NAMA failed to take decisive action when a series of potential conflicts of interest involving Frank Cushnahan were brought to its attention, the report into the Project Eagle sale concludes.
The former Belfast Harbour Commissioners chairman was a member of Nama's Northern Ireland advisory committee from 2010 to 2014, having been appointed on the recommendation of then Stormont finance minister Sammy Wilson.
Mr Cushnahan was arrested by the National Crime Agency in June but was subsequently released from police bail.
Last week, BBC Spotlight broadcast secret recordings which showed the former Red Sky chairman accepting £40,000 in cash from Co Down property developer John Miskelly, a Nama borrower.
Mr Cushnahan has consistently denied any wrongdoing.
The Comptroller and Auditor General's (C&AG) report finds that Mr Cushnahan had declared his role as an adviser, mainly on a non-fee basis, to six Nama debtors and to a third party engaged in a joint venture with a seventh debtor.
It is estimated that the debt owed by the developers Mr Cushnahan was involved with represented around half the entire value what ultimately became Project Eagle.
According to the C&AG, the Nama board should have "formally considered" whether Mr Cushnahan’s engagement in discussions about the sale strategy while representing developers in the north was a conflict of interest.
The report goes on to highlight how in 2014 Nama became aware of contacts with investment fund Pimco and the existence of an an alleged £15m fixers' fee that was to be shared between law firm Brown Rudnick, the managing partner of Tughans solicitors Ian Coulter and Mr Cushnahan.
The C&AG notes how Mr Cushnahan had an office in Tughans’ Belfast premises in Belfast and that the northern advisory committee held two meetings there.
"Given the joint agreement between the parties to the success fee arrangement with Pimco, all of the payment – not just the payment to Mr Cushnahan – should have raised concerns for Nama," the report states.
It also notes how the Nama board subsequently learned of the existence of a success fee arrangement involving successful bidder Cerberus, on the one hand, and Brown Rudnick and Tughans on the other.
"The understanding that Brown Rudnick and Tughans had allegedly been in an arrangement with a member of the NIAC (Northern Ireland Advisory Committee) at any stage of the process should have raised concerns for Nama about potential impacts of such arrangements on the sale process, unless convincing explanations could be produced."
The watchdog is critical of Nama for seeking and relying on an assurance from Cerberus that no fee or payment was payable to anyone connected with the bad bank "in connection with any aspect of our (Cerberus) participation in the Project Eagle sales process".
"Nama only learned of Brown Rudnick’s engagement with Cerberus on April 2 2014 and do not appear to have asked Cerberus when it engaged Brown Rudnick, or what was the precise nature of the services Brown Rudnick and Tughans were providing to Cerberus," the report states.
The C&AG believes allegations that Mr Cushnahan was involved in an arrangement to share fees with Brown Rudnick and Tughans' managing partner Ian Coulter "warranted more action by Nama".
It failed to seek advice on compliance from the National Treasury Management Agency and did not write to Mr Cushnahan to seek confirmation or an explanation.
"Nama appears to have taken a narrow approach, focusing on what were its legal obligations, rather than on what were the options for action that should be considered," the auditor concludes.
Nama has produced a 12-page response to the C&AG report but it includes no defence of its handling of Mr Cushnahan's potential conflicts of interest.
