Headlines: December 16th, 2008

Local authority leaders are trying to identify the extent of the impact on councils of the 50 billion dollar fraud by Bernard Madoff, but the Local Government Association says it does not expect that council funds invested in Madoff schemes will affect services or council tax bills. Mr. Madoff has been charged with fraud in what is thought to be the biggest ever case of its kind.

The Local Government Association, said only a handful of cases of local authority money being invested in the fraudulent hedge fund had come to light so far. The only exposure identified at this stage had been through money invested by local authority pension funds. The LGA added that for authorities known to have been affected potential losses were small and related only to a small percentage of overall investments. It stressed, too, that pension fund investments are held separately from the rest of a council’s money.

The LGA chair, Margaret Eaton, said there had been a big breakdown in the regulatory system in the United States which had affected public and private organisations around the world. She said Wall Street regulators needed to explain how the fraud had gone undetected for so long.

”We are still investigating the extent of councils’ exposure to these investments, which seems likely to be limited to some councils’ pension funds. Councils will be confident that this won’t have an impact either on council tax or on local services,” she said and added, “Prudent financial management means that councils put their money into a diverse range of investments to make sure that any risk is spread. We are not aware of any councils that are in serious problems and we are confident that vital frontline services will remain unaffected.”

One authority, Hampshire County Council, which administers the Hampshire Pension Fund, said that if the losses in Madoff were confirmed they would represent 7.1 million pounds of the Fund’s investments or just 0.3 per cent of the total. There was no risk, it said to the Fund’s 46,000 contributors or 27,000 pensioners.