THE MANAGING director of Fás, Rody Molloy, told the Dáil Committee on Public Accounts (PAC) last week that legal reasons prevented him from saying why the head of internal audit at Fás was moved to another position in the period after the completion of a controversial internal audit report.

The report, aspects of which prompted the PAC to initiate an inquiry into the €1 billion-budget training agency, was completed in May 2006. The bulk of the work on the report was done by Joe Roe, manager of IT audit and support, and Tony Killeen, director of corporate governance and internal audit at Fás, the national training and employment agency.

When Mr Killeen retired in mid-December 2005, his responsibilities were assigned to Terry Corcoran, the new head of internal audit. In early 2007 a new director of internal audit was appointed, Patrick Kivlehan.

When the PAC asked in correspondence why this was so, and about the current status of Mr Corcoran, Mr Molloy replied, in correspondence: "Based on legal advice we are not currently in a position to answer the committee's query as to the fact that three different directors of internal audit dealt with the investigation of corporate affairs and in particular the current status of the second head of internal audit and the reason that this individual was moved from his post to another position in Fás."

A spokesman for the authority told The Irish Times that Fás was advised that to give the required information to the Dáil committee could be in breach of the provisions of the Data Protection Act. Fás had no further comment yesterday. According to the Fás website, Mr Corcoran is now director of employment services with the authority. He had no comment to make when contacted yesterday.

The information about the heads of internal audit was one of a number of requests for information and documentation not complied with. Mr Molloy said that, again for legal reasons, he could not give the committee requested information about disciplinary action taken against the former head of corporate affairs at Fás, Greg Craig.

A heavily edited copy of the internal audit report was given to this newspaper following a request under the Freedom of Information Act earlier this year. Soon after the resultant publicity and public controversy over the report, Mr Craig took sick leave and is understood to be still on sick leave.

A similarly redacted copy of the report has since been given to the PAC but this week an unedited copy of the report was seen by this newspaper.

Mr Craig's division was involved in public relations and advertising and it engaged an advertising firm and other contracted bodies as part of this work. The report outlines how Mr Craig apparently breached Fás procurement rules on a number of occasions and also how he changed his account of certain matters to the audit team as the inquiry progressed. The audit team accessed Mr Craig's e-mails, and contacted parties outside Fás.

One of the many issues covered in the report concerns what the audit team considered a "conflict of interest", arising from the fact Mr Craig was a personal friend of Terry Oliver, a tax partner with the accountancy and business consultancy firm, OSK. Mr Oliver had also provided personal financial advice to Mr Craig.

OSK had "completed a considerable amount of consultancy work for Fás over the last five years, the majority of which related to corporate affairs. OSK has been consistently successful when applying for work from corporate affairs, whether directly, via advertising agencies, or via Fás procurement," the report said. Calls to Mr Oliver's office were not returned.

The inquiry into corporate affairs began after an anonymous letter outlining a number of allegations was forwarded to Mr Molloy by the then tánaiste and minister for enterprise, trade and employment, Mary Harney. The inquiry found no evidence to support the allegations in the letter, but did come across other matters about which it expressed concern.

Mr Craig, according to the report, initially told the inquiry team he had discussed the anonymous letter with no one other than his legal advisors. However, he later said he had discussed its contents with Mr Oliver, prior to his (Mr Craig's) initial meeting with internal audit.

According to the report, OSK was tendering for the Fás Science Challenge review in late 2004 when it provided Martin Ryan, a consultant to the advertising firm AFA O'Meara, with the names of two other companies to which tender documents should be sent. Mr Ryan was managing the tender on behalf of Fás. The contract was eventually given to OSK.

Mr Ryan handled the Fás account with AFA O'Meara and had been taken on by the firm in a consultancy role to do so, at the suggestion of Mr Craig, according to the report. Mr Ryan did not return calls yesterday.

The report also states: "OSK were granted unusually generous conditions on their contracts with corporate affairs, through up-front payment of invoices. During 2003, the fee paid to OSK for the review of internal financial controls within corporate affairs was doubled without any reasonable explanation. The output from this work did not appear to match the cost." The report is replete with examples such as this, where the authors raise concerns about relationships between Mr Craig and persons or firms contracted to do work for Fás; apparent breaches of procurement rules; and/or questions about possible failures in getting value for money.

Overall, the report raises the question as to how such a state of affairs could have persisted for the five years or so covered by the report. Developments over recent months, including other documents that have come into the public domain, have also raised questions about the nature of Mr Molloy's response to the audit team's report.

In the wake of the report's completion, Mr Molloy wrote a letter to Niall Saul, head of the audit committee on the Fás board, in which he made some harsh observations about the conduct of the audit inquiry. Mr Saul replied in March 2007 saying the committee did not accept his criticisms. The committee had in the interim sought and received a response from the then head of internal audit, Mr Corcoran, to the criticisms made by Mr Molloy.

When Mr Molloy appeared before the committee in October, Labour Party member Róisín Shorthall raised the issue of his letter to Mr Saul. "The tone seems critical of the approach taken by the internal auditor, there seems to be an attempt to limit the scope of the investigation . . . Why was Mr Molloy seeking to limit the scope of the audit?"

"I was not," Mr Molloy replied. "When I wrote the letter the audit was already over." The committee is still seeking access to more documentation before Mr Molloy returns for questioning.