The Audit Commission has issued a report "Risk and Return: English local authorities and the Icelandic banks" that states that seven local authorities breached guidance and their own treasury protocols by investing £32.8M with Icelandic banks just before their collapse last October.
The report identified the following boroughs as negligent;authorities and the Icelandic banks, found London Borough of Havering, Kent County Council, Redcar and Cleveland Borough Council, Restormel Borough Council, Bridgnorth District Council, North East Lincolnshire Council and South Yorkshire Pensions Authority.
The authorities relied too heavily on credit rating agencies and external advisers.
Kent invested £3M of its cash in an Icelandic bank, after a finance official failed to open an e-mail which warned it not to do so.
The majority of the 451 authorities had invested within the rules laid out by the Chartered Institute of Public Finance and Accountancy (Cipfa). However, the report recommends a review of Cipfa guidelines, training for councillors and staff to enable them to interpret and question external and internal advice, monitoring of a wider range of information continually and revision of the national framework to reassess the consideration given to liquidity, security and yield.
The councils deny the report's findings.
Rita Greenwood, the finance officer at Havering council, said that the council made a deposit in an Icelandic bank 20 minutes before an alert went out which downgraded the banks to a lower security rating.
"We refute being called negligent. We rely on ratings done by established international organisations such as Fitch and Moody's and we were absolutely following all our policies and procedures."
The Guardian quotes Nick Chard, Kent county council's cabinet member for finance:
"The position and language used by the Audit Commission is quite extraordinary; it really is a case of the pot calling the kettle black. The Audit Commission's own internal report stated that they were not aware of the potential problems with Icelandic banks until Monday 6 October 2008; yet they are highly critical of local authorities making deposits after April 2008."
He noted that the commission has 18% of its total deposits in Icelandic banks compared with Kent's 9%.