Governance Issues in the Department of Enterprise, Trade and Investment's Former Local Enterprise Development Unit

Today, John Dowdall CB, Comptroller and Auditor General for Northern Ireland published a report on Governance Issues in the former LEDU. The report examines major weaknesses in the part played by LEDU in the establishment and oversight of the Emerging Business Trust (EBT). EBT was established in 1996 with funds of £3 million provided by the International Fund for Ireland and £0.75 million provided by the former LEDU. The Trust operated a Loan Fund the purpose of which was to provide access to finance for new business starts in disadvantaged areas and for individuals whose circumstances made access to finance difficult.

In 2000, EBT also established a Venture Fund to assist in financing emerging businesses in disadvantaged areas of Northern Ireland. The Venture Fund was provided with funding of £0.4 million by the International Fund for Ireland and £0.2 million by the former LEDU.

LEDU ceased to exist in April 2002, when its functions and staff became part of a new single development agency, Invest Northern Ireland. In January 2003 Invest Northern Ireland engaged forensic accountants to carry out an investigation into EBT. The investigation identified a wide range of problems including:

  • serious conflict of interest issues in the establishment of the EBT funds. The former LEDU failed to ensure that the structures for the funds were appropriate;
  • the normal public sector rules on competitive tendering were not followed in the award of the contract for management services;
  • a significant proportion of the funds available to the EBT Loan Fund had been applied in meeting its running costs. The total cost of administering the Fund for the period between 1997 and 2004 was £1.9 million;
  • there was a high level of bad debt – in total £1.1 million of loans made by the Fund were written-off;
  • conflicting relationships and transactions between managers and companies assisted by the Funds; and
  • insufficient evidence of checking and pro-active monitoring by LEDU.

The Audit Office found that “at almost every stage of this project there was a breakdown of normal controls and procedures. There is a close parallel to this in the failures found in the “Into the West” case. In NIAO’s view, these two cases point to a profound failure of governance within LEDU over the relevant period”.

The report says that “the former LEDU should have recognised at the outset the importance of avoiding the perception that existing clients of EBT’s managers, or parties with connections to the managers, might have preferential access to a scheme designed to assist business starts in disadvantaged areas of Northern Ireland. In view of the risks involved, it is disturbing that LEDU’s Letters of Offer were completely silent on how potential conflicts of interest between the managers and EBT client companies should be handled”. The Audit Office says that “LEDU, as a condition of funding should have strictly forbidden managers from holding shares and directorships in EBT companies”.

EBT voluntary ceased to carry on business in April 2005 and a Liquidator was appointed to wind up the affairs of both the Loan and Venture Funds.