Officials at the Department of Trade and Industry are scrutinising all business grants of over pounds 100,000 recommended by the country's 10 Industrial Development Boards in the past five years.
Each year, the boards advise ministers on business incentive schemes running into hundreds of millions of pounds.
One grant by the South West Development Board, involving pounds 1m of taxpayers' money to Rom-Data Corporation, is being investigated by the Devon and Cornwall Police and the Serious Fraud Office in an inquiry codenamed Operation Gale. Rom-Data later collapsed and the DTI cash has not been recovered. A departmental inquiry has already identified serious failings in its handling of the Rom-Data case.
But Rom-Data, the Independent has learned, is just one of many cases where close connections existed between industrial development boards and the companies receiving their cash.
The development boards form the central plank in the Government's industrial policy, providing a link between Whitehall and commerce. They oversee several types of finance package and, last year, made recommendations totalling pounds 140m in Regional Selective Assistance grants alone.
The National Audit Officeand the influential Commons Public Accounts Committee (PAC) are standing by to launch their own inquiries. Robert Sheldon MP, chairman of the committee, has confirmed in a letter the review of all the grants over pounds 100,000 and the Audit Office and PACs' interest. He wrote: "The Department have now begun a review of all recent Regional Selective Assistance cases over pounds 100,000 to identify further problems or circumstances similar to those in the Rom-Data case. The Department expects this to be completed by September."
Indications are, added Mr Sheldon, "that the SFO's inquiries should also be completed by the end of summer".
The PAC chairman described the issues raised as "very disturbing". Sir John Bourn, the Comptroller and Auditor General, who heads the Audit Office, wrote Mr Sheldon, "will monitor developments closely; and I have asked him to consider how best to bring the matter before the Committee in the Autumn".
Close ties between people sitting on the powerful industrial boards and companies receiving Government assistance, go to the heart of the quango system.
Even before the wider, nationwide scrutiny has finished, and ahead of the completion of the police investigation, the DTI has decided to tighten up its procedures. Consultants to the boards must now agree to a contract requiring them not to work for companies for two years after they last received regional assistance cash. DTI staff are to receive extra training in the detection of fraud.
The size of the boards is to be increased and the rules on the minimum number of members required for a meeting strengthened to prevent decisions being taken with only five people present.
A DTI spokeswoman said the new rules, together with a code of practice, should be issued in the next two months. Meanwhile, the department is waiting to see if there are other cases similar to that in the South-west.
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