An accounting firm in the Moore Stephens network has been reprimanded and fined £140,000 for failings before the collapse of a savings institution that cost the taxpayer £225 million.
Moore Stephens (NI) was criticised by the Financial Reporting Council yesterday over audit failings that took place before the collapse of Presbyterian Mutual, a Belfast-based industrial and provident society, in 2008.
David McClean, the firm’s audit engagement partner at the time, was reprimanded and fined £20,000.
About 10,000 savers faced losing their savings when Presbyterian collapsed at the height of the banking crisis. The coalition government resolved the issue in 2011 by agreeing to bail out the mutual with a £225 million assistance package. Savers with less than £20,000 got all of their money back.
Moore Stephens (NI) and Mr McClean admitted that their conduct had fallen significantly short of the standards reasonably expected of them, the accounting watchdog said.
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The council said that in 2007 and 2008 they had failed to obtain an adequate general understanding of the environment in which Presbyterian was operating and had failed to adequately test the assumption by its board that it was complying with its own rules. In the 2008 audit they failed to adequately test the Presbyterian management’s assertion that the shortfall in liquidity would be addressed.
Philip Black, a non-executive director of Presbyterian at the time of its collapse, was reprimanded by the council and fined £50,000. Five Presbyterian directors, including Mr Black, were disqualified from serving as company directors in 2013.
David Clements, the Rev David McConaghy, Herbert McCormick and the Rev Samuel McFarland were banned for four years. Mr Black was banned for three years.
The Presbyterian conducted banking business without a banking licence, took deposits without authorisation from the Bank of England and entered into mortgage lending without permission, according to the Belfast Telegraph. It also lent £52 million to non-members. About £100 million was lent to speculative property developers.
According to the Commons Treasury select committee there was a “fatal regulatory gap” in its supervision “that no lay person could reasonably have identified”. The Northern Ireland Ombudsman ruled in 2013 that the Department of Enterprise, Trade and Investment in the Stormont government was guilty of maladministration in failing to establish that Presbyterian was engaging in businesses it was not regulated to do.
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Because it was not regulated by the Financial Services Authority, its savers were not entitled to protection from the financial services compensation scheme, which recompensed savers in institutions such as the Icelandic banks.
The disgraced mutual played a bit-part in the career of Paul Flowers, the disgraced “crystal Methodist” former chairman of the Co-op Bank, who said that he had come under pressure from ministers to use the Co-op’s money to rescue the Presbyterian before his own downfall.