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This is one of the worst cases of conflict of interest and impropriety that this Committee has seen. The Department of Enterprise, Trade and Investment has a history of inadequate oversight of its non-departmental public bodies and there has been a series of Reports[1] by the Assembly Public Accounts Committee and the Comptroller and Auditor General (C&AG), dealing with failures of governance. This latest 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 an NDPB of the Department and was Northern Ireland's small business agency. The Emerging Business Trust (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 our astonishment, took no action.
On the basis of a Report by the C&AG,[2] the Committee took evidence from the Department and Invest Northern Ireland (which took over LEDU's responsibilities in April 2002) 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.
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