By Matt Jarram, Local Democracy Reporter
The leader of Nottingham City Council says he is ‘mystified’ as to how £15.86m of ringfenced cash allocated to the council’s housing stock has been spent on other council services instead.
Cllr David Mellen (Lab) told the Local Democracy Reporting Service that a full investigation will take place to determine how the money was spent inappropriately.
Funds to the tune of £15.86m from the council’s Housing Revenue Account – which should have been spent on things such as repairs – have been incorrectly credited to the General Fund for all council services.
The Housing Revenue Account is strictly ring-fenced for transactions related to council housing landlord functions and cannot be used for other purposes.
The sum involved is circa £15.86m and has accumulated since 2014/15.
Cllr Mellen said the investigation will try to establish how the incorrect use of funds had continued for so long without being flagged.
He said: “It is not something that has been brought to my attention until fairly recently and at that point I agreed when questions were not being answered that an external body should be brought in to look into this.
“This mechanism of moving money from one account to the other has seemingly been approved by finance officers and [was] not being picked up by auditors.”
Steps are being taken to refund the Housing Revenue Account from General Fund reserves by the full amount of £15.86 million (uplifted to current prices).
This will not directly affect the council’s revenue budget for day-to-day services, the council says, but will mean a reduction in the council’s reserves.
The council is already under the watchful eye of Sir Tony Redmond, who has been appointed by the government to ensure the council can balance its books over the next four years.
His appointment came after the council lost an anticipated £38m by setting up a failed energy company, Robin Hood Energy, which went into administration in January 2020.
If the council fails to sort out its financial situation, then government commissioners could be called in to run the Labour-run authority in the future.
Cllr Mellen said Sir Tony has been made aware of the development.
He said: “Obviously it is of concern (for him). We are making good progress, and improvement in some areas, we are consulting on savings currently, but clearly something like this is a setback in our exercise to show government that we are able to manage our finances and work towards financial stability.
“This is unhelpful in the process of reassuring the improvement and assurance board and the government. We need to show now this has been brought to our attention we are going to do something about it and put right a wrong use of money.”
He said there is enough money in reserves to cover the mistake.
Cllr Kevin Clarke, leader of the opposition Independent Group at Nottingham City described the news as “outrageous” and said Nottingham’s council tenants had missed out.
Cllr Mellen said: “That is the purpose of the HRA account to improve tenants properties and repairs and things like that. Clearly putting that money back will enable that to happen.
“We will put that back as soon as we can. There has been significant work done to improve the quality of homes by Nottingham City Homes.”
He added: “My leadership has been about trying to re-establish financial stability for the council and to prove to others we are able to manage our affairs and this is certainly a setback and disappointing.
“It is mystifying I guess how this could have been signed off by so many people before and it is clearly not the right way to spend that money.
“We know about it now we need to do something about it and there are questions and as leader of the council I will make sure we get answers to the questions.”
A draft report on the issue commissioned by the council from CIPFA (the Chartered Institute of Public Finance and Accountancy) has now been received and makes a number of recommendations.
While the council says it awaits a final version of the report, having regard to the nature of the findings, it is “acting without delay”.
