to the governance failures in the case of Contractor A and the Contracts Approval Internal Audit report the IRT amended its view on the extent to which the governance failures could be considered systemic. The IRT then stated in its final report that should the deep dive work be validated as accurate that a finding of systemic failure in operational procurement would be justified. Since the IRT finalised its report and as reported at the PAC hearing on July 1* the size and scope of procurement failures now identified have been confirmed as approximately £28, million spanning 78 contracts. Independent Review Team Submission to PAG — 2 August 2010 a14 -xpressed. It stated that the report of the was evidence based. ‘This meeting was followed up with written correspondence that re~ iterated this position and stated that the IRT recognised that his assessment had been made without the benefit of seeing recommendations and that these would take the IRT’s analysis and findings to a logical conclusion. Changes to Style, Punetuation and Grammar: From Draft | to final report the IRT incorporated a number of grammatical, punctuation and stylistic changes to the report. ‘These did not change the substance of the analysis and findings of the report. Closing ‘The IRT considers that it has approached this review with professionalism, integrity and ‘thoroughness in establishing and testing its evidence base and in presenting its analayis and findings without fear or favour. We trust that the PAC will find this submission of assistance in completing its consideration of the procurement governance failures in NIW. Jackie Henry, Glenn Thompson, Peter Dixon ‘Members of the Independent Review Team Independent Review Team Submission to PAC ~2 August 2010 5