Special Report Number 8: National Educational Welfare Board ? Lapses in Internal Control

Summary of Findings

All new State-sponsored bodies face the challenge of organising themselves so as to ensure that transaction processing is effected in a safe and regular fashion. Ultimately, organisations can only take reasonable steps to do so and cannot anticipate all possible exposures. In the case of the National Educational Welfare Board which was established in 2002, a control framework was drawn up and documented in a procedures manual by a firm of accountants in July 2003 soon after the Board had taken over responsibility for its own payments processing.

However, following the detection of a missing email in mid-2005, it was eventually established that

  • the organisation had IT equipment costing almost ?200,000 in excess of its needs
  • estimated losses of up to ?271,000 on foot of payment for IT services not provided to the Board had been racked up

The losses and the surplus equipment were attributable to internal control weaknesses which were exploited by a member of staff, apparently in collaboration with a supplier.

Professional fees of ?228,000 have been incurred to date in investigating and dealing with the matter.

A review of internal control in December 2004 had earlier highlighted the exposure that arose from the fact that key administrative functions in the IT area were not separated ? something which would effectively allow the same person to order goods, approve payments and sign cheques.

However, the Board says it drew assurance from the fact that the same report said that the supplier for much of the equipment upon which ?600,000 had been spent up to mid-2004 was correctly sourced through a tendering process. In the event, approximately 64% of all information technology purchases were sourced from a single supplier and only one of 122 individual purchases were the subject of a tender process.

Legal proceedings seeking recovery of amounts irregularly paid have been taken against the member of staff and the supplier.

It is acknowledged that it is not always easy to prevent or detect situations where staff act collusively with suppliers or bypass controls. However, the experience of the Board appears to highlight the need for State-sponsored bodies to assure themselves through internal audit or by other means that procedures are being implemented especially in circumstances where the organisation is new and capacity is being developed ? usually, over a period of time.

There may also be scope for supervising Departments to take a greater role in facilitating the smooth transition of the organisation to semi-state status. This is something that might be considered on a wider canvas ? though, as the Accounting Officer of the Department of Education and Science points out, such transition monitoring could not be a substitute for the enforcement of a sound system of financial and corporate governance at the level of the organisation itself.