“Misinformation and complacency” from councils who invested in Icelandic banks

June 11, 2009 at 4:08 pm Leave a comment

money
A report from the Communities and Local Government Committee has said that local authorities have put taxpayers’ money at “unnecessary risk.” after millions of pounds was invested in Iceland.

The collapse of Icelandic financial institutions in the autumn of 2008 brought to light the large amounts of money invested by local authorities.

Local authorities had invested nearly £1 billion in Iceland, what the committee called the “esoteric world of local authority investments.”

Kent County Council had £50 million invested with three Icelandic banks, the largest UK local authority investor.

“This inquiry has exposed a degree of on the part of some crucial players, both within local authorities and in the wider financial sector, which contributed to the putting of taxpayers’ money,” the committee concluded.

“The focus of the report is to ensure that the future tightening of procedures and better understanding of local authority finance leads to local authority money being invested more prudently, safely and—ultimately—profitably.”

The committee recommends tougher regulation of treasury management advisers and tighter scrutiny around local authority investment decision making.

Dr Phyllis Starkey MP, Chair of the Communities and Local Government Select Committee, said:

“While few predicted the events that shook the financial system last year, their exceptional nature provides no excuse for the substantial failures that occurred in local authority financial arrangements.

“Our inquiry has exposed a significant level of misunderstanding, misinformation and complacency – not just within local authorities, but also amongst those who provide them with specialist investment advice.”

The committee said it endorses the Audit Commission’s censure of rudimentary mistakes made by seven local authorities in its report published in March.

However, investment practice problems identified in that investigation extend far more widely across many other local authorities.

It also criticises the Audit Commission’s failure to issue sufficiently rigorous auditing guidelines for the prevailing financial climate.

Click here to read the report.

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