• You are here:
• Home /
• Publications /
• Investigation Reports /
• Local Authority Housing Loans

Local Authority Housing Loans

CHAPTER 4 COMMENTS AND FINDINGS

Comments and Findings

Returns from Local Authorities

In many instances where, following the issue of a refund to the borrower, the local authority had requested him or her to cancel a standing order instruction, the borrower failed to do so and a further payment was then made to the local authority. This necessitated the payment of a further refund and, in many instances, created additional work for the local authority. In some instances even the issue of a further notice did not result in the borrower cancelling the standing order with the result that a further payment was received by the housing authority. While local authorities cannot be blamed for the inertia of the borrowers in relation to standing orders, good administration requires that they have some follow-up procedures in place to: - highlight the need for the borrower to cancel the standing order or - seek assurance that the standing order has been cancelled or - return the overpayment direct to the bank.

The returns indicate that there are a number of accounts, in various local authorities, which still have a credit balance and despite the best efforts of the housing authority, these amounts have not yet been reclaimed or refunded. The number of such accounts is, however, relatively small in relation to the overall number of accounts.

In some local authorities it was a requirement of audit to issue a refund to a borrower only on the receipt of a written application from the borrower. However, no evidence was presented to me to suggest that the local authorities concerned actually notified the borrowers that they were due a refund. In these circumstances, for such a policy to be justified, it is important that the borrower be informed of the existence of such a credit and also be notified of the audit requirement.

Housing Loans

A fundamental element of local authority housing management involves the collection of housing loans. A major part of this function is also directed at preventing arrears from accruing and, if necessary, the recovery of arrears.

A recently published report (September 1999) by the Department of the Environment and Local Government indicated that total arrears on local authority housing loans were reduced from over £21 million in 1993 to approximately £19 million in 1995. In that report local authorities pointed out that their existing procedures were reasonably effective in collecting the arrears but were time consuming and required substantial staff resources.

Local authorities also manage a sizeable rented housing stock of approximately 100,000 units. A large element of their resources is devoted to the collection of weekly rents, the minimisation of arrears and the collection of arrears. Therefore, as part of their housing function, local authorities commit substantial financial and staff resources to the collection of rents and loans.

Having regard to the scarce resources at their disposal and the competing demands which are placed on them, local authorities must adopt a firm but fair approach to tackling the collection of loans and loan arrears. However, at the same time, they must also respect the rights of their borrowers.

From my investigation, it appears that the majority of local authorities consciously decided, directly or indirectly, to place a higher priority on the collection of loans and loan arrears than on the repayment of credit balances which were held on borrowers' accounts.

Extent of Maladministration

I referred in Chapter Two to the issue of a circular letter by the Department of the Environment and Local Government (DOELG) to all housing authorities. Any local authority that, prior to the issue of Circular Letter H8/98 of 8 August 1998 by the DOELG had a system in place for regularly checking loan revenue balances and for making refunds following such checks was, in my view, acting properly and exercising due care in relation to its own interests and those of its borrowers.

However, in relation to those local authorities where there were either no proper procedures or ineffectual procedures in place to check regularly revenue balances on mature and redeemed loans, they were, in my view, acting systematically in a manner which was negligent or careless and contrary to fair or sound administration.

Refunds

In some local authorities sums under £1 were not refunded; in others anything under £10 was not refunded while others still have delayed in making refunds under £20. It is clear that some have been scrupulous in making refunds while others have argued that the costs involved would not be justified in relation to sums less than £10.

I accept that it would be unreasonable to insist that sums less than £10 should be refunded but I would not agree that the threshold for refunds be set at £20. I am of the view that all overpayments of £10 or more should be refunded.

Compensation

The question arises as to whether compensation for loss of purchasing power should be paid on the monies owed and now refunded. In considering this question there are two matters of concern to local authorities: (a) on what amount should compensation be paid and (b) on what basis should it be paid?

In view of the total number of cases involved and taking into account the effort that has already been put in to making the refunds, I take the view that in relation to (a) compensation would not be warranted where the amount involved is less than £100.

While accepting that, at the outset, there was an onus on borrowers to cancel their standing orders, I found that the procedures for alerting borrowers to do so varied across local authorities - some advised borrowers to cancel standing orders, others did not.

I take the view that, after a certain period of time, the onus on the borrower was outweighed by the obligation on the local authority to ensure that, where a borrower failed to act to regularise the situation, its procedures acted as a fail safe device to ensure that credit sums on borrowers accounts did not remain undetected, indefinitely. Where such procedures were not invoked within a reasonable period, I take the view that the local authority became responsible by default. I also have to bear in mind that the local authority had the use of the unrefunded payments, in some cases for a considerable period of time. Therefore, in relation to (b) above, I consider that it would be reasonable to allow a fallow period of say two (2) years i.e. compensation would only be payable in cases where the refund was not made within two (2) years of the redemption or maturation of the loan.

I consider that, in calculating any compensation due to borrowers, the local authorities should use the Consumer Price Index (CPI) to update any refund due. This index, which is quite simple to apply, would ensure that the purchasing power of the borrowers' money is restored. I have attached, at Appendix 2, details of the relevant Consumer Price Index.

There may have been reasons which are unknown as to why so many borrowers failed to cancel their standing orders when their loans matured or were redeemed and perhaps this is something local authorities may wish to take into account in any review of existing arrangements.

Developments in Financial Systems

In the course of preparing this Report, I consulted with the Local Government Computer Services Board (LGCSB). I understand that, in the light of the problem highlighted in the case of Mr X and Meath County Council which resulted in the issue of Circular Letter H8/98 of 8 August 1998 by the Department of Environment and Local Government, a new transaction report has been provided by the LGCSB to all local authorities using its system. This report which is known as "Non Live Accounts Transaction List" has been available for the past year and should, if checked regularly, be of considerable assistance to local authorities in identifying cases where a credit is showing on redeemed or matured loans for the purposes of making appropriate refunds.

The LGCSB advised that its system was first introduced in the early 1980's, is somewhat cumbersome and needs heavy support. However, it advised me that a new financial management system is currently being tested by Meath County Council and that this new system may, in the future, replace existing financial systems in local authorities including those involving housing loans.

Findings

I find that:

1. Seven (7) of the 42 local authorities investigated had proper control procedures in place which ensured that there were no overpayments on mature / redeemed housing loans. These local authorities are:

• Cavan County Council,
• Laois County Council,
• Monaghan County Council,
• Offaly County Council,
• Drogheda Corporation,
• Galway Corporation and
• Kilkenny Corporation,

2. In many local authorities there were either no proper procedures or ineffectual procedures in place to regularly check revenue balances on mature and redeemed loans. These local authorities were acting systematically in a manner which was negligent or careless and contrary to fair or sound administration.

3. The majority of local authorities consciously decided, directly or indirectly, to place a higher priority on the collection of loans and loan arrears than on the payment of credit balances which were held on borrower's accounts. However, I note that most have or are about to introduce revised procedures to redress this situation.

4. While many borrowers may have been remiss in not cancelling their standing orders, this did not diminish the obligation on local authorities to have proper and secure financial management systems in place to protect both their own interests and those of their borrowers.

5. Some local authorities may have to consult with the Local Government Computer Services Board to ensure that the computer systems and procedures used by them are up to the standard of best practice for local authorities. In this regard I have included a procedures template in my recommendations.

6. The systems employed by those authorities named at 1 above who were in a position to make a "Nil" return in response to this investigation would provide a useful guide for those about to carry out, or in the process of carrying out, a review of their existing procedures.

My recommendation are based on my observations on best practice and on the helpful comments given by local authorities which had identified the problems in their systems some years ago and had then taken appropriate steps to deal with them.

I would advise those borrowers who had a loan with a local authority and who feel they may be due refunds to contact the relevant local authority and seek, in the first instance, a payment history report with a view to establishing whether they are due a refund.

Back to contents