Nottingham City Council could have wrongly spent another £25.759 million of funds, according to an investigation into accounts and council housing money.
The news comes after a rare Section 114 notice was served by the council, following the recent discovery that it unlawfully diverted cash from its housing revenue account (HRA) to general funds and had ‘unlawfully’ credited £15.86 million to pay for all council services.
The investigation has now uncovered a further sum of up to £25.759 million of detected issues taking the overall scale of the issue as up to £40.126m.
CIPFA (the Chartered Institute of Public Finance and Accountancy) in conjunction with Richard Penn, a local government expert, has produced a 19 page report and recommended that all proposals to address the issues outlined in both reports are accepted and implemented in full.
Richard Penn’s report makes a series of recommendations, including bringing housing services currently provided by Nottingham City Homes as an Arms’ Length Management Organisation back under the control of the City Council to ensure that HRA money is appropriately ring-fenced.
Reverting housing services back to the host local authority is now a common practice. The Executive Board report highlights that from an initial 70 Housing ALMOs (Arms’ Length Management Organisations) created in the early 2000s to gain Decent Homes grant funding from Government, there are now only just over 20 ALMOs still operating.
The Penn report also recommends strengthening the council’s housing authority role with improved financial knowledge, more detailed involvement of senior officers and auditor scrutiny.
It states that the payments from the HRA to the general fund were made ‘in an environment where there were many proposals to reduce expenditure or increase income in order to maintain services and avoid cutting jobs’ but concludes that it was not ‘a mechanism conceived to divert HRA funds to the General Fund’.
CIPFA also reports serious concerns about the lack of transparency in HRA reporting and the need to separate HRA from non-HRA activity in the work of Nottingham City Homes.
City Council Leader, Cllr David Mellen, said: “This is a clearly a setback, particularly as the council has been making significant progress on improving our financial governance over the last year. This issue demonstrates the importance of that work and how thorough it has been.
“Last year we took swift and firm action to issue a Section 114 Notice and commission two independent reports into the circumstances surrounding the HRA funding.
“The findings of these investigations show that the finance and governance arrangements around the ring-fencing of the HRA fell seriously short of acceptable standards, although we are disappointed that this wasn’t flagged up at the time by the council’s external auditors.
“Since these decisions were first taken, new leadership and senior management have shown determination to take the action necessary to address these issues and move forward positively.
“I would like to reassure our council tenants that we are committed to dealing with these past issues, ensuring that lessons are learnt so that these mistakes cannot be repeated in future.”
“It’s important to make clear that the funding in question has been used for purposes that benefit local people but that are not an appropriate use of what is effectively tenants’ money.
“It also needs to be recognised that in addition to achieving decent homes standards, Nottingham City Homes has worked to improve core housing services, empower tenants and bring about significant improvements to housing stocks, including the response to fire safety following Grenfell and home insulation works.
Cllr Linda Woodings, the council’s Portfolio Holder for Planning, Housing and Heritage, said: “Bringing housing services back under the direct control of the council is something that has been recommended we do to address the issues raised in the reports. We will ensure that listening to tenants and ensuring their voices are heard is a priority as we work to continually improve services for them in future.”
City Council Chief Executive, Mel Barrett, said: “These reports identify underlying issues around governance and finance which the council is addressing as part of our ongoing improvement work through our Together for Nottingham Plan.
“While the reports bring to light the serious failings in past practice, Nottingham people may be reassured in knowing that the new leadership of the council have, at every stage, taken steps to identify, understand and own these issues. We have invited independent scrutiny and ensured open, honest and transparent management of our financial governance to ensure compliance is improved for future practice. We are determined to provide reassurance to local residents, the Improvement and Assurance Board and Government that we understand what went wrong and that we can and will put it right.”
