Magazine article Public Finance

'Iceland Seven' Angrily Deny Negligence Claims

Magazine article Public Finance

'Iceland Seven' Angrily Deny Negligence Claims

Article excerpt

Councils have reacted with fury to being labelled 'negligent' by the Audit Commission in a report on local authority investments in the collapsed Icelandic banks.

One council said it was considering legal action over the report Risk and return, published on March 26.

Kent County Council, the London Borough of Havering, Redcar and Cleveland Borough Council, Resto rmel Borough Council, Bridgnorth District Council, North East Lincolnshire Council and the South Yorkshire Pensions Authority were all named in the report

Between them, the authorities have ?32.8m at risk in Iceland, all deposited between October 1 and 3 last year. Local authorities in England have a total of around £lbn tied up in Iceland.

Audit Commission chief executive Steve Bundred told Public Finance the seven had been dubbed negligent because the investments had been made on or after October 1, 'the point at which clearly it was widely known that there was a high risk in these institutions'.

He added: 'In some instances, those local authorities will have been contractually committed to place those investments. . . but nevertheless, in every instance we found that the authorities concerned broke their own rules'

But Kent council's Cabinet member for finance, Nick Chard, hit back, saying the commission's position and language were extraordinary'. He pointed to the watchdog's own investment of £10m in the failed banks, saying It really is a case of the pot calling the kettle black.'

Kent had 'admitted a human error' that meant £3.3m was deposited on October 1, Chard said. But he added: 'The Audit Commission's own internal report stated that they were not aware of the potential problems with Icelandic banks until Monday, October 6, 2008.'

Chard described the report as a convenient smokescreen for the commission, which had twice the level of exposure in Iceland that Kent had - 18% of its total deposits, compared with 9%.

Bundred denied his own organisation had been negligent or that it had broken its own treasury management policy although its internal review said policy and procedures had been followed 'with one exception.

South Yorkshire Pensions Authority chief executive and treasurer Bill Wilkinson said the report did not take into account the circumstances of pension funds or the action taken by the £3bn fund before the decision to invest £10m in Iceland.

Wilkinson told PF the word 'negligent' was 'unnecessarily emotive', adding 'The Audit Commission's letter was addressed to me as the treasurer, and to use the word negligent to someone who is responsible for public funds is not something to be taken lightly

At Havering, Rita Greenwood, group director of finance and commerce, told PF: 'We weren't negligent It's quite staggering that they're using such a term. …

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