Press No. 46 of Session 2005-06, dated 18 May 2006
FORTY-SIXTH REPORT: GOVERNANCE ISSUES IN THE DEPARTMENT OF ENTERPRISE, TRADE AND INVESTMENT'S FORMER LOCAL ENTERPRISE DEVELOPMENT UNIT (HC 918)
Mr Edward Leigh MP, Chairman of the Committee of Public Accounts, said today:
"Northern Ireland has been badly let down by the failure of the Department of Enterprise Trade and Investment (the Department) and its former Local Enterprise Development Unit (LEDU) to deal with the conflicts of interest and impropriety in the Emerging Business Trust (EBT). This was a serious dereliction of the Department's responsibility to ensure the operation of the most basic financial and management controls.
There was a culture within the Department and LEDU which seems to have had little respect for the proper conduct of public business. In this case every one of Lord Nolan's seven principles of public life has been breached. The Department and LEDU failed for years to take any action on the appalling conflict of public and private interests within EBT, despite it happening under their very noses. The Department and LEDU should have recognised that this was an unmanageable set of conflicts and that public money should not have been invested in EBT while it continued.
There is always the potential for conflicts of interest to arise, particularly in a society as small as Northern Ireland. It is even more important therefore, for Northern Ireland departments to enforce the highest ethical standards. It will be an enormous challenge for the Department to win back public confidence in its arrangements for handling conflicts of interest, but we welcome the first steps the new Accounting Officer has taken."
Mr Leigh was speaking as the Committee published its 46th Report of this Session, which examined on the extent of the conflicts of interest in the establishment of EBT; the conflicting relationships between EBT managers and client companies; the unsatisfactory nature of LEDU's monitoring of EBT; and failings in the Department's oversight of LEDU.
This is one of the worst cases of conflict of interest and impropriety that this Committee has seen. The Department has a history of inadequate oversight of its non-departmental public bodies and there has been a series of reports by the Assembly Public Accounts Committee and the Comptroller and Auditor General (C&AG), dealing with failures of governance. This case plumbed new depths in the extent to which the Department failed to ensure that the basic principles of the proper conduct of public business were observed.
LEDU was a non-departmental public body (NDPB) of the Department and was Northern Ireland's small business agency. EBT was set up in 1996 to provide loans and, from 2000, equity finance for small businesses. It received £4.35 million of public funds, including £0.95 million from LEDU. EBT went into voluntary liquidation in 2005. A forensic investigation into EBT's activities, commissioned by Invest Northern Ireland in 2003, revealed extensive failures of governance, particularly relating to conflicts of interest.
In grant-aiding EBT, LEDU contributed to the formation of an organisation that substantially benefited the Deputy Chair of its own Board, Mrs Teresa Townsley. The accountancy practice in which Mrs Townsley and her husband were the only partners was appointed, without proper tendering, as managers of EBT, receiving £1.4 million in fees between 1997 and 2005. Mrs Townsley was also appointed to the Board of EBT. There were also extensive conflicting relationships between Mrs Townsley, her husband and a number of companies supported by EBT.
LEDU provided no guidance on how potential conflicts of interest involving EBT's managers and its clients should be handled. The senior LEDU official, acting as its representative on the Board of EBT, failed to raise any concerns. At almost every stage of the project, there was a dismal failure within LEDU to apply normal controls and procedures over purchasing, project appraisal and monitoring.
The Department must have been aware of weaknesses within LEDU and certainly had knowledge of EBT, but these problems continued for seven years before any action was taken. Most worryingly, the Department knew of the conflicts of interest inherent in the multiplicity of roles involving Mrs Townsley but, to the Committee's astonishment, took no action.
to view Report