The Standing Committee of Tynwald, on Expenditure & Public Accounts (PAC) - investigating the failure to forward purchase euros to pay for work on the extension to the runway at Ronaldsway airport – was informed on Monday, 24^th August, by Carol Davies, that she was greatly concerned by the deteriorating exchange rate, in December 2008, between the pound and the euro, but had been told not to speculate on its recovery.

The Committee has already heard evidence from a number of witnesses involved in, what appears to be, an increasingly farcical train of events that culminated in a £2.2m ‘loss’ to the taxpayers.

Several of these witnesses have, for all intents and purposes, been finger pointing in Ms Davies direction as the person responsible for the failure to buy the euros at an earlier date; which resulted in the significant increase in cost to the project.

Ms Davies read out a brief statement at the beginning of the session, in which she explained her role and responsibilities in the Finance Division of Treasury. These responsibilities include providing senior management support to the Accounts, Payroll, HRFS and Investments sections of the division.

She stated she had responsibility for co-ordinating the purchase of the euros for the RESA project once written instructions had been received; and to ensure that payments in foreign currency were made in a “timely fashion on receipt of an authorised payment instruction from the Department” (presumed to be the Dept of Transport whose project it is).

She went on to say she was aware from informal discussions with the Capital Projects Unit (CPU) co-ordinator, Alan Blain, that purchase of euros was likely and she had confirmed she was the correct contact to arrange the purchase; and advised on various options. She stated she had explained absolute certainty of the amount and timing of payments had to be provided in advance; and assured him the finance division regularly handled foreign currency transactions.

Therefore, she said, until she had the information required she was unable to approach the markets and it wasn’t until 22^nd September 2008 that she received a copy email, from the Chief Controller (Clive McGreal) to the Chief Accountant (Mr S Clague), that this information was communicated to her.

On the 5^th December 2008 she was asked by the Chief Accountant to provide some indicative quotes; which she says she provided a few days later on the 9th.

She completed her statement by saying on the 24^th December the Chief Accountant emailed her the instruction to purchase the euros. Having confirmed with him the precise amounts she says she sought quotations from 4 banks on the next working day, 29^th December, and completed the purchase on the same day.

Chairman of the Committee, Clare Christian MLC thanked her for her statement and commenced the questioning by inquiring if Ms Davies followed financial votes in Tynwald; but she replied she did not really follow what was going on in Tynwald that closely.

Mrs Christian wondered what she thought Alan Blain was doing in providing information about the euros if it wasn’t an instruction to purchase; to which Ms Davies suggested he was just giving her “the heads up” in advance of a likely instruction from the DOT to make the purchase.

Committee member, Rushen MHK Juan Watterson asked several questions about her role and responsibilities, if they had changed from her date of employment in 2005; and who she had expected to issue the instruction to make the euro purchase.

She confirmed her job description had changed in 2007 but she continued to offer advice and assistance, if asked, in relation to currency purchases. She said she took her “banking contacts” to the table and expected to get together with the DOT to bring about an agreement to the purchase.

So, suggested Mr Watterson, she expected the DOT to be proactive and drive forward the matter by providing the figures etc and the Treasury would provide the cash.

Ms Davies responded by saying she now knew someone in DOT had given an assurance their part of the agreement would be pursued; but when pressed on who that was, she couldn’t say.

Mr Watterson put it to her that Treasury member, Phil Braidwood MHK had said the instruction to purchase had worked down the chain of command to her; but that it seems it was September 2008 before she had sufficient information to proceed. Graham Cregeen MHK inquired if, at the 22^nd September 2008, she actually had enough information to proceed.

Ms Davies replied sufficient to get indicative quotes and reiterated what had happened in early December 2008.

Mrs Christian sought clarification from her that Mr Clague had told her not to get quotes, in September 2008, as he wanted greater clarification of the amounts; to which Ms Davies gave that confirmation.

Mr Cregeen, Mr Watterson, Dudley Butt MLC, were surprised at the delay but Ms Davies explained she was only asked to provide options for purchase at that stage and not quotes.

Asked by Mr Watterson if she had been monitoring the exchange rate; Ms Davies replied that Treasury had been advised by the Attorney General that they were not to speculate on the exchange rate.

This response appeared to astound Committee members, with Mr Watterson putting to Ms Davies that buying on spot markets or on forward contracts could be considered speculating; to which Ms Davies concurred and added it was how Treasury hedged purchases.

When asked by Mr Watterson if this was done, Ms Davies said when they approach the bank they get the day’s exchange rate; and in this case they chose the spot option. She went on to say Mr McGreal had said the DOT may need to make accelerated payments, so a forward contract was not the way to go for this purchase, and to purchase all the euros needed now. Apparently an assessment had determined there would be no real difference in the cost of the two options.

Rushen MHK, Quintin Gill climbed on his hobby horse and inquired if this affair was further evidence of the poor communication between senior officers; but Ms Davies, whilst accepting that prior to 22^nd September 2008 a proper audit trail was lacking, assured Mr Gill one did exist post that date.

Unsatisfied with the response, Mr Gill maintained the affair demonstrated a “catalogue of poor communication” and asked if, in her experience, it was typical.

Ms Davies denied that it is typical, and pointed out many similar payments and hedges are performed by Treasury.

Mr Gill wondered if there is a template to follow in conducting such exercises; but Ms Davies was unsure of what procedures CPU follow although she stated Treasury have clear guidelines for finance and payments.

Mrs Christian wondered whether during the period between September and December 2008, when the various “conversations” were taking place, if she had been concerned at the changes in the exchange rate.

Ms Davies said she had discussed the situation with Mr McGreal, but he had said there was no certainty what would happen with the rate; so they would be speculating on a recovery in the rate. So, yes, she was concerned; but the view was the loss should be “crystallized” at that point.

Mr Gill wondered why the Treasury doesn’t maintain a working reserve of foreign currency to fund any euro purchases.

Ms Davies explained Treasury tend to use the daily rate so, if say the Dept. of Education want something bought in euros, they use the rate of the day of the purchase to charge the Department.

Mr Gill was not satisfied with the answer, saying he understood how things happen but still wanted to know why a fund couldn’t be maintained by Treasury.

Ms Davies acknowledged things had gone badly wrong in this instance but, under yet further questioning from Mr Gill, about “lessons to be learned” from the affair and the feasibility of a fund, thought it would introduce further complications if a fund was used – such as what rate to charge departments.

Changing tack slightly, Mr Watterson inquired if she thought the DOT and CPU had been clearly informed a written instruction was needed before a purchase would be made; but Ms Davies avoided a direct answer and said she thought they had enough experience to know what was needed. Nor did she think it unusual to have a prolonged period of time between getting the ‘heads-up’ about a likely purchase and the actual instruction to purchase.

Mr Watterson returned to the issue of the Tynwald approval of the financial motion and the amount required being known at that point, and hadn’t she expected an instruction to come to her division; but she maintained she not aware of what was happening in Tynwald - and a briefing paper, that had apparently been circulated, had nothing to do with her area.

Mrs Christian returned to the period running up to the decision to purchase in late December 2008, and her apparent concern at the falling rate of exchange; and Ms Davies said she had wondered if it was the correct decision to realize the ‘loss’ at that time, but Mr Clague had said they would be speculating in a recovery in the rate.

So had it been a knee jerk reaction, inquired Mrs Christian, a case of “cutting the losses”; but Ms Davies defended her colleagues by saying nobody knew whether the rate would recover or fall further.

Mr Cregeen pointed out the Committee had heard that in September 2008 Mr Clague had decided he did not have enough information to make a purchase so did he have all the information he needed in December. Ms Davies replied she took it that he did and he was content to proceed.

Mr Gill wondered - given the utterances of the Treasury Minister, Allan Bell about the pressure officers in his Department are facing - if a review had taken place since her employment in 2005; but Ms Davies was not aware of any. However, she did believe positive action had resulted as a result of the affair; and a hedging practise note issued and a revision made to Financial Regulations in respect of currency transactions.

Mr Gill wondered if it was the responsibility of the Treasury or the CPU and/or the departments to have the expertise in currency matters; but Ms Davies thought CPU and the Departments should have the experience to be able to provide Treasury with the information to make the transaction.

Mr Butt wondered how high in her consciousness had the transaction been, had it always been in her mind; to which she replied many other items had to be dealt with during that time, but she had reminded people it had not been completed – so although it wasn’t always in her mind it was not totally forgotten.

Mr Gill inquired who has political responsibility for the finance section of Treasury, to which she replied, Mr Braidwood.

So was he kept informed of progress, asked Mr Gill; but Ms Davies replied he wasn’t even though the amount involved was a material amount of money.

So was that the culture in Treasury, came the follow up question from Mr Gill; to which she reiterated officers do not involve political members that much in their work.

Mrs Christian then decided they had exhausted all their questions and inquired if she had anything else to add before she drew matters to a close; but Ms Davies had nothing further to say.

It would seem Ms Davies has managed to rebut the inference, given by previous witnesses, she was responsible for the failure to purchase the euros at an earlier, and more favourable, rate; and has, in turn, now pointed the finger back up the chain of command.

The Committee has already taken evidence from Mr McGreal, who blamed ‘passive management’ for the affair, but has not heard from Mr Clague. Perhaps he will be the next person to be invited to explain his role in the affair.

Perhaps they will also seek clarification from the AG about his advice on currency ‘speculation’ as it would appear the Treasury is working on the basis ‘win some – loose some’ and hope they balance out over time. The Manx Herald wonders if that is the best way to run the country’s finances.