An inquiry into alleged regulatory breaches at Quinn Insurance Limited (QIL) more than a decade ago heard on Wednesday that its auditors in PwC did not spot the potential impact on the company's financial position from guarantees offered by its subsidiaries against loans to the wider Quinn Group.
Eight subsidiaries of QIL – including Quinn Property Holdings Limited and Quinn Hotels Limited – provided guarantees against €1.2 billion of loans taken out by Seán Quinn's then cement-to-property conglomerate Quinn Group between 2005 and 2007. As the assets of these subsidiaries were being used by QIL to bolster its reserves, the existence of the guarantees meant that the assets may might not have been available to the insurer if it ran into trouble.
The inquiry centres on allegations that Liam McCaffrey, former chief executive of Quinn Group, and Kevin Lunney, one-time director of QIL, were involved in the QIL subsidiaries providing the guarantees without the knowledge of the rest of the company's board or its investment committee. The period under investigation spans October 2005 to July 2008.
PwC Ireland audit partner Kevin Egan, who presided over the audit of QIL and four of the subsidiaries during the period, told the inquiry on Wednesday, the second day of public hearings, that his firm was aware of the guarantees from notes in the accounts of the four units. The notes referred to guarantees as contingent liabilities.
However, he said that PwC was not aware of the existence, or effect, of the guarantees on QIL when carrying out separate audits of the insurance company. He acknowledged that he signed off on audited accounts for QIL and the four subsidiaries during the relevant period.
Distinction
“I’m making the distinction between two different audits. It would require me to take information from one set of audits into another,” Mr Egan said, adding that the annual audits of QIL and the subsidiaries were typically many months apart.
Mr Egan said it was the responsibility of QIL management in preparing annual accounts to provide information on the guarantees by way of minutes of meetings giving rise to the commitments. No such minutes were provided to PwC, he said.
Meanwhile, Mr Egan said he filed reports with the Central Bank on governance issues at QIL in 2008, under a section of the Insurance Act 1989. He filed the first in February of that year when PwC became aware that the company had provided loans to Barlo, a plastics business that belonged to the Quinn Group, and QIL subsidiary Quinn Property Holdings.
The second report was submitted in May 2008 as PwC completed the audit of QIL’s 2007 accounts. “[This] identified it was control failings, or the overriding of established controls, which allowed those unauthorised transactions to take place,” he said.
