Northern Ireland Water's Response to a Suspected Fraud

Mr Kieran Donnelly, the Comptroller and Auditor General (C&AG), today issued his report to the Assembly on NI Water’s response to a suspected fraud. The report reviews NI Water’s internal investigation and considers the extent to which it complied with best practice in investigating suspected fraud. His report also makes recommendations for the conduct of future fraud investigations throughout the public sector.

The 2010 investigation was prompted by the discovery of a case of ‘invoice slicing’. This happens when a contractor, working with a member of staff, submits a number of invoices, each of which falls below the value which requires authorisation by a senior manager. Invoice slicing can be an indicator of fraud. The investigation found that an instruction had been given to a contractor to limit the value of invoices to below £20,000, but concluded there were no indicators of fraudulent activity in the case.

Mr Donnelly said of NI Water’s investigation: “I have concerns about the conclusions drawn, given the limited scope of the investigation and inadequacies in the methodology employed.” He added that “While acknowledging that this investigation took place during a difficult period in NI Water’s history, my view is that, on the whole, the guiding principles for the proper conduct of a fraud investigation were not followed.”

Key Findings

  • NI Water was slow to react to the suspected fraud. Best practice indicates that management’s response to suspected fraud must be prompt, ensuring that suspects are not alerted, evidence is secured early and assets are protected (paragraph 38).
  • NI Water did not seek advice from the Police Service of Northern Ireland (PSNI) or other public sector counter fraud specialists in this suspected fraud investigation (paragraph 43).
  • The internal fraud investigation team had limited experience of fraud investigations, and investigative work undertaken was not sufficiently detailed and rigorous (paragraph 39 and paragraphs 46 to 50).
  • While the internal investigation found no indicators of fraudulent activity from the work it performed, it did report serious control weaknesses in contract management and made recommendations to address these.  However, as no formal follow-up audit was carried out, it was unclear whether the recommendations had been implemented by management (paragraph 52).
  • The Department for Regional Development (DRD), which has oversight of NI Water, should have done more to ensure the Department of Finance and Personnel (DFP) guiding principles for suspected fraud investigations were being followed in this case. DRD should have informed the C&AG of the suspected fraud in accordance with DFP guidance.  Also, those charged with governance/oversight of the investigation within NI Water did not identify or address weaknesses in the scope of the investigation and the methodology adopted (paragraphs 34, 56 and 57).
  • NI Water should not have started a disciplinary process against two employees before the internal fraud investigation was completed and evidence secured. In addition there were, in our opinion, significant shortcomings in the disciplinary hearing process which followed the investigation (paragraphs 30 and 62).

Notes for Editors

  • The invoice slicing investigation and the subsequent disciplinary hearing took place between January and August 2010. This was an unusually difficult period in the life of NI Water as during this time:
  • an organisation-wide review of contract approvals had identified significant instances of non compliance with the company’s financial delegation policy and DRD’s Shareholder Governance letter, and potential breaches of the Regulatory Licence;
  • the then Chief Executive had tendered his resignation on 18 January 2010, citing the significant governance issues he faced. He withdrew his resignation on 20 January 2010;
  • the former Chief Executive and the DRD Accounting Officer jointly commissioned an Independent Review Team (IRT) to review procurement governance issues within NI Water;
  • further in-depth contract reviews were carried out by a joint DRD and NI Water Internal Audit team; and
  • following consideration of the IRT report of 25 February 2010, the then Minister for Regional Development dismissed four non-executive NI Water board members. A number of senior executives were also subject to disciplinary procedures as a result of the issues arising from the contract reviews.  
  • The Comptroller and Auditor General is Head of the Northern Ireland Audit Office (the Audit Office). He, and the NIAO, are totally independent of Government. He certifies the accounts of Government Departments and a range of other public sector bodies. He has statutory authority to report to the Assembly on the economy, efficiency and effectiveness with which departments and public bodies use their resources.
  • Background briefing can be obtained from the Audit Office by contacting Stephen McCormick (028 9025 1067) or Jacqueline O’Brien (028 9025 1056).