NAMA Chairman addresses Corporate Governance Association of Ireland

Calls for audit profession to undertake a fundamental review of its role in aftermath of Irish banking crisis

22 September 2011 – The Chairman of NAMA, Frank Daly, has proposed that the auditing profession should undertake a fundamental review of its role in the aftermath of the banking crisis in Ireland. Mr. Daly was speaking today to a meeting of the Corporate Governance Association of Ireland (CGAI).

Addressing the role of auditors, Mr. Daly said that the profession should reinterpret its role to include a forward-looking focus on business sustainability, long-term business strategies, ethical behaviour and underlying business risks; “I agree with the view put forward by Peter Nyberg and others, that the profession is excessively focused on historic accounts which forces them to look backwards not forwards.” He warned that there was an “expectations gap” between the current statutory role of audit and the public expectation of the level of assurance that audit should offer; “the prudent strategic response for the profession would be to move in the direction of fulfilling the public expectation of its role”.

Mr. Daly also detailed the extent to which NAMA is held accountable for its actions. He made the point that there is no other entity with a similar level of public accountability through measures including:

• Regular scrutiny by two Oireachtas committees
• Accounts audited by the Comptroller and Auditor General who has full access to all records and who has a permanent presence in the NAMA offices.
• Section 53 of the Act provides that NAMA must submit an Annual Statement to the Minister three months before the beginning of each financial year outlining its proposed objectives, strategies and activities for the year ahead.
• Section 55 of the Act requires NAMA to submit to the Minister, on a quarterly basis, a report on its activities and those of its subsidiaries, including a set of quarterly accounts.
• Under Section 56 of the Act, the Minister may require NAMA to further report to him on the performance of its functions, incorporating any information or statistics required.

Mr. Daly described this as a “very robust accountability framework”. He said that “Given the scale of NAMA’s balance sheet and its importance to the revitalisation of the Irish economy, that level of Oireachtas and Ministerial oversight is justifiable and appropriate.

In terms of greater transparency, he warned that the commercial mandate of the Agency was in direct conflict with full transparency; “the suggestion seems to be that NAMA should shows its hand openly, including showing it to those with whom it is negotiating the sale of loans or property. This would be commercial folly, the business equivalent of scoring an own goal from the half-way line – a spectacular, generous but self-defeating gesture.”

Mr. Daly also addressed the tension that exists between conformance and performance in commercial organisations in particular. He said; “Over the past decade, the pendulum swung too far in the direction of performance, with disastrous consequences. A natural reflex reaction now would be to force the pendulum back too much towards conformance. But we should be vigilant about this. Too much emphasis on conformance and on pointless box-ticking drains enterprise and initiative.”

“While corporate governance failures in the public and private sectors have invariably and rightly focused attention on rule creation and tightening, there is an appropriate balance to be struck between control and initiative.”