Nordica special audit finds fault with both management and supervisory boards

A special audit conducted on the recently bankrupt national airline Nordica found shortcomings in the work of both the company's management and supervisory boards. According to the audit, there were cases where the supervisory board asked for more detailed info from the management board but approved project implementation or contract signing before the data was submitted.
The special audit was conducted by Ernst & Young Baltic in cooperation with the law firm FORT. The audit assessed the management decisions made by Nordica's supervisory board and management board between January 1, 2020 and July 27, 2023, evaluating their compliance with the diligence expected of a prudent business operator, the owner's expectations and the conditions and goals set by the government.
The audit revealed that the management boards of Nordic Aviation Group and Regional Jet OÜ did not adequately assess the risks associated with new projects and transactions or their potential economic viability before proceeding.
Additionally, the management board did not independently provide the supervisory board with sufficiently thorough and objective information about the impact of decisions on the companies, leaving the supervisory board unable to make well-informed decisions about approving specific projects or transactions. In turn, the supervisory board did not always request sufficient additional information.
The audit identified cases where the supervisory board requested more detailed financial analyses from the management board but approved the implementation of projects or signing of contracts before the requested information was provided.
When circumstances changed during the course of a project, the impact of these changes on the company and the project's profitability was rarely discussed at the supervisory board level.
There were also instances where the management board failed to ensure proper assessment of regulatory compliance and its impact on contractual obligations, as well as taking timely and appropriate measures.
Furthermore, the audit found that the redistribution of state aid allocated to Nordica did not fully align with the original distribution plan. Additionally, decisions made by governing bodies created potential conflicts of interest within the company.
In analyzing the compliance of management decisions with the owner's expectations, the audit noted that all service contracts initiated during the review period were budgeted as profitable, and the decisions to proceed with those contracts were in line with the owner's profitability objectives.
However, on the negative side, the audit highlighted that planned investments, new contracts and projects were not analyzed in sufficient depth and realized risks were neither identified nor adequately accounted for.
Regarding the compliance of management decisions with the conditions and goals set by the government, the audit noted that the objectives of increasing share capital and issuing loans were to ensure the company's sustainability, uninterrupted operations and necessary working capital, as well as to cover COVID-19 losses to the extent needed to mitigate the impacts of the crisis. However, the audit found that the actual allocation of the state aid differed from the distribution proposal outlined in the explanatory memorandum of the government's directive.
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Editor: Urmet Kook, Marcus Turovski