CRITICISMS OF the Fás internal audit team by the authoritys director general, Rody Molloy, were rejected by a committee of the Fás board, The Irish Timeshas learned.

The board's audit committee "is satisfied that internal audit function acted with propriety and integrity in all aspects of the case", the head of the committee, Niall Saul, wrote to Mr Molloy on March 15th, 2007, following criticisms made by Mr Molloy in a letter to Mr Saul on February 6th.

Mr Molloy wrote his letter after internal audit had finished a special inquiry into spending and breaches of procurement rules over a number of years at the authority's corporate affairs division.

The special audit is currently the focus of an inquiry by the Dáil Committee of Public Accounts and has led to a request from the Tánaiste and Minister for Enterprise, Trade and Employment, Mary Coughlan, to the Comptroller Auditor General, John Buckley, to conduct a special investigation into Fás.

The internal audit inquiry, which involved interviewing parties outside Fás, discovered a series of controversial matters, including suspected overcharging of Fás and contracts being awarded to companies in breach of Fás procurement rules. In the course of the inquiry, one matter was referred to the Garda and its investigation is ongoing.

In his letter to Mr Saul, Mr Molloy set out "certain concerns" which the executive, he said, had in respect of some aspects of the internal auditors' work. He said the original investigation into allegations concerning corporate affairs had been "extended without the courtesy of advising senior management" and that there had been an "almost endless expansion of the investigation".

"The interviewing of certain external people caused extraordinary difficulties for Fás management - eg Independent Group. Management had no prior knowledge that a senior executive of the group would be interviewed by the Fás internal audit. Subsequently a senior executive from Independent Newspapers met with the director general to express annoyance at internal audit calling on them."

Mr Molloy's expression of concern was referred by the board audit committee to Fás internal audit. Internal audit responded in detail on February 13th, 2007, to each of the points raised by Mr Molloy, rejecting each of them in turn (see panel).

Mr Saul then wrote to Mr Molloy, informing him that the audit committee was "fully satisfied that the audit function acted correctly and did nothing by deed or omission that could be reasonably construed as being prejudicial to any party or to the interests of the organisation as a whole".

Mr Saul, referring to the head of the corporate affairs division, who was subsequently disciplined as a result of the report, also said: "The audit committee is unclear as to why the appendix containing clauses 21 and 22 was copied to the executive manager whose actions are in the main the subject of the audit report."

Clauses 21 and 22 are the sections of Mr Molloys letter where he outlines the main criticisms of the audit teams work.

"In the committee's view nothing was done by the audit function that could be construed by any reasonable person as being of sufficient materiality to impact in any negative light on the validity of the audit report," Mr Saul wrote. "I reiterate that the audit committee is firm in its view that a full and comprehensive investigation must take place into the very serious issues" that arose in the course of the investigation.

The head of the corporate affairs division was disciplined as a result of what was discovered during the audit inquiry but remained in his position. He has been on sick leave since some details of the report were released to the media under the Freedom of Information Act, in June. Fás has a budget this year of €1 billion.

Differing views: Fás director general and internal audit

What Rody Molloy said:

"The anonymous allegations were investigated, then other allegations arose. These were investigated and then other allegations arose, etc. The investigation was extended without the courtesy of advising senior management who had initiated the original investigation."

What internal audit said:

"The facts do not support this criticism."

"It is not correct to state that internal audit did not brief senior management during the investigation."

The audit team said it informed management before going to interview a party outside the authority. New allegations were made to the audit team in the course of the interview, and the team reported back to Mr Molloy, another senior Fás executive and a solicitor from William Fry, on February 28th, 2005.

At the meeting, internal audit "told senior management that it now would be necessary to interview other parties external to Fás and that, in the view of internal audit, it would not be advisable that senior management were informed in advance on a case by case basis. Senior management accepted this."

What Rody Molloy said:

"A trawl of an individual's e-mails was undertaken at a time when corporate policy in this area was far from clear."

What internal audit said:

After taking legal advice, the e-mails of the head of corporate affairs were examined "based on the IT security policies that were in place at that time".

What Rody Molloy said:

The interviewing of certain external people caused extraordinary difficulties for Fás management - eg Independent Group. Management had no prior knowledge that a senior executive of the group would be interviewed by the Fás internal audit. Subsequently a senior executive from Independent Newspapers met with the director general to express annoyance at internal audit calling on them.

What internal audit said:

The senior executive from Independent Newspapers was not told about a special investigation or letter of accusation being received by Fás. "Internal audit stated that their visit was part of a standard audit . . . After a set of standard questions and answers, the senior manager (from Independent Newspapers) spontaneously raised the issue of inappropriate payments to . . . Internal audit doesn't know the source of any information the senior manager may have had about the existence of allegations."

The internal audit team also said: "In the normal course of events the report would have been sent to the Comptroller Auditor General's office shortly after its finalisation in May 2006, together with other internal audit reports produced in the second quarter of the year. The Comptroller Auditor General's office was informed of the existence of the report but a copy was not forwarded because inter aliathe mere fact of its finalisation was being contested with Fás. As the report is now acknowledged as finalised, a copy is being forwarded along with the batch of internal audit reports completed in the last quarter of 2006."