Council to bring ALMO in-house after £40m in HRA cash misspent

The Nottingham City Council Improvement and Assurance Board, the body charged with monitoring the local authority, published two reports in March. This included its fourth progress report, alongside an assessment into the illegal transactions. 

Two further probes were commissioned, one by independent investigator Richard Penn and another by the Chartered Institute of Public Finance and Accountancy (CIPFA), which had initially uncovered the transfer of £15.8m. 

Published last week, CIPFA’s additional investigation uncovered further sums of up to £25.7m of “detected and assessed issues, taking the overall scale of the issue up to £40.1m”, according to a council report.

CIPFA found that the council misspent a further £8.5m while the ALMO had misspent more than £17m.

The money must now be paid back into the HRA. 

The Penn investigation also found that the annual payments since 2014-15 were unlawfully transferred, but did not conclude that these payments were a “mechanism conceived to divert HRA funds to the general fund”, as suggested in the CIPFA report. 

“The council has acted unlawfully and, furthermore, resources have been systematically taken away from some of its most vulnerable citizens – as by definition citizens need to demonstrate significant need to qualify for social housing in the first place,” according to the Penn report. 

It concluded that the council has been undertaking a “very significant recovery and improvement journey” in the past year, but that was not the case for NCH.

“Moreover, the overriding original rationale for establishing an ALMO, to access Decent Homes funding for the upgrading of council housing, no longer exists. 

“The evidence shows clearly that the council’s existing relationship with NCH is problematic, not ‘fit for purpose’ and adds risk and complexity to the council in the delivery of its statutory obligations and policy priorities. 

“I have therefore recommended that urgent consideration is given to bringing back ‘in house’ the management of the council’s housing stock and related functions,” it said. 

Mr Penn made eight recommendations following the investigation, including bringing housing management back in house, paying back the £40m to the HRA, bringing in external support to guide the council’s finance team, and reviewing the council’s constitution.

At the executive board, councillors agreed to serve 12 months’ notice to terminate the NCH contract and to take over the management of its council housing.

It will cost about £750,000 to bring the service in house.

Nottingham City Council said it will implement all recommendations.

David Mellen, leader of the council, said: “Both the reports we commissioned after identifying these issues show that the finance and governance arrangements around the ringfencing of the HRA fell seriously short of acceptable standards. 

“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, and that the funding identified will be reimbursed to the HRA to be used for the benefit of tenants.”

He said bringing housing back under the council’s direct control “may raise concerns for tenants” but added that it won’t happen immediately, and when it does “it will happen seamlessly and with minimal disruption”.

“Bringing NCH in house is about being able to provide reassurance to ourselves, our tenants, the Assurance and Improvement Board and the government that these governance and financial failures cannot happen again,” Mr Mellen said.

“It will allow greater accountability for the use of rent payers’ money and to retain services under the democratic control of the council.”

A Nottingham City Homes spokesperson said, “We dispute the comment that NCH has misspent more than £17m on non-HRA services.

“Most of our non-HRA activity is delivered through our subsidiary organisations which are accounted for entirely separately. These subsidiaries provide services such as temporary accommodation for homeless families, as well as move-on accommodation for survivors of domestic violence – and these homes are funded by loans from the council’s General Fund, not the HRA.

“In reference to the assertion that NCH paid £15.9m of HRA rebates to the council’s General Fund between 2014 and 2020 and to confirm - Nottingham City Council requested a rebate from NCH each year from 2014, which NCH made in accordance with our partnership agreement with the council. The council has already apologised for then incorrectly crediting this to the General Fund rather than the HRA.”