Agenda item

Consideration of and Response to Section 114 Report and Section 5 Report dated 15th December 2021

Report of the Leader of the Council


The Leader of the Council, Councillor David Mellen, presented the report recommending that Council give due and proper consideration to the Section 114 report which was served by the Council’s Section 151 Officer on 15 December 2021; and that it endorses the views contained in the report, accepts the recommendations contained within the report from both the Section 151 Officer and those made by the Chartered Institute of Public Finance Accounting (CIPFA) and approves the proposed response.  He highlighted the following points:

a)  The issuing of a Section 114 notice and a Section 5 notice is a serious situation.

b)  The Chartered Institute of Public Finance Accountancy (CIPFA) has made a number of recommendations which it is proposed to accept in full.

c)  Immediate steps are being undertaken to cease the inappropriate action and refund the full amount to the Housing Revenue Account (HRA) from the Council’s General Fund reserves.  The repayment to the HRA requires approval from the Department for Levelling Up, Communities and Housing and officers have been asked to obtain this permission so that the money can be refunded as soon as possible.

d)  While councillors set strategic policy, officers manage the day-to-day running of the Council.  The Council’s accounts are also audited every year by external auditors.  However, it was not until 2021 that the Council’s current Chief Finance Officer/ Section 151 Officer alerted the Council to this issue and at that point external advice was sought from CIPFA to review the situation.

e)  The Council has now commissioned an investigation to understand how this situation occurred and to ensure that processes and systems are put in place to prevent this ever happening again.


The report was seconded by Councillor Sally Longford.


Councillors discussed the content of the report and proposed response.


Resolved to:


(1)  endorse the views contained within the Section 114 Notice;


(2)  approve the following actions:


a.  set aside £14,366,500 in the General Fund reserves to repay the Housing Revenue Account in respect of financial years 2014/15 – 2019/20 (net of 2b).  Interest to be added to bring the payment to 2021/22 prices and repayment made as soon as the sum for each individual year is validated following further detailed work.


b.  amend the Council’s draft published accounts for financial year 2020/21 by £1,492,000 to remove the ‘management fee rebate’ from being recognised within the General Fund and not raise an invoice.


c.  no ‘management fee rebate’ will be due from Nottingham City Homes and Nottingham City Homes’ management fee will be adjusted by a correspondence amount for financial year 2021/22.


d.  from financial year 2022/23 onwards, set the management fee at the correct level to deliver the Council’s required specification, and any small surplus made by Nottingham City Homes can be retained for investment in Housing Revenue Account services.  A genuine rebate will only be permissible retrospectively and if Nottingham City Homes does not perform a function for which it has been contracted and paid.  Such a rebate will be to the benefit of the Housing Revenue Account and not the General Fund.  It will never be budgeted for.


e.  carry out a review of the processes and systems that failed to prevent the unlawful breaches to ensure that they cannot be repeated.  This will include a review process in respect of ‘novel’ proposals by appropriately trained and experienced staff.  Further training of councillors and officers in relation to the Housing Revenue Account and housing management functions will take place.


f.  in addition to commissioning legal advice on the lawfulness of the transactions, in consultation with the Department for Levelling Up, Housing and Communities, the Improvement and Assurance Board and the Council’s auditor, and subject to that legal advice, consider what further actions are necessary.


g.  examine in detail the chronology of events in relation to the payments Nottingham City Homes has made to the Council including who conceived the payment, the accounting transaction detail, who authorised it, who knew about it, how challenges to the legitimacy of the payment were dealt with and by who and any other facts that can provide insight into how the situation came to be.


h.  in the event that the Section 151 Officer considers that the General Fund is required to repay the Housing Revenue Account and Nottingham City Homes, consider how the Housing Revenue Account or Nottingham City Homes should be additionally recompensed to reflect the opportunity cost of not having access to funds they may have been entitled to. 


i.  as a consequence of the concerns raised by the Section 151 Officer and the work undertaken and conclusions drawn by CIPFA, examine and resolve other potential breaches of the Housing Revenue Account ring-fence.


j.  further analyse the finances of the Nottingham City Homes Group to provide assurance that Housing Revenue Account funds have been properly applied and not used inappropriately to fund non-Housing Revenue Account activities undertaken by Nottingham City Homes, which could potentially breach the integrity of the Housing Revenue Account ring-fence.  This will involve a forensic financial examination of:

  i.  transactions for services flowing between the Council and Nottingham City Homes; and

  ii.  transactions for services flowing between Nottingham City Homes and its subsidiaries.


k.  review the adequacy of the Housing Revenue Account client function in order to assess whether it is sufficient to properly scrutinise the activities of Nottingham City Homes and provide the proper strategic direction, controls and assurance on behalf of the Council as the Local Housing Authority.


l.  consequential to CIPFA’s work and in light of the changes that have taken place in how Local Housing Authorities provide housing management since the end of the Decent Homes Programme, commission a review of the Council/ Nottingham City Homes Group relationship and future operating model to include the purpose, structure, finances and governance in relation to the housing management function as set out in the Recovery and Improvement Plan.


(3)  note that, until the review as agreed in (2)l has concluded, management controls are being applied prohibiting the Council entering new agreements and spending commitments with Nottingham City Homes unless expressly approved in writing by the Section 151 Officer in consultation with the Head of Paid Service (Chief Executive) and Monitoring Officer, as appropriate.


(4)  approve the response to the Section 114 Notice and Section 5 Notice as set out in Appendix C to the report.

Supporting documents: