Examination of Witnesses (Questions 1-19)
DEPARTMENT OF
ENTERPRISE, TRADE
AND INVESTMENT
AND INVEST
NORTHERN IRELAND
13 FEBRUARY 2006
REPORT BY THE COMPTROLLER AND AUDITOR
GENERAL
Standard Report 2005-06 (HC 817)
Q1 Chairman: Good afternoon. Welcome
to the Committee of Public Accounts. Whilst Stormont is suspended
we are the Committee of Public Accounts for Northern Ireland—something
we regret but that is beyond our control and therefore we have
to do our job—and today we are considering the C&AG's
Report on Governance issues in the Department of Enterprise, Trade
and Investment's former Local Enterprise Development Unit, published
on 9 February 2006, and we welcome back Mr Stephen Quinn, who
is the new Permanent Secretary for the Department of Enterprise,
Trade and Investment in Northern Ireland. And you have been in
post six weeks?
Mr Quinn: That is right.
Q2 Chairman: Could you start by introducing
your colleagues and explain to us their responsibilities?
Mr Quinn: Thank you. On my immediate
right is Leslie Morrison, the Chief Executive of Invest Northern
Ireland, which is the successor body to LEDU, that is to say it
absorbed the former functions of LEDU along with the former functions
of the Industrial Development Board and another body. On his immediate
right is Charles Harding, who is the assistant secretary or grade
five in charge of the corporate finance appraisal division in
Invest Northern Ireland, and on my left is Noel Lavery, the finance
director of the department.
Q3 Chairman: Thank you. Perhaps we
could start by looking at paragraph 10 of the Comptroller and
Auditor General's Report which is, I suppose, a useful summary
of the main findings of the investigations. I have to say that
when my colleagues and myself looked at this we came to the initial
conclusion that this was one of the most worrying failures of
governance that we have come across in our time on this Committee,
and clearly there appears on the face of it to have been a real
conflict of interest. What we see here is that LEDU funded a project
which apparently benefited its own deputy chairman, in the process
it broke its own rules, ignored good practice, failed to question
anything that was going wrong—so am I right, and what are
your conclusions?
Mr Quinn: Yes, you are right in
the sense that paragraph 10 is a fair and accurate summary of
the key facts in this Report and represents a very serious failure
in the standards of governance and the standards of administration
within LEDU. I think I need to go on to say it reflects a shortcoming
in the oversight of LEDU by the Department during the material
period. Paragraph 17 of the Report actually acknowledges that,
in December 2002, the Department in its reply to the Assembly
PAC acknowledged the systemic difficulties it had in the oversight
of its NDPBs during the 1990s, and I think that this Report effectively
reinforces and validates that conclusion.
Q4 Chairman: Why did you allow it
to happen?
Mr Quinn: I think that the explanation
is the explanation offered to the Assembly PAC in December 2002,
namely that the business model that the Department operated with
its NDPBs left them too much at arm's length with too much latitude
and not enough oversight, and that was the essence of the acknowledgement
that the Department gave to the Stormont PAC in December 2002.
That relative arm's length relationship led to insufficient care
undertaken in checking—
Q5 Chairman: I must interrupt you
there. You say it was arm's length. Would you like to look at
paragraph 1.7 of the Report, which shows that your representative
on the EBT board is LEDU's Director of Corporate Services and
Acting Chief Executive, so you would have thought he would be
an ideal person to keep this show on track and would be an ideal
person to know what was best practice, and he was LEDU's Director
of Corporate Services. It does not sound very arm's length to
me.
Mr Quinn: Well, he was the director
of corporate services in LEDU which was at arm's length from the
Department. I agree with you that he should have been well placed
to guide the EBT board on governance and financial control issues,
and to look after the interests of the funding body—
Q6 Chairman: But did he warn anybody
of the potential conflicts of interest?
Mr Quinn: There is no evidence
that he did.
Q7 Chairman: Why did he not?
Mr Quinn: Well, it does seem to
me that there must have been a lack of insight there.
Q8 Chairman: Well, he must have been
fast asleep!
Mr Quinn: That is one way of putting
it. As I say, as a minimum there appears to have been lack of
insight. There were clear signs, there were things that were visible
to him from his position on the board of EBT that should have
prompted him to intervene on behalf of the funding body.
Q9 Chairman: Well, I think if you
have an official on one of these boards it is his duty to point
out elementary good practice. Have you seen the Committee of Public
Accounts' 8th Report of 1993-94, which although before my time
apparently is a seminal Report, although it is not before the
time of Mr Alan Williams, on the Proper Conduct of Public Business.
Have you read it?
Mr Quinn: I have indeed.
Q10 Chairman: I am told it is widely
circulated in government departments. It says here: "Checklist.
Care should be taken to avoid actual or potential perceived or
perceivable conflicts of interest when employing consultants and
staff". So what happened to this Report, then?
Mr Quinn: Well, it was circulated,
Chairman, but I think I would have to acknowledge that its findings
were not fully and comprehensively—
Q11 Chairman: Did it make any impact
on your Department at all?
Mr Quinn: Well, I think it did.
I was going on to say that it was not comprehensively and fully
applied in all respects, and I think that is particularly the
case in respect of the—
Q12 Chairman: What do you mean, it
was not "comprehensively applied"? It was not applied
at all, was it?
Mr Quinn: There were certainly
very significant failings in the oversight of LEDU.
Q13 Chairman: Would you please look
at paragraph 1.1 of the Report? We read there that Mrs Townsley
was a board member from 1993 to 2004, and you reappointed or your
predecessor reappointed her to the board on three further occasions,
appointed her a member of the Departmental Audit Committee, so
there were many opportunities to keep a track of what was going
on. Why did nobody spot this earlier on?
Mr Quinn: Chairman, could I distinguish
between two things? One is the state of knowledge of the Department
in 1996 and, secondly, the various public appointments that Mrs
Townsley had? The Department did have a degree of knowledge of
the establishment of EBT, of the proposal to establish EBT in
1996 through its representative on the body that provided advice
and support to the International Fund for Ireland. It also had
knowledge of the establishment of EBT through its representative
on the LEDU board in August 1996, so I am afraid to say there
was a degree of knowledge of the proposal to establish EBT, its
structure and the intention to make MTF the provider of management
services. That is regrettable. I think that the Department should
have been more alert to the full range of conflicts of interest
that those decisions gave rise to.
Q14 Chairman: So do you now want
to apologise on behalf of the Department?
Mr Quinn: Yes. I think that would
be appropriate.
Q15 Chairman: I would like to look
at paragraph 11. Apparently you have said that Invest Northern
Ireland is looking at three other bodies where there are points
in common with EBT concerned about the proper use of public funds.
Can you tell us anything about these?
Mr Quinn: Yes. I wrote to the
Clerk on 1 February to acquaint him with developments not only
in relation to those three cases but also in relation to the on-going
consideration of the liquidation of the EBT.[1]
Two of the three cases related to TPO relationships inherited
by Invest Northern Ireland from the former LEDU. The third was
a legacy from the Industrial Research and Technology Unit and
the Industrial Development Board. In two cases, they are with
the Companies Inspector for investigation, that is the present
state of play. The third case was examined and then referred to
the Police Service for Northern Ireland, and that investigation
continues.
Q16 Chairman: Do any of these investigations
involve Mrs Townsley, or not?
Mr Quinn: Well, I am not sure
that the investigations involve her, Chairman. It is my understanding
that she had a connection of sorts with two of the companies involved.
Q17 Kitty Ussher: Thank you very
much. Why are we in this situation, Mr Quinn?
Mr Quinn: Well, I think I would
go back to the December 2002 memorandum of reply to the Assembly
PAC. What it essentially said under fairly rigorous examination
by the Assembly PAC was that there was an acknowledgement that
the Department had too much of a hands-off relationship with the
NDPBs during the 1990s. If you look at paragraph 17 of the Report
you will see a long list of things that the Department and Invest
Northern Ireland has done to take account of the fact that that
relationship was insufficiently hands-on and insufficiently interrogative.
I think that is the key.
Q18 Kitty Ussher: I do not like using
the word "blame" but if we were to say whose fault it
was that we are in this situation, do you accept that that lies
entirely with the Department?
Mr Quinn: Well, insofar as the
Department had a policy of having that kind of a relationship
rather than a more hands-on relationship with LEDU then the answer
to that must be yes, but I think there are issues raised by this
Report which go beyond that particular problem.
Q19 Kitty Ussher: Could you elaborate
slightly on that?
Mr Quinn: In terms of the internal
governance of LEDU and of the conflict of interests beyond LEDU
in EBT.
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