Belfast Telegraph

Damning report into bio-tech institute fiasco reveals how £2m was 'totally wasted'

Double-billing, finder’s fees and unauthorised contracts exposed

By Adrian Rutherford

It was trumpeted as a ground-breaking centre of excellence for Northern Ireland’s emerging bio-tech industry, but ended up a costly failure which squandered millions of pounds.

The Bioscience and Technology Institute (BTI) provides a blueprint in how not to manage major innovation projects.

Public money was wasted on property developers’ finder’s fees, double-billing and £1m worth of unauthorised contracts to companies associated with one director’s family.

Today, a report by Stormont’s Public Accounts Committee describes a catalogue of negligence and ineptitude where rules and procedures were blatantly ignored.

“This project provides one of the starkest examples of incompetence and mismanagement that the committee has ever examined,” said its chairman Paul Maskey.

Yet it had all started so differently.

The institute was established as a not-for-profit company in 1998.

It was launched in a blaze of publicity in June 2000 at Hillsborough Castle with high-level Government support.

An accompanying Press release boasted how the project would “promote the development of world-class, leading edge, health technologies” and provide “a major boost to the economy”.

Then First Minister David Trimble, who oversaw the launch, said it would significantly enhance the province’s health technologies infrastructure.

It was intended that a specialist centre would be established at Belfast City Hospital. The company would be commercially sustained by rent charged to tenant organisations.

Some £2.2m in funding was received from four bodies — the Department of Enterprise (DETI), the Industrial Development Board (IDB), the Industrial Research and Technology Unit (IRTU) and the International Fund for Ireland (IFI).

A further £1.2m was received as a loan from pharmaceutical millionaire Sir Allen McClay.

The institute's location at Belfast City Hospital was seen as fundamental to its success, because it would optimise interaction between doctors at the hospital and scientists employed at the BTI building.

However, the plans soon ran into difficulties.

Problems in progressing the City Hospital site led to BTI purchasing an alternative shell building, Harbourgate, costing £5m at Sydenham in east Belfast in 2001.

By the following year, the venture was already hitting trouble.

The relocation to Harbourgate saw the project’s cost soar from £4.8m to £7.5m — £2.7m over budget and, crucially, without funds to refurbish the new headquarters.

As a result, the building never became operational and did not generate any income for BTI.

In a 15-month accounts report submitted in 2003, the company stated: “The directors have indicated their intention to sell the company's Sydenham building following the recommendations of a strategic review in January 2003.”

BTI subsequently went into insolvency and, in November 2005, Harbourgate was repossessed by the banks and sold off for £4.5m — £500,000 less than the purchase price.

The bank recouped its £4.1m loan, Sir Allen received £400,000 of his £1.2m contribution — but £2.2m owed to taxpayers was never recovered.

In December 2005, the Department of Enterprise appointed company inspectors to investigate BTI’s affairs. The report took four years to complete and highlighted a wide range of shortcomings.

Last November, an Audit Office report into the saga concluded that BTI had not achieved any of its objectives — and provided no value for money.

The investigation was hampered by the absence of key files relating to funding approval for the project.

Alarmingly, one file appears to have been destroyed after it was requested by auditors — prompting claims it may have been a deliberate bid to remove evidence.

Concerns over the conduct of directors and how public money was spent were also flagged up by the Audit Office report.

In one case, a £100,000 ‘finder’s fee’ for Harbourgate had been shared between BTI director Teresa Townsley, her business partner and husband Michael Townsley, plus BTI solicitor Thomas Armstrong. The fee was split three ways: Mr Armstrong received £37,500, the property dealer got £37,500, while £25,000 was paid directly into an offshore bank account held in the Townsleys’ name — rather than a business bank account.

Later, Mrs Townsley insisted the fee had been earned “honestly and in good faith”, adding that she had no plans to return the money.

Mr Armstrong has also denied any wrongdoing, and was cleared by the Law Society.

He told investigators that he negotiated the finder’s fee with Mrs Townsley, and she confirmed the payment had been approved by BTI’s board of directors.

Crucially, auditors could find no record of the invoice being discussed or approved by the board.

“We have seen no evidence that Teresa Townsley disclosed to the board at any time the fact that she and her husband benefited from

payment of the finder’s fee, despite there being a number of occasions when disclosure could have been made,” the report stated.

“From the evidence available, it appears that, with the exception of Teresa Townsley, BTI board members were not aware of the final recipients of the £100,000 finder’s fee.”

It noted: “Based upon his own admission, Michael Townsley attempted to create evidence surrounding his involvement in the property search and the board’s lack of knowledge in respect of his payment.”

The report also found that while board members were not paid for their work, Mr and Mrs Townsley's accountancy firm, MTF Chartered Accountants, provided services to the board.

During its period of operation, BTI was invoiced £127,399 for services provided by MTF. These related to day-to-day administration such as book-keeping, accounts preparation and the collation of grant claims.

Arcom Limited, a media production company in which Mr Townsley was a director and shareholder, was also awarded a £10,200 contract without any apparent tender process taking place or Mrs Townsley declaring a conflict of interest in the decision-making process.

The report highlighted concerns over a £737,000 fit-out of Harbourgate by companies associated with the Townsleys.

“We have not seen any tendering or contract documents for this job so it is not clear whether the appointment of the company which did the work was subject to an appropriate tender process,” it continued.

“Consequently, we are unable to confirm whether the best price was secured and that there was a fair and open competition.”

The report concluded that “a substantial number” of conflicts of interest arose in the course of BTI’s dealings, adding that they had been “poorly handled”.

Evidence also emerged that BTI had double-claimed over £542,000 from the Department of Enterprise for the purchase of equipment, travel and other costs despite the IFI already paying it for the same expenses.

In one case, BTI flew a team of directors and representatives from two of its future tenant companies to a bio-technology conference in San Diego in the United States.

It was agreed that BTI would only pay £6,957 for five of its directors to travel, however, the company actually paid £22,529 for 11 people to make the trip.

Later it was discovered BTI had double-billed DETI and the IFI for the trip — at a cost of £32,000.

A declaration was signed by Mrs Townsley in both DETI and IFI claims confirming all sums had been paid by BTI and that the claim information was accurate.

In another case highlighted by auditors, equipment worth £357,000, bought by BTI with Government funding, was never used. The Audit Office’s final verdict was damning, concluding that BTI “provided no value for the public funds committed to it”.

BTI currently remains insolvent and steps are being taken to wind up the company.

Meanwhile, Mrs Townsley —who didn’t co-operate with the Audit Office investigation — is now based in Barcelona, where she runs a sailing school.

Earlier this year it emerged DETI had begun disqualification proceedings against her.

She has claimed her involvement with the institute had left her unemployable in Northern Ireland and ruined her health.

“I have been through hell and back. I sat for six months contemplating if suicide would take it away,” she said in January.

The report describes how £2.2m of taxpayers’ money was “totally wasted”, another £1m is owed to the estate of Sir Allen McClay, while a further £400,000 is owed to Revenue and Customs.

“This is a devastating ending to a venture that had so much potential,” it concludes.



Police urged to act over one of the starkest cases of mismanagement ever seen here

Demands have been made for the police to be called in following a damning Stormont report into a failed bid to establish a cutting-edge medical research company in Northern Ireland.

The high-profile Bioscience and Technology Institute (BTI) crashed in 2002 — without delivering any of its goals and leaving the taxpayer with a £2.2m bill to pick up.

It later emerged how public cash was squandered on finder’s fees, double-billing and huge contracts awarded to companies linked to directors.

A withering report by a powerful Stormont committee has described the scandal as one of the starkest examples of incompetence and mismanagement ever seen in Northern Ireland.

The Public Accounts Committee (PAC) urged the PSNI to investigate the purchase of premises near Sydenham in east Belfast to determine if the controversial deal had broken the law.

There have also been calls for former BTI director Teresa Townsley, who is one of the key figures in the scandal, to explain her role in the company’s collapse.

Mrs Townsley, her business partner and husband Michael, plus BTI solicitor Thomas Armstrong split a £100,000 finder’s fee with an unnamed property developer over the purchase of the Harbourgate site.

It has also been disclosed how Mr and Mrs Townsley’s business, MTF Chartered Accountants, provided services to the board and received £127,000 — while other members were not paid for their work. She also double-claimed for travel abroad.

Following the collapse of the Bioscience and Technology Institute, Mrs Townsley left Northern Ireland and is now based in Barcelona, from where she runs a sailing school.

However, PAC member John Dallat said the Townsleys still

have questions to answer and he also urged the PSNI to investigate the scandal.

“This report cannot be filed away and allowed to gather dust,” he told the Belfast Telegraph. “The public will be extremely disappointed if this is not taken to the next level — and that means a full police investigation.”

BTI was established as a not-for-profit company in November 1998 to provide biotechnology incubator facilities at Belfast City Hospital.

The project secured funding worth £2.2m from the Department of Enterprise, two of its agencies — the Industrial Development Board and Industrial Research and Technology Unit — and the International Fund for Ireland. An initial loan of £1.5m was provided by the bank and another of £1.2m from now deceased pharmaceutical millionaire Sir Allen McClay.

Difficulties completing the project at Belfast City Hospital led to the company buying Harbourgate, in the Belfast Harbour Estate. But the building lay unused and did not generate any income, and was repossessed in 2005.

Last November an Audit Office report concluded the project wasted £2.2m in public money.

A report by the PAC released today accuses staff of astonishing levels of ineptitude, apathy and mismanagement, as well as improper behaviour which the PAC suspects was fraudulent in intent.

A PSNI spokesman said police have not received any complaints on the matter.

The Department of Enterprise declined to comment when contacted by the Belfast Telegraph.



Adrian Rutherford reports on the findings of the PAC report into the failed Bioscience and Technology Institute and on the lessons that must be learned

POOR PLANNING

What the report said: The Bioscience and Technology Institute (BTI) secured grants of £2.2m from four funding bodies — the Department of Enterprise, Trade and Investment (DETI), the Industrial Development Board (IDB), the Industrial Research and Technology Unit (IRTU) and the International Fund for Ireland (IFI).

The Public Accounts Committee (PAC) report noted significant breaches of controls and poor judgments which added to the already significant risks of supporting the project.

IDB accepted a business plan which had not been fully developed for appraisal — markedly increasing the risk to public funds.

The appraisal report recommended the promoters be asked to resubmit their proposals, but this was ignored.

Lesson to learn: Guidelines on project appraisal and approval should always be rigorously applied. Ignoring well-established appraisal and approval procedures adds unnecessary risk to project management.

LACK OF DOCUMENTARY EVIDENCE

What the report said: The committee noted a worrying lack of documentary evidence around IDB’s consideration and approval of funding for the institute.

While trying to shed more light on the funding process, company inspectors were repeatedly unable to access several of the IDB resource group files.

Astonishingly, one of these files was then destroyed by Invest NI — which replaced IDB — some four months after it had been requested for examination.

In its report, the committee said it was a “most unusual sequence of events and raises suspicions that papers might have been destroyed to intentionally remove evidence”.

Invest NI said there is no evidence that there had been a purposeful and wilful destruction of the file, but were unable to provide a convincing explanation of what happened.

Lesson to learn: DETI must satisfy itself about the adequacy of Invest NI’s file and electronic records management.

HARBOURGATE – THE MOVE

What the report said: The location of BTI at the Belfast City Hospital site was fundamental to the success of the project.

Despite this, DETI and its agencies each approved the move to Harbourgate.

Crucially, they did not carry out a reappraisal of the project to confirm it remained financially viable and that its strategic objectives could be delivered at the new location.

This was a major breach of procedures that led directly to the ultimate demise of the project.

They also did not confirm that the Harbourgate building was physically suitable for use as a bioscience research and incubation facility — as it transpired, it was far from suitable.

While approving the purchase of Harbourgate, DETI and its agencies failed to ensure that the project was fully financed. As a result, the project was only two-thirds funded, with a shortfall of some £2.7m.

“This was a recipe for disaster,” stated the PAC report.

Lesson to learn: Any move should have been subject to reappraisal to confirm it was still viable.

HARBOURGATE – THE DEAL

What the report said: The committee said it was “far from convinced” that it has got to the bottom of the circumstances surrounding the acquisition of Harbourgate.

It is known that Harbourgate was sourced by an independent property dealer working on behalf of BTI. He had been engaged by Thomas Armstrong, BTI’s solicitor. However, with the exception of Teresa Townsley, no-one else on the BTI board was aware of the dealer’s identity or role.

Despite the absence of instruction from the BTI board, the property dealer negotiated a price of £5m for Harbourgate with the vendor — without a formal, independent valuation of the building and no indication of its market value.

The committee said it is “far from assured that the acquisition of Harbourgate was conducted at arm’s-length and in good faith”.

Lesson to learn: DETI should rigorously investigate the circumstances surrounding the sourcing of the Harbourgate building and negotiation of the purchase price, and consult with the PSNI to determine whether any criminal actions have taken place.

ABSENCE OF MONITORING

What the report said: Project monitoring was a major area of weakness — at times being virtually non-existent, the PAC concluded.

Examples of shortcomings included a failure to follow up BTI’s non-submission of quarterly and annual accounts and progress reports, and not challenging the absence of BTI board minutes for the first 21 months of its existence.

There was also a failure to validate the accuracy of data provided by BTI and a failure to detect, until a very late stage, the difficulties and lack of progress in developing the project at the Belfast City Hospital site.

BTI’s fundraising efforts were not monitored, even though they were critical to the project’s success.

Where information provided is deficient or indicates that the project is not proceeding to plan, this must be quickly addressed.Many of the unresolved conflicts, involving certain board members and their close relatives, must have been obvious to senior management within DETI and its agencies, yet nothing was done to address them.

This points towards a culture of “cronyism” within the upper echelons of IDB and a “cosy relationship” between DETI and one of its most prominent public appointees, the PAC said.

It is clear that both the BTI Board and DETI and its agencies placed a disproportionate amount of trust in Teresa Townsley, it added.

The committee said DETI’s failure to take action on this issue was a poor judgement.The committee’s view is that DETI should have dealt with the suspected fraud and impropriety on a holistic basis, formally consulting with the PSNI on all matters of concern after completion of the company inspectors’ report and providing comprehensive evidence for detailed consideration by the police.

BTI’s solicitor, Thomas Armstrong, was cleared by the Law Society. The committee said it was “astonished” to learn the society had accepted Mr Armstrong's explanations on the matters.The disciplinary review did not consider the conduct of retired departmental and Invest NI employees, because they are now effectively beyond the reach of the disciplinary processes.

The committee said it was most unfortunate that several officials seemingly most culpable for the shortcomings in this case could not be subject to a disciplinary investigation because they had retired from the public sector.

Lesson to learn: The Civil Service should ensure that disciplinary issues in cases like BTI can be dealt with much more urgently.

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