Nottingham City Council admits ‘serious’ £16m funding error

Nottingham City Council has revealed a £16m black hole in its Housing Revenue Account after the cash was incorrectly credited to its General Fund in error over a period of almost seven years.

The “serious” issue has come to light as part of ongoing work the council is taking to review financial governance as part of its Recovery and Improvement Plan.

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 around £15.86m and has accumulated since 2014/15.

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. Whilst the council awaits a final version of the report, having regard to the nature of the findings, it says it is “acting without delay”.

The authority says that steps are being taken immediately to refund the Housing Revenue Account from General Fund reserves by the full amount of £15.86m (uplifted to current prices). This, it says, will not directly affect the council’s revenue budget for day-to-day services.

City Council leader, councillor David Mellen, said: “Since I was elected leader in May 2019, this issue had not been raised directly with me by officers or auditors on whose advice elected councillors rely, until in recent months, when I 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.

“We will be taking the necessary steps to ensure the funding in question is paid back into the Housing Revenue Account immediately.”

Mel Barrett, the council’s chief executive, said: “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 underway to improve governance, financial management and organisational culture and underlines the importance of that work continuing.

“This event is clearly a setback for the council in the context of the significant improvement journey underway. That this arrangement continued for a number of years is disappointing, however it is positive that things that need discovery and have not been unearthed in the past, are being unearthed now and dealt with.”