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Nottingham City Council accounts show ‘illegal’ activity going back to 2009, say accountants

Illegal activity involving the use of Nottingham council houses as children’s homes has been uncovered by an auditor.

According to Grant Thornton, which has been reviewing Nottingham City Council’s yearly accounts, 12 houses owned by the authority under its Housing Revenue Account (HRA) were used as children’s homes contrary to legislation.

The issue with the HRA comes after an investigation by the Chartered Institute of Public Finance and Accountancy and Richard Penn, a local government expert, found millions of pounds had been unlawfully transferred from the account.

Money from the HRA intended for council housing and tenants, was wrongly transferred to the council’s General Fund for other services over a series of years beginning 2014.

The cost to make it right is estimated at around £51m with inflation.

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Grant Thornton has since discovered further illegal activity dating back to 2009.

The council says the issue has been “largely corrected”.

An interim audit report, discussed at an Audit Committee meeting on Friday, March 22, says: “In this Interim Auditor’s Annual Report for 2020/21, 2021/22 and 2022/23, we also now highlight illegal use of premises between the General Fund and the Housing Revenue Account.

“Around 12 Housing Revenue Account premises owned by the council were used as children’s homes between 2009/10 and 2022/23 (therefore for all three years now under review), contrary to the requirements of the Housing Acts 1985 and 1989.

“Officers inform us this was largely corrected during 2022/23, with most of the homes being transferred to the General Fund.”

Explaining the illegal activity, a council spokesman said: “These properties were originally council houses, some of which had been earmarked for disposal.

“Children’s Services at the council needed to create some small children’s homes to accommodate children in care which led to a decision that some of these houses could be utilised for this purpose.

“They remained in the Housing Revenue Account and rent was paid to the HRA from Children’s Services.

“Children’s Services had an inter-departmental agreement to use these properties rather than a tenancy.

“When a review of HRA assets took place, the issue was raised that because the children living in these homes didn’t count as tenants, they didn’t strictly meet the rules required for these properties to sit in the HRA.

“For this reason, these properties were then appropriated to the General Fund in order to regularise the arrangement and make sure the rules were properly adhered with.”

A recently approved Housing Revenue Account business plan confirmed the money would be repaid over eight years.

When asked, the council did not say if correcting the issue involving council houses being used as children’s homes comes at any additional cost.

Corporate director of finance and section 151 officer, Ross Brown, added: “Just to be really clear the misappropriation of funds in relation to the HRA is a matter that has now been fully addressed just to offer audit committee that assurance.

“We are aware of what the wrongdoings were historically, we have both put the control measures and practices in place to ensure they don’t happen again, and we have also introduced a plan for the reimbursement of the funds between the respective areas as appropriate and as signed off by the improvement and assurance board.”

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