Questions over conflict of interest into NI Water inquiry

WHEN big business and government come together there will always be a need for all sides to show they are above reproach.

However the dangerous waters between business and government mean that all involved have not only to go further and show they are above even the perception of reproach but also to be seen to do it.

That conflict was clearly highlighted in a recent damning report published by Stormont’s Public Accounts Committee.

On March 3rd, the Assembly watchdog published a hard hitting report into the mishandling of performance, procurement and governance issues at NI Water.

In an ironic twist worthy of Yes Minister’s Sir Humphrey Appleby, a key part of the report disclosed how a team of experts set up to investigate allegations of mismanagement in NI Water ended up being investigated themselves.

The report found that the Department for Regional Development (DRD), which has overall responsibility for NI Water, had failed to identify serious conflicts of interest when it had appointed an independent team of experts to investigate performance issues at the state-owned water company.

In January 2010 DRD Permanent Secretary, Paul Priestly established the panel of three experts from the business community to examine procurement breaches in the troubled water company.

The panel was made up of Phoenix Holding chief executive Peter Dixon, Deloitte partner Jackie Henry and former senior civil servant and business consultant Glenn Thompson.

Deloitte was paid some £36,000 for Ms Henry’s involvement; Mr Thompson received £21,000, while Mr Dixon did not charge for his time.

DRD officials told the PAC that when it had set the panel up it had to take account of the fact that all but one of the big four accountancy firms in Northern Ireland had perceived conflicts of interests, having worked as consultants or auditors for NI Water.

Consultants Ernst & Young worked as internal auditors for NI Water; KPMG acted as its external auditors; while PricewaterhouseCoopers (PwC) had benefited significantly from consultancy contracts.

As a result, DRD officials said that only Deloitte could be regarded as having no conflict of interest as regards the review of NI Water’s governance issues.

However, subsequent inquiries carried out by the PAC revealed that Deloitte also had potential conflicts of interest issues in regards to NI Water.

Indeed, the PAC discovered that there were three potential conflicts of interest involving the review panel, none of which had been properly handled.

The first conflict of interest involved business relationships between Ms Henry and the officials who appointed her.

PAC investigations revealed that Deloitte had been awarded £2.7m in consultancy work for DRD, as well as £804,000 by NI Water in the three years prior to Ms Henry’s appointment.

DRD also later admitted that Deloitte had been instrumental in drawing up NI Water’s governance framework when it was established in 2007 and a partner from that firm was therefore considered to be an appropriate team member.

The audit office later disclosed that 11 days before Ms Henry’s appointment, Deloitte had been awarded a £389,000 contract by NI Water to provide expert witnesses and forensic accountants, as part of a separate legal dispute with an outside firm.

It was also disclosed that Ms Henry and senior DRD Finance Director Lian Patterson, who took part in selecting the panel, had also been former colleagues at Deloitte.

The PAC concluded that the relationships between Deloitte, DRD and NI Water were so extensive that those appointing Ms Henry should have been aware of the risk of a perception of conflict of interest.

The committee said it had been ``entirely wrong’’ to appoint someone whose own firm had carried out such a large amount of consultancy work for NI Water, including assisting with setting up the very governance structure which was being investigated for its failure to prevent and detect significant procurement breaches.

A second potential conflict concerned the relationship between NI Water Chief Executive Laurence MacKenzie and panel member Peter Dixon.

When questioned by the PAC about the relationship, Mr MacKenzie described Mr Dixon as a business acquaintance “no more than that”.

He said he had made the relationship known to DRD Permanent Secretary Paul Priestly, who did not consider that it constituted a conflict of interest.

However the PAC said it had later discovered evidence which suggested a closer connection.

It also uncovered an email between Mr MacKenzie and Mr Dixon in which he asked to meet the businessman as he needed ``help from friends.’’

In his email to Mr Dixon, Mr MacKenzie wrote:

``Peter, How would you be fixed for a ‘catch up’ next week? Lots going on!..

``Would work for me. I need help from friends at the minute. Hope things are fine with you now."

When questioned by the PAC about his relationship with Mr Dixon, NI Water’s chief executive said:

```Peter Dixon and I were both chief executives of utilities.

``We have a relationship, we have common interests and we are regulated by the same regulator.

``He is a business acquaintance of mine; no more than that.

``I do not socialise with Peter Dixon.

``I think that I have met him for coffee three or four times since I took up the post, but I do not socialise with him or anything like that.’’

When asked whether he regarded the relationship between Mr Dixon and Mr MacKenzie a potential conflict of interest, Mr Priestly told the PAC:

``I know many people in the business community in Northern Ireland, and I have known Peter Dixon as a business contact for a couple of years.

``This is a very small place, so it is inevitable that people will know each other.

``The judgement to make is whether these people are professional and have high integrity and whether they undertook an evidence-based review.

``I think that the answer to the last question is yes — the review was evidence based.

``They reached their conclusions on the basis of evidence.’’

The third potential conflict concerned the relationship between Mr Dixon and Don Price, who was a board member of NI Water and chair of its audit committee.

When he was interviewed by the review Mr Dixon had confirmed he knew Mr Price, the only NI Water non-executive not dismissed.

Mr Dixon said he had no conversations with Mr Price in relation to the review.

However the PAC criticised the panel’s failure to disclose the relationship in its final report.

The PAC report found the review team had made ``two significant changes’’ in its report as a result of requests by Mr Priestly, including changes in language, relating to an irreconcilable breakdown of relationships on the board of NI Water.

It found that the panel had also agreed to alter its report to ``dilute the responsibility of’’ DRD.

The PAC also concluded that the review’s report had been compiled too quickly, with its apportioning of blame being too general and lacking in detail.

There is no suggestion that any of the three panel members or their associated parents companies, NI Water or DRD officials acted in anyway improperly.

However the PAC concluded that DRD should not have appointed anyone to the review panel who could have been perceived as having a conflict of interest through their work or relationship with NI Water.

``It is abundantly clear that from the start of the IRT review, that certain members were clearly perceived as partial by those being investigated,’’ it said.

``The department failed to appreciate that those tasked with apportioning blame for the procurement failures would have to be beyond reproach in terms of their independence.’’

The PAC recommended that in future, departments commissioning external review panels to investigate possible mismanagement should ensure stringent guidelines surrounding the independence of panel members.

It said that any prospective panel member with potential or perceived conflicts of interest should be excluded from consideration.

``This is all the more crucial in circumstances where the remit of the panel includes apportionment of blame and where there is potential for reputational damage to those subject to investigation,’’ it said.

Mr Priestly is currently on precautionary suspension after it emerged he drafted a letter critical of the Public Accounts Committee on behalf of one of the review panel.

Mr MacKenzie resigned as chairman of NI Water following criticism of the company’s handling of the water crisis in January.