Select Committee on Public Accounts Forty-Sixth Report


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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