A damning report on the operation of a fund set up to help emerging businesses in the North will be probed by a powerful House of Commons committee of MPs next week, it was revealed today.
The Public Accounts Committee will be hearing evidence about the Emerging Business Trust (EBT) and the “major weaknesses” in its establishment and oversight by the former small business agency LEDU.
Nearly 50% of the EBT’s funds went in running costs and a report published today by the Audit Office found that “at almost every stage of this project there was a breakdown of normal controls and procedures”.
Failures pointed to a “profound failure of governance within LEDU”, said the report.
The EBT was established in 1996 by the International Fund for Ireland with funds of £3m (€4.4m) and £750,000 (€1.1m) from LEDU.
In 2000 EBT also established a venture fund to assist emerging businesses in disadvantaged areas. The fund was provided with £400,000 (€581,100) by the IFI and £200,000 (€290,500) by LEDU.
LEDU ceased to exist in April 2002 when its functions and staff became part of new single development agency Invest Northern Ireland.
Within months Invest NI brought in forensic accountants from PricewaterhouseCoopers to carry out an investigation into EBT. The investigation identified a wide range of problems.
The report has yet to be published but formed the basis of the report by the Auditor General for Northern Ireland, John Dowdall.
He said its findings highlighted:
:: Serious conflict-of-interest issues in the establishment of EBT funds. LEDU had failed to ensure that the structures for the funds were appropriate.
:: The normal public sector rules on competitive tendering were not followed in the award of the contract for management services.
:: A significant proportion of the funds available to the EBT Loan Fund went in running costs. The total cost of administering the fund between 1997 and 2004 was £1.9m (€2.8m).
:: There was a high level of bad debt. £1.1m (€1.6m) of loans made were written off.
:: Conflicting relationships and transactions between managers and companies assisted by the fund.
:: Insufficient evidence of checking and pro-active monitoring by LEDU.
Mr Dowdall’s report said a series of failures, when taken together, “suggest a corporate culture in the former LEDU, which simply did not understand or recognise the importance of its own operating rules”, nor the wide range of guidance available.
He said LEDU was not a minor non-departmental public body on the fringes of the public sector, but an integral part of what the Department of Enterprise, Trade and Investment, formerly the Department of Economic Development, termed its “family” of sponsored bodies.
LEDU had an annual budget of around £36m (€52.3m) and its chief executive sat on the department’s board while a senior department official was present at board meetings.
Nevertheless, Mr Dowdall said: “The poor standards of administration and control revealed by this investigation are surprising in a body of this importance.
“In our view they fall far below the normal standards which operate elsewhere in the Northern Ireland public sector.
“This is supported by the fact that, almost as soon as the EBT case was handed over to the new Invest Northern Ireland, the deficiencies were recognised and a major enquiry begun with the assistance of forensic investigators.”
Invest NI and the department were to be commended for promptly identifying the need for an investigation which, he said, “revealed the most fundamental weaknesses in the former LEDU’s decision-making and oversight of EBT”.
The Audit Office report singled out accountant Teresa Townsley, who it said was deputy chair of LEDU, a member of both the Loan Fund and Venture Fund boards and a partner, with her husband, in MTF Chartered Accountants, which was the lead managing agent of both funds.
Management fees of over £1.4m (€2m) were paid to MTF between 1997 and 2005, said the report.
The report said LEDU failed to ensure that the structures for the funds were appropriate.
It said: “This contributed to the formation of an organisation that stood to benefit an existing LEDU board member, Mrs Teresa Townsley.
“The combination of roles undertaken by Mrs Townsley in relation to EBT was inherently conflicting,” said the report.
LEDU could only have managed the particular set of conflicts of interest by ensuring that it did not arise in the first place. “This failure was compounded by an extraordinary series of lapses,” it said.
The report added: “It could be perceived that an opportunity was created through EBT to use public resources to enhance Mrs Townsley’s private financial interest in MTF.”
Mrs Townsley has staunchly defended herself against any suggestion of wrongdoing on her part and the Audit Office records show that she told them she believed that some of the information provided to them in the PWC report, upon which they relied heavily, had been misleading and in many instances incorrect.
In a written submission, an appendix to the report, she said she had been given extracts of the report produced by PWC following their investigation.
She said: “My response identified numerous inaccuracies, misstatements and inappropriate implications and flawed conclusions, and amounted to a comprehensive rebuttal of the PWC extracts.”
Amendments made by PWC to their final report did not reflect her responses, she said.
Both Invest NI and The Department of Enterprise, Trade and Investment said they were making no comment on the report ahead of the PAC hearing on Monday.
Invest NI chief executive Leslie Morrison and DETI Permanent Secretary Stephen Quinn are both going before the committee.
SDLP finance spokesman, John Dallat, MLA, a former member of the Stormont Public Affairs Committee, welcomed the report and slammed those responsible for what it found.
Mr Dallat said: “I could not believe when I first read this report that the public sector could have managed a project so poorly.
“But this, of course, is only the latest saga in the inglorious history of what the report calls DETI’s ‘improper conduct of public business’.”
When the Assembly was sitting the PAC had to deal with reports into LEDU fraud and probity and corporate governance issues within the NI Tourist Board, he said.
It was vital the PAC at Westminster recognised there were questions about the report that still needed to be answered.
“Why in the three years since these issues were known within government has there been no action whatsoever against the officials involved?” he asked.
“Why has the Comptroller and Auditor General’s investigation taken so long? Have senior officials in the department dragged it out because they were embarrassed by the findings? I am asking the Northern Ireland Audit Office for a detailed timetable of the investigation step by step.”
Mr Dallat said this was not the end of the story. The department had confirmed there were three similar cases to EBT that it was investigating.
“Is it going to take another three years until we are allowed to see a report on these?” he asked.