The States Innovation Fund: A Disaster Waiting to Happen

The States Innovation Fund: A Disaster Waiting to Happen

Now that the Auditor-General’s report is out, a lot of blame will undoubtedly accrue to Mike King, who has just resigned as Chief Officer for EDD. That may well divert attention from other failings by others, or statements made which should not have been made by others in defence of the fund.

The Case of Philip Ozouf

The report states:

06 Nov 2014 New appointment as Minister for Economic Development with responsibility for the Fund. Assistant Chief Minister (Senator Ozouf) assigned responsibility for Innovation

12 Jan 2015 B Board advised that Assistant Chief Minister with responsibility for innovation would have delegated responsibility from Minister for Economic Development to approve loans from the Fund

01 Jun 2015 Approval of loan applications delegated to Assistant Chief Minister with responsibility for innovation.

So Senator Ozouf appears to have been effectively signing off loan applications as approved, which no doubt explains why he has recently tweeted “Expect proper analysis on performance of officials”, suggesting blame will be shifted firmly off his shoulders, and probably onto those of the hapless Mike King, who has resigned, and no doubt signed a gagging order as part of his resignation deal.

ITV ran this news story in June 2016:

Jersey's Assistant Chief Minister says the buck stops with him when deciding to pay out loans to innovative new businesses. Yet Senator Philip Ozouf admitted that the Innovation Fund Board does not have the mandate to monitor the progress of such companies once the loans have been given. He said that checks and balances could be improved.

He received a grilling from backbenchers in the States today following ITV's investigation into the Innovation Fund, which pointed to one company disappearing from the island after getting a £400,000 loan. Public Accounts Committee chairman Deputy Andrew Lewis asked the Minister:"What follow up checks are made on successful applications of the Innovation Fund to ensure they are meeting their business objectives?"

After States' Question Time, Deputy Lewis told ITV he is not satisfied with the Minister's response.

He has not given me enough assurance that sufficient checks are made, he implied that they are in the process of improving this, which further suggests that follow up checks in the past have been inadequate.

It is clear that nothing was done to improve matters, also that Philip Ozouf knew about defects in the mandate of the board but had done nothing between responsibilities being delegated to him in June 2015.

As the JEP also reported:

THE board which granted a £400,000 States loan to a company which may have disappeared ‘acted properly’, the assistant Chief Minister has said.

Senator Ozouf said: ‘What I can say is that I am totally satisfied, and have been throughout the procedures. The ongoing review process of what’s happening with the company has continued and that continues to this day. Let’s be clear, there are going to be some businesses that are not going to succeed.’

No doubt the good Senator will find ways of explaining why defects were not remedied since he was aware of them, and also thought the board was acting properly. He might also care to explain why he approved loan applications despite the defects highlighted in the report.

As the Senator said in 2016:

“As members will recall, the Fund passed formally to the Chief Minister’s office on January 1st of this year. Prior to this, I had delegated responsibility for the Fund as an Assistant Minister in Economic Development.”

“The Chief Minister has delegated responsibility for innovation to me and I am therefore responsible and accountable to this Assembly for the Fund, including all Ministerial decisions, past, future and present, that are associated with it.”

Will he take responsibility for the failings shown in this report? Will the buck stop there?

The Case of Alan Maclean

I remember that having blogged on this

http://tonymusings.blogspot.com/2013/10/coming-up-later-in-states.html

I wrote:

Having voted to establish an Innovation fund, and having appointed Tim Herbert as Chairman, the Minister for Economic Development has now seen fit to give some idea of costs involved.

The States are asked "to refer to their Act dated 1st May 2013 in which they approved the establishment of the Jersey Innovation Fund and agreed the Revised Operational Terms of Reference April 2013, and agree to vary the Revised Operational Terms of Reference so that Board members may be remunerated for their work."

Having approved the Board, the States are hardly likely to rescind the original vote, but it does seem a very slip-shod way of going about matters. Why could this have not been anticipated before?

It now turns out that the proposition in the States was to retrospectively fix a problem highlighted by the Auditor General:

“The Operational Terms of Reference attached to the Proposition adopted by the States clearly state that ‘Board members will not be remunerated’. Despite this provision, the post of Chairman was advertised on a remunerated basis prior to the adoption of a Proposition to pay the private sector members of the Board. It has been suggested to me that the term ‘Board members’ in the Operational Terms of Reference should be interpreted to exclude the Chairman.”

“I do not accept this interpretation: elsewhere the Operational Terms of Reference include the Chairman within ‘members’. Moreover, when the Proposition to remunerate private sector members of the Board was subsequently laid, it covered remuneration to the Chairman and there was no suggestion that this was in any way authorised by the adoption of the previous Proposition;”

So Senator Maclean was not wholly honest with the house in explaining why the terms of reference needed to be changed to include remuneration. Perhaps he can explain why he decided that the States members should not know the real reasons?

It will not do to say his Chief Officer had made a mistake, because that means he was covering up for his Chief Officer’s inadequacies by deceiving the States as to the real reason for the change in the terms of reference.

The Case of Tim Herbert

The appointment of the Chairman notes this:

The Economic Development Minister, Senator Alan Maclean, has appointed Mr Tim Herbert as chairman of the board that will oversee the Jersey Innovation Fund.

Mr Herbert is a qualified Jersey advocate and has spent most of his career in the Island and linked to Mourant Ozannes, of which he was a partner for 25 years. For the majority of his career he focused on mutual funds, corporate law and merger and acquisitions. He is now a consultant to the firm.

Mr Herbert is a non-executive director of a number of funds, the Jersey Legal Information Board and the Channel Islands Stock LBG. He also has experience of audit committees and risk committees.

So here you have a professional in charge of the committee, in a position to make recommendations for improving the risk averse culture – after all he has “experience of audit committees and risk committees.”

In 2014 it was mentioned that:

Tim Herbert, the board’s chairman, said “The whole purpose of JIF is to encourage innovation and improve Jersey’s international competitiveness, and our financial support will give Total Billing Solutions a solid platform from which to achieve both. This is the second company that JIF has supported, and is the most significant financial support that we have given so far.”

What on earth did he do, or rather fail to do? I would very much like to interview him and get the background details on how he found the board operated.

The Rest of the Board

The States website notes that:

Aaron Chatterley, Dave Allen, Peter Shirreffs and Tim Ringsdore have been appointed NEDs to the board of the Jersey Innovation Fund, joining Tim Herbert who was appointed as non-executive chairman in September.

In 2014, Alan Maclean noted that: “the board, which has considerable experience, is meeting on a regular basis to maintain progress”

In 2016, Philip Ozouf stated:

“The Board is made up of some of Jersey’s most successful and experienced entrepreneurs, supplemented by banking and legal professionals, and they have been diligent in discharging their duties.”

So how does the report focus on this diligence? And “meeting on a regular basis”

“Members of the Board on more than one occasion asserted that they did not have the time or expertise to undertake the key task of monitoring loans advanced from the Fund despite the duty in the Operational Terms of Reference for the Board to report to the Minister on the progress of loans made”

“On a number of occasions, the minutes show that private sector members recognised and declared direct financial interests in borrowers that were the subject of discussion by the Board but nevertheless participated in deliberations. Such an interest should, in accordance with normal standards adopted in the public sector (which are based on the Nolan principles), have meant that they did not take part in such deliberations. In my view officers should have provided a clear written framework for the management of such interests when the Board commenced its work.”

"Attendance by some key officer members at the Board in the first year of operation of the Board was poor, despite the high risk associated with the Board’s activities."

Did not have the time or expertise? According to Philip Ozouf, and their glowing CVs, these were the cream – some of the “most successful and experienced entrepreneurs”!

The board also failed to improve matters regarding its own operation:

“To the extent that weaknesses in the Operational Terms of Reference were recognised, the Accounting Officer should have developed proposals to vary the Operational Terms of Reference to make them fit for purpose and the Board should have continued to press for such proposals to be developed.”

In Conclusion

The blame which BBC Radio Jersey appeared to attributing to Mike King for some of the problems with the fund was probably well founded, but he was not alone, nor should be alone, in taking responsibility for the incompetence and failure of the Board.