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Mark Wallace of the Taxpayers Alliance on how Council investments were out of control – but at least Charnwood found out what went wrong. When will other Councils investigate?

If there is one two-word phrase that many councils came to fear in 2008, and which they probably don’t want to hear again in 2009, it is "Icelandic Banks". The collapse of Iceland’s banking system caught over a hundred councils short (along with police and fire authorities and even the Audit Commission) to the tune of up to £1 billion. Whilst the story held all the headlines back in the autumn, it is a front on which things have fallen mostly silent now.

No doubt many of the councils involved would like it to stay that way, but there are a number of reasons why the fiasco must not be forgotten in a hurry.

For a start, there are the financial implications. The £1 billion stuck in Icelandic banks is not yet formally gone – there may yet be some chance of reclaiming some of it, although the likelihood of getting even a sizeable minority of it back seems slim given the circumstances.

A more important reason for not forgetting the Icelandic saga is that it must be learnt from so that it does not happen again. The first step in preventing the repetition of a mistake, of course, is acknowledging that a mistake was made – something that more councils must do even as an honourable first step.

It is remarkable and frankly unbelievable that so many councillors,
officers and LGA officials still maintain that councils did not get
anything wrong, and that thus there is nothing really to learn from
what happened.

A report in the Leicester Mercury
this week brings the lie to all that hot air. One Mercury reporter,
engaged in the worthwhile but unglamorous task of digging through the
formal minutes and documents
of the committees of Charnwood Borough Council, turned up some fascinating and startling admissions.

What the reporter found was a report arising from a special audit
investigation into the potential loss of a £1 million investment and
the certain loss of at least £500,000 interest when the Icelandic
Heritable Bank collapsed. The document itself can be found here (PDF).

The headline finding that the Mercury picked up was that the million
pounds Charnwood’s taxpayers stand to lose should not, according to the
council’s own investment rules, have been in Heritable at all. The
rules forbade locking money into a deal for more than three months, but
the money had been placed in Heritable for a year – meaning that once
Iceland started to look wobbly, Charnwood had no chance to
withdraw the money.

The fact that one such breach of the council’s rules occurred is bad
enough; the report goes on to reveal institutional and procedural
failings that are even more serious. The Action Plan (pg 7-10 of the
PDF) says it all. In brief, the findings include:

  • Hard copies were not being made of the changing investment
    arrangements, whilst electronic versions were "constantly overwritten",
    meaning there was no adequate audit trail.
  • "Junior officers" were allowed to make repeated investment
    decisions, involving millions of pounds each time, "with no involvement
    of any more senior officer."
  • "Some officers who have been responsible for arranging
    investments" have not been fully trained in the Council’s own Treasury
    Management Practices.

So there we have it. This council had junior officers, some of whom had
not been properly trained, making investment decisions of millions of
pounds a throw not only with no consultation with senior staff, but
without even a proper paper trail to record their specific exposure at
any given time.

This is an appalling state of affairs, to say the least, but all credit
to Charnwood for investigating it and actually publishing the findings.
All the councils who have been caught up in this mess should be doing
the same thing to find out what went wrong. The example of Charnwood
shows once and for all – if the potential loss of £1 billion did not
show already – that serious mistakes were committed in this case after
all. It is no use for councils to just deny it point blank, or else the
mistakes will remain uncorrected to bite taxpayers again in future.

5 comments for: Icelandic bank investment: What went wrong in Charnwood

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