Conclusions and recommendations
1. One of the most depressing features of
this case is that the taxpayer was let down by almost everyone
in the chain of responsibility for ensuring proper conduct in
relation to EBT. Departments
must ensure that their NDPBs and any third party organisation
funded by them observe the basic controls and procedures on which
confidence in public administration depends. The Department allowed
LEDU to operate year after year outside acceptable standards of
public administration. This was a dereliction of its responsibility
to ensure that the financial and other management controls being
applied by LEDU conformed to the requirements both of propriety
and good management.
2. LEDU's problems resulted from a culture
which seems to have had no respect for the proper conduct of public
business. The new Accounting Officer referred
to the 'arms length relationship' between the Department and its
non-departmental public bodies (NDPBs) as an explanation for the
problems encountered in LEDU. Although this relationship was seriously
flawed, the Committee agree with the Assembly's PAC that the problems
went beyond the structural framework to the very culture and ethos
of these bodies. In another of the Department's NDPBs the Assembly
PAC found "a culture of apathy, incompetence and lack of
respect for proper procedures at the top of the organisation.
Aspects of this culture appear to extend right to the heart of
the Department itself." This judgement applies equally to
LEDU. The Department and its NDPBs need to recognise the scale
of the culture change that is necessary.
3. The Department now faces an enormous challenge
to restore parliamentary and public confidence in its governance
arrangements. Against this background it is not sufficient to
try to do better, the Department and its NDPBs must aim to be
beyond reproach. Northern Ireland is a
relatively small society where close connections between senior
civil servants and those who serve on Boards of public bodies
is inevitable. In these circumstances it is particularly important
to be sensitive to the need to avoid any perception of conflict
of interest or impropriety. The Department must ensure that only
the highest standards of ethics and propriety operate in bodies
under its control.
4. We are in no doubt that the mishandling
of this case could have been prevented if the advice in our report
on the Proper Conduct of Public Business[3]
had been taken seriously by the Department of Enterprise, Trade
and Investment. Departments need to ensure that PAC recommendations
are fully communicated to those on the front line and are put
into effect.
5. This is a case where every one of Lord
Nolan's seven principles of public life have been breached - Selflessness,
Integrity, Objectivity, Accountability, Openness, Honesty and
Leadership. Mrs Townsley had accepted
a number of positions of responsibility where a commitment to
the principles of public service was essential. She is a Chartered
Accountant and, therefore, required to operate within a framework
of ethical standards laid down by her Accountancy Institute. Mrs
Townsley's detailed comments, which were appended to the NIAO
Report, fall far short of an adequate explanation for what was
a disgraceful conflict of public and private interests. Where
there is a perception of serious conflicts, it is not sufficient
to declare them, they must be effectively dealt with or avoided
altogether. Moreover, the timing and pricing of Mr Townsley's
share purchase is profoundly disturbing and amounts to 'insider
trading'. The Department has referred these matters to the Department
of Finance and Personnel to consider what action would be appropriate.
We thought it extraordinary that a view had not already been taken
on this. In view of the serious nature of the issues involved
we are sending a copy of our report to the Institute of Chartered
Accountants in Ireland.
6. Departments have a duty to make certain
that individuals appointed or re-appointed to Boards can demonstrate
that they meet the probity principle,[4]
that is, that they are committed to the principles and values
of public service and perform their duties with integrity. Departments
must have a rigorous process to ensure that candidates for appointments
to the Boards of public bodies meet the high standards expected
of them.
7. It is unsatisfactory that files relating
to Mrs Townsley's appointments to LEDU were destroyed while she
was still active in public life. This
case illustrates the importance of retaining these files well
beyond the term of appointment. The Department of Finance and
Personnel should take the lead in reviewing the retention policy
in relation to appointment papers.
8. Departments must also regularly assess
the performance of Board or Audit Committee Members and put in
place procedures which enable their prompt removal where there
is, for example:
- a lack of competence;
- failure to observe the probity principle; or
- an unmanageable conflict of interest.
It is also important that departments share information
in a joined-up way to ensure that where there are concerns about
the performance or probity of any Board Member this is taken into
account in relation to any other public positions which they hold
or may apply for.
9. The Department should make compliance with
the Code of Practice, issued by the Commissioner for Public Appointments
for Northern Ireland, a condition of funding of third party organisations.
The Department told the C&AG that Northern Ireland departments
are required to follow the guidance issued by the Office of the
Commissioner for Public Appointments for Northern Ireland. This
guidance extends to Executive NDPBs, Health and Personal Social
Services Bodies and, by agreement, to advisory bodies and tribunals
but does not apply to third party organisations, such as EBT,
which are entirely publicly funded. We are sending a copy of our
report to the Commissioner for Public Appointments for Northern
Ireland.
10. There are some conflicts of interest that
cannot be managed; they can only be dealt with by being avoided
altogether. Avoiding unmanageable conflicts
not only provides reassurance to the public that decisions taken
in public bodies are entirely based on what is in the public interest
but protects individuals from any suspicion of bias. Public money
should not be committed to any project where an unmanageable conflict
of interest exists. For example, when investing in loan or venture
funds, Departments and NDPBs should ensure that it is a requirement
of funding that consultants acting as managers of the funds should
not hold shares or directorships in companies supported by the
funds. There should also be a bar on managers undertaking any
consultancy work or providing financial services in client companies.
These points should have been self-evident; it is disappointing
that it is necessary to spell out these details for the Department
of Enterprise, Trade and Investment.
11. We recognise the valuable voluntary contribution
Board Members make to public life in Northern Ireland but their
reputations, as well as the public interest, need to be protected
through effective training in their public responsibilities.
It is deeply disappointing that, in this case, LEDU did not provide
guidance or training to EBT Board Members on conflicts of interest.
The Department must take responsibility for ensuring that their
own staff, Board Members of NDPBs and third party organisations
understand the high ethical standards to which they are required
to operate through guidance, education and training, particularly
induction training. For Board Members this should include training
on their role and responsibilities, including the level of engagement
required and the need to exercise a challenge function. Moreover,
we want to make it absolutely clear that public bodies have an
obligation to safeguard the position of those appointed to public
office by ensuring that proper controls and procedures are in
place.
12. The Department did not exercise an appropriate
level of control over the NDPBs for which it was responsible and
did not ensure effective oversight of third party organisations
funded by its NDPBs. Three venture funds
which received financial support from the Department and its NDPBs
were investing in a single company, raising the concern that there
may be overlap and duplication of business activities among its
other third party organisations. The Accounting Officer's decision
to personally approve the setting-up of any new third party organisations
by any of the NDPBs for which he is responsible, is a welcome
move. The Department of Finance and Personnel should ensure that
all Northern Ireland departments follow suit. The Department should
provide an assurance that each third party organisation meets
a specific and continuing need, there is no wasteful duplication
of effort and that the audit arrangements are robust.
13. It is worrying that the blatant conflicts
of interest and other major control weaknesses in this case were
not detected by the auditors of LEDU (Deloitte and Touche) or
EBT (McClure Watters). It is important
that these matters are brought to the attention of the relevant
professional body and this Committee informed of the outcome.
14. It emerged in evidence that the unsatisfactory
way in which EBT was established was somehow related to the fact
that the project was initiated by the International Fund for Ireland
and only partly funded by LEDU. The Committee
want to make it absolutely clear that when a public body is involved
in jointly funding a project, the fact that the funding is shared,
in no way diminishes the Accounting Officer's absolute responsibility
to ensure regularity, propriety and value for money.
15. The Committee was astonished at the award
of a three year rolling contract to MTF for the consulting services
it provided to EBT. The use of rolling
contracts for consultancy services in the public sector or publicly
funded bodies is most unlikely to deliver value for money. The
Department of Finance and Personnel should issue guidance on this.
16. EBT was engaged in high risk loan and
share activities. There was no private sector money involved in
this project to share the financial risks, yet it was structured
as a limited company and placed outside the annual scrutiny of
Parliament's auditors. We welcome the
fact that legislation is in hand to provide for the C&AG to
audit companies. In our view, it would be an important safeguard
against the control failures we have seen if such companies were
audited by the C&AG.
17. We found it surprising that the possibility
of civil proceedings in relation to the fast-track Arcom loan,
and other matters, including the payment of fees for managing
loans which had already been written-off, had not been considered.
The Department needs to ensure that this is addressed. We noted
that the fast track loan was guaranteed by the Department of Trade
and Industry's scheme. We would like to be informed whether all
the relevant facts, including conflicts of interest were disclosed
to the Department of Trade and Industry.
18. A clear message needs to be sent to senior
public officials that any disregard for the proper conduct of
public business is a serious disciplinary offence and will not
be tolerated. The Department should provide
details of the disciplinary action taken in the EBT case and inform
the Committee of the outcome when the case is concluded.
19. The Department has taken a long time to
deal with EBT and the other investigations. It is important that
the three ongoing investigations are brought to a conclusion as
soon as possible so that lessons can be learnt and applied throughout
departments. The Committee do not wish to be in this situation
ever again. The Department should provide
a report of the outcome of each investigation as it is concluded
together with the findings of the Liquidator's report into EBT.
In order to be satisfied that incomplete investigations are being
expedited, the Committee want to see a progress report in six
months.
3 8th Report from the Committee of Public
Accounts, The proper conduct of public business (HC 154,
Session 1993-94) Back
4
Probity is one of the principles underlying the Code of Practice
of the Commission for Public Appointments for Northern Ireland.
The Code was first produced in 1996 and revised in 2002, 2004
and 2005. Back
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