Northern Ireland's former small business agency has been criticised for having "serious shortcomings" in its ability to handle fraud.

The criticism was made at the launch of a report on the level of internal fraud within the now defunct Local Enterprise Development Unit (Ledu) on Thursday.

The report was compiled by the assembly's spending watchdog, the Public Accounts Committee.

PAC chairman Billy Bell said he was "gravely concerned" at the levels of fraud which involved �220,000 of public funds.

Billy Bell: Chairman of the Public Accounts Committee

Mr Bell said the report highlighted a number of "serious shortcomings in Ledu's ability to handle fraud and in the department's ability to keep control of this non-departmental public body".

"To have one of the largest frauds in the Northern Ireland public sector is unfortunate, but to have it followed within months by another major fraud in the same unit smacks of incompetence and complacency", he said.

The first fraud was perpetrated by an employee who diverted �118,000 of public money into her personal bank account.

This was discovered in December 1996 following checks by another member of staff.

However, in 1998, it was uncovered that that second member of staff was involved in fraud, actual and attempted, to the value of �101,000.

He used Ledu funds to purchase private travel for himself and his associates.

Ledu had not acted vigorously, or with proper regard to good practice in the handling of these cases

Billy Bell Public Accounts Committee

Mr Bell said: "We are dealing with a complete breakdown in the application of even the most elementary principles of financial controls.

"I find it astonishing that a government agency, whose remit included advising small firms on financial control systems, was incapable of keeping its own house in order."

Mr Bell said it was disappointing that in the first case, the police had been unable to trace the �118,000 stolen.

He said that in the second case actual frauds were estimated at �40,090.

He added: "The message needs to be conveyed to fraudsters that long after the crime has been committed departments will continue to seek restitution by whatever means are at its disposal."

Mr Bell said that Ledu had "not acted vigorously, or with proper regard to good practice in the handling of these cases".

He said the agency had ignored the department's procedures for a thorough and prompt investigation.

He said it had also "rejected sound advice from internal audit and failed to notify the frauds, when first suspected, to both the Department of Finance and Personnel (DFP) and the Comptroller and Auditor General, as required under departmental procedures."

Ledu was set up in 1971 and aided businesses which employed fewer than 50 people in the manufacturing and tradable services sectors.

However, Ledu and the Industrial Development Board, which was responsible for inward investment, have now been replaced by a single umbrella agency, known as Invest Northern Ireland.