A Stormont department has failed to properly scrutinise the activities of the ill-fated Presbyterian Mutual Society (PMS) before it collapsed in the midst of the financial crisis, a watchdog has found.
Northern Ireland Ombudsman Tom Frawley said "maladministration" in the Department of Enterprise, Trade and Investment (DETI) meant it did not establish that the PMS was engaging in activities that it was not regulated to do.
Around 10,000 people with money in the PMS were affected when it went under in 2008 after it emerged that it was not covered by a UK government guarantee for savings deposits.
The controversial issue was finally addressed in 2011 when ministers at Westminster and Stormont agreed a multimillion-pound rescue package which meant shareholders with less than £20,000 in the society got all their money back, while those with more funds invested got the majority back.
When it collapsed, the PMS was not subject to regulation by the Financial Services Authority (FSA), yet it was investing in a manner that required the authorisation of the FSA.
If the society had been FSA-regulated, shareholders would have been protected by the statutory Financial Services Compensation Scheme after it was placed into administration.
Mr Frawley, acting on a complaint brought on behalf of some of those caught up in the society's fall, focused on DETI's legal responsibility to scrutinise the activities of the PMS.
He found "maladministration" in DETI's examination of the PMS's annual return and said a "very limited administrative check" was "wholly inadequate".
Mr Frawley said the consequence of this was that the department failed to identify that the PMS was acting outside of its legislated activities and was working in a way that required FSA regulation. He said those failings contributed to the "injustice experienced by members of the PMS preventing them of availing of the compensation scheme".
But the ombudsman stressed that DETI's actions were not the sole cause of the PMS's troubles and said society members did not require additional compensation above the package agreed in 2011.