Restormel rule-break blunder led to £4m loss

CALLS for action have been made after it was revealed that an unauthorised officer at Restormel Borough Council approved a decision to invest millions of pounds into an Icelandic bank just hours before it collapsed.

Details of the decision to invest £4 million of the council's money in Landsbanki show the council broke its own rules – it was made just an hour-and-a-half before the bank collapsed and was made by an officer who was not an authorised signatory.

The blunders were revealed in a report by the Audit Commission into the council's use of resources.

Now, calls have been made for a detailed public investigation into how the council's policy was broken, potentially losing £4m of taxpayers' money. It has also been revealed the decision to invest in Landsbanki was made following advice given to Restormel by Sector Treasury Services.

The firm was set to be questioned by a House of Commons select committee this week about the advice it gave to local councils to invest in Icelandic banks which subsequently collapsed in October. Although local authorities are now working to recoup their investments, Restormel said it was not yet clear if the money would be returned.

The Audit Commission has said this could have an impact on the financial position of the new unitary Cornwall Council, which starts in April.

Stephen Gilbert, Liberal Democrat parliamentary candidate for St Austell and Newquay, said: "I think people will be shocked that officers at Restormel thought it was okay to break their own investment rules."

Caroline Righton, Conservative parliamentary candidate for St Austell and Newquay, said: "The people of Restormel will be dismayed that taxpayers' money has been treated in this way."

A council spokesman said: "Over a quarter – 123 – of local authorities have an outstanding deposit with one of the Icelandic banks affected by this issue. Other public sector bodies, including the Audit Commission, have outstanding deposits in Icelandic banks, bringing the total public sector exposure to £1.26 billion.

"The principle issue where the criticism arises is that a deposit was placed for £3 million, which was above the maximum of £2 million for any one transaction, which is permitted by the council's own internal treasury management policy.

"As a consequence of this, thorough investigations were undertaken into the treasury management function of the council, which has resulted in changes being made to both the operational and strategic management responsibilities within the treasury management function.

Charles Bennett, acting chairman of the council's audit committee, stated: "While the committee is naturally concerned this council has an exposure to an Icelandic bank, we are reassured with the swift and decisive management action which was taken in the wake of the situation arising.

"It is important we recognise that the principal cause of this situation is the unprecedented turmoil in the banking sector, which no one could have predicted, and concentrate our efforts on recovering the investments."