Council broke investment rules (From Watford Observer)

Council broke investment rules

4:47pm Tuesday 20th January 2009 in News By John Harrison

County Hall, Hertford

Blundering County Hall bosses could have cost Hertfordshire taxpayers a staggering £28m by ignoring their own investment rules.

A damning report, by the accountants PriceWaterhouseCoopers, has highlighted a catalogue of errors that led to Hertfordshire County Council unwittingly investing millions in vulnerable Icelandic banks.

The council - which could lose £17m in the failed Landsbanki, £7m in Glitner Bank, and £4m in Kaupthing Singer & Friedlander - amended its own investment guidelines in February last year.

The report found the new set of rules, designed to safeguard taxpayers' cash against stock market volatility, were not, however, followed.

Despite the intended improvements, auditors found the county council had not performed a complete check of the banks it was investing against the new criteria.

As a result, millions of pounds were invested in Glitnir, even though it was identified as an unsuitable bank.

The report also found the council continued to invest in the Landsbanki despite it failing credit tests in February.

The council's treasury department was informed, via e-mail, on January 30, 2008 that Landsbanki was placed on negative rating watch.

However, because the council’s official advisor’s rating was unchanged, the council ignored the advice.

A “negative credit watch” was then placed on the bank in February and was then removed in May.

Council bosses then began investing heavily in the bank throughout July and August before the bank's credit rating was again downgraded, on September 30.

However, the report added: “If the complete check of the suitability of listed counterparties under the new policy requirements had been undertaken, the original downgrading in February would have been noted and Landsbanki would not have been listed as a suitable counterparty.”

Auditors also found 28 separate transactions were signed by just one officer - even though the new council rules dictated at least two officers, who are independent from the dealing process, should have reviewed them.