1 Conflicts of interest in the establishment
of Emerging Business Trust
1. The C&AG's Report into the Department of Enterprise
Trade and Investment's oversight of its Local Enterprise Development
Unit's (LEDU's) funding of Emerging Business Trust (EBT) has highlighted
one of the worst failures of governance this Committee has seen.
There were massive conflicts of interest in the combination of
roles undertaken by Mrs Townsley, the Deputy Chair of LEDU. She
was not only on the LEDU Board, one of the bodies funding EBT,
but was also an EBT Board Member and her company, MTF, was appointed,
through a flawed tendering process, to manage EBT. These appointments
were made with the full knowledge of LEDU and the Department.
This Committee's seminal report on 'The Proper Conduct of Public
Business' (Eighth Report of 1993-94) states that "care should
be taken to avoid actual, potential, perceived or perceivable
conflicts of interest when employing consultants and staff."[5]
2. The Department attributed many of the problems
found in this case to a "lack of insight" on the part
of officials rather than a conscious decision not to do the right
thing. However, insight is not a pre-condition for proper conduct;
what is required is honesty and the commonsense observance of
rules. In any event, this is not a convincing argument. Not only
were the abuses in this case unusually blatant but LEDU's decision
to challenge the appointment, on the grounds of conflict of interest,
of a subsidiary provider of management services to the EBT Board,
but not the appointment of Mrs Townsley, demonstrates that senior
LEDU officials had sufficient insight and knowledge of the rules
to take action. No explanation has been provided as to why these
rules were not applied to Mrs Townsley. The Department has told
us that the investigation found no evidence of collusion, but
collusion is always difficult to prove and it cannot be ruled
out in circumstances where no other credible explanation has been
provided. We can only conclude that it was not an oversight that
the decision taken favoured LEDU's Deputy Chair.[6]
3. Appointments to the boards of public bodies after
1996 should have observed the Code of Practice of the Office of
the Commissioner for Public Appointments. The Code requires consideration
of any apparent conflicts of interest. The Department was unable
to confirm the extent to which this was done in any of Mrs Townsley's
appointments prior to her being made a member of the Invest Northern
Ireland Board in 2002, although she had been a member of the LEDU
Board since 1993 and was re-appointed in 1996 and 1999. Even in
2002, the Department's appointment process failed to bring to
light the conflicts in this case. At the request of Invest Northern
Ireland, Mrs Townsley absented herself on a voluntary basis from
its Board in December 2003 although she remained a Board Member
until March 2004. This is an indication that voluntary arrangements
for removing Board Members are not sufficiently robust.[7]
4. It is most worrying that the Department missed
opportunity after opportunity to address one of the worst cases
of conflicts of interest this Committee has seen. It is disappointing
that files relating to Mrs Townsley's appointment to LEDU's Board
have been destroyed.[8]
5. With hindsight the Department has correctly concluded
that the potential conflicts of interest were so numerous and
so fundamental in this case, they were beyond management. What
beggars belief is that, at the time, there was little or no attempt
to manage them. For example, LEDU gave no guidance to EBT on how
to handle conflicts of interest between its managers and its client
companies. What is worse, the Committee is left with the impression
that the very senior staff in LEDU and the Department, who had
knowledge of EBT, did not have sufficient regard for the proper
conduct of public business to ensure effective oversight.[9]
5 C&AG's Report, paras 10, 12; Qq 3, 9-13 Back
6
C&AG's Report, paras 11, 1.21, 1.46; Qq 7-8, 78-80 Back
7
C&AG's Report, para 17 and Appendix 4; Qq 13, 83-85 Back
8
C&AG's Report, para 1.1, footnote 9; Qq 13, 83, 94-97 Back
9
C&AG's Report, paras 1.44-1.46; Qq 9-12, 62-63
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