Council in crisis as another £24m of rent-payer’s cash could have been mis-spent

Nottingham City Homes (NCH), the standalone company that provides council housing management to Nottingham City Council, is set to be brought back under the direct control of the council after 17 years.

The news comes as it emerges the council could have mis-spent a further £24m worth of money from its Housing Revenue Account. The cash, along with the misuse of £14.4m which was admitted by the council in December, had been wrongly re-directed into a general fund for all council services.

The council’s executive will meet this Thursday (April 28) to decide on whether NCH will move back to council control, but TheBusinessDesk.com understands this is a fait accompli, with staff being told over the weekend to prepare for the changes.

The move will raise questions as to whether anyone at the council will face action over the misuse of the funds. The issue first came to light at the beginning of last December when Nottingham City Council 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.

Swift action was taken by the council’s section 151 officer and monitoring officer with the support of the council leader to issue a Section 114 notice acknowledging that it had acted unlawfully.

A report to the Executive Board on Thursday outlines the findings of two subsequent independent investigations commissioned by the council into the matter by CIPFA (the Chartered Institute of Public Finance and Accountancy) and Richard Penn, a local government expert. It is recommended that all proposals to address the issues outlined in both reports are accepted and implemented in full.

Penn’s report makes a series of recommendations, including bringing housing services currently provided by Nottingham City Homes as an Arms’ Length Management Organisation back under the control of the City Council to ensure that HRA money is appropriately ring-fenced.

Reverting housing services back to the host local authority is now a common practice, insists the council. The Executive Board report highlights that from an initial 70 Housing ALMOs (Arms’ Length Management Organisations) created in the early 2000s to gain Decent Homes grant funding from Government, there are now only just over 20 ALMOs still operating.

The Penn report also recommends strengthening the council’s housing authority role with “improved financial knowledge, more detailed involvement of senior officers and auditor scrutiny”.

It states that the payments from the HRA to the general fund were made “in an environment where there were many proposals to reduce expenditure or increase income in order to maintain services and avoid cutting jobs” but concludes that it was not “a mechanism conceived to divert HRA funds to the General Fund”.

The CIPFA report identifies that an additional amount of up to £24m from the HRA – rent payers’ money which should only be used for transactions related to council housing landlord functions – could potentially have been incorrectly used since 2014/15 by both Nottingham City Homes and the City Council. It is recommended that this is repaid and the process has already begun with an amount of £14.4m identified by CIPFA in the first phase of their investigation.

CIPFA also reports serious concerns about the lack of transparency in HRA reporting and the need to separate HRA from non-HRA activity in the work of Nottingham City Homes.

David Mellen

City council leader, Cllr David Mellen, said: “This is a clearly a setback, particularly as the council has been making significant progress on improving our financial governance over the last year. This issue demonstrates the importance of that work and how thorough it has been.

“Last year we took swift and firm action to issue a Section 114 Notice and commission two independent reports into the circumstances surrounding the HRA funding.

“The findings of these investigations show that the finance and governance arrangements around the ring-fencing of the HRA fell seriously short of acceptable standards, although we are disappointed that this wasn’t flagged up at the time by the council’s external auditors.

“Since these decisions were first taken, new leadership and senior management have shown determination to take the action necessary to address these issues and move forward positively.

“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.”

“It’s important to make clear that the funding in question has been used for purposes that benefit local people but that are not an appropriate use of what is effectively tenants’ money.

“It also needs to be recognised that in addition to achieving decent homes standards, Nottingham City Homes has worked to improve core housing services, empower tenants and bring about significant improvements to housing stocks, including the response to fire safety following Grenfell and home insulation works.

Cllr Linda Woodings, the council’s portfolio holder for planning, housing and heritage, said: “Bringing housing services back under the direct control of the council is something that has been recommended we do to address the issues raised in the reports. We will ensure that listening to tenants and ensuring their voices are heard is a priority as we work to continually improve services for them in future.”

City Council chief executive, Mel Barrett, said: “These reports identify underlying issues around governance and finance which the council is addressing as part of our ongoing improvement work through our Together for Nottingham Plan.

“While the reports bring to light the serious failings in past practice, Nottingham people may be reassured in knowing that the new leadership of the council have, at every stage, taken steps to identify, understand and own these issues. We have invited independent scrutiny and ensured open, honest and transparent management of our financial governance to ensure compliance is improved for future practice. We are determined to provide reassurance to local residents, the Improvement and Assurance Board and Government that we understand what went wrong and that we can and will put it right.”