I don't think so.
Vendors have relationships with the Health Department in my experience. Sure, the event coordinates with the Health Dept so they know to come out, and there might be sanitation issues regarding bathrooms and such, but then again, there might not. I don't think there is any incentive for an event to choose a vendor because they are affiliated with the Health Dept.
Now, if the vendor/HD inspector was wearing two hats at the same festival, that might be kind of strange. If there is any evidence that said HD is holding others to a higher standard than he holds himself, then that could warrant some investigating.
I would say more common conflict of interest offenses would be if a festival organizer was also trying to operate as a food booth. They have an opportunity to see what works over the years, and capitalize on it if they want.
Health Dept guys never ask me about how much I make, or seem even remotely interested in how much food I am selling. The only reason they care about what I am selling, and how, is to do their job, and keep people safe.
Maybe the relationship that me and my peers have had with our HD is different than some of those who think this connection is inappropriate. I personally do not see how I would be threatened by a vendor/HD inspector.