The leader of Nottingham City Council says one of the biggest risks for the authority is finding that more ring-fenced cash has been misspent.
Cllr David Mellen (Lab) said the council will be looking at other protected funds for services to make sure more money has not been wrongly diverted.
He was asked at an overview and scrutiny meeting on Wednesday, May 11, what were the biggest risks to the council’s transformation programme.
The council is being watched by a government-appointed improvement board, chaired by Sir Tony Redmond, following the collapse of its energy company, Robin Hood Energy.
The company – set up to compete with the ‘big six’ energy providers – went bust in January 2020 and left taxpayers with an anticipated £38m bill.
A transformation programme is underway, which includes creating a culture change across the local authority and delivering a balanced budget over the next four years.
If the council fails, then government commissioners could be called in to run the Labour-run authority in the future – something which has happened at a handful of other councils in England, mainly following serious financial problems.
But in May it was revealed that up to £40m of ring-fenced cash from the council’s Housing Revenue Account had been misspent on the wrong services.
The council housing tenants’ rent – which should have been pumped into council housing and repairs – was put into general council services instead.
The Penn Report, commissioned by the council, says the money was misspent, and in some cases was used to prop up other council services and to avoid job losses.
It found that the local authority has misspent up to around £22.8m since 2014/15 while Nottingham City Homes, which manages the council housing stock on behalf of the authority, misspent up to £17.1m.
Last week, the council decided to terminate its contract with Nottingham City Homes and bring the service in-house. This will cost around £750,000.
Cllr Mellen said the money must be paid back into the Housing Revenue Account – with £15m coming out of reserves, £17m may be found within Nottingham City Homes accounts, which would leave a financial gap of £8m.
He said there is “a sense of urgency” from the improvement board to pay that back as soon as possible.
Cllr Jane Lakey (Lab) sitting on the overview and scrutiny committee asked the leader about the risks to the local authority in light of what has been uncovered.
He said: “I think there is a sense of which the improvement board are saying to us ‘we knew when we came that Robin Hood Energy was the main reason and since we have been here we have had two different incidents where we have had failures in terms of the HRA’.
“There is a sense of which ‘is there anything else?’ So there will be some looking at other ring-fenced grants to check that they have been spent correctly. The other risk is confidence.
“Although we have a strong improvement plan, will the council be able to see it through to bring about the necessary improvements?
“We have clearly done that by setting a four year budget. But we not only need to set that budget but keep that budget and see things through.”
Only a small number of specific council grants and spending areas are ring-fenced, with the expenditure controlled to fund a particular service.
Nottingham City Council has not yet revealed exactly which ring-fenced funds it is currently looking at.