By Tash Shifrin
The London Borough of Havering is to seek a judicial review after the Audit Commission branded it ‘negligent’ in its report on investments in Iceland.
Kent County Council confirmed that it is also considering legal action over the report, Risk and return, which named seven authorities as negligent.
Pressure on the commission increased with the release of a letter from Local Government Association chair Margaret Eaton – sent with cross-party agreement – criticising the watchdog’s ‘highly unsatisfactory’ approach.
Havering has sent the commission a detailed summary of its legal case, in a procedural step before formal litigation. Director of finance and commerce Rita Greenwood told Public Finance that the council wanted a retraction of the ‘negligent’ description.
The Audit Commission used the term to describe seven authorities that made deposits in Iceland after September 30, when its chief executive Steve Bundred has said ‘it was widely known’ that the investments were highly risky.
But Havering denies that it was negligent. It says it did not receive a warning alert about the status of the Icelandic banks until 15 to 20 minutes after it had placed its £2m deposit on October 1.
Greenwood said: ‘We’re preparing our legal case. We will be looking for a judicial review.’
Kent has admitted to ‘human error’ in placing a £3.3m deposit on October 1, but is also infuriated by the accusation of negligence.
Cabinet member for finance Nick Chard told PF the council was considering legal action. ‘We haven’t come to a final view, but we’re certainly still considering it.’
In a letter to Audit Commission chair Michael O’Higgins, Kent chief executive Peter Gilroy said branding the seven authorities as negligent appeared ‘arbitrary, unfair and deeply damaging’.
He added: ‘I do not know whether this error is the product of a malicious and cavalier approach to the reputational status of the seven councils or a naive and incompetent style of reporting.’
The proper process for determining the council’s culpability rested with the auditor appointed by the commission, who had chosen ‘not to criticise the council over and above its own admission of human error’, Gilroy said. He called on the commission to retract its statement, apologise publicly and offer compensation.
In her letter, Eaton expressed the LGA’s ‘serious concerns’ that the commission had not discussed its conclusion with the seven authorities. The commission’s approach appeared to ‘differ materially’ to that in its internal review of its own £10m investment in Iceland, she said.
The condemnation of authorities that had placed deposits between October 1 and 3 ‘contrasts with the finding’ that the commission was not aware of problems with the Icelandic banks until October 6.
But in a written reply, O’Higgins said the commission believed ‘the conclusion we have reached is reasonable and that the authorities that made the deposits after September 30 can be clearly distinguished from the many other bodies, including the commission, that deposited money in the Icelandic banks at a much earlier stage’.
The Audit Commission told PF it was ‘in correspondence with Kent and Havering councils and the LGA’.
