Council's investment 'negligent'

Restormel Council invested �3m in the Icelandic bank days before it collapsed

A Cornish council acted negligently by investing £3m into the Landsbanki bank days before it collapsed, an Audit Commission report said.

Restormel Borough Council was one of seven criticised in the report for depositing funds into Icelandic banks despite warnings about their stability.

The council also breached Treasury policy by investing more than it should have in a single bank - £4m in total.

Restormel Council said an investigation into the investment had begun.

Most local authorities heeded the warning signs, but some did not, and a number were negligent Steve Bundred, Audit Commission Why did councils trust Icelandic banks?

According to the Audit Commission, on 30 September 2008 the official credit rating for Icelandic banks was downgraded to "adequate", which is below the level deemed acceptable in local authority guidelines.

Despite the downgrade, on 1 October 2008 Restormel Borough Council invested £3m in Landsbanki.

On 7 October 2008 the bank collapsed, taking the council's money with it.

The figure invested is equivalent to £50 a head for each Restormel resident, and it is still not clear when it will be recovered.

Steve Bundred, chief executive of the Audit Commission, said: "We found that most local authorities heeded the warning signs about Icelandic banks.

"But some did not, and a number were negligent.

"Our report shows that there are lessons that must be learned by everyone - local government, central government, the Chartered Institute of Public Finance and Accountancy (Cipfa), and the Commission itself."

'Disciplinary issues'

Restormel Borough Council said in a statement: "The council has undertaken a review of the circumstances and actions that led to the authority placing investments with the Icelandic bank, Landsbanki.

"The review highlighted a number of areas of concern where further investigations were required."

"These investigations have begun and due to potential disciplinary issues it is not appropriate to make further comment regarding the matter at this time."

Restormel Borough Council will cease to exist when the new unitary authority, Cornwall Council, takes over from Cornwall's six district councils and county council on 1 April.

The council said it had made arrangements with the new authority to ensure "investigations and any disciplinary processes that may potentially arise are followed through to completion."

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