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Nicola Brennan's auditing of procurement practices at Northern Ireland Water led to political outrage and boardroom departures. Neil Hodge talks to her about the experience, and what she learned from it
» EVERY head of internal audit wants to make an impression and get the
attention of senior management and the board. That's especially true for those who are new in post. But few can expect to make the impact that Nicola Brennan did when she joined Northern Ireland (NI) Water to help set up and manage the internal audit team.
And perhaps few would want
to. Brennan's tnvesngation i~to the way the comp~ny awarded supplier contracts has led to boardroom dismissals-and a parljamentarj' enquiry - events that have thrust her work, and her organisation's failings, into the public spotlight.
Indeed, Stormont's public accounts committee chairman Paul Maskey
told Members of the Legislative Assembly in July this year that the failings at the organisation were "absolutely staggering", adding: "Since our committee was established, I
16 Internal Auditing' Dec/Jan 2010
don't think we've dealt with a more serious case of complete disregard
for public sector ethics." It has been
a difficult experience, but one that Brennan says has made her a stronger person and a better internal auditor.
Brennan joined NI Water in July 2008 to help set up and manage its fourperson internal audit team following the organisations' transition into a government-owned company. The
key part of her remit was to develop the organisation's in-house internal audit function while accountants Ernst & Young stepped back, working initially in a co-sourced arrangement. Brennan's team would then take charge completely of all internal audit work from 1 April 2010, when E&Y's three-year contract ended and she officially became head of the function.
But her rollercoaster ride started in August last year, just two weeks
after Laurence MacKenzie became
NI Water's new chief executive. Formerly an internal auditor himself MacKenzie's "antennae" went up over suspected irregularities in
the organisation's procurement processes as early as 10 August. He had been asked to approve addition a expenditure with a contractor for services at a rate that to him did not seem like attaining good value for»
"We are not watchdogs snooping on what other people do. Internal audi is there to add value and flag up problem areas, though its findings are often not as damaging as this"
Dec/Jan 2010 . lnterna] Auditing
» money for the taxpayer. By early September he called in Brennan and her team to investigate how this contract with Contracting
Out, a procurement specialist,
had been originally awarded.
Brennan's investigation concluded that the supplier appointment had not been properly approved and
that it had been engaged through a single tender action (STA) without competition from any other suppliers. Furthermore, C-ontracting Out had s~curea a 6% "success fee" fur savings "identified" rather than "delivered", which meant that ulxpayers'
money was being used to reward
~ suppliers for 'potential savings rather trian savings 'actually realised.
4i.>.~~ On-the-back of these findings,
MacKenzie commissioned a wider review of a sample of NI Water contracts between December 2008 and December 2009, asking Brennan and her team to investigate whether any other pre-existing contracts did not comply with the organisation's governance arrangements and applicable procurement regulations. Internal audit reported back on 15 January 2010. Its report uncovered 26 other questionable deals, some potentially breaking EU rules.
MacKenzie immediately informed
NI Water's sponsoring government department, the Department for Regional Development (DRD), and an Independent Review Team (IRT) was jointly established to determine what led to such governance failings. This was in parallel with further audits that were commissioned into contracts dating back to April 2007.
By April this year Brennan's internal audit reviews had found 73 cases where NI Water contracts worth a total of £2B.4m were awarded without appropriate competitive processes
or had been excessively extended beyond the contract terms, leaving
the company unable to demonstrate value for money for taxpayers.
. Brennan say~ that the problernj. : with procurement were also likely tJ : have been present prior to NI Water h:eplacing the Water Service - its
J p~edecessor - i11200j·aTpart of a
: evolutionreform package..But she. :tliat the weak coritrols environment : that was in place surrounding contr : was exacerbated by the delay in the 'implementation of an IT procurerne 'j systern. Another problem'was these. 1 of.£ha_nge management within the
: busl ness - it was being reorganised i t a governmenf-nmcorrl..panZ_CJuicker i than orlginally planned, which mea : that.the organisation- w-asr~liant. ~on e ·taTge·volume of independent . ..; Gonfractors·ii1cfConsultants.
"Added to that, some staff procur services of their own accord without engaging the procurement function, which meant that contract award
: records were incomplete. A further
: major root cause was the general lack : of awareness across the organisation
of the procurement procedures
If The experience has taught me that it is important to remain steadfast in your opinions, determined and independent so that you are always true to yourself"
and approval requirements" says Brennan. "As a result, we now have
a procurement compliance officer to take charge of these issues," she adds.
Following Brenrran's internal-audit - reports and the related IRT findings, -four of NI Water'snon-executive directorswere dismissed. One of them was the organisation's chairman, Chris Mellor. Furthermore, in August, Paul Priestly, permanent secretary at the DRD, was suspended over continuing investigations into what went wrong. He had told Stormont's public accounts committee the previous month that the organisation's procurement practices were "shocking, indefensible and unacceptable", adding that "it's evidence of lazy and bad practice. It's about allowing a contractor to get into the lifeblood of an organisation."
ongoing, Brennan has had time to reflect on what has happen d to
the past 15 months, "The whole experience has been a personal challenge for me. It has be n fi very stressful period and it has b an a very bumpy ride at times," sh says.
"I had only been working ·at NI Water for a year before the hi f executive requested the aud It that would uncover the failings ill the organisation's procurern nt processes. Indeed, it would have been a lot
better if the whole episode had nev r happened as the reputation of the organisation has been damaged and politicians have become involved. However, it is.Imperative-that such ,. instances of poor governance and control ate brought our in the open. Theorganisatton wi II be better managed as a result of all this and hopefully the lessons learned here will be shared in other public bodies."
Brennan says that having a CEO»
Personal challenge While investigations into what happened at NI Water are still
"Following Brennan's internal audit reports, four of non-executive directors were dismissed, including the organisation's chairman
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Dec/Jan 2010 ' Internal Auditing 19
» champion the cause of internal audit ts a real bonus. "I have been very fortu nate to have a chief executive that understands the value of internal audit through personal experience. That level of backing - particularly when we were both under a lot of duress and pressure - is a massive
help, and not all internal auditors have been as lucky," she says.
More generally, the experience
has made Brennan cautious about
the merits of risk-based internal auditing. "When you adopt a riskbased auditing approach you are confirming to a certain degree that the controls that have been put in place by management are appropriate to manage the risks within the business area being reviewed," she says. "Consequently, the operating effectiveness of the controls are then tested on a limited sample basis."
"But there is. a danger tliat you
are not going to find co"htrol failings because testing islimfted, especIally if you-~' systems are 'Immature', meaningthat the QQQulation you aretesting from may' not be 'cornpletetrf the firStVtace," she adds. "Instead of automatically adopting
--a~r·i~sk:6asedapproach, internal audit
departments need to consider the
systems jlJ.r~d_y in place; fhe skills _ and resources available, as well as .the cultute-oftn:e-organisation." .,..._
After a tumultuous year, Brennan is ready to restore order and calm to her team and to the organisation. One of the key issues on her agenda is to engage with staff across the business and reassure them that such investigations are not ordinarily
part of internal audit's workload.
"The role of internal audit in this process is likely to have made some staff unduly nervous about what we do and why we want to engage with people throughout the business," . says Brennan. "We are not watchdogs snooping on what other people do. Internal audit is there to add value
20 Internal Auditing' Dec/Jan 2010
Lessons lea ned
BASED on her rece,nt experiences, Nicola Brennan shares her advice on how to handle a controverslel audtt assignment.
1 Stick to your ~UM ..... If you believe that something is not right and you have evic to support your view, rnak~ sure the probJem is not swept under the carpet.
2 Stand up to pressure - Confrontation is never easy, but internal audit is alway. likely to flag up problfems that the executive and other stakeholders might not
3 Be cautious with rlsk~basea internal audit - Applying a risk-based audit approach is not always tine right move, Always question whether a full, riskbased approach is appropriate or whether this should be supported with substantive testing techniques.
4 Keep your team inform d - If you have been asked to carry out an in-dept review which is outside internal audit's normal work and may be controvers let the team knew, tlhe details so that they can be prepared for "office politi< 5 Rebuild trust -It is importa.ntto restate to people within the organisation ( other stakeholders that l~terrlal audit is there to add value to the business al not an "internal poucernan" that SI'lOOpS on them,
"The role of internal audit in this process
is likely to have made some staff unduly nervous about what w do and why we want to engage with people"
and flag up problem areas, thougl findings are often not ~ damagtn as this. Our job now is to reassur~ staff that we are not internal spies carrying out a policing role and s( we are rebuilding our reputation within the organisation," she add:
Brennan admits that this may not be an easy task and that it is likely to take some time. "Regaining trw is not going to happen overnight, but I'm confident that peoele will appreciate tb.e work that w~. had tc do to .protect the organis-ation, the pressure we were under, and the value our work has added to the organisation as a result," she says.
"I think that this has been a tremendous learning curve," says Brennan, "The experience has taug me that it is important to remain stead fast in your opinions, determi and independent so that you are always true to yourself. Carrying 01 this kind of review and reporting s problematic findings is going to me waves within the organisation, but have to stick to your guns," she say
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