Independent auditors to probe Herts County Council Icelandic banks investment processes

PUBLISHED: 13:02 23 October 2008 | UPDATED: 13:43 06 May 2010

INDEPENDENT auditors have been called in by Herts County Council to examine the processes which led to it depositing £28 million of taxpayers money in Iceland banks. The county council Cabinet decided to employ PriceWaterhouseCoopers after the four Icela

INDEPENDENT auditors have been called in by Herts County Council to examine the processes which led to it depositing £28 million of taxpayers' money in Iceland banks.

The county council Cabinet decided to employ PriceWaterhouseCoopers after the four Icelandic banks where the money was held - Landsbanki, The Heritable, Glitnir and Kaupthing - were nationalised to prevent their collapse.

Of the £28 million which HCC stands to lose, £17 million was deposited in the last three months - £7 million in September, another £7 million in August and £3 million in July.

Yet in July this year questions were asked in Parliament about the solvency and stability of the Icelandic banks operating in Britain.

HCC originally said in a statement that all of the Icelandic banks were "A" rated when the investments were made but David Lloyd, the executive member for performance and resources, admitted this week that this was not entirely the case.

He said: "£10 million was with Landsbanki where one of the available ratings did not meet the criteria in our treasury management lending policy at the date of the deposits, and we will want the review to establish how this happened and whether it will impact on any loss suffered by the council."

In addition to commissioning the independent inquiry, Cabinet have also amended its Treasury Management scheme to reflect the much smaller number of banks where deposits can now be made safely.

They also took preliminary measures to protect services and staff should any loss arise.

Leader of HCC, Robert Gordon, said: "It is too early to say whether we will lose any of the money currently frozen in Iceland and I will continue to work with the intent of seeing every penny returned. It is also too early to know whether any loss will be due solely to the wholly exceptional global financial crisis or will have been contributed to by national guidance, the advice of consultants and advisors or decisions taken by the county council."

He continued: "In due course all of those aspects will have to be examined and I have asked for this external report so that elected members and the people of Herts have a thorough and independent assessment of the treasury management lending policy set by members and the operational decisions taken by officers."

He added: "While the difficulties with the Icelandic banks are a problem for the council, this is not a crisis. We are able to pay our staff and maintain services to local people. We have the financial and managerial strength to cope with any impact over time when any actual loss becomes clear."

A total of nearly £100 million was deposited in Iceland by 120 councils, along with public and charitable bodies. Herts Police deposited £3 million which it is also as risk of losing.

The Local Government Association is working closely with the Government, administrators and the Icelandic authorities to try to resolve the situation.

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