Lack of scrutiny led to £27.4 million cash freeze in Icelandic banks (From Times Series)

Lack of scrutiny led to £27.4 million cash freeze in Icelandic banks

4:25pm Wednesday 8th July 2009 in

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MILLIONS-of-pounds of taxpayer's money was frozen in collapsed Icelandic banks because officers at Barnet Council were not properly monitored, an investigation has revealed.

A report by accountants Deloitte, published today, reveals that treasury manager Patrick Towey was able to ignore approved credit ratings because his work was not being overseen by his managers.

The council's treasury management strategy should have prevented Mr Towey from investing £27.4 million in Glitnir and Landsbanki banks between November 2006 and September 2007.

The banks collapsed in October last year, more than a year after the investments were made, and it is not yet clear whether the money can be recovered.

The report also criticised the authority for raising the length of time deposits could be made from one year to five years in the 2006/07 financial year, against the advice of its financial advisers.

If the decision had not been made, the cash would not have been in the Icelandic banks at the time of their collapse.

Deloitte said the decision appeared to have been made “without documented consideration of the impact on the security of deposits”.

Mr Towey, who resigned from the council in March over the fiasco, was allowed to work without proper scrutiny because he was regarded as the “treasury expert”.

Despite the fact that he was in charge of investing billions of pounds of taxpayer's money, investments were not regarded as an “area of risk”.

Mr Towey submitted reports indicating that he had complied with the treasury management strategy.

But between 2006 and 2008 it was been breached in almost all of the investments the treasury made.

Mr Towey did not make himself available for interview with Deloitte and the firm has recommended that his emails are reviewed to discover when he found out that he had breached the strategy.

The report said that the lack of monitoring represents “a significant deficiency in internal control”.

The treasury had not had an internal audit since 2005/06, a recommendation that a monitoring officer should be appointed was ignored and senior officers did not discuss changes to the treasury management strategy.

Councillor Alan Schneiderman, Labour group resources spokesman, said the report confirmed the committee's own findings that the investments were “totally mismanaged”.

He said: “Officers are yet again made to take the blame, but surely the buck has to stop with Councillor Freer, who, as cabinet member for resources and leader of the council, should have known what was going on and asked questions before it was too late.”

In an interview Mr Freer, the leader of the council but no longer cabinet member for resources, told Deloitte that councillors have “minimal technical knowledge”.

He said the cabinet resources committee, charged with overseeing the treasury, had only looked for changes drawn to their attention when they reviewed the treasury management strategy.

The report acknowledges that the process is now monitored more critically and “significant improvements” have been made.

The report is due to go before an ad-hoc overview and scrutiny committee meeting tonight.