A Commons select committee has underlined the Audit Commission finding that seven councils made elementary mistakes over their deposits with Icelandic banks and deserve censure.
MPs’ recommendations for tightening treasury management by councils draw heavily on the Audit Commission’s own study Risk and Return.
‘We are at one with the committee on maximising both good value and security in council deposits,’ Steve Bundred, the Commission’s chief executive said, welcoming its call for a re-examination of safeguards, including setting up local authority audit committees.
As soon as the banks failed, the Commission reviewed its guidance to auditors. In the light of Risk and Return, we are securing specialist technical support for auditors and requiring them to follow lessons learned. The Commission endorses the recommendation that priorities for auditors be kept under close review.
The Commission continues to acknowledge mistakes were made in the management of its own deposits with Icelandic banks but rejects the view that it should have issued stronger guidance to auditors before the banks failed.
Risk and Return found the framework for treasury management by councils was sound but its application variable. Many councils acted wisely. Others were found to have been less careful.
Mr Bundred said: 'The Committee criticises us for taking the view that councils on the whole took a balanced approach to managing their deposits and not advising auditors to do more work on treasury management. We believe that, on a balance of risk and cost, this was and remains an appropriate judgement.
‘We must always bear in mind that audit is an expensive and finite resource and that we need to target efforts on the basis of the evidence available.’
The Commission noted the MPs’ refusal to curb councils’ freedom to invest, within guidelines. It will study their proposal for a Commission investigation of the quality of financial advice to local authorities.
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