Highlands and Islands Enterprise (HIE) has published a review of its contracts with Rocket Science UK Ltd, a business consultancy chaired by William Roe, who is also Chair of HIE.

The review, conducted by HIE’s Head of Internal Audit, was undertaken on the instruction of the organisation's Chief Executive, Sandy Cumming, following public interest in HIE’s contracts with Rocket Science.

Its findings were discussed on Tuesday (9 June, 2009) at a meeting of the HIE Board’s Audit Committee, which includes observers from Audit Scotland and the Scottish Government. The full review document can be viewed at www.hie.co.uk/rocket-science-audit.htm

Three questions lay at the heart of the review:

• How much did the enterprise agency pay to Rocket Science since Mr Roe became Chair of HIE in September 2004?
• Were correct procurement procedures followed in each case?
• Did any formal report received from Rocket Science draw text from another document without clear attribution?

The report reveals that HIE payments to Rocket Science UK Ltd between 1 September 2004 and 31 March 2009 totalled £149,256 for 21 projects. However, the consultants subsequently repaid £6,864 after it was discovered that material in one report had been copied without clear attribution from another source.

The audit found no evidence that any of HIE's decisions to use Rocket Science UK Ltd had been influenced by Mr Roe’s role in either HIE or Rocket Science UK Ltd.

Some £117,516 of expenditure (79 per cent) and 12 of the projects (57%) were either awarded after a tender or had appropriate justification for using Rocket Science recorded at the time of decision. Expenditure of £31,740 (21 per cent) had no advance justification recorded. All of these contracts were for less than £10,000 and were therefore in line with HIE’s policy for awarding negotiated contracts.

A notification procedure which HIE set up to provide an overview of its ongoing relationship with Mr Roe's business interests did not fully operate as intended. The report notes, however, that this procedure was not a prior approval mechanism and an overview of HIE's actual spend with Rocket Science was afforded by its annual accounts.

The report noted that expenditure by HIE to Rocket Science had declined after Mr Roe became Chair of HIE.

One project worth £42,345 (28 per cent of the expenditure under review) had not been competitively tendered. The report states that HIE had been able to obtain reduced costs by linking with two other public sector partners in respect of the costs associated with this project.

The HIE Chair’s register of interests did not include reference to seven of the 21 contracts. Four related to financial year 2004/05, Mr Roe's first year as Chair of HIE, and three to 2008/09. The registration process for the final six months of 2008/09 had not been concluded at the time the review was carried out.

The report's findings regarding procurement of consultants are similar to those included in a national review of consultancy services by Audit Scotland, and HIE is updating its procurement procedures in line with recent Government guidance.

On the question of whether contents of reports could have been copied from other sources without clear attribution, the audit identified potential issues in one further report, which had been prepared by Rocket Science with Jane’s Strategic Advisory Services. No concerns were identified in the three other reports reviewed.

In response, HIE Chief Executive Sandy Cumming has ordered the following actions:

• HIE will introduce new prior approval processes for any transaction in which its Chair, a Board director, or any member of the senior staff has an interest. These will be monitored and communicated to all staff, with regular reminders issued.
• More effective systems will be introduced to capture and monitor the extent of approvals made in which the Chair of HIE has an interest.
• HIE management will continue to pursue the issues outstanding with respect to the report produced by Rocket Science UK Ltd with Jane’s Advisory Services.
• HIE's Procurement Team will accelerate the creation of a new contracts register, which also records the method of procurement used, and a procurement strategy.
• The Procurement Team will monitor the contract register, looking out for any unusual trends and considering the cumulative volume and value of contracts with any consultant.
• Staff will also be reminded of the importance of good information management, including the need to justify the decision to choose a specific procurement procedure.
• Board members will update their register of interests whenever new contracts arise. The register will record when the revised interest was noted and will be updated twice a year.
• HIE will evaluate the quality of the consultants' performance in any current contract involving Rocket Science.
• HIE will adopt the Scottish Government's definition of consultancy, and introduce specific delegated authorities for prior approval of consultancy contracts.
• All negotiated contracts worth more than £10,000 will require sign off by the HIE Chief Executive. Mr Cumming will also consider if there are any high risk categories which also require a specific delegated authority. Examples might include a Board Member having an interest in a contract, or a number of untendered contracts with a consultant.

Announcing publication of the review, Mr Cumming said:

“This has been a detailed and rigorous investigation of a complex issue, carried out to the highest professional standards by HIE’s Head of Internal Audit and Compliance.

“HIE aspires to be an exemplar of best practice in all the things it does, and the procurement of consultancy and other contracts should be no exception.

“I am confident that the procedures which HIE is putting in place as a result of this review will address the areas of weakness in the present system and ensure greater clarity and accountability from now on.”

HIE’s Audit Committee will monitor implementation of the action plan.