Mr. Pat Colgan:

It is important to emphasise that the way EU programmes were managed back then was based on a cascade of governance and assurance type of arrangements. In that sense we had to be satisfied that there were robust systems of control within the implementing agents, and we took assurances from the internal audit that that was the case. We had to put a service level agreement in place which laid out exactly what their roles were. We delegated authority in relation to their fulfilling that role and dealing with those things in a way that was set out. We provided training, guidance and procedures manuals to ensure that everybody was perfectly clear as to what their roles were. There were robust systems in place.

The weaknesses happened at individual manager level or some point within the system where there was not an awareness of the importance of certain developments that should have been raised to another level. There are a number of instances. I will reiterate what Mr. Griffin said. There was a point in 2006 when the whistleblower allegation was raised. We were made aware of the allegation. We asked for a meeting with the Northern Ireland Department of Enterprise, Trade and Investment to discuss that allegation. That meeting took place on 19 July 2006 with one of my staff. We went through the allegations with DETI and we received absolute assurances from that department that there was no significance to it and no issues that needed to be taken further.

The Article 10 report was commissioned and undertaken by consultants. It raised a number of concerns in respect of the Aurora and Nortel racks as well as some of the other issues. We addressed these issues directly with DETI. Again, we would have received assurances from the department. That is the way the system worked back then. We were basing it on a system of assurances and the view that people's internal systems of control were robust enough to give us comfort to the effect that they were doing what they were supposed to be doing. In fact, it turned out that was not happening.

There were some other critical points, particularly in 2008 when the second whistleblower allegation emerged. We were not informed about that. We were not informed about the subsequent review commissioned by ASM Accountants in 2009. That ended in a draft report that was never finished. We were not made aware of that.

In 2010 as we came to the process of concluding or closing off the programmes, we received a two-line correspondence indicating a potential irregularity with Bytel. We were surprised about it, but we had to include the matter in our final declaration to the Commission. We pointed out that there was a potential irregularity with the particular project and that we would come back to the Commission with further detail when we knew more. For the rest of 2010 we were in contact with DETI. Eventually, I wrote to the department in December 2010 urging those responsible to provide us with the detail we needed. I did not receive it until well into 2011. In fact, I went to a North-South Ministerial Council sectoral meeting involving the two relevant Ministers. I had to tell them that this irregularity was still outstanding against the final drawdown of funding for INTERREG III, without having detail of it. Eventually, at a meeting on 8 February 2011, I and a member of my staff were made aware of the seriousness of the issues. We were made aware for the first time about the 2008 whistleblower allegation and of the ASM review in 2009, which had never been completed. We were also made aware of some internal audit reviews that had been carried out as well. We were made aware for the first time that there was litigation under way and that DETI had initiated legal proceedings on the matter.

Two days later I wrote to the Accounting Officers in various Departments stating that we were taking certain steps to take the matter in hand. That led to the setting up of a project board to investigate the whole case and the commissioning of a detailed forensic audit, which ended up reporting in March 2012 in some detail around everything which has now come up to the surface.

I wrote again in March 2012 indicating that I would have to withdraw this project from the programme. The question from the committee was whether we have lost any money. The Special EU Programmes Body does not have any money. We manage money on behalf of the member states. Basically, our role is to draw down money from the European Commission against expenditure that has been incurred. We receive the cashflow for that expenditure from various Departments and we use it to pay projects. Subsequently, we draw down the money from the European Commission against verified and certified claims for expenditure. In this case when it came to the final claim for a drawdown of expenditure from the European Commission, we had to deduct an amount in respect of the Bytel project. That is where the loss occurred. From that point it ceased being an EU project. It stopped having anything to do with us. From that point it was outside the EU programmes as such. It became a loss to the Northern Ireland departments and the Irish Exchequer.