Watchdog accuses council of unlawful £20m transfer from pension fund

The City and County of Swansea unlawfully transferred £20m from its pension fund’s bank account to the council’s bank account in 2012, the Wales Audit Office has claimed.

The incident occurred while the local authority was changing its banking arrangements. Swansea’s new bank required that no account, and the total pooled funds, be in overdraft by a specified amount.

According to the WAO, council officers determined that cash had to be transferred from the pension fund into the authority accounts to prevent this limit being exceeded. The money was transferred in March 2012, but was fully repaid to the pension fund bank account in August 2012.

The watchdog said: “Public bodies such as local authorities can only do that which the law permits them to do. In this case there is no legislative authority which permits the use of pension fund money in this way. Therefore, the transaction is unlawful and has to be recorded as such in the accounts.”

The WAO said a separate issue to the £20m transfer had also arisen in respect of transactions between the council and the pension fund.

“For a number of years the council has assumed that it has held pooled investments between the council and the pension fund and has paid interest to the pension fund on that assumption,” it reported.

“Our legal advice is that for the pension fund and the council to pool their surplus cash in a joint investment, cash has to be transferred from each party’s bank accounts. Such a transfer of cash between bank accounts has not been the working practice at the council.”

The WAO said that interest had been paid over to the pension fund on the assumption that a lawful pooled investment had taken place. “Therefore, the interest that has been paid to the pension fund should not have been and is also deemed to have been unlawful.”

A spokesman for Swansea said: “The transfer was not illegal, it was a technical accounting transfer by a member of staff in good faith which occurred because the council was changing banks.
 
“Officers believed they had the authority to do it based on government guidance (from the Department for Communities and Local Government). There was no loss to the public purse and we've agreed steps with our auditors to prevent this happening again.”