4 Failings in the Department's oversight
of LEDU and its other NDPBs
26. The Department has accepted responsibility and
quite properly apologised for the very significant failings in
its oversight of LEDU. It identified that the key problem was
the relationship between the Department and LEDU which was "insufficiently
hands-on and insufficiently interrogative." The Committee,
however, is not convinced that an inadequate structural framework
is the main cause of the problems between the Department and LEDU.
The Accounting Officer stated that there were a range of controls
and procedures in place at the material time. However, the telling
point for the Committee is the Accounting Officer's acceptance
that these procedures were not applied. Crucially, individuals
within the Department and LEDU chose not to follow the rules.[32]
27. It is extraordinary and very disturbing that
the Department did not know at the time that three of the venture
funds it supported, Viridian Growth Fund, Nitech Growth Fund and
EBT, were bankrolling a company (Fusion) of which Mr Townsley
was a co-founder, Finance Director and major shareholder. It seems
that the Department and its NDPB were not communicating with each
other. This case may be symptomatic of a wider problem in the
Department's funding of third party organisations. Invest Northern
Ireland inherited 40 third party organisations from LEDU alone
and there must remain a concern that there may be overlap and
duplication of business activities, not just in the venture funds
but between other entities.[33]
28. LEDU's auditors did not detect or report on the
poor control over EBT and other third party organisations, such
as the extent of conflicts of interest and that rules on competitive
tendering were not being observed. Similar deficiencies were also
evident in the statutory audit of EBT, for example, auditors failed
to identify that EBT was acting 'ultra vires' in awarding loans
and equity funding above the maximum permitted in LEDU's Letters
of Offer. They also failed to pick up the absence of a fully functioning
bad debt policy; that management fees could have been reduced
when debts were written-off, and that there was no signed contract
with MTF. The Accounting Officer suggested that the auditors of
EBT may have regarded their duty as being to the company and not
to the funding bodies. If this is the case, it is clearly an unsatisfactory
arrangement when EBT was totally dependent on public money.[34]
29. The Accounting Officer estimates that, of the
£4.35 million of public funds paid by the International Fund
for Ireland and LEDU to EBT, £1.9 million will be recovered
through the Liquidator. LEDU's contribution was £0.95 million,
of which £0.5 million came from the EU Peace and Reconciliation
Programme.[35]
30. The Department seems to have been complicit in
an explosion of small publicly funded companies in the 1990s.
LEDU alone was responsible for 40 third party organisations, many
of which, including EBT, were entirely publicly funded. This framework
placed the taxpayers' money entrusted to these companies outside
the audit of the NIAO and therefore, at a distance from the scrutiny
of Parliament. This structural fault created the conditions for
some of the extraordinary lapses in this case. The Department
has told us that it was a condition of funding of the European
Peace and Reconciliation Programme that funds were disbursed by
third party organisations in order to reach out to the Northern
Ireland community, particularly in disadvantaged areas. A similar
policy was adopted by the International Fund for Ireland. This
is not a completely convincing explanation. The suspicion remains
that some of these elaborate structures were a mechanism to circumvent
proper financial management and public accountability.[36]
31. The Department has been responsible for a long
litany of serious failures of control from its supervision of
the Northern Ireland Tourist Board, to 'Into the West' and now
EBT. It simply cannot afford any more failures like this. The
Committee welcomes therefore the measures taken by the Department,
set out at paragraph 17 of the C&AG's Report, which record
the action taken so far to remedy the deficiencies highlighted
in this case. We were particularly impressed that the new Accounting
Officer, Mr Stephen Quinn, has now introduced quarterly rather
than annual Statements of Internal Control from NDPB Chief Executives
and senior officers in the Department which he emphasised require
a positive act of due diligence before they are signed. We agree
that it is not enough for such controls and procedures to be in
place, they must be applied. As the Accounting Officer explained,
"it's not just what you do; it's the way that you do it".
This is a promising response to the challenge the Department faces.[37]
32 C&AG's Report, para 1.42; Qq 17, 26 Back
33
C&AG's Report, paras 7, 2.15; Qq 76-77 Back
34
C&AG's Report, paras 1.47, 3.23, 3.26, 4.9-4.10; Qq 100-110 Back
35
C&AG's Report, para 17 and Table 4.1; Q 151 Back
36
C&AG's Report, para 7; Qq 29-30, 98-99 Back
37
C&AG's Report, para 17; Qq 28, 143 Back
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