Welsh Government has since overhauled its approach to grants, but still some room for improvement, says Auditor General
The Welsh Government followed the procedures it had in place in at the time for approving and managing grant funding of the Penmon Fish farm in Anglesey. But, these procedures were unsuited to a project of this scale, complexity and risk, involving £5.2 million of public funding. An Auditor General for Wales report, published today, has found that although the project achieved its main objectives, problems arose when the fish farm began operating which caused pollution and nuisance.
The Penmon Fish Farm project cost £11.9 million. The project offered potential economic and environmental benefits - an operating plant and 30 jobs. In this regard, it met its objectives. But, it encountered problems that resulted in delays and increased costs. It was originally due to be completed in 2003, but difficulties, partly because of problems with the technology involved, meant that it did not become operational until 2009, producing seabass.
In late 2011, the company that owned the farm went into adminstration, and in January 2012 its assets were sold for £1.2 million. The plant's new owners continue to farm sea bass and are investing to address the technical problems and ensure the Plant operates within environmental regulations.
Today's report found that while the Welsh Government identified potential risks when it approved grant funding for the project, it did not put in place grant conditions that would have helped mitigate the risks. Also, the Welsh Government's monitoring of progress of the project did not focus enough on the risks identified during the project's appraisal.
The report makes clear that the funding regime for European grants has been strengthened in recent years and, as a result, arrangements for managing complex projects have improved. As a result, it is more likely now that significant risks would be identified during the project appraisal and evaluation process, that special conditions would be used and monitored to address risks which are identified, and that more robust controls would identify problems as they arise and lead to timely enforcement action, if appropriate.
However, today's report recommends four additional changes which should be introduced to build on these latest enhancements.
Investigate the feasibility of including, within grant offer letters, a general condition that makes compliance with UK law, regulations, taxation and standards of conduct in business a standard condition of grant;
The Welsh Government should test transactions funded from grants between a grant recipient and related companies for reasonableness, or treat the related companies as a single entity and test the suppliers' expenditure;
Commission individuals with appropriate industry or technical expertise to support project monitoring teams; and
Strengthen communication and coordination between the different grants management teams within the Welsh Government and with external regulatory bodies.
Auditor General for Wales, Huw Vaughan Thomas said today:
"My report on this project illustrates clearly some of the shortcomings that used to exist with the Welsh Government's grants management arrangements. Significant steps have since been taken to improve these arrangements, and my recommendations are designed to further strengthen the management of risks associated with complex projects that are supported by public funds.".
This report examines whether the Welsh Government managed the public investment in Penmon Fish Farm in a way that maximised the benefits of the investment.
The Auditor General's review arose following correspondence he received in 2012, from the Chair of the Assembly's Public Accounts Committee and another Assembly Member, expressing concerns about the value for money the Welsh Government had secured from the public investment in Penmon Fish Farm.
Following an initial review, the Auditor General decided to extend the scope of the review to encompass the Welsh Government's role in managing and monitoring the grants to Penmon Fish Farm.
Penmon Fish Farm was situated in a disused coastal quarry near Penmon, Anglesey. It is now owned by Anglesey Aquaculture Ltd and currently employs 26 staff, working in shifts.
The Auditor General and the auditors he appoints in local government are the independent statutory external auditors of most of the Welsh public sector. They are responsible for the annual audit of the majority of public money spent in Wales, including the £15 billion of funds that are voted on annually by the National Assembly. Elements of this funding are passed by the Welsh Government to the NHS in Wales (over £5 billion) and to local government (over £4 billion).