Broken rules which led to £28 million Icelandic banks 'loss' for county
PUBLISHED: 07:16 22 January 2009 | UPDATED: 13:51 06 May 2010
A SERIES of errors led to Herts County Council investing £28 million in Icelandic banks which has so far not been retrieved. In a critical report of the county council s actions following the failure of the Icelandic banks in October, PriceWaterhouseCo
A SERIES of errors led to Herts County Council investing £28 million in Icelandic banks which has so far not been retrieved.
In a critical report of the county council's actions following the failure of the Icelandic banks in October, PriceWaterhouseCoopers (PWC) has highlighted processing mistakes which led to the losses amounting to around eight per cent of the council's total annual budget.
The largest amount was invested in Landsbanki with further smaller amounts in Glitner Bank and Kaupthing Singer and Friedlander.
PWC found that the county council had not followed a new set of rules it had drawn up to monitor the banks and safeguard the money it was investing.
Despite the agreed improvements in monitoring and the identification of Glitnir as unsuitable during the formulation of the policy, a complete check of the banks it was investing in was not carried out.
Landsbanki was downgraded by a key financial analyst two days after the rules were agreed but because of the absence of a complete check, it was not identified as unsuitable on the day the new policy became effective.
As a result Landsbanki continued to be listed as suitable by the county council from April 1, 2008.
No investments were made with Landsbanki when the bank was on negative credit watch during April and May last year but the county council continued investing with it during July and August when it was lifted by another firm of financial analysts.
It was only when Landsbanki was downgraded again in September that the county council began the process of removing it from their suitability list permanently.
The PWC report said that if the suitability of listed banks under the new policy had been undertaken, the original downgrading in February would have been picked up on and Landsbanki would have been removed from the approved list.
They also noticed that on 28 occasions, the investment were only reviewed by one person and not by two as procedures required
In response to the report, the county council has apologised for the processing mistakes confirmed in the PWC report and accepts that a clerical error meant that Landsbanki was not removed from its approved list of investment opportunities on April 1 as it should have been.
A spokesperson said: "We have reviewed the information concerning suitable investment opportunities and the frequency with which they are checked. Our procedures have been adjusted accordingly, in line with the report's recommendations.
"We are confident that, with our revised investment strategy in place, we have reduced still further the risks involved when making investments, in particular during periods of economic uncertainty."
Lib-Dem county councillor for St Albans, Cllr Chris White, who first broke the news about the losses, said this week that it was like locking the stable door after the horse had bolted.
But in light of the number of other authorities, including the Audit Commission on which he sits, which had also lost money, he was loath to point the finger at Herts County Council alone.
He added: "Clearly there will have to be a degree of caution in future probably moving away from maximising income and more towards caution. The pressure was on to make sure our money worked for us and produced the maximum return and it was a trade-off between return and risk."
Cllr White suggested that in the future, the county council should make sure it only invested with EU banks.
He did not rule out the county council getting the money back at some time in the future and said frontline services were unlikely to be hit when the new county council budget was set in a few weeks time.
And he warned that the county council was actually being hit far harder by the cut in interest rates to the tune of around £100 million.