The consolidated and Agency financial statements of National Asset Management Agency (‘NAMA’) are prepared within a governance framework established by NAMA. The NAMA Board (‘the Board’) and committees established by the Board are responsible for the monitoring and governance oversight of NAMA and all NAMA Group entities.

The results presented are for the year ended 31 December 2014, with comparative results for the year ended 31 December 2013.

Responsibility for System of Internal Financial Control

The Board acknowledges its responsibilities for NAMA’s system of internal financial control. This system can provide only reasonable and not absolute assurance that assets are safeguarded, transactions are authorised and properly recorded, and that material errors or irregularities are either prevented or would be detected in a timely period.

Control Environment

The National Asset Management Agency Act, 2009 (the ‘Act’) provides that the functions of the Board are:

1. to ensure that the functions of NAMA are performed effectively and efficiently;


2. to set the strategic objectives and targets for NAMA;


3. to ensure that appropriate systems and procedures are in place to achieve NAMA’s strategic objectives and targets and to take all reasonable steps available to it to achieve those targets and objectives.

The Act provides that the Chief Executive Officer shall manage and control generally the administration and business of NAMA and the staff assigned to it and shall perform any other function conferred on him by the Board. The Chief Executive Officer is also the accountable person for the purposes of the Comptroller and Auditor General (Amendment) Act, 1993.

The Board has four statutory committees to oversee the operations of NAMA and its Senior Executive Team: an Audit Committee, a Risk Management Committee, a Credit Committee and a Finance and Operating Committee. The Board has agreed formal terms of reference for its statutory sub-committees which are subject to regular review. The Board has delegated certain credit decisions to the Credit Committee and Senior Executive Team through the Delegated Authority Policy, which is subject to regular review. The Board has also delegated the management of certain aspects of its balance sheet and treasury policies to the Risk Management Committee and Senior Executive Team.

The Board has adopted the Code of Practice for the Governance of State Bodies (2009) adapted in some instances to take account of NAMA’s particular governance framework and the statutory requirements of the Act and has established a Governance framework, which is subject to annual review.

The Audit Committee operates in accordance with the principles outlined in the Code of Practice for the Governance of State Bodies. Its responsibilities include the overseeing of the financial reporting process, reviewing the system of internal control and reviewing the internal and external audit processes.

NAMA has adopted the National Treasury Management Agency’s (‘NTMA’) Anti-Fraud policy. Under this policy the Audit Committee is to be advised of all reports of fraud or suspected fraud. NAMA has also adopted a NTMA-wide Good Faith Reporting Policy which was superseded by the Reporting of “Relevant Wrongdoing” and Protected Disclosures Policy in November 2014. This policy sets out the procedure to be followed for incident reporting by NTMA employees (including NAMA Officers). Reporting of wrong-doing or incidents is to the employees’ line manager, who escalates the incident to the Head of Compliance. Reporting of incidents of wrongdoing can also be made directly to the Head of Compliance or to an independent external representative (the Nominated Person). The Head of Compliance and the Nominated Person are then required to report to the Chairperson of the Audit Committee. The Audit Committee is responsible for the ownership of the Reporting of ‘Relevant Wrongdoing’ and Protected Disclosure Policy insofar as it relates to the functions of NAMA, oversight of its implementation with regard to these functions and oversight of investigations to include liaison with the Head of Compliance to ensure any reports received are properly evaluated and investigated. The policy is reviewed annually or more frequently as the NTMA considers appropriate.

NAMA has a Senior Executive Team which is responsible for the management of the business of NAMA. Management responsibility, authority and accountability has been formally defined and agreed with the Board.

Codes of Practice have been agreed with the Minister for Finance in accordance with Section 35 of the Act, including, inter alia, a Code setting out standards expected of the officers of NAMA. The Codes of Practice are reviewed annually by the Board and any amendments to the codes are submitted to the Minister for his approval.

NAMA depends to a significant degree on the controls operated by a number of third parties including the NTMA, Capita Asset Services (‘Capita’) and the Participating Institutions (Bank of Ireland and Allied Irish Banks, p.l.c). In this regard the following should be noted:

• The NTMA has a well-developed system of internal control and any shared services provided to NAMA are provided within this existing control framework.


• NAMA has established procedures with both Capita and the Participating Institutions for the reporting of incidents, including control failures and escalation procedures.


• NAMA seeks and receives annual assurances from the NTMA, Capita and the Participating Institutions that they have reviewed their systems of internal financial control in relation to services provided to NAMA.

On 7 February 2013, joint Special Liquidators were appointed to IBRC and four Directions were issued to NAMA by the Minister for Finance under the IBRC Act 2013. Amongst these Directions was the requirement for NAMA to acquire the underlying assets from the joint Special Liquidators in the event that the joint Special Liquidators were unable to sell the assets to the market. In 2014, the joint Special Liquidators completed the valuation and sales process and the Minister announced that no assets would transfer to NAMA.

Following their appointment, the joint Special Liquidators continued to act as a Participating Institution in respect of the existing NAMA IBRC loans. NAMA identified the risk of potential conflicts of interest in circumstances where the joint Special Liquidators or their firm are the appointed receiver on NAMA IBRC loans and agreed the most appropriate arrangements under the circumstances with the joint Special Liquidators to manage any such potential conflicts of interest.

While Capita assumed responsibility as Primary Servicer and Special Servicer on the existing NAMA IBRC loans in the second half of 2013, the joint Special Liquidators will continue to act as a Participating Institution until June 2015.

On 22 September 2014 Capita was appointed Primary and Special Servicer in respect of the NAMA Bank of Ireland Loans. Bank of Ireland continues to provide systems, support and other banking services in respect of these loans. Capita will assume responsibility for these services from 23 February 2015.

Risk Assessment

The Risk Management Committee is responsible for overseeing the implementation of the Board approved risk policies and tolerance levels. The Risk Management Committee ensures that risk is managed effectively and efficiently to achieve an overall commercial outcome in accordance with the Act. The Risk Management Committee has established reporting mechanisms to monitor and review key risks and mitigation strategies and ensures that those risks operate within Board approved limits.

A risk register is maintained which identifies and categorises risks which may prevent NAMA from achieving its objectives and assesses the impact and likelihood of various risk events across the organisation and its operating environment. On the basis of risks identified, actions are agreed to manage and mitigate these risks. The risk register is reviewed by the Risk Management Committee on a quarterly basis, and by the Board on a bi-annual basis. The Senior Executive Team is required to attest on a quarterly basis to the operation of controls that have been agreed to manage or mitigate risks.

During 2014 the Risk Management Committee identified five principal risks which have the potential to have a significant impact on the achievement of NAMA’s overall strategic objectives. These principal risks are;

• Domestic or international macroeconomic or financial shock


• Material loss of human capital


• Delivery of residential property or Dublin Docklands (SDZ) plans


• Timing and rate of deleveraging of the portfolio


• Reputational damage

The principal risks are reviewed on an ongoing basis by the Risk Management Committee and any changes in the principal risks are reported to the Board.

Capita and each of the Participating Institutions have submitted individual risk registers in line with standard templates agreed with NAMA. These risk registers are submitted quarterly and are subject to quarterly review by the NAMA Audit and Risk (CFO) function and the Risk Management Committee.

The risk management function was reviewed by NAMA’s internal auditor during the year and no issues were identified as part of this review.

Key Internal Financial Control Processes

NAMA has developed policies and procedures in respect of the key aspects of the administration and management of its business. These policies and procedures are regularly reviewed and updated to align with business processes.

NAMA has established a financial reporting framework to support its monthly, quarterly and annual financial reporting and for the preparation of consolidated and Agency financial statements which incorporates the processes and controls described in this statement. During 2014 NAMA has implemented a fully automated consolidation process to enhance the procedure for preparing the consolidated Financial Statements.

NAMA implements continuous improvements to its management information systems in order to facilitate enhanced reporting to the Board, Finance and Operating Committee and Senior Executive Team on its performance. NAMA continues to develop management information to support and monitor the achievement of NAMA’s strategic objectives which includes facilitating the delivery of residential housing and facilitating the delivery of commercial and residential development in the Dublin Docklands.

The Credit Committee is responsible for making credit decisions within its delegated authority from the Board. These include, inter alia, the approval of debtor asset management / debt reduction strategies, advancement of new money, approval of asset / loan disposals, the setting and approval of repayment terms, property management decisions, decisions to take enforcement action where necessary, and debt compromise. The Credit Committee also reviews and makes recommendations to the Board in relation to specific credit requests where authority rests with the Board. It is also responsible for evaluating asset recovery policies for ultimate Board approval and provides an oversight role in terms of substantial credit decisions made below the delegated authority level of the Credit Committee. Finally, the Credit Committee reviews management information prepared by the Asset Recovery function in respect of NAMA’s portfolio to support its decision making.

NAMA has an established procurement policy, which is reviewed and presented to the Board annually for approval. The procurement requirements of NAMA are carried out in accordance with the procurement policy which adopts relevant procurement legislation and best practice guidelines. NAMA is subject to EU Directive 2004/18/EC as implemented in Ireland by the European Communities (Award of Public Authorities’ Contracts) Regulations 2006 (the ‘Regulations’), in respect of the procurement of goods, works and services above certain value thresholds set by the EU. Where the Regulations do not apply – either because the value of the procurement is below the EU thresholds or falls outside of the Regulations – NAMA adopts a competitive process designed to obtain the best value for money that can be achieved. Save where the Regulations apply, any exceptions to NAMA’s procurement policy are approved by the CEO or the Board depending on the value of the contract.

NAMA has put in place a detailed procedures document for the implementation of major system developments and follows a structured controls based approach for projects undertaken. During 2014 the core systems, which are the NAMA Loans Warehouse, the Portfolio Management System, the Document Management System and the Management Information System, underwent programmes of enhancements rather than significant change. A Corporate Change Steering Group was established during 2014 to oversee all projects (including IT development) for NAMA. NAMA has also put in place additional controls in respect of IT access following an employee’s notification of resignation.

NAMA has put in place an appropriate framework to ensure that it complies with the Data Protection Acts. As part of this framework, NAMA has also implemented systems and controls to restrict the access to confidential data. Where NAMA has become aware of breaches or alleged breaches of confidential data, these have been fully investigated and where necessary reported to the appropriate authorities.

Information and Communication

The Finance and Operating Committee monitors the financial and operational management of NAMA and its management reporting and budgeting, including the preparation of annual budgets. NAMA provides regular assessments of its actual to budget income and expenditure to the Finance and Operating Committee. The Finance and Operating Committee also monitors the development and implementation of NAMA’s systems.

NAMA presents monthly, quarterly and annual financial information to the Finance and Operating Committee and Board and presents quarterly and annual financial information to the Minister for Finance as required under the Act.

In addition, NAMA provides monthly management information to the Senior Executive Team, the Finance and Operating Committee and the Board on the performance of debtors and the loan portfolio.

Monitoring

Deloitte acted as NAMA’s Internal Auditor until 30 April 2014. NAMA appointed PwC to act as its Internal Auditor from 1 May 2014. NAMA’s Internal Auditor has established an internal audit function, which operates in accordance with the Code of Practice for the Governance of State Bodies. An internal audit plan for 2014 was approved by the Audit Committee. In accordance with this plan, the internal auditor has carried out a number of audits of controls in operation in NAMA, Capita and the Participating Institutions. The Internal Auditor reports its findings directly to the Audit Committee. These reports highlight deficiencies or weaknesses, if any, in the systems of internal control and recommend corrective measures to be taken where deemed necessary. The Audit Committee receives updates, on a regular basis, on the status of the issues raised by the internal and external auditors and follows-up with NAMA management to ensure appropriate and timely action is being taken in respect of issues raised.

NAMA has established processes to monitor the performance of both the Participating Institutions (PIs) and Capita as Master Servicer and Special and Primary Servicer (SP), including monthly service reports, regular service reviews (including quality assurance of credit decisions taken under delegated authority) and the establishment of steering committees and credit review forums. Steering committees have been established for each of the Participating Institutions and Capita as Master Servicer and Special and Primary Servicer, and meet on a regular basis to review performance and operational issues. The performance of the loan book managed by the Participating Institutions is reviewed by NAMA via periodic credit review forums and NAMA participation in the credit committees of the Participating Institutions. A Quality Assurance Framework has also been implemented by NAMA to review the management of Participating Institution managed debtors on an ongoing basis in accordance with the authorities delegated to them by NAMA.

In respect of Capita as Special and Primary Servicer all credit decisions are made by NAMA personnel with Capita holding no credit delegated authority from NAMA.

A Quality Assurance Framework has been implemented to review the credit decisions and case management of debtors managed by NAMA, the PIs, and Capita. The Quality Assurance Framework is subject to annual review.

In addition, the activities of the Participating Institutions and Capita (in their roles as service providers to NAMA) are subject to audit by NAMA’s internal and external auditors.

The Board’s monitoring of the effectiveness of internal control includes the review and consideration of regular reporting to the Board by the Audit Committee (which oversees the work of the Internal Auditor), Risk Management Committee, Credit Committee, Finance and Operating Committee, the Head of Audit and Risk (CFO) and the Senior Executive Team.

Annual Review of Controls

We confirm that the Board has reviewed the effectiveness of NAMA’s system of internal financial control for the year ended 31 December 2014. A detailed review was performed by the Audit Committee, which reported its findings to the Board. The review of the effectiveness of the system of internal financial control included:

• review and consideration of the work programme of the internal auditor and consideration of its reports and findings.


• review of internal financial control issues identified by the Office of the Comptroller and Auditor General in its work as external auditor.


• review of regular reporting from the internal auditor on the status of the internal financial control environment and the status of issues raised previously from their own reports and matters raised by the Office of the Comptroller and Auditor General. There is also follow-up by the Audit Committee with NAMA management to ensure appropriate and timely action is being taken in respect of issues raised.


• review of letters of assurance received from the NTMA, Capita and the Participating Institutions in respect of the operation of their systems of internal financial control during the year.


• review of control assurance statements completed by NAMA’s Senior Executive Team and Senior Management in respect of the effectiveness of the system of internal financial control during the year.