NI Audit Office finds 'major failings' in handling of Bytel Project
An IT company was awarded a 1.3m euros (£950,000) grant to buy equipment which "in all likelihood" cost it 30,000 euros (£22,000), a public spending watchdog has concluded.
The NI Audit Office (NIAO) examined an EU-funded broadband scheme, known as the Bytel Project.
It found the equipment involved was bought from the company's sister firm and never used in the final project.
Bytel Networks Ltd said its grant aid claims had been "fully scrutinised".
In its report, the NIAO said it had found "major failings" in the handling of the scheme, including inadequate verification of grant claims.
The Department of Enterprise (Deti) is now suing the company involved, Bytel Ltd, in an attempt to recover more than 4m euros (£2.91m).
In 2004, Bytel applied for an EU grant for a high-speed broadband project which was aimed at improving connectivity in border areas.
Grants for the project were being made available by the Special EU Programmes Body (SEUPB) with Deti and the Republic of Ireland's Department of Communications providing oversight.
Bytel's bid was initially rejected due to doubts about whether it was value for money.
However, it was later reassessed and narrowly passed the qualification threshold.
The cost of the project was estimated at 12.4m euros (£9m) which attracted a 35% grant of 4.3m euros(£3.13m).
Shortly after the grant was approved, Bytel's partner withdrew from the project and the specification of the scheme changed significantly.
That should have led to a re-appraisal which would have meant a major reduction in the grant.
However, Deti and the Department of Communications failed to carry out a reappraisal which the NIAO report said was "a fundamental failure in the oversight of this project".
Ultimately an assessment found that Bytel had spent less than 4m euros on the project and should have received a grant of less than 1.4m euros (£1.02m).
The NIAO found that the checking and authorising of grant claims had serious weaknesses.
The value of the equipment bought for 1.3m euros was never independently verified and a final grant claim for more than 2m euros (£1.46m) consisted of a one-page statement from the company.
Opportunities to identify problems with the scheme were missed - a Bytel employee approached Deti in 2006 with a list of allegations about the company's conduct.
However, they were dismissed following a Deti investigation.
The NIAO said it was "difficult to see how the Deti investigation could have concluded that there were no matters of concern".
Two years later, a whistleblower went directly to the NIAO and it was only then that a serious investigation began.
Deti also compounded its failings by missing an opportunity to "clawback" the grants given to Bytel.
In September 2009, the Bytel assets were sold and under the terms of the grant this should have triggered a clawback.
However, this did not happen and Deti did not receive confirmation that the Bytel assets had been sold until 2013.
The NIAO concluded that the project did make "an important contribution to the development of broadband infrastructure" but that "does not provide assurance that the project delivered value for money".
Kieran Donnelly, the auditor general, said: "Bytel shows what can go wrong when projects like this are not handled properly.
"I have serious concerns over how it was managed and the legitimacy of the grant payments made.
"The responses to whistleblowers fell well short of the standard required and a robust investigation took too long to complete."
In a statement, Bytel Networks Ltd said it had "delivered what it was required to deliver and more".
"It received funding following claims for grant aid which were fully scrutinised, assessed and audited by Deti before any grant was paid to Bytel Networks Ltd," it said.
"Any and all changes to the terms of the initial letter of offer were approved in advance by Deti, including the change of Bytel Networks Limited's partner... and the sale of project assets."