Council investigation launched after ‘illegitimate’ payments of £15.8m HRA fund spent elsewhere
An investigation is under way after £15.86m of an East Midlands council’s funds ringfenced for housing were wrongly spent on general council services.
A probe has now begun looking at decisions taken at Nottingham City Council after it was discovered that money that made up part of its Housing Revenue Account (HRA) fund was used to fund non-housing activities, which is prohibited by government rules.
The Labour-run council said the “serious issue” was brought to light during the ongoing review of its financial governance and practices.
It had found that money, accumulated since 2014-15 from the HRA, had been incorrectly credited to the general fund for all council services.
The HRA is strictly ringfenced for transactions related to council housing landlord functions and cannot be used for other purposes.
A draft report on the issue, commissioned and received by the council from the Chartered Institute of Public Finance and Accountancy (CIPFA), made a number of recommendations.
The council said it is “acting without delay” while it waits for a final version of the report, with steps being taken to refund the HRA with the full amount.
This will not directly affect the council’s revenue budget for day-to-day services, it said.
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The details have emerged while Nottingham City Council is being monitored by the government after falling into nearly £1bn worth of debt.
Its failed energy company, Robin Hood Energy, led to an estimated loss of £38m.
The government launched a non-statutory review into the council’s financial affairs in October 2020. It concluded that the local authority started to lose control of its budget four years previously, and that “both managerial and political leadership failed to heed warnings and take the necessary action”.
The Labour-run authority has been given three years to get its financial problems in order, while an improvement and assurance board (IAB) has been set up to monitor the council’s ongoing progress.
If Nottingham Council cannot get control of its finances, the government could step in and take control.
A spokesperson for the Department for Levelling Up, Housing and Communities (DLUHC) said that it was aware of the concerns around the council’s HRA and that it will “consider the implications carefully”.
DLUHC will also be writing to the chair of the IAB, Sir Tony Redmond, to “seek assurances” on the council’s response.
“Ministers will continue to review their options in relation to Nottingham City Council, including considering whether it is appropriate to use their powers to ensure the council is complying with the best value duty,” the spokesperson added.
David Mellen, leader of Nottingham City Council, said the issue had not been raised with him until in “recent months” when he “agreed with the advice of the council’s corporate director of finance and resources that an external review should be commissioned”.
“The initial finding of that review is that the payments concerned are illegitimate.
“I have therefore asked for an urgent investigation to be carried out to understand how this happened and put measures in place to ensure it cannot happen again.
“This report raises significant questions and as leader of the council, I am determined that those questions will be answered,” he said.
Mel Barrett, chief executive of the council, said what happened is “clearly a setback for the council” and “disappointing”.
He added: “This issue is being taken very seriously by the council and needs to be seen in the context of the significant progress being made with the work under way to improve governance, financial management and organisational culture and underlines the importance of that work continuing.”
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