ANALYSIS: Another case of things slipping through the cracks, writes Siobhan Creaton, Finance Correspondent.

AIB's explanation of how it wrongly pocketed €14 million by systematically overcharging some of its customers over the past eight years once again raises questions about aspects of the management of Ireland's biggest financial institution.

The bank says that, in October 2002, an individual within the section of the bank that deals with bank charges, noticed something unusual about the amount of commission the bank was charging on certain foreign exchange transactions.

It maintains that AIB had incorrectly applied to the Director of Consumer Affairs to levy a 0.5 of a percent charge on non-cash foreign exchange transactions in 1996 but had, in fact, wanted to charge these a 1 per cent fee. And while its application for a 0.5 of a per cent charge was approved, the bank went ahead and charged the higher rate.

AIB states that, while the official noted the higher charge, that person "didn't know" that the bank didn't have regulatory authority to charge that amount and this is why the matter was never brought to the attention of any member of the bank's senior management team.

But somebody knew there was a problem and, in the middle of April 2004, decided to do something about it.

Bank tellers on the foreign exchange desks began to notice that their currency converting machines were being dismantled and re-programmed.

Few customers seemed to notice that the rate of commission had halved to 0.5 of a percentage point.

AIB says that this initiative was taken "without the knowledge" of the bank's senior management team, including its head of retail banking, Mr Donal Forde.

The bank also suggests that those sorting out this problem had then begun to prepare a report for the Irish Financial Services Regulatory Authority (IFSRA) to explain how Ireland's biggest bank had overcharged customers to the tune of €14 million for almost eight years.

Again, it says that neither Mr Forde nor any of his colleagues on the AIB's senior executive committee, which includes chief executive Mr Michael Buckley, knew anything about this exercise.

The layer of managers reporting to Mr Forde from AIB's various retail businesses were also ignorant of the task afoot.

Last Friday, IFSRA sought a meeting with AIB's head of compliance, Mr Niall Gallagher, to follow up on an anonymous tip-off. The regulator asked the bank to investigate the allegation and to report back on its findings.

But then news of the problem leaked to RTÉ and the public was finally alerted to the fact that the Republic's biggest bank had been systematically overcharging customers.

The bank quickly stated that it believed its misdeeds had amounted to about €14 million. And the blame game began.

Just two years ago Mr Buckley and his management team accepted responsibility for the trading debacle at its Allfirst subsidiary in Baltimore, Maryland that cost the bank $691 million (€580 million), but none of the senior management resigned.

The report into the fraud by eminent US banker Mr Eugene Ludwig blamed "incompetence and lack of supervision at a gross level" for what had unfolded and AIB undertook to radically transform its controls and procedures to guard against future lapses.

By pointing the finger for this overcharging disaster at fairly junior people working at the bank, AIB has shown that it doesn't feel the need for any high-level resignations over the affair. Its staff quickly read these signs and turned to the Irish Bank Officials Association (IBOA) for reassurance.

With Mr Buckley's reign as chief executive set to draw to a close next year, his colleagues on the senior executive committee, have long since started jostling to win the top job. None will want their prospects hit by this particular incident.

The IBOA has called for an independent investigation into how the overcharging went undetected for eight years as some of its members fear that AIB's own investigation would amount to nothing more than a "white wash".

IBOA general secretary Mr Larry Broderick said it is now crucial for the bank to win back the confidence of its customers and staff.

Under the reforms introduced in the wake of the $691 million trading scandal, the lines of communication between key individuals such as the head of compliance and internal audit and executives and the members of the bank's non-executive directors who sit on its audit committee were strengthened.

This should have ensured that Mr Gallagher's exchange with IFSRA last week would have been communicated to his immediate superior, Mr Phillip Brennan, who is the head of regulatory compliance and business ethics, who in turn would bring it to AIB's head of finance, Mr Gary Kennedy.

Mr Brennan also reports to the audit committee. AIB said it was awaiting the outcome of its investigation to determine whether these events had reached the boardroom before the news broke.

IFSRA will no doubt be seeking to evaluate the strength of the bank's internal controls in this regard as part of its investigation. It is initially focusing on establishing whether the €14 million estimate is accurate and will be trawling through the bank's records to try to identify customers who should receive a refund.

The full details of this examination is unlikely to be disclosed to the public on the grounds of confidentiality.

But from what we know so far, AIB would seem to have a considerable task on its hands in terms of assuring its staff, customers and investors that this overcharging episode was a once-off embarrassing error rather than further evidence that certain things are still managing to slip through the cracks.