Following the Icelandic Bank investment fiasco stronger standards of financial oversight must be applied by local authorities like Conservative controlled Westminster City Council say a cross-party committee of MPs, in a hard-hitting report of their recent inquiry into local authority investment practices. Launching the report, Phyllis Starkey MP, Chair of the Communities and Local Government Select Committee, said,
“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. These failures put taxpayers’ money at unnecessary risk. Tougher regulation of treasury management advisers and tighter scrutiny around local authority investment decision making are needed to ensure that the emphasis is on security first, while also providing sufficient liquidity and profit.”
The Committee took evidence from Westminster Labour Councillors David Boothroyd and Paul Dimoldenberg which was acknowledged in paragrahs 45 and 46 of the report:
"45. We have not, of course, been in a position to carry out a thorough review of local authority treasury management function along the lines of the Audit Commission’s inquiry. We have nevertheless received evidence which backs up the Commission’s conclusions. Not surprisingly, perhaps, we did not receive many written submissions from those local authorities that have money at risk in Iceland. We did, however, receive evidence from two councillors at Westminster City Council, for example, which gives an overview of changes that occurred in that council’s treasury management policy in March 2008. Those changes included creating new rules for handling medium term funds, including removing the limit of no more than 10% of total reserves in a single institution in ‘specified investments’. The evidence goes on to describe Westminster City Council’s investments in Iceland, which started at the end of 2006 and continued to 2008, with a total of £9.85 million being invested in Iceland up until 29 August 2008. This was at a time when many investors and non-investors alike were aware of the fact that Iceland was not a safe place in which to invest.
46. After the collapse of the Icelandic banks, Westminster City Council commissioned KPMG to carry out an independent review of its treasury management practices. The review’s findings identified inconsistencies or omissions in the investment strategy, ambiguities within the in-house treasury team and a counterparty breach (where the council had exceeded its own counterparty limit with a building society in September 2008). Other local authorities with investments in Icelandic banks have carried out
similar reviews, with similar findings."
Councillor Paul Dimoldenberg, Leader of the Labour Group said;
"Westminster Conservative have needlessley put at risk £17 million of Council Tax payers hard-earned money. This new report confirms that the Council has been guilty of gross incompetence and complacency. This has resulted in over 300 redundancies across the Council and 10% price rises for meals on wheels. Yet £1.8 million is lavished on renewing the Marble Arch Fountains and senior staff get nearly £6 million in bonuses. Have Westminster Conservatives gone completely mad? Surely it is time for heads to roll"