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Innovation Fund in tatters after damning report

Innovation Fund in tatters after damning report

Thursday 12 January 2017

Innovation Fund in tatters after damning report

Jersey's States spending watchdog has published an exceptionally damning report on the ill-fated Jersey Innovation Fund, listing a catalogue of errors, poor oversight and the potential loss of up to £1.4million of public money.

Produced by the Comptroller and Auditor-General (CAG), Karen McConnell, it even hints that the issues are so severe, legal action against some of those involved may now be on the way.

The Fund was set up by the States in 2013, with £5million of taxpayers' money, in a bid to help diversify and grow the economy after a deep global recession, with a Board made up of private sector individuals and States officers.

But problems were revealed last year when it emerged that a software development company, Logfiller, which had received a large loan from the Fund, appeared not to be actually operating, and subsequently went into liquidation, with a potential loss to taxpayers of hundreds of thousands of pounds. 

At the time, the Assistant Chief Minister responsible for the Fund, Senator Philip Ozouf argued that up to half the investments made by the Fund would fail, as that was the nature of what it did, and criticised States Members for "revelling in failure." He told the States he took full responsibility for Fund:  “Let me be absolutely clear, the Minister and that is delegated to me, takes full responsibility and accountability for the decisions taken.”

Today, the CAG's report now sets out exactly what she believes has happened:

" loans totaling over £2 million have been made to six borrowers. At the end of December 2016 only 26% of payments due had been received and one borrower was the subject of a winding up order. The provision for doubtful debts was £692,000 at 31 December 2015 increasing to £1,383,000 at 31 December 2016."

She goes on to list the governance problems with the way the Fund was run, and to comment that the 'Accounting Officer' for the Fund, who was the then Chief Officer of the Economic Development Department - Mike King - should have done more to protect taxpayers' money. Last week, just days before the report was published, Mr King resigned from his role with the States.

Ms McConnell goes on to criticise the role of the Advisory Board, and the actions of the Treasury and Resources Department. 

She gave a long list of problems with how the Fund was run:

  • "there was a confusion about and poor articulation of roles and accountabilities;

  •   the objectives of the Fund were not translated into measurable outputs with associated targets (such as local jobs created per pound spent);

  •   key policy matters were either confused (the risk appetite of the Fund) or not addressed (the parameters to inform the setting of interest rates);

  •   internal resource requirements were underestimated;

  •   the potential financial performance of the Fund was not adequately considered;

  •   despite risk management arrangements for individual loans, there was insufficient focus on managing risk for the Fund as a whole;

  •   success criteria were not clearly articulated;

  •   mechanisms for securing upside gains from successful loans were not developed; and arrangements for aftercare were underdeveloped;

  •   there was poor compliance with many of the provisions of the Operational Terms of Reference;

  •   external expertise was not drawn upon as envisaged in the Operational Terms of Reference and it could have proved valuable;

  •   documentation was not always sufficient to support the recommendations and decisions made about advancing loans and, in instances, it is difficult to understand the basis for recommendations made to the Minister responsible;

  •   monitoring of performance of loans granted was inadequate; 

  •   reporting of performance of loans granted was late, incomplete and inaccurate."

Ms McConnell commented:

"The Jersey Innovation Fund was a new scheme which required an entrepreneurial approach. Such an approach requires an excellent understanding of good governance consistently applied in practice. That has not been demonstrated.

"In addition, when weaknesses in arrangements were identified prompt and effective action should have been taken to address those weakness. Again, that did not happen.

"Weaknesses in governance and internal control create an environment in which any conduct of loan applicants and recipients that falls below expected standards, is less likely to be detected. From my work I have identified concerns about the conduct of third parties that I am considering reporting to the Attorney General.

"It is important that States Members are provided with relevant and high quality information when asked to take decisions. In my view that did not happen. More information could and should have been provided on the potential costs falling on the Fund, including the potential scale of any losses.

"As I believe that the current arrangements are not fit for purpose, I strongly recommend that no further loans are made unless and until the very significant failings identified in my report are addressed. I support recent steps taken by the Chief Executive in ensuring proper and effective management of existing loans.”

At the moment it is unclear what will happen to the Fund, although Senator Ozouf said before Christmas that it was currently closed, pending a £40,000 review. 

Last night the Public Accounts Committee announced its own review of the Fund, with Chairman Deputy Andrew Lewis commenting:

‘‘I was dismayed to note the level of non-compliance with agreed policy and procedures. My committee will be reviewing all aspects of the JIF from its inception. The PAC will be particularly interested to understand how such poor governance of the Fund was allowed to continue for a sustained period without being brought to the attention of Ministers or the Assembly.” 

You can read the full CAG's report here.

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Posted by Bo In Jersey on

King departs.

Ozouf hangs on saved by his new position; (He told the States he took full responsibility for Fund: “Let me be absolutely clear, the Minister and that is delegated to me, takes full responsibility and accountability for the decisions taken.”
Posted by david forde on
Sadly all too common a fault. If sand were a currency, we would lose every desert!
Posted by david forde on
NO such thing as an Accountable, in politics. They slither like snakes!
Posted by The old git Git on
Does that mean that no action can be taken against Mike King now he has resigned an will still receive his full retirement handshake and pension.
Posted by Gary Picot on
and they still want us to pay our taxes, whilst they just keep going on losing it
Posted by Davey West on
Is this a reflection on why the Waterfront crowd refuse to be transparent with politicians and refuse to work with scrutiny by refusing to give out the terms of leases ? This is an example of what happens when out of control States departments are allowed too much rope. Chief Minister Gorst and Mr Bill Ogley refused to discipline Mr King. Look at the sign this gives out to the whole Jersey administration structure.
Dereliction of duty while in public office appears not to exist in Jersey. If it did, La Moye would be holding a few more guests.
Posted by Bruce Ferguson on
It is easy to be accountable when you have nothing to lose!
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