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The management of public funding by Cymad Cyf

18/05/2010

"Public bodies still need to learn lessons when funding small private sector firms", says Auditor General

The collapsed private enterprise agency, Cymad Cyf, did not manage effectively the £3.6 million public funding it received between 2003 and 2008 and could not account for some of this money awarded, according to a report published today by the Auditor General for Wales, Gillian Body.

Cymad, which was based in Gwynedd, went into liquidation in August 2009, owing the Welsh Assembly Government some £311,000 for rent and reclaimed European Union (EU) grant.  It was a not-for-profit company, established in 1995, to assist the rural development of communities in Meirionydd and Dwyfor. It did so by running projects that were financed from public sources through specific grants or contracts, which were time-limited and had restrictions on how funds could be used.

Today's report found that some of the public funding that Cymad received had to be reclaimed because it did not comply with funding conditions. The public bodies which funded Cymad were the former National Council for Education and Training in Wales, the Welsh European Funding Office, the Welsh Language Board, Gwynedd Council, the former Welsh Development Agency, the Countryside Council for Wales, the Wales Tourist Board and the Welsh Assembly Government. There were serious deficiencies in Cymad's management of EU-funded projects but fewer problems on more straightforward non-European funded projects.

While there were serious deficiencies in Cymad's management of EU-funded projects, there was no evidence that funding was used fraudulently. The report points, instead, to a poor understanding of the stringent rules governing EU funding and weak financial management within the company. For the most part, Cymad delivered its projects effectively. But the demise of Cymad led to the loss of jobs at the company and prevented the completion of some projects. 

The report concludes that the public bodies funding Cymad generally managed their payments effectively. However, there were some administrative weaknesses which meant that they did not become aware of the problems in Cymad until allegations were first made in 2006. While funding criteria and contracts were generally robust, the terms of contracts could have been stronger in places, especially to require the disclosure of suspected fraud by officials of Cymad.

Advance funding to Cymad   was especially at risk due to poor management and financial controls. Procedures for checking up on how money was being used - such as the external audit of grant claims - were not always effective in alerting officials to problems. Public bodies also failed to share information effectively about the weaknesses they identified in Cymad's systems and controls.

Today's report makes seven recommendations for improvement, including:

• Public bodies should conduct ongoing reviews of a company's financial position;
• Public bodies should include a standard clause in grant offer letters requiring a recipient to inform them if any of its officers involved in funding are suspected of fraud;
• If public funds are paid in advance, the funding bodies should assess and mitigate risks on a case by case basis;
• The Welsh Assembly Government should require and enable its departments and Sponsored Bodies to share information on weaknesses identified in a grant recipients' financial management arrangements.

Auditor for Wales, Gillian Body, said today:

"Every year, public bodies in Wales distribute large sums of money to small organisations in Wales. It is absolutely essential that these organisations have effective mechanisms in place to manage the risks of loss or misuse of taxpayers' money. And, it is particularly important that public bodies share information with each other about any weaknesses identified at those private sector organisations which are receiving public money."

Notes to Editors:

• This report seeks to answer two questions: Did Cymad misuse public funds? And, did the public bodies in Wales effectively manage public funds paid to Cymad from 1 April 2003?
• It looks at whether criteria for funding and other requirements placed on Cymad by public bodies were sufficiently robust and whether the public bodies that provided funding complied with their own arrangements and managed public funding effectively. 
• From May 2006, the Auditor General received a number of complaints regarding the alleged misuse of public funds by Cymad.
• The report considers the allegations made against the company in 2006 and the impact of those allegations and the underlying reasons for the company's demise.
• The Wales Audit Office promotes improvement, so that people in Wales benefit from accountable, well-managed public services that offer the best possible value for money. It is also committed to identify and spreading good practice across the Welsh public sector.