Few tears shed in Norfolk

There will be very few tears shed in Norfolk at the passing of the Audit Commission. In fact, as I write this I imagine that the Interflora van is parked outside Eric Pickles’ office as armfuls of bouquets of flowers paid for with our strapped cash are borne in to him. Let me explain the absence of grief.


When the three Icelandic banks, Landsbanki, Glitnir and Kaupthing, failed in October 2008, a total of 127 local authorities held deposits in them. Norfolk County Council had £32.5m deposited. This placed it at number four in the league table of shame. Only three other local authorities had more at risk. To further that shame, one fifth of the exposed local authorities were owed £1m or less.


The District Auditor, Mr Rob Murray, signed off the Council’s Annual Audit Letter 2008-2009 in December 2009 without making any obvious criticism in respect of the Council’s conduct generally in relation to the deposits. This was despite the fact that in its report “Risk and return – English local authorities and the Icelandic banks” published in June 2009 the Audit Commission had been critical of the failure of a number of local authorities to manage their deposits, after first being put on notice by the credit rating agencies that problems were just over the horizon. The Audit Commission attributed this to a mixture of reluctance, ignorance, poor advice and likely cost.Audit Commission


I felt that there were a number of questions that should have been asked by the Council at the time that apparently had not been. Here are some of them?


(a) Who at the Council was directly responsible for the decisions to place the deposits?


(b) Did the Council ask for alternative terms to be quoted that would have allowed early termination by it without penalty?


(c) What recognised treasury management qualifications did the officers involved hold?


(d) Were any commissions paid to intermediaries that might have been recovered?


(e) Was it prudent to invest sums of taxpayers’ money with offshore banks for fixed terms of up to four years?


(f) Were any councillors - between April and October 2008 - aware of the basis on which the deposits had been made?


(g) Had the Council since commissioned an independent review of its treasury management practices?


My first port of call was the Council itself. I submitted a detailed paper to its Cabinet Scrutiny Committee – as members of the public are encouraged to do on the Council’s website – setting out reasons why this topic should go on the committee’s work programme. The chairman invited me to address the members, and I turned up ready to do so. However, the Council’s controlling Tory group has a majority on the committee, and those members voted not to allow me to speak. They then voted not to make this a topic for scrutiny. (Publicly, the Council’s attitude appears to be that the sole reason for the potential losses was the collapse of the entire Icelandic banking sector. However, for each local authority facing a loss of this kind, almost three others aren’t.)


Until that point, I had always assumed that the Audit Commission was there to come to the rescue in situations like this one. How naïve was that? I entered into correspondence with Mr Murray, and asked him whether he had considered similar questions himself. From his response, it was clear that he felt that all of this was outside his audit responsibilities in the particular circumstances. Given the large sums that the Audit Commission charges the Council for his services – a total of £334k has been proposed for 2010-2011 – this more than surprised me.


However, I then discovered that the Audit Commission itself had deposited £10m with Landsbanki. To make matters even worse, a subsequent internal review came to the conclusion that “the policy in place at the time the deposits were made (April and July 2008) should have required a more senior level of authorisation that was based on supporting documentation to explain the reasons for the recommended deposit taker, the sum to be invested and the investment term”. No wonder Mr Murray felt a degree of discomfort. Wasn’t this exactly the policy that the Council should have had in place at that time?


Eric Pickles considers that the Audit Commission is no longer fit for purpose, and he is obviously not impressed with some of its junkets such as members of staff enjoying days out at the races and life coaching at public expense. However, we here in Norfolk would probably have turned a blind eye to the odd free bottle of Vimto, if the Audit Commission had at least asked the Council some of our questions.


John Martin, Norfolk


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