A Joint Report by Internal Audit Services of the Welsh Government and the Big Lottery Fund

A Review of the Effectiveness of Governance and Financial Management within the All Wales Ethnic Minority Association (AWEMA)

9th February 2012

Introduction 1. On 19th December 2011 the Welsh Governments Internal Audit Services (IAS) were contacted by staff within Equality, Diversity and Inclusion Division (EDID) informing them that a number of allegations had been received in respect of the All Wales Ethnic Minority Association (AWEMA). The initial allegations had been passed to EDID by the Finance Director of AWEMA. Subsequent correspondence and documentation relating to these issues were received by the Welsh Government, from the newly appointed Chair of AWEMA and, we understand, were also passed to the Charity Commission, the South Wales Police Economic Crime Unit, the Wales Audit Office (WAO), the Chair of the Public Accounts Committee and the Big Lottery Fund. 2. The table below shows the funding that AWEMA has been awarded from the Welsh Government, the Welsh European Funding Office (WEFO) and the Big Lottery Fund:
Funding Source Welsh Government WEFO Big Lottery Fund Purpose of Funding Core Funding Young BME Aiming High BME Employment for All Minorities are Wales Resources Advocacy for Elders Consulting Young People in Transition Funding Period Annual 2010/13 2008/12 2010/14 2011/14 2011/12 k 105 1,500 2,000 1,500 518 5

3. On 6th January, and as a result of the allegations made, the Welsh Government and WEFO officials informed AWEMA that grant funding would be suspended whilst an investigation was undertaken. This investigation was agreed to be undertaken in coordination with the Big Lottery Fund. The Big Lottery Fund has also suspended grant funding to AWEMA. 4. AWEMA is a company limited by guarantee as well as a registered charity. AWEMAs principal objective is to promote equality and diversity for the benefit of the public. It is governed by a Council of Members that is drawn from the five electoral regions of Wales. Additional co-options from the United Kingdom are made by recommendations of other Council Members and the Chief Executive of AWEMA. AWEMAs Trustees are known as the AWEMA Management Board (ABOMA) and are elected from the Council of Members. AWEMAs Governing Documents, its Memorandum and Articles, provide that the most senior paid executive of AWEMA, in this case the Chief Executive, is also a Trustee. This uncommon practice is detailed further in paragraph 34.

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5. The allegations received by various bodies were wide ranging and in some cases specific in terms of detail. They related to governance, financial management, conflicts of interest, value for money and potential criminal activities. There were also allegations in respect of staffing and human resource matters. The staffing, human resource and criminal matters have not been within the scope of our investigation as they are issues for which we have no authority to investigate. 6. On 16th December 2011 an Extraordinary General Meeting (EGM) took place at AWEMA and a new Chair was elected. One of the first actions taken by the new Chair was to convene a Disciplinary Panel to consider a number of allegations that had been made against the CEO. The Disciplinary Panel met on 19th December 2011 and comprised of the newly appointed Chair and two other Trustees. The Disciplinary Panel concluded that there were areas of concern as to the CEOs conduct and imposed three disciplinary sanctions, namely; a written warning in respect of cash floats which were construed to be loans, noting that the Disciplinary Panel regarded the circumstances surrounding this matter as gross misconduct; oral warnings in respect of salary awards to his daughter; and an oral warning in respect of the accounting treatment of life assurance payments. 7. Furthermore the Chief Executive was also offered words of advice by the new Chair on management style and practice. 8. In addition, on 12th January 2012 the Finance Director was suspended by the Chair of AWEMA, due to concerns regarding his alleged conduct and performance at work in the preceding weeks. The disciplinary process in respect of this matter is ongoing. 9. Further background information, which is important to put the current situation within AWEMA into context, is that since the Annual General Meeting (AGM) in July 2011, seven of AWEMAs Trustees have resigned. 10. This investigation has been undertaken as a joint exercise between the Welsh Government IAS and the Big Lottery Fund and both parties jointly agree the content of this report. Approach and Scope 11. AWEMA is an independent charity and is not a Welsh Government Sponsored Body or an agency of the Welsh Government. AWEMA receives funding from the Welsh Government and the Big Lottery Fund and is only accountable to these bodies insofar as it is bound by the terms and conditions of those funding agreements. The powers of the Welsh Government are confined to those powers under which grant funding has been agreed and granted to AWEMA (and, by extension to

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whether the terms and conditions of grant have been complied with). The purpose of the investigation has, therefore, been limited to concluding and advising on the adequacy and effectiveness of the financial controls and governance processes in place within AWEMA to manage that funding. Terms of Reference outlining the full scope of our forensic review were agreed by AWEMAs Board of Trustees on 10th January 2012. A copy of the Scope of the Review is contained at Annex A. 12. There has been much press and media coverage in respect of an investigation that was commissioned by AWEMA Trustees from Dr Paul Dunn. The report by Dr Dunn, dated 12th December 2011, outlines the findings of an investigation he conducted into allegations made against AWEMAs CEO and Operations Director. We have not re-performed any checks on the issues that were covered by Dr Dunn, nor have we interviewed him as part of our investigation. We have had access to Dr Dunns report and the minutes from meetings he held with the Finance Director and the CEO as part of his investigation. 13. Our ability to complete our investigation and fulfil the scope of the agreed Terms of Reference has been hampered by: The absence of audited accounts for 2010/11; The absence of any management accounts; The absence of other key financial information, such as bank reconciliations and creditors balances; and The inability of the organisation to provide us with information from its financial accounting software package. 14. Whilst on site the investigation team interviewed key personnel (the AWEMA Chair, the CEO and the Operations Director); gained an understanding of the financial and governance processes in place within AWEMA and performed walk through testing of key documentation. Following our site visit to AWEMA the suspended Finance Director was interviewed as part of the investigation process. The work we have performed is sufficient to enable us to draw conclusions in respect of the financial control and governance processes currently operating within AWEMA. 15. We have maintained regular communication with South Wales Police and the Charity Commission in order to ensure that we do not encroach into matters which are the responsibility of the Police or Charity Commission, as the regulatory body for Charities. We will be providing a copy of our report to both of these bodies and to the Auditor General for Wales. 16. We were particularly concerned to avoid investigating the allegations in respect of the Chief Executive Officer, which potentially related to criminal activities. To have investigated these issues could have potentially tainted any future criminal investigation which the Police might invoke. We are also aware that concerns have been expressed Page 3 of 15

about the security of AWEMA documentation and whether or not it was secure before we undertook our visit. When this report is passed to South Wales Police this may be an issue they wish to further examine. Overall Conclusion 17. This forensic investigation has identified significant and fundamental failures in the control and governance framework within AWEMA. In light of these findings we cannot provide any assurance that there are appropriate arrangements in place to safeguard and make proper use of the Welsh Government, WEFO and the Big Lottery Funds entrusted to AWEMA. These failings permeated the whole of the organisation and suggest that the Trustees, including the CEO, had little regard to the recognised standards in public life and the full range of their statutory responsibilities under charities and companies legislation. 18. In summary, fundamental weaknesses were identified in the following areas: Governance arrangements in relation to ABOMA and management; Financial controls and processes; An absence of key policies and procedures; and An organisational structure that does not adequately support the operations of AWEMA.

19. The fundamental lack of control within AWEMA is exemplified by the following facts: There have been no statutory accounts produced for year ending 31/03/2011; the Trustees obligations to meet filing deadlines with Companies House and the Charities Commission have been missed. We were unable to obtain copies of any management accounts produced by AWEMA. We were informed that they have not been produced for some time and we have been unable to establish when the last set may have been produced. There is a complete lack of oversight of the financial processes and controls within AWEMA by the Chief Executive (CEO), who is also a Trustee. ABOMA receive minimal financial information and are unsighted on management letter points raised by AWEMAs external auditors, who deal exclusively with the Finance Director and do not engage directly with Trustees. Key reconciliations, such as bank account reconciliations, have not been performed. There is an absence of key policies and procedures within AWEMA. For example, there is no expenses policy for staff, nor is there a conflicts of interest register or a register of gifts/ hospitality given or received.

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Creditor listings were not available. This is vital information that should be available to enable management and Trustees to gain assurance of the solvency of the organisation and confirm on a continuing basis that it operates as a going concern.

20. All of the above demonstrates that ABOMA has not effectively discharged its duties nor has it taken responsibility for directing the affairs of the organisation and ensuring that it is solvent, well run and meeting the needs for which it was established. In addition we found that ABOMA were not provided with sufficient information in order to provide the necessary leadership and fulfil their stewardship responsibilities, particularly in respect of financial matters. In our view this has undoubtedly contributed to the failing control framework and has been further compounded by the absence of management controls over key financial processes such as payroll and account reconciliations. We note with concern that the key financial processes have not been subject to appropriate segregation of duties nor any review by management. 21. The absence of basic financial information has prevented us from being able to assess or to confirm whether the public funding, which AWEMA has received, has been utilised for the purposes for which it was provided. This lack of financial information also means that the Trustees have not been able to fulfil their duties of ensuring that AWEMAs finances have been used appropriately, prudently, lawfully and in accordance with AWEMAs charitable objects. 22. Having regard to the degree of public funding made available to AWEMA we have adopted Lord Nolans Seven Principles of Public Life as our benchmark for considering the standards of governance within the organisation and the expected behaviours that underpin financial and managerial control. These Principles were originally established for individuals involved in public and government positions. However, they are seen as having wider relevance, including for the Trustees and management of voluntary and charitable organisations. The principles are, in summary, selflessness, integrity, objectivity, accountability, openness, honesty and leadership. 23. Our work within AWEMA has shown that Trustees and management were not mindful of these Principles and therefore, over time, have not effectively undertaken their respective roles within AWEMA. 24. The following paragraphs contain our detailed findings relating to issues of governance and financial control. Detailed Findings Governance Financial Reporting to ABOMA

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25. It was of significant concern to note that ABOMA are only provided with limited regular financial information. At Board Meetings cash flow forecasts are provided but no management accounts or other financial information is provided. Therefore ABOMA are not informed of the financial position of the organisation or indeed have any assurance as to the solvency of AWEMA. Further, ABOMA do not appear to have ever challenged the lack of financial information they received. External Auditors Management Letters 26. The weakness relating to solvency is further exacerbated in respect of the issues raised in the External Auditors Management letter which ABOMA were unsighted on. From a review of ABOMA minutes we saw no evidence that Management Letters were brought to the attention of, or considered by, the Trustees. The External Auditors formal relationship should be with ABOMA, who are responsible for the governance of the organisation. Our investigation revealed that the Auditors dealt almost exclusively with the Finance Director. A discussion with the CEO and Chair of the Board indicated that no Management Letter points had ever been discussed with ABOMA nor was there any evidence to suggest that weaknesses identified in the Management Letters had been remedied. A discussion with the Auditors indicated that Management Letter points had been conveyed to the Finance Director. 27. Having reviewed the 2007/08 and 2009/10 Management Letters as part of our own investigation, (we were informed by the CEO that there was no letter issued for 2008/09) it was concerning to note that in the 2009/10 Management Letter, the External Auditors identified that AWEMAs accounts held on the finance software package did not include the balance sheet balances of the organisation. Instead, these balances were added manually at the year end when the audit of the financial statements was undertaken. This means that during the year the true financial position of AWEMA, particularly with regard to assets and liabilities, was unknown. There is also an additional risk that any management manipulation of transactions and balances reported in the year-end financial statements would be harder to prevent and/or detect. Further, any financial decisions made by ABOMA and/or management could have been made on the basis of incomplete financial information. The absence of complete financial records also means that ABOMA would be unable to fulfil their duties in ensuring the continued solvency of AWEMA. 28. It is also of concern to note that the Management Letter in respect of the 2009/10 accounts identifies weaknesses which were also highlighted in the 2007/08 Management Letter. This implies that control weaknesses were not being remedied and ABOMA are not fulfilling their responsibilities in ensuring that recommendations made by the Auditors were appropriately considered and implemented.

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29. For their part ABOMA failed to obtain an appropriate level of financial reporting from their Finance Director or any assurance directly from their External Auditor. CEO Performance Appraisal 30. During the investigation we were informed that the CEO had not been subject to a performance appraisal since 2006. It is important that the CEO is subject to a regular appraisal by ABOMA to:

Review the CEOs achievements and weaknesses against agreed objectives, competences or performance benchmarks; Review the CEOs achievements as role model for the organisation's values; Make the CEO aware of any concerns about his performance; and Improve the performance of the organisation as a whole by establishing a culture of appraisal and development.

ABOMA Meetings 31. From a review of the ABOMA minutes it was identified that meetings are not held on a regular basis nor is there a programme of work agreed for the Board. We were informed that ABOMA meetings were held on an ad hoc basis, as and when there was business requiring ABOMA attention. Testing showed that in some cases there were gaps of 11 months between meetings and in 2009 only one ABOMA meeting was held. We also noted that there were no minutes of the ABOMA meeting held on 18th November 2011. 32. AWEMAs Articles of Association, Article 8.1, states that ABOMA meetings should be held at least four times a year. The inconsistent pattern of meetings, as detailed in the paragraph above, represents a clear breach of AWEMAs Articles of Association. Furthermore good practice would suggest that a schedule of ABOMA meetings is agreed in advance and a work programme for meetings is developed, which outlines key documents that should be considered at certain times of the year, e.g. when ABOMA should be considering the audited accounts and management letter points. None of this was found to be in place within AWEMA, further supporting our conclusion that we cannot give assurance that the ABOMA provided the necessary oversight of the general governance and management of the organisation. Trustees that do not meet regularly enough risk breaching their duty of care. Further, there was no evidence that ABOMA have defined their information requirements which are necessary to enable them to effectively discharge their duties. ABOMA Decision Making 33. Our review of ABOMA minutes also demonstrated that ABOMA approval was often gained retrospectively for decisions that had Page 7 of 15

already been made by the CEO. The lack of frequency of ABOMA meetings made this inevitable. The implementation of a formal schedule of ABOMA meetings should enable better business planning to occur and thus limit the need for the retrospective approval of decision making to occur or permit the CEO to operate with autonomy. ABOMA Membership 34. One of the requirements of Trustees is to act reasonably and prudently in the best interest of the charity. Furthermore Trustees should be independent and not benefit financially from their position. A review of membership of ABOMA showed that the CEO is also a Trustee. AWEMAs authority to include the CEO as a Trustee emanates from Article 6.2.3 in their Memorandum and Articles of Association. This is highly unusual and has given rise to conflicts of interest, particularly as the CEO has executive responsibility for leading the organisation, which conflicts with his role as a Trustee for providing independent oversight and scrutiny. This conflict has increased over time as members of the CEOs family were employed or volunteered within AWEMA. 35. ABOMA comprises of Council members who are nominated and approved at the Annual General Meeting. Testing showed that Members do not have a maximum appointment period. We acknowledge that it may often be difficult to attract individuals to take a position of Trustee but good practice would suggest that there should be a rotation of members within ABOMA to ensure that membership of ABOMA is regularly refreshed and members have the required skills and knowledge to adequately fulfil their duties. ABOMA Induction 36. A review of the induction process for Trustees demonstrated that they are provided with an induction pack on appointment. However no formal training programme for new Members has been instigated to ensure that they are fully aware of their governance and legal roles and responsibilities and are equipped to effectively discharge their duties as Trustees. Register of Gifts/ Hospitality and Conflict of Interest 37. Our investigation showed that whilst declarations of conflicts of interest are made at ABOMA meetings, there is no conflicts of interest register nor a gifts and hospitality register (for gifts/hospitality given or received) in place for staff within AWEMA. Potential Benefits 38. On 17th January 2012, a day before the start of our fieldwork, the Chair of Trustees informed us that the CEO had brought to her attention a

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number of instances of expenditure from AWEMAs funds that he describes in his email of 15th January as potential benefits that I may have had in the past. These are summarised as follows: Gym Membership Between January 2009 and January 2011 at a total cost of 2,120, a two year membership of a gym was offered to all members of AWEMAs staff (four members of staff at the time, three members of staff took up the offer). Rugby and Cricket Tickets tickets for Rugby Internationals (three occasions) and cricket matches (one occasion) were purchased and offered to all staff and volunteers. Total value 800. On one occasion a penalty notice regarding a CEOs car parking offence was issued. AWEMA paid the cost of this (110).

39. We understand none of these benefits have been disclosed to HMRC and are indicative of an organisation and CEO operating without due regard for ensuring that AWEMAs funds have been used prudently and in accordance with AWEMA charitable objects. AWEMA is unable to demonstrate that the above expenditure has not been defrayed from its public funding. Financial Controls Statutory Audited Accounts 40. One of the fundamental failings identified during this review has been the absence of a set of statutory audited accounts for the year ending 31/03/2011. As at February 2012 these accounts had yet to be produced and discussions with AWEMAs External Auditors during our site visit revealed that it was their view that the accounts were only approximately 10% complete. At the time of our fieldwork we were unable to obtain access to AWEMAs finance system because, with the exception of the suspended Finance Director, no other member of staff within AWEMA knew how to access the finance system. Following our visit we were informed by the Chair of AWEMA and the Temporary Accountant that there was financial data entered on to the finance system but that this was incomplete for the 2010/11 financial year and that there were no data entries for 2011/12. 41. AWEMA have also failed to meet both the Companies House statutory filing deadline of 30/12/2011 and the Charity Commission deadline of 31/01/2012. They may now be incurring financial penalties by Companies House for the late filing of accounts. This situation is evidence of serious collective failings by the Finance Director, CEO and the Trustees. Roles and Responsibilities 42. Discussions with AWEMAs CEO revealed that he considered it was the responsibility of the Finance Director to ensure that appropriate accounting records were maintained to enable the production of the Page 9 of 15

year end accounts. Whilst we acknowledge it was the role of the Finance Director to undertake this role, it is of significant concern that the CEO was completely unsighted on the lack of progress in respect of the production of the 2010/11 accounts. 43. The CEO has played a minimal role in the management of the financial processes within AWEMA and has informed us that he relied on the Finance Director. The CEO did not receive nor did he request any formal financial information from the Finance Director and was not involved in any supervisory or management checks of key financial processes. The Finance Director operated in almost complete autonomy for finance processes, including the management of the payroll. Whilst we accept that the Finance Director has responsibilities in this area, the Trustees and the CEO also have a key duty in overseeing these processes. 44. These weaknesses not only represent a lack of segregation of duties and lack of fulfilment of duties by AWEMAs CEO, they also represent a significant business continuity risk in the event of the prolonged absence of the Finance Director. This risk has recently crystallised following the Finance Directors suspension. Staff within AWEMA are completely unaware of how to operate the finance system and at the time of our visit did not have access to AWEMAs finance system. AWEMA have taken action in appointing two temporary members of staff to cover the Finance Directors absence but there are limited desk instructions or financial records to facilitate their induction into AWEMA. Financial Processes 45. Our investigation work has shown that the CEO also had no oversight of the key financial processes within AWEMA. There was no month end process in order for him to sign off key reconciliations or accounts and, more significantly, during our visit we were unable to have sight of any bank reconciliations. The External Auditor informed us that a yearend bank reconciliation had not been performed by AWEMA to support the 2010/11 accounts and we found no evidence that any bank reconciliations had been done during 2011/12. The failure to undertake regular monthly bank reconciliations is a fundamental flaw in the financial control framework. 46. Our review of the payroll system within AWEMA showed the control framework was seriously inadequate and the controls which were in place did not operate as intended. The AWEMA payroll is currently delivered by Cardiff County Council. Staff are paid on a monthly salaried basis. Our review of the payroll records showed that the Finance Director operated with complete autonomy with regard to the payroll. Any changes to payroll, including amendments for starters and leavers, were simply actioned via an email to Cardiff Council. There was no evidence of the use of any formal authorised forms for starters, leavers or amendments to salary. We found evidence of one payroll report for each month which detailed how much each member of staff Page 10 of 15

had been paid; however there was no evidence that this had been reviewed for accuracy or approved. There was a complete absence of segregation of duties in respect of management of the payroll, which means that we can provide no assurance that appropriate controls are operating in respect of payroll. Salaries and Organisational Structure 47. A review of salary levels showed that for the three Directors the salary levels appeared high in comparison to other members of AWEMA staff. This has recently been recognised by ABOMA and actions are now being taken to revise the salary for these three individuals. In respect of the approval of the salary structure we saw limited evidence of regular discussion at ABOMA of staffing and salary structures. 48. A review of the organisational structure showed that the CEO has two Directors reporting to him, one of whom is his daughter. This represents a clear conflict of interest. It is important that where family members are employed by the same organisation there is a clear separation of line management and reporting arrangements to ensure that the organisation can not be subject to criticisms of a lack of openness and transparency. This is particularly salient in this case with regard to the considerable increases in salary that the CEOs daughter has received. Whilst we saw some evidence that ABOMA had considered and approved salary increases to the CEOs daughter, we could see no evidence of any challenge by ABOMA. Further the CEO was present at the ABOMA meeting and as an ABOMA member was part of the decision-making process in respect of this matter and did not disclose the obvious conflict of interest he had. (His daughters salary in 2008 was 20,469 which increased several times to the current level of 50,052). Payments 49. A review of payments made by AWEMA showed a number of expense payments being claimed by the Finance Director and CEO. Whilst all of the payments made were supported by receipts; there is no expenses policy in place within AWEMA and therefore we have no certainty whether the items claimed were eligible. AWEMA are aware that they require an expenses policy and we were informed that a policy was now being drafted. 50. In conjunction with the point above, an issue was identified in respect of the payments of individuals personal mobile phone bills. We were informed that AWEMA pay for 80% of the cost of the three Directors mobile phone bills, as they are apparently used for business purposes. There is no policy in place to support this payment. Petty Cash 51. Our review of petty cash showed that a high volume of transactions were processed through petty cash. Whilst all of the payments we

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examined were supported by the relevant vouchers and receipts we did have concerns with regard to value for money. It become evident through our examination that expenditure such as parking for staff, birthday cards for staff and occasional lunches for staff was incurred. Whilst these transactions were not high in value, they do expose AWEMA to criticism particularly as there is no policy outlining what is eligible and ineligible for the purposes of petty cash; nor would this appear to be in line with AWEMAs charitable objects. 52. Outlined in the paragraphs below are recommendations which we consider should be implemented as a matter of urgency in order to safeguard public monies. Recommendations and Future Considerations 53. We recommend that the Welsh Government, including WEFO, should take account of the findings and conclusions contained within this report in deciding whether to continue providing funding to AWEMA. In particular we recommend that the decision takes account of the serious shortcomings and failings in AWEMAs governance and financial management arrangements. 54. We recommend that the Welsh Government, including WEFO, should instigate urgent contingency plans, in consultation with joint sponsor organisations, to protect the position of participants in training and employment programmes which are receiving support from public funds through AWEMA. 55. We recommend that the Charity Commission invoke its powers as the regulatory body for charities to confirm whether or not the Trustees have adequately discharged their responsibilities under the relevant charity legislation, particularly with reference to the Commissions responsibility to investigate apparent misconduct or mis-management in the administration of charities. (We will supply a copy of this report to the Charity Commission to assist them in this respect). 56. We recommend that the Big Lottery Fund should take account of the findings and conclusions within this report in deciding whether to continue funding to AWEMA. 57. We recommend that WEFO should consider the implications of AWEMAs current inability to demonstrate compliance with the approved European funded projects, due to the absence of financial records, particularly in respect of match funding. 58. We recommend that the Welsh Government provide a copy of this report to South Wales Police to enable them to inform their decision on any further actions that they may instigate.

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ANNEX A All Wales Ethnic Minority Association (AWEMA) Scoping of forensic review Background AWEMA is a company limited by guarantee as well as being a registered charity. It is governed by a Council of Members that is drawn from the five electoral regions of Wales. Additional co-options from the United Kingdom are made by recommendation of other Council Members and the Chief Executive of AWEMA. AWEMAs principal objective is to promote equality and diversity for the benefit of the public. This is achieved in a combination of four ways: i. Develop the capacity and skills of the multi ethnic communities of Wales so that they are better able to participate in society. ii. Advance education in equality and diversity by producing educational materials. iii. Raise awareness of all aspects of discrimination in society on the basis of race or ethnic minority status. iv. Promote racial harmony for the public benefit throughout Britain. AWEMA is primarily funded from a range of public sources in Wales. The main funders are shown in the table below: Funding Source Welsh Government (Equality, Diversity and Inclusion Division) Welsh Government (WEFO) * Purpose of funding Core Funding Funding Period Annual k 105

Young BME People Aiming High BME Employment for All Minorities are Wales Resources

2010/13 2008/12 2010/14

1,500 2,000 1,500

Big Lottery Fund

Advocacy for Elders Consulting Young People in Transition

2011/14 2011/12 Approx annual

518 5 20

Other Sources

Various

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*AWEMA is the lead partner for these ESF projects and is supported by a network of delivery partners/joint sponsors. Since mid-December 2011 the Welsh Government and the Big Lottery Fund have received a large volume of documentation which refers to allegations of financial impropriety within AWEMA, particularly involving the CEO and his family. In the light of the information received it has been agreed that a forensic investigation should be undertaken into the financial management and governance standards within AWEMA focusing on the public funding that the organisation has received. It should be noted that while the forensic investigation work is being undertaken all funding payments by the Welsh Government (including European funding) and the Big Lottery Fund will remain suspended. The main purpose of the investigation will be to conclude and advise on whether AWEMA have adequate systems of financial control and governance in place which are fit for purpose with regard to ensuring that public money is spent in accordance with laid down terms and conditions and can be properly accounted for. Scope of the review It is proposed to undertake a joint forensic review of all the public funding including Big Lottery and European funding, provided to AWEMA in order to ascertain whether the funding has been used for the purposes provided and is supported by robust evidence to demonstrate compliance with the funding terms and conditions. In undertaking the forensic review we will seek to establish:1. The full extent of public funding provided to projects run by AWEMA from April 2008 to the present. 2. The effectiveness of the control framework within AWEMA to manage the funding which it receives. 3. The extent of compliance with AWEMAs regulations and policies. 4. The effectiveness of the progress monitoring by AWEMA of the funded projects, including the ongoing achievement of project targets and outcomes. 5. The quality of the supporting evidence used to support the preparation and submission of grant claims. 6. The frequency and quality of financial information provided to the AWEMA Board Page 14 of 15

7. The adequacy of governance arrangements and procedures. 8. The adequacy of financial oversight by the AWEMA Trustees and Board. 9. The recorded declaration and management of conflicts of interest.

Review Methodology Using a dedicated review team led by the Head of the Corporate Governance and Assurance Division, we will:1. Compile a list of information requirements. 2. Source all relevant documentation relating to the funding paid to AWEMA. 3. Identify relevant organisations and individuals that we require access to in connection with the funding provided to AWEMA. 4. Assess all the documentation and the verbal evidence in order to evaluate the assurance level available regarding the management and use of public funding by AWEMA. 5. At all times consider whether there are any indications that potentially fraudulent activities may have occurred. 6. Deposit all documentation relating to this investigation in a sector within i.share, ensuring that access is securely restricted to members of the investigation team. 7. All information gathered will be jointly owned and accessed by the Welsh Government and the Big Lottery Fund. Governance Arrangements Primary oversight of the investigation will reside with the Permanent Secretary as the Principal Accounting Officer for the Welsh Government. Reporting and briefing arrangements The Head of Corporate Governance and Assurance, in coordination with the Big Lottery Fund, will at all times ensure that relevant internal Welsh Government officials and external parties, particularly the Wales Audit Office, are provided with regular updates on the emerging findings and the opportunity to comment on the draft report.

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