A Report to the Dáil and Seanad in accordance with Section 6 (7)€¦ · given an adequate level...

A Report to the Dáil and Seanadin accordance with Section 6 (7)of the Ombudsman Act, 1980.

A Report to the Dáil and Seanad

in accordance with Section 6(7) of the

Ombudsman Act, 1980.

Published by the

Office of the Ombudsman,

18 Lr. Leeson Street, Dublin 2.

Tel: 01 - 678 5222, Fax: 01 - 661 0570

Email: [email protected]

Internet: http://www.ie/ombudsman/

JULY 2000

Local Authority Housing Loans - OverpaymentsAn investigation by the Ombudsman into the level ofunrefunded overpayments on borrowers' loan accounts.

Contents

Local Authority Housing Loans

CHAPTER 1

INTRODUCTION

Housing Function of Local Authorities

The Local Government Computer Services Board

Ombudsman's Powers and Jurisdiction

CHAPTER 2

THE COMPLAINT

Background

Council's Response

My Initial Conclusions

Council's Review of the Complaint

Contact with the Department of the Environment and Local Government

CHAPTER 3

THE INVESTIGATION

Acknowledgement

My Own Audit

Summary of Returns

Explanations offered by Local Authorities

CHAPTER 4

COMMENTS AND FINDINGS

Returns from Local Authorities

Housing Loans

Extent of Maladministration

Refunds

Compensation

Findings

CHAPTER 5

RECOMMENDATIONS

Appendix 1 - Summary Table

Appendix 2 - Summary Response of Each Local Authority

Appendix 3 - Consumer Price Index

1

Introduction

Chapter 1

2

My primary objective as Ombudsman is toexamine and provide redress for justifiedcomplaints from individual citizens againstcertain public bodies. A secondary aim is tosuggest or recommend improvements toadministrative systems so that the same orsimilar mistakes are not repeated.

All organisations which provide services to thepublic have a responsibility to establishsystems which ensure that their clients aregiven an adequate level of service. In onecase which I dealt with in 1998 acomplainant called into the offices of MeathCounty Council to establish how much itwould cost to redeem his housing loan.

He was informed that his account had beenpaid in full since March 1996 and that, in themeantime, given that he had continued to paymonthly loan installments, a credit balance of£683.98 had accumulated on his accountwhich had not been refunded to him. Had henot contacted the Council about the matterhe might have continued paying his fully paidloan, indefinitely.

I was concerned that this might not have beenan isolated incident so I asked the Council,and subsequently, the Department of theEnvironment and Local Government toexamine the matter further. On receipt of theresponses from the Department and the Council,I decided to exercise my power to initiate aninvestigation across all housing authorities.

In summary, my investigation has revealed

❑ 6,411 accounts,

❑ involving refunds of approx. £547,000,

❑ ranging from £1 to approx. £3,500 inindividual cases,

❑ one local authority made refunds totalling£122,823,

❑ seven local authorities reported nooverpayments,

❑ one local authority had a credit balanceremaining on an account for almost 19years and

❑ one borrower paid 46 consecutive monthlyinstallments on a fully paid up loan.

My Report includes a breakdown of the abovedetails for each local authority together withfindings and recommendations to ensure thatthis type of complaint does not recur.

Kevin Murphy

July 2000



3

Housing Function of LocalAuthoritiesThe housing function of local authorities is, toa large extent, determined by statute. Theprincipal pieces of legislation are the HousingActs of 1966 and 1988. The housing activityof local authorities may be divided into twobroad areas:

❑ the direct provision of housing for personswho are unable to provide their ownaccommodation and

❑ assistance to persons purchasing orimproving their own dwellings.

Houses are sold by local authorities inaccordance with the provisions of Section 90of the Housing Act, 1966, as substituted bySection 26 of the Housing (MiscellaneousProvisions) Act, 1992. Housing Authoritiesare responsible for the promotion andadministration of the Tenant PurchaseScheme in their areas. All tenants who applyto purchase their houses are given assistanceby housing authorities to enable them todecide on the purchase option suitable totheir circumstances.

Existing tenant purchase arrangements makepossible the purchase of dwellings by tenantsat prices that are far below the current marketvalue of the dwellings. The case forencouraging tenant purchase is two-fold. Onthe one hand, it is desirable on general socialgrounds that as many people as possibleshould own their dwellings and, on the otherhand, the saving in public authoritymaintenance costs when a house ispurchased by a tenant is a positive factor.

The majority of people acquire their homes bytaking out a mortgage loan. This represents amajor long term financial commitment and itis important, in terms of promoting homeownership, that appropriate safeguards exist.The Consumer Credit Act, 1995 consolidatedand considerably expanded consumerlegislation in relation to mortgages. Amongother safeguards, the following apply to allmortgage lending institutions:

❑ the borrower has the right to repay themortgage early, without having to pay aredemption fee (except in the case of fixedinterest rate mortgages);

❑ a mortgage lender has to provide the loanapplicant with a copy of the valuation reporton the house being purchased;

❑ the mortgage lender has to state the totalcost of the mortgage credit.

In addition, Section 130 of the ConsumerCredit Act, 1995, which came into operationfor local authorities in September 1997,provides:

❑ A mortgage lender shall in respect of ahousing loan, issue to the borrower:

(a) at the time the loan is made, or as soon asmay be practicable thereafter a copy of themortgage deed (including any contractrelating thereto) which copy shall beadditional to any copy of such mortgagedeed issued to his legal representative, and

(b) a statement of the total amountoutstanding on the loan on a specified dateoccurring not more than one year after themaking of the loan and at intervals of notmore than one year thereafter until the loanis fully repaid, such statement being issuedas soon as practicable after the datespecified.

The above provisions ensure that the borroweris fully informed about his/her mortgagedetails.

The Local Government ComputerServices Board (LGCSB)The function of the LGCSB is:

❑ to organise, administer and provide orarrange the provision of a service for thesupply of computer facilities for localauthorities;

❑ to co-ordinate and secure compatibility inthe usage of computers by local authoritiesgenerally, with a view to securing the mosteffective use of available resources and

in matters related to its function to:

❑ provide or arrange the provision of trainingand education,

❑ carry out, promote or assist in the carryingout of research, and

❑ furnish advice, information and assistanceto the Minister for the Environment andLocal Government and to local authorities.

The LGCSB identifies many ways in whichinformation technology can improve thequality of local authority performanceincluding:

❑ better record keeping and access toinformation, leading to better decisionmaking;


4

❑ cost savings, better cash flow andmanagement, reduced costs, better costestimates and better cost control throughtimely reporting.

The LGCSB is not within the jurisdiction ofthe Ombudsman but it is necessary to refer toit in this report because of the computerservices it provides to most (but not all) localauthorities whose computerised financialreports are referred to in this investigation.

Ombudsman's Powers andJurisdiction My powers and jurisdiction, as Ombudsman,are set out in the Ombudsman Act, 1980 (asamended). In the normal course, I do notinvestigate a complaint unless certainspecific criteria are met. Normally, there willbe a complainant who claims to be adverselyaffected by an action of a public body listedin the Ombudsman Act, 1980 as being abody subject to investigation by theOmbudsman.

Following a preliminary examination of thecase, it must appear to me that the action

complained of has, or may have, adversely

affected the complainant and that the action

involved maladministration. In this regard,

Section 4 of the Ombudsman Act, 1980 sets

out a range of headings which help to

determine whether or not there has been

maladministration. I must decide whether the

action complained of was, or may have been -

“(i) taken without proper authority,

(ii) taken on irrelevant grounds,

(iii) the result of negligence or carelessness,

(iv) based on erroneous or incomplete

information,

(v) improperly discriminatory,

(vi) based on an undesirable administrative

practice, or

(vii) otherwise contrary to fair or sound

administration.”

In addition, I have the power under Section

4(3)(b) of the Act to investigate, on my own

initiative, instances of maladministration,

without the need to have received a specific

complaint.

Chapter 2

The Complaint

5


BackgroundThe background to the current complaint isthat, in 1981, the complainant (Mr X) took outa housing loan, with Meath County Council, inthe sum of £2,500, at a fixed interest rate of12.5% over a period of 15 years. The loanterm expired in 1996.

Mr X called to the Council offices in January1998 and was informed that his account hadbeen paid in full since the 31st March 1996and that, in the meantime, given he hadcontinued to pay monthly loan installments, acredit balance of £683.98 had accumulatedon his account.

According to Mr X, he was making repaymentson his account by direct debit.

Once the complaint was presented to me, Iasked the Council to forward a report on thematter. I asked the Council to include detailsof the following with its report:

❑ the loan payment history details,

❑ details of the annual end-of-year statementswhich issued to the complainant,

❑ details of the action the Council proposed totake in view of the alleged loan overpayment and

❑ whether the Council was now complying withthe provisions of the Consumer Credit Act,1995 in so far as it related to localauthorities.

Council's ResponseIn its reply to my Office, the Council acceptedthat the monitoring and control systems whichwere in operation during this time would notstand up to an auditor's inspection. TheCouncil informed me that, in the meantime, ithad taken steps to ensure that thecircumstances which gave rise to Mr X'scomplaint would not arise in the future.

The Council informed my Office that it wasnow complying with the provisions of theConsumer Credit Act, 1995 which came intoeffect for local authorities on 1 September1997 and specifies that an annual end of yearstatement must be issued to all loanborrowers.

My Initial ConclusionsMy initial impression of the Council's reply wasthat its internal Financial Management/Reporting procedures appeared to besomewhat lax.

I took the view that the absence (or at leastnon implementation) of any formalisedinternal reporting procedures between theCouncil’s Housing Loan Department (theSection which issued the loan approval) andits Accounts Section (the Section whichcollected the due installments) allowed asituation to develop which permitted theoverpayment, over a prolonged period, of theloan by Mr X.


6

I noted that this breakdown of communicationbetween the Accounts Section and theHousing Section resulted in the council:

❑ collecting an additional 22 monthlyinstallments,

❑ amounting to £683.98,

❑ on a fully paid up loan,

❑ from an Old Age Pensioner,

❑ for a period of almost two years.

I was conscious that £683.98 represented over27% of the original loan amount of £2,500.

In the circumstances, I asked the Council toreview the case and to consider the questionof redress. I also asked the Council to considerliaising directly with the Local GovernmentComputer Services Board with a view toenhancing its internal financial reportingprocedures.

Council's Review of theComplaintThe Council agreed to my request.

It acknowledged my concerns about theabsence of a formalised internal procedurebetween its Housing Loan Department and itsAccounts Department. The Council indicated,however, that this situation would shortly beaddressed by issuing a statement to allborrowers in accordance with Section 130 ofthe Consumer Credit Act, 1995. Thisstatement would indicate the capital andrevenue balance on a loan at the end of eachyear. In addition the Council informed methat it consulted with the Local GovernmentComputer Services Board with a view toimproving and replacing its financialreporting systems which were introduced inthe 1980's. Furthermore, the Council agreedto reimburse Mr X’s bank charges in relationto the standing orders, on his current accountfor the 22 months period from 31 March 1996to the date of the refund.

Having regard to the specific background tothe complaint, particularly the fact that Mr Xhad been paying the Council by standingorder rather than by direct debit - as heoriginally informed me - I accepted that theCouncil's offer was not unreasonable.

On this particular point, a standing order is aninstruction from a customer to his bank to

make a regular (often monthly) payment of afixed amount from his / her account toanother specified account. On the other handa direct debit is an instruction to a bank froma customer to debit his / her account with theamount (fixed or variable) demanded by anamed creditor. The broad distinction is thatthe customer has control of the standingorder while the organisation has control overthe direct debit transaction. Put simply, abank will not take instructions from a Councilto cancel a standing order which is authorisedby a bank's customer. The onus is on theborrower to cancel any standing order.

Notwithstanding this, I asked the Council:

❑ to identify all other possible overpaymentson mature housing loans and

❑ to indicate what procedures it proposed toadopt to ensure that no other cases emergein the future.

In response the Council confirmed that it hadidentified an additional six (6) accountswhere loan repayments had continued to bemade after the loan Redemption Expiry Date.These sums ranged from £116 to £424 andthe earliest redemption date was 1996, i.e.more than two years prior to the current case.

The Council confirmed that these borrowershad since been refunded in full and advisedto cancel any standing orders through theirbanks. Subsequently, following my decisionto investigate the problem across localauthorities generally, it emerged that therewas in fact a total of 217 cases throughoutthe county.

Contact with the Department ofthe Environment and LocalGovernmentHaving regard to the fact that the majority oflocal authorities were using a similar LoanRepayment System, designed by the LocalGovernment Computer Services Board(LGCSB), I took the view that all housingauthorities should be notified of my findingsby the Department of the Environment andLocal Government which has overallresponsibility for services provided by localauthorities, and that they be instructed:


❑ to take the appropriate action, if not alreadybeing done, to ensure that all overpaymentson paid up mature loans are refunded and

❑ to alert their borrowers to contact theirpaying bank with instructions to terminatetheir standing orders.

In response the Department issued a circularletter, dated 6 August 1998, to each housingauthority issuing loans. This letter referred tothe LGCSB's Housing Loan System whichclearly identifies loans where the balanceoutstanding is paid off in the normal way orwhere the loan is redeemed early. TheDepartment instructed the relevant localauthorities to ensure that a similar facility isavailable in other Housing Loan Systems inuse. In addition, the Department requestedlocal authorities to:

❑ identify any cases of overpayments onmature housing loans,

❑ take appropriate, action to ensure that anyoverpayments on paid up mature loans arerefunded,

❑ where appropriate, alert borrowers tocontact their paying bank with instructionsto terminate their standing orders,

❑ adopt appropriate procedures to ensure thatoverpayments of paid up loans do not occurin the future.

Subsequently, on 21 August 1998, I askedthe Department to notify my Office of thefollowing:

❑ the number of identified cases, if any, whereoverpayments were made on mature housingloans,

❑ the range (maximum and minimum) of suchoverpayments,

❑ the total value of such overpayments,nationally, and

❑ the above to be identified by each housing

authority.

Response from DepartmentThe Department informed me, on 17 September1998, that, in view of my further letter, copiesof the Department's circular letter and myOffice's letter were supplied to the Inspectorof Audits in order that the Local GovernmentAuditors might check the position at audit.

I considered the Department's response. Iwas, however, mindful that my role, asOmbudsman, is to act independently and tocarry out an objective examination ofcomplaints. I am conscious that it is thisindependence which gives my Office thepublic credibility to perform its functions. AsOmbudsman, I am empowered to identifyinstances of maladministration, their causesand, where appropriate, to recommendredress.

In addition, my Office has a role incontributing to the elimination of what may betermed the root causes of many of thecomplaints encountered. Finally, my Officealso has a responsibility to contribute toimproving standards of public administrationby identifying the underlying causes ofmaladministration and suggesting improvements.It was with this in mind that, whileacknowledging the Department's response, Idecided to investigate the matter further.

7

The Investigation

Chapter 3


Having regard to the outcome of thecomplaint against Meath County Council, Idecided to use my power under Section 4(3)(b) of the Ombudsman Act, 1980 toinvestigate whether there were similar incidentsof overpayments in other local authorities.This power enabled me to carry out such aninvestigation without the need for a specificcomplaint in respect of each local authority.

Accordingly, on 19 January 1999, Icommenced my investigation of thecomplaint and asked each local authority withhousing loan responsibilities to provide mewith the following:

(a) the number of identified cases, if any, intheir functional area where overpaymentwas made on mature housing loans and, inrelation to each case identified,

❑ the number of overpayments made bythe borrower,

❑ the amount (in £s) involved,

❑ the action taken by the authority to rectify the matter,

❑ the action taken by the authority to make good any loss, if appropriate, and

(b) the measures taken to ensure that,generally, overpayments would/could notarise in the future.

In addition, I asked Meath County Council tore-check the position to ensure that it hadidentified all borrowers who were due arefund. The Council then notified me that ithad since discovered a total of 217 cases:

❑ involving total refunds of £27,289,

❑ ranging from £20 to £872.20,

❑ with one loan having been fully redeemedin 1982,

❑ during which time a credit balance remainedon the account for a period of 16 years.

AcknowledgementMany local authorities found it necessary todeploy staff on overtime because of thesubstantial effort involved in checking theaccounts, making the refunds and preparinga response to my Office. It took some localauthorities a year to compile their reports. Iwould like to acknowledge this effort andassure the bodies concerned that I do notunderestimate the difficulties this investigationpresented for many of them. I would like tothank them for their co-operation and, inparticular Kildare, Kerry, Sligo andDunlaoghaire-Rathdown County Councilswhich provided me with very good qualityreports that did not necessitate furtherenquiries from my Office. I would also like toacknowledge the effort of Donegal CountyCouncil which provided my Office with theinformation required on a phased but regularbasis.

While acknowledging the difficulties involvedit was, nevertheless, necessary for my Officeto issue a Section 7 Notice to South Dublinand Fingal County Councils. The purpose ofthese notices was to get the local authoritiesconcerned to provide a response or relevantinformation in relation to the investigation.

8


9

A Section 7 notice requires the provision of aresponse or information by a specified date.Such notices are issued only as a last resortafter both verbal and written reminders havefailed to elicit a response.

One local authority, Dundalk Urban DistrictCouncil, has provided me with estimatedreturns. While this is helpful it falls far shortcompared to the effort made by all other localauthorities investigated. I asked the UDC toexplain the delay. In reply, it stated that it hadidentified approximately 500 loan accounts tobe investigated but, due to pressure of work andstaff shortages the exercise was taking longerthan originally anticipated.

My Own AuditOne of my staff visited Sligo, Galway and MayoCounty Councils and Dublin Corporation toexamine a sample number of cases which wereincluded in their completed returns in thecontext of:

❑ the techniques in place for monitoring andreviewing accounts,

❑ the custody of accounts and record keeping, and

❑ the procedures followed for the processing oftransactions.

My Investigator also examined the procedures,both present and past, in the above housingauthorities.

Summary of ReturnsDuring the course of my investigation I receivedreturns from the 42 local authorities whichissue housing loans. I have summarised theirresponses by way of Summary Tables.

In summary, my examination has identified;

❑ 6,411 accounts,

❑ involving refunds of £546,597,

❑ ranging from £1 to £3,456 and

❑ seven local authorities which reported no overpayments.

Tables 1 to 6 summarise the results in league-table format by identifying those localauthorities with:

❑ the largest total value of overpaymentsreported,

❑ the largest number of accounts on whichoverpayments were discovered,

❑ the longest time period a credit balanceremained on an account,

❑ the largest number of consecutive paymentsaccepted by a housing authority after a loanhad been redeemed or had matured,

❑ the largest amount refunded to an individualborrower and

❑ the largest number of cases where refundsexceeded £100.

Donegal County Council

Kildare County Council

Limerick County Council

Westmeath County Council

Tipperary (South Riding) County Council

Meath County Council

South Dublin County Council

Cork Corporation

Dundalk Urban District Council

Waterford Corporation

Longford County Council

£122,823 1,002

£67,408 379

£33,166 234

£32,045 392

£28,769 245

£27,289 217

£25,353 1,134

£21,859 453

£20,000 (est.) 500 (est)

£17,163 144

£16,113 139

Local Authority Total Value Number of Accounts

Cavan, Laois, Monaghan and Offaly County Councils and Drogheda, Kilkenny and GalwayCorporations were all found to have workable procedures in place which ensured that there were nooverpayments which had not been refunded and, therefore, they had no cases of undiscoveredoverpayments to report to this investigation.

Table 1: The Largest Total Value of Overpayments Reported


10




Cork Corporation



Waterford County Council





1,134 £25,353

1,002 £122,823

500 (est.) £20,000 (est.)

453 £21,859

392 £32,045

379 £67,408

252 £5,940

245 £28,769

234 £33,166

217 £27,289

144 £17,162

Local Authority Number of Accounts Total Value


Cork Corporation

Louth County Council

Roscommon County Council






Clare County Council

18 £43.67

17 £429.69

16 £251.42

16 £162.72

16 £78.78

15 £34.22

14 N/A*

11 £280.00

11 £214.00

11 £128.90

Local Authority Length of Time Credit AmountBalance Remainedon Account (years)

Table 2: The Largest Number of Accounts with Overpayments

Table 3: Longest Time Period

* The return from Dundalk was not finalised by the Council when this report was prepared.

11


Athlone Urban District Council




Wicklow County Council






Kerry County Council

Cork County Council

46 £1,432.78

22 £3,456.77

19 £1,144.44

18 £914.38

16 £2,396.48

16 £700.05

16 £147.25

14 £622.72

14 £872.20

12 £1,505.04

12 £623.70

11 £1,975.40

Local Authority Number of Consecutive CumulativePayments Accepted After Amount

Loan Expiry/ Maturity


Wicklow County Council

Cork County Council



Athlone Urban District Council


Louth County Council

Kilkenny County Council



£3,456.77 £151.03

£2,396.48 £149.78

£1,975.40 £197.54

£1,926.92 £194.42

£1,505.04 £125.42

£1,432.78 £31.09

£1,144.44 £99.47

£1,045.84 £141.74

£993.10 N/A

£962.80 £96.28

£914.38 £49.00

Local Authority Amount Amount ofMonthly Installment

on Loan

Table 4: Largest Number of Consecutive Payments accepted after Loan Redemption or Maturity

Table 5: Largest Amount Refunded to an Individual Borrower


12

Explanations offered by LocalAuthoritiesLocal Authorities gave various explanationsfor the matters discovered in the course of theinvestigation. I should explain that in anyindividual case the overpayments arose in oneof the following situations:

(a) the loans had run out or matured havingreached the expiry date of the loan or

(b) the loan was redeemed early by the borrower.

Among the explanations offered for theoverpayments were the following:

❑ overpayments resulted from borrowersfailing to instruct their bank to cancel theirstanding order. They are requested to do sowhen redeeming the loan but often fail toact accordingly,

❑ there are circumstances over which thelocal authority has no control such as aborrower's bank failing to comply withinstructions to cancel the standing order ora borrower forgetting to issue anappropriate instruction to his / her bank,

❑ banks will not take instructions from localauthorities to cancel standing orders and,therefore, local authorities are dependanton the borrowers,

❑ there is no facility for direct debit but it isenvisaged that this will become available inthe future,

❑ refunds are made only after receipt of awritten application from the borrowers forany credit due because it is an "audit"requirement,

❑ one local authority maintained that thetotal number of overpayments representedless than 5% of all accounts and the

accounts where refunds were due involvedpayments by standing order which were notcancelled in time,

❑ one local authority reported that it did nothave a proper tracking procedure in place tohighlight matured loans,

❑ a particular local authority had a system inplace for refunding overpayments onredeemed loans but not on matured loans,

❑ in the past, particularly in the 1980s, somelocal authorities had a number of refundsdue to people but they were not in aposition to make the refunds to thesepeople as, in some instances, the familieshad emigrated and left no forwardingaddress.

❑ some local authorities had problems withtheir computer systems:

- an authority claimed that information islost from its Housing Loan ComputerSystem once a loan is redeemed;therefore, in order to access certainrelevant information once a loan hasbeen redeemed, the loan has to be checkedmanually using paper files and records,

- one local authority claimed that itscomputer tapes are not compatible withcurrent software and therefore it is notpossible to say whether some of thecredit balances showing had beenrefunded in the past,

- another claimed that it was unable to becertain whether accounts showing creditbalances had not already been refundedas the account in the Housing Loan Systemmight not have been adjusted or the amountrefunded might not have been coded to thecorrect code in the Expenditure System.




Tipperary (SR) County Council





Cork Corporation


437 43% £1,144.44

258 68% £1,926.92

139 35% £1,505.04

114 46% £962.80

111 51% £872.00

107 45% £3,456.77

69 50% £914.38

69 6% £536.18

61 13% £429.69

56 39% £700.05

Local Authority Number of Number of HighestCases Where Such Refunds RefundRefund was as a % ofin Excess Total No. ofof £100 Refunds

Table 6: Largest Number of Cases where Refund was in excess of £100

Chapter 4

Comments & Findings

13


Returns from Local AuthoritiesIn many instances where, following the issueof a refund to the borrower, the local authorityhad requested him or her to cancel a standingorder instruction, the borrower failed to do soand a further payment was then made to thelocal authority. This necessitated the paymentof a further refund and, in many instances,created additional work for the local authority.In some instances even the issue of a furthernotice did not result in the borrower cancellingthe standing order with the result that a furtherpayment was received by the housingauthority. While local authorities cannot beblamed for the inertia of the borrowers in relationto standing orders, good administrationrequires that they have some follow-upprocedures in place to:

- highlight the need for the borrower tocancel the standing order or

- seek assurance that the standing orderhas been cancelled or

- return the overpayment direct to the bank.

The returns indicate that there are a number ofaccounts, in various local authorities, whichstill have a credit balance and despite the bestefforts of the housing authority, these amountshave not yet been reclaimed or refunded. Thenumber of such accounts is, however,relatively small in relation to the overallnumber of accounts.

In some local authorities it was a requirementof audit to issue a refund to a borrower only on

the receipt of a written application from theborrower. However, no evidence was presentedto me to suggest that the local authoritiesconcerned actually notified the borrowers thatthey were due a refund. In thesecircumstances, for such a policy to bejustified, it is important that the borrower beinformed of the existence of such a credit andalso be notified of the audit requirement.

Housing LoansA fundamental element of local authorityhousing management involves the collection ofhousing loans. A major part of this function isalso directed at preventing arrears fromaccruing and, if necessary, the recovery ofarrears.

A recently published report ”Value for MoneyStudies on Local Authorities” (September1999) by the Department of the Environmentand Local Government indicated that totalarrears on local authority housing loans werereduced from over £21 million in 1993 toapproximately £19 million in 1995. In thatreport local authorities pointed out that theirexisting procedures were reasonably effectivein collecting the arrears but were time consumingand required substantial staff resources.

Local authorities also manage a sizeablerented housing stock of approximately100,000 units. A large element of theirresources is devoted to the collection of weekly


14

rents, the minimisation of arrears and thecollection of arrears. Therefore, as part oftheir housing function, local authoritiescommit substantial financial and staffresources to the collection of rents and loans.

Having regard to the scarce resources at theirdisposal and the competing demands whichare placed on them, local authorities mustadopt a firm but fair approach to tackling thecollection of loans and loan arrears. However,at the same time, they must also respect therights of their borrowers.

From my investigation, it appears that themajority of local authorities consciously decided,directly or indirectly, to place a higher priorityon the collection of loans and loan arrearsthan on the repayment of credit balanceswhich were held on borrowers' accounts.

Extent of MaladministrationI referred in Chapter Two to the issue of acircular letter by the Department of theEnvironment and Local Government (DOELG)to all housing authorities. Any local authoritythat, prior to the issue of Circular LetterH8/98 of 8 August 1998 by the DOELG, hada system in place for regularly checking loanrevenue balances and for making refundsfollowing such checks was, in my view, actingproperly and exercising due care in relation toits own interests and those of its borrowers.

However, in relation to those local authoritieswhere there were either no proper proceduresor ineffectual procedures in place to checkregularly revenue balances on mature andredeemed loans, they were, in my view, actingsystematically in a manner which wasnegligent or careless and contrary to fair orsound administration.

RefundsIn some local authorities sums under £1 werenot refunded; in others anything under £10was not refunded while others still havedelayed in making refunds under £20. It isclear that some have been scrupulous inmaking refunds while others have argued thatthe costs involved would not be justified inrelation to sums less than £10.

I accept that it would be unreasonable toinsist that sums less than £10 should berefunded but I would not agree that thethreshold for refunds be set at £20. I am ofthe view that all overpayments of £10 or moreshould be refunded.

Compensation The question arises as to whether compensationfor loss of purchasing power should be paidon the moneys owed and now refunded. Inconsidering this question there are twomatters of concern to local authorities:

(a) on what amount should compensation bepaid and

(b) on what basis should it be paid?

In view of the total number of cases involvedand taking into account the effort that hasalready been put in to making the refunds, Itake the view that, in relation to, (a)compensation would not be warranted wherethe amount involved is less than £100.

While accepting that, at the outset, there wasan onus on borrowers to cancel their standingorders, I found that the procedures foralerting borrowers to do so varied across localauthorities; some advised borrowers to cancelstanding orders, others did not.

I take the view that, after a certain period oftime, the onus on the borrower wasoutweighed by the obligation on the localauthority to ensure that, where a borrowerfailed to act to regularise the situation, itsprocedures acted as a fail-safe device toensure that credit sums on borrowersaccounts did not remain undetected,indefinitely. Where such procedures were notinvoked within a reasonable period, I take theview that the local authority becameresponsible by default. I also have to bear inmind that the local authority had the use ofthe unrefunded payments, in some cases fora considerable period of time. Therefore, inrelation to (b) above, I consider that it wouldbe reasonable to allow a fallow period of saytwo (2) years i.e. compensation would only bepayable in cases where the refund was notmade within two (2) years of the redemptionor maturation of the loan.

I consider that, in calculating any compensationdue to borrowers, the local authorities should

15

use the Consumer Price Index (CPI) to updateany refund due. This index, which is quitesimple to apply, would ensure that thepurchasing power of the borrowers' money isrestored. I have attached, at Appendix 3,details of the relevant Consumer Price Index.

There may have been reasons which areunknown as to why so many borrowers failedto cancel their standing orders when theirloans matured or were redeemed and perhapsthis is something local authorities may wishto take into account in any review of existingarrangements.

Developments in Financial SystemsIn the course of preparing this Report, Iconsulted with the Local GovernmentComputer Services Board (LGCSB). Iunderstand that, in the light of the problemhighlighted in the case of Mr X and MeathCounty Council which resulted in the issue ofCircular Letter H8/98 of 8 August 1998 bythe Department of Environment and LocalGovernment, a new transaction report hasbeen provided by the LGCSB to all localauthorities using its system. This reportwhich is known as "Non Live AccountsTransaction List" has been available for thepast year and should, if checked regularly, beof considerable assistance to local authoritiesin identifying cases where a credit is showingon redeemed or matured loans for thepurposes of making appropriate refunds.

The LGCSB advised that its system was firstintroduced in the early 1980's, is somewhatcumbersome and needs heavy support.However, it advised me that a new financialmanagement system is currently being testedby Meath County Council and that this newsystem may, in the future, replace existingfinancial systems in local authoritiesincluding those involving housing loans.

FindingsI find that:

1. Seven (7) of the 42 local authoritiesinvestigated had proper control proceduresin place which ensured that there wereno overpayments on mature /redeemed housing loans. These localauthorities 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 wereeither no proper procedures or ineffectualprocedures in place to regularly checkrevenue balances on mature andredeemed loans. These local authoritieswere acting systematically in a mannerwhich was negligent or careless andcontrary to fair or sound administration.

3. The majority of local authoritiesconsciously decided, directly orindirectly, to place a higher priority onthe collection of loans and loan arrearsthan on the payment of credit balanceswhich were held on borrowers’ accounts.However, I note that most haveintroduced or are about to introducerevised procedures to redress this situation.

4. While many borrowers may have beenremiss in not cancelling their standingorders, this did not diminish theobligation on local authorities to haveproper and secure financial managementsystems in place to protect both theirown interests and those of their borrowers.

5. Some local authorities may have toconsult with the LGCSB to ensure thatthe computer systems and proceduresused by them are up to the standard ofbest practice for local authorities. In thisregard I have included a procedurestemplate in my recommendations.

6. The systems employed by thoseauthorities named at 1 who were in aposition to make a "Nil" return inresponse to this investigation wouldprovide a useful guide for those about tocarry out, or in the process of carryingout, a review of their existing procedures.

My recommendations are based on myobservations on best practice and on thehelpful comments given by local authoritieswhich had identified the problems in theirsystems some years ago and had then takenappropriate steps to deal with them.

I would advise those borrowers who had a loanwith a local authority, and who feel they may bedue refunds, to contact the relevant local authorityand seek, in the first instance, a paymenthistory report with a view to establishingwhether they are due a refund.


Recommendations

Chapter 5


16

I recommend that:

1. Where it has not already been done, eachlocal authority should review its currentloan administration and accountingprocedures to ensure that there is a basicand effective monthly financial controlmodel in operation.

The following template could be used asa model for any revised procedure:

❑ A monthly printout providing details of allaccounts due to mature in the coming sixmonths should be sourced from the LoansComputerised System.

❑ The local authority should write to theindividual borrowers approximately 1 - 2months before the loan expiry date advisingthem of:

- the month the final payment is due and

- the necessity to make arrangements to ensure that no further payments aremade on the loan after that date.

❑ Immediately a loan matures a "stop" shouldbe placed on the account. This wouldensure that any further payments tenderedin respect of the loan are receipted to aloans "overpayment" code.

❑ A loan ledger reconciliation should becarried out each month and anydiscrepancies should be identified andappropriate corrective action taken.

❑ The loan ledger should also be reconciled atthe year end, any discrepancies identifiedand corrective action taken.

2. Where it is not being done already, eachlocal authority must ensure that it complieswith the provisions, where relevant, ofthe Consumer Credit Act, 1995.

3. Staff training schemes in accountmanagement techniques and instruction/ procedure manuals be produced and

provided to each staff member of theaccounts section.

4. Any outstanding credit balances onmature or redeemed loans should beexamined to ensure that any credits onaccounts are refunded, where due, to theborrower at the earliest possible date.

5. Internal auditing processes in localauthorities should be reviewed in order to:

❑ prevent / minimise the possibility of fraud,including deliberate errors for personal gain,

❑ pursue outstanding accounts which are incredit and

❑ minimise the number and value of matureaccounts in credit.

6. Local authorities which have not alreadydone so should arrange to refund to allborrowers any outstanding creditbalances on mature or redeemed loanswhich are equal to or in excess of £10.

7. In those instances where a creditbalance remained on a revenue accountfor a period of more than two (2) yearsand where the amount is equal to or inexcess of £100, the local authority paythe borrower compensation on theamount in question. In calculating thecompensation, local authorities shouldapply the Consumer Price Index (CPI)and to this end, I have attached a table,at Appendix 3, showing the relevantConsumer Price Index, from 1982 (baseyear 100) to 2000.

8. Local authorities should develop greateruse of available Information Technologyfacilities, such as electronic bankingsystems, on-line banking and householdbudget / bill pay services.

Athlone UDC

Bray UDC

Carlow Co. Cl.

Cavan Co. Cl.

Clare Co. Cl.

Clonmel Corp.

Cork Co. Cl.

Cork Corp.

Donegal Co. Cl.

Drogheda Corp.

Dublin Corp.

Dundalk UDC

Dunlaoghaire/

Rathdown

Fingal Co. Cl.

Galway Co. Cl.

Galway Corp.

Kerry Co. Cl.

Kildare Co. Cl.

Kilkenny Co. Cl.

Kilkenny Corp.

Laois Co. Cl.

Leitrim Co. Cl.

Limerick Co. Cl.

Limerick Corp.

Longford Co. Cl.

Louth Co. Cl.

Mayo Co. Cl.

Meath Co. Cl.

Monaghan Co. CL.

Offaly Co. Cl.

Roscommon Co. Cl.

Sligo Co. Cl.

Sligo Corp.

South Dublin Co. Cl.

Tipp (NR) Co. Cl.

Tipp (SR) Co. Cl.

Waterford Co. Cl.

Waterford Corp.

Westmeath Co. Cl.

Wexford Co. Cl.

Wexford Corp.

Wicklow Co. Cl.

TOTALS

74

1

2

0

110

48

72

453

1002

0

90

500*

53

145

6

0

97

379

15

0

0

27

234

106

139

75

57

217

0

0

42

102

9

1134

16

245

252

144

392

80

52

41

6411

£5,872.68

£745.30

£385.84

£00.00

£8,847.40

£4,491.04

£13,551.54

£21,859.51

£122,823.58

£00.00

£3,358.39

£20,000.00*

£2,236.98

£6,662.89

£618.26

£00.00

£8,516.64

£67,408.19

£2,812.15

£00.00

£00.00

£3,576.80

£33,166.32

£5,205.32

£16,113.84

£13,247.23

£9,509.85

£27,289.00

£00.00

£00.00

£4,937.28

£10,732.00

£560.69

£25,353.96

£2,389.69

£28,769.54

£5,940.98

£17,162.85

£32,045.48

£8,717.99

£4,782.67

£6,905.37

£546,597.25

£79.36

£745.30

£192.92

£00.00

£80.43

£93.56

£188.22

£48.25

£122.58

£00.00

£37.32

£40.00*

£42.21

£45.95

£103.04

£00.00

£87.80

£177.86

£187.48

£00.00

£00.00

£132.47

£141.74

£49.11

£115.93

£176.63

£166.84

£125.76

£00.00

£00.00

£117.55

£105.22

£62.30

£22.36

£149.36

£117.43

£23.58

£119.19

£81.75

£108.97

£91.97

£168.42

£85.26

46

10

n/a

0

6

9

11

5

19

0

7

n/a

1

1

0

0

12

14

4

0

0

3

22

n/a

18

6

11

14

0

0

4

3

1

16

2

10

3

16

12

7

12

16

£1,432.78

£745.30

£252.09

£00.00

£301.02

£250.57

£1,975.40

£429.69

£1,144.44

£00.00

£249.54

£426.54

£359.00

£289.29

£154.25

£00.00

£623.70

£1,926.92

£993.10

£00.00

£00.00

£554.72

£3,456.77

£200.00

£914.38

£1,045.84

£440.91

£872.20

£00.00

£00.00

£397.72

£448.98

£373.06

£536.18

£445.30

£962.80

£299.88

£700.05

£1,505.04

£910.00

£465.01

£2,396.48

£1.03

n/a

£133.75

£00.00

£10.12

£20.72

£22.22

£1.00

£1.21

£00.00

£1.00

£10.00

£1.00

£1.00

£65.14

£00.00

£2.00

£6.08

£17.00

£00.00

£00.00

£5.53

£1.00

£1.00

£5.03

£23.14

£5.67

£20.01

£00.00

£00.00

£1.09

£10.96

£9.16

£0.01

£40.00

£6.00

£1.00

£12.70

£10.00

£20.00

£2.00

£0.08

8

1

0

0

11

9

5

17

18

0

11

14

5

5

0

0

10

11

2

0

0

5

7

n/a

n/a

16

10

16

0

0

16

8

7

6

2

7

8

15

11

4

11

2

LongestElapsed

Time(years)

LowestRefund

HighestRefund

HighestNo. of

Installments(months)

Ave.Refund

TotalRefunds

No.of

Cases

Appendix 1

Summary Table

17


Summary of Reports Received

LocalAuthority

* Estimated

Summary Tables & Responses

Appendix 2


18

Athlone UDC 74 £5,872.68 £79.36 46 £1,432.78 £1.03 8 years

Number Total Ave. Highest Highest Lowest Longestof Refunds Refund No. of Refund Refund Elapsed Time

Cases Installments Before RefundOverpaid Was Made(months) (years)

Bray UDC 1 £745.3 £745.3 10 £745.3 n/a <1 year



LocalAuthority

LocalAuthority

Response from each Local Authority

Athlone Urban District Council confirmed that, since April 1999, the following revised procedures

are in place to ensure that there is no recurrence of ongoing credit balances.

Following redemption of a loan the borrower is requested to cease any standing order payments.After a period of two (2) months all accounts are checked to ensure that payment has ceased andany credit balance is then refunded to the borrower. A regular check is carried out to ensure that anyexpired / run-out loans are not carrying credit balances.

Of the 75 cases identified below, 21 related to refunds of £100 or over.

Bray Urban District Council has a system to ensure that overpayments on mature housing loans areprevented and that, if overpayments occur, they are identified, promptly notified to the borrower andremedial action taken. The system involves regular checking of the monthly ledger report in order toidentify any overpayments which may have occurred. Borrowers are promptly notified once a loanhas expired.

At the time of the commencement of this investigation there was a satisfactory system in place whichensured that as far as possible installments overpaid were refunded within a relatively short period of time.

19


Carlow County Council confirmed that a printout is produced on a monthly basis which identifiespayments received in respect of run-out or redeemed loans. The overpayments result from borrowersfailing to instruct their bank to cancel standing orders. Borrowers are requested to cancel standingorders when they redeem their housing loans but, on occasions they appear to neglect to do so.

At the time of the commencement of this investigation there was a satisfactory system in placewhich ensured that as far as possible any installments overpaid were refunded within a relativelyshort period of time.

Both of the cases identified below involved refunds of £100 or more.

Carlow Co. Cl. 2 £385.84 £192.92 n/a £252.09 £133.75 0



LocalAuthority

Cavan Co. Cl. 0 0 0 0 0 0 0



Cavan County Council reported that refunds are issued to all account holders as expeditiously aspossible. The general procedure that operates is as follows:

Statements of standing orders are received from the bank and are batched on a daily basis in theFinance Section, then forwarded immediately to the Council's Information Technology Section forinput to its computer system. Checks are in place to guarantee that totals on ordinary, part and fullredemptions on each batch header agree with corresponding totals on the computerised printout.

The Council's computerised printout flags all repayments made subsequent to redemption of loanswith the message "Account not Active / Unusual amount". These amounts are recorded and held inabeyance for three days pending cancellation of the standing order by the customer's bank. Whenthis period elapses without cancellation, the refund is processed within the following month. Thehouse loan system therefore provides an expedient fail safe mechanism whereby all overpayments areidentified and refunded in the shortest possible time frame.

In cases where refunds on redeemed accounts apply, the Council notify the customer to cancelassociated standing orders in their paying banks immediately. In order to further strengthen controlsthe Council adopted a procedure of notifying loan holders in writing of the requirement to cancelstanding orders at the date of redemption of their loans. Those who fail to do so are again informedof the necessity to do so when the refund is being processed.

There are circumstances over which the Council has no control, such as, a customer's bank omittingto comply with all instructions to cancel a standing order, or, a customer forgetting to issue theappropriate instruction to his/her bank.

At the time of the commencement of this investigation there was a satisfactory system in place whichensured that, as far as possible, any installments overpaid were refunded within a relatively short period.

For the purpose of my investigation I am satisfied that the Council has a nil return.

LocalAuthority

20


Clonmel Corp. 48 £4,491.04 £93.56 9 £250.57 £20.72 9 years



Clare County Council reported that refunds are made to borrowers periodically. When borrowersrequest redemption figures, they are advised to stop direct debits / standing orders on redemptionof the loan. Borrowers are also advised to stop direct debits / standing orders when the final paymentis received by the Council. Some information is lost from the Council's Housing Loan ComputerSystem once a loan is redeemed. Therefore, in order to access certain relevant information once aloan has been redeemed, the loan has to be manually checked using the original paper files and records.

Following its initial report to my Office the Council confirmed that an additional "run-out" loan witha revenue balance was discovered. It appears that the borrower in this case had continued to makepayments by standing order. This loan was undetected due to a peculiarity with the Council's HouseLoans Computerised System. The Council informed me that this loan had "run -out" and did notappear on the Computerised Redeemed or Suspended Loan printouts. In order to avoid therecurrence of this issue, the Council has since included further fields in all loan printouts and willcarry out periodic checks.

Of the 110 cases identified below, 36 involved refunds of £100 or more.

Clare Co. Cl. 110 £8,847.4 £80.43 6 £301.02 £10.12 11 years



LocalAuthority

LocalAuthority

Clonmel Corporation confirmed that some credits on mature housing loans arose because its borrowersneglected to cancel standing orders after redeeming their housing loan. The Corporation hasrefunded all outstanding credits. With effect from 1 January 1999, it issues written instructions toall persons who redeem their housing loans to cancel their standing orders immediately.

Of the 48 returns identified below, 18 relate to refunds of £100 or more.

Cork Corporation advised that it has procedures in place to avoid overpayments on mature housingloans by way of monitoring at month end. The situation is monitored on a monthly basis and refundsare made as soon as possible thereafter.

Of the 453 cases identified below, 61 involved refunds of £100 or more

21


Cork County Council confirmed that the making of refunds of overpayments in respect of fullyredeemed house loans is an ongoing process in the Council. The Council made refunds in the normalcourse of events of between £44,000 and £67,000 to borrowers each year in the period 1996 to1998. The majority of overpayments arise when borrowers pay off loans in full but fail to cancel bankstanding orders in time, with the result that the installment due for the month of redemption is paidby the borrower through their bank, while that monthly installment is also paid at the date ofredemption.

The Council's standard letter notifying redemption figures on loans advises borrowers to cancelstanding orders as soon as the loan is redeemed. Similar advice is given to telephone callers. Despitethis, a large number of people end up paying one or more monthly installments after the loan hasbeen fully redeemed. The banks will not take instructions from the Council to cancel a standing orderwhich is authorised by a bank's customer. The Council must depend on borrowers to give correctinstructions to their respective banks.

The Council deals with a large number of refunds throughout the year, but requests borrowers tomake a brief informal written request in letter or note form, before issuing a refund.

Of the 72 cases identified below, 42 were to the value of £100 or more.

Cork Co. Cl. 72 £13,551.54 £188.22 11 £1,975.4 £22.22 5 years



Cork Corp. 453 £21,859 £48.25 5 £429.69 <£1.00 17 years



LocalAuthority

LocalAuthority

Donegal Co. Cl. 1,002 £122,823 £122.58 19 £1,144.44 £1.21 18 years



LocalAuthority

Donegal County Council informed me that, in the past, it was a requirement of audit in the Council,to only issue refunds upon receipt of the written application from the borrowers for any credits due.In view of recent developments arising from this investigation, the Council will dispense with thatrequirement. Credits accruing on any account as a result of loans maturing or being redeemed willbe refunded immediately and borrowers will be advised to terminate their standing orders with their banks.

Of the 1,002 cases identified below, 437 cases were to the value of £100 or more.


22

Dundalk Urban District Council indicated that it has identified approximately 500 loan accounts to beinvestigated but, due to resource issues, its investigation is taking longer than anticipated.

In the light of the current investigation the Council has reviewed its procedures for dealing withloan balances. The Council has confirmed that every loan that is redeemed / expired is checkedand refunds are made as quickly as possible.

Dundalk UDC 500est £20,000est £40 est n/a £426.54 <£10.00 14 years



LocalAuthority

Drogheda Corporation indicated that in 1996 it was discovered that standing orders were still beingpaid even though the loan had run-out. Refunds were made and the borrowers involved were advised tocancel the standing order. Since then the Corporation generates a housing loan "credit report" eachmonth so that if an overpayment is made when a loan is redeemed it is refunded the following month.

For the purpose of my investigation I am satisfied that the Corporation has a nil return.

Dublin Corporation advised that it has a policy, when issuing a borrower with their housing loanredemption figure to advise them to cancel their standing order with the bank before dischargingthe loan. When loans are discharged a code is immediately placed on the borrower's account. Thisprohibits any further payments being updated to the account. The Corporation's computer systemgenerates a report outlining all rejected payments and should a payment be received after a loan hasbeen discharged the amount in question is refunded directly to the borrower.

Of the 90 cases identified below, 7 were to the value of £100 or more.

Drogheda Corp. 0 0 0 0 0 0 0



Dublin Corp. 90 £3,358.39 £37.32 7 £249.54 <£1.00 11 years



LocalAuthority

LocalAuthority

23


Dunlaoghaire-Rathdown County Council confirmed that a printout providing details of all accounts dueto mature in the following six months is provided by the Council's Loans Computer System eachmonth. Borrowers are notified approximately 1 to 2 months before the expiry date of the month thefinal payment is due and advised to make arrangements to ensure that no further payments are madeon the loan.

Immediately a loan matures, whether by payment of the final installment at the expiry of the termof the loan or when a loan is redeemed early, a "stop" is, as a matter of course, placed on theaccount. This ensures that further payments tendered in respect of the loan are receipted to theloans "overpayment" code.

When a "stop" is not placed on a redeemed account, due to an operative error by Council staff andoverpayments are made between the date of redemption and the end of the calendar month whenthe redemption was made, such payments are credited to the account and give rise to a creditbalance on the redeemed account. This is identified during the monthly loan ledger reconciliationand dealt with as a refund in the normal way.

Subsequent payments would be rejected by the receipting system and credited to the overpayment code.

Payments to the overpayments code are examined on a monthly basis and the borrower is notifiedin writing of the fact of the overpayment, requested to take action to prevent any further paymentsand invited to submit a written request for a refund. On receipt of such a request arrangements aremade to have the refund issued without delay. It is standard procedure to make a payment only onfoot of an invoice or other demand for payment in order to safeguard public funds.

Of the 53 cases identified, 7 were for amounts greater than £ 100.

Dunlaoghaire-

Rathdown Co. Cl.

53 £2,236.98 £42.21 1 £359 £1.00 5 years



LocalAuthority


24

Galway County Council explained that a weekly printout of "receipts" is produced by the Housing LoanComputer System. If a receipt is recorded against a redeemed loan, an "error" message appears onthis printout. This error message is checked to see whether a refund is due. If it is due, a list isprepared and the Customer Account number is sourced from Accounts Section.

A printout of all loans which have been paid off is checked on a weekly basis. Any credit balanceson "paid off" loans are queried . If it is established that a refund is due, a voucher is prepared withan accompanying letter informing the borrower of the necessity to cancel a standing order.

Of the 6 cases identified below, 3 are for amounts greater than £100.

Galway Co. Cl. 6 £618.26 £103.04 0 £154.25 £65.14 0



LocalAuthority

Fingal Co. Cl. 145 £662.89 £45.95 1 £289.29 <£1.00 5 years



Fingal County Council informed me that it has a system in place to anticipate the expiry of accounts.The Council say that the expiry may arise through accounts running the full term of their repaymentperiod or it may arise earlier following special payments of capital by the borrower or through theborrower making excess payments over the monthly installment on an ongoing basis.

The Council say that prior to the expiry date, borrowers are notified of the imminent expiry of theiraccount, the capital sum required to redeem the account early and invited, if they desire, to pay thiscapital amount. If this offer is not availed of, the account will run to its logical expiry date. If, on thisdate, payment of the monthly installment is up to date or in credit, the account is ceased.

The Council say that when an account is ceased it is literally taken out of the system so that anypayments offered against that account will not find a matching account number and therefore itcannot be posted to an account. The Council confirm that such payments are returned to theborrower or, more commonly, the borrower's bank is asked to take back a credit for the overpayment.When the account is ceased, the borrower is written to and advised to apply to the Council's LawAgent for release of Title. Any overpayment existing on the account is, on the application of theborrower, refunded. An account may be terminated through the proactive action of the borrower inpaying off capital outstanding at any stage. Any overpayment made on the account during thesetransactions are specifically notified to the borrower.

Of the 145 cases identified below, 22 were for amounts greater than £100.

LocalAuthority

25


Kerry County Council provided me with one of the most comprehensive and helpful reports of thisinvestigation. The Council pointed out that the total number of credits identified represents lessthan 5% of the overall number of accounts held and the particular accounts where refunds were dueinvolved payments by standing order which were not cancelled by the borrowers in time.

The Council has told me that as a result of this investigation it proposes to take the following action.Loans which naturally mature and those which are redeemed early will be identified on a monthlybasis. These loans will be tracked on a regular basis to ensure that any overpayments made arehighlighted and refunded to the borrower immediately. It also proposes to take the matter up withthe Local Government Computer Services Board, who designed the Computer Housing LoansSystem in operation in many local authorities, to ensure that the Council's system highlights loanaccounts where payments are made and where such payments should be refunded due to the expiryor redemption of a loan.

In 32 cases the refund due was £100 or more.

Kerry Co. Cl. 97 £8,516.64 £87.80 12 £623.7 £2.00 10 years



LocalAuthority

Galway Corporation advised that it has arrangements in place to ensure that overpayments do not ariseon mature / expired housing loans. Any loans which are due to expire are highlighted on a report producedfrom the Housing Loans Computer System on a monthly basis. A notification is then sent to eachborrower informing them that the loan is about to expire, the balance on the loan and that the standingorder should be stopped.

In the case of redemptions, the borrowers and / or their solicitors are reminded to cancel theirstanding orders. Should an overpayment occur, an error message is produced on their housing loansreport at the end of the month. Arrangements are then made to refund the amount overpaid and arevenue adjustment is made to clear the account balance. Arrangements have been put in place recentlyto ensure that accounts are adjusted immediately when borrowers are refunded any outstandingcredits on their accounts.


Galway Corp. 0 0 0 0 0 0 0



LocalAuthority


26

Kilkenny Corporation reported that its housing loan system in updated on a monthly basis withpayments by standing order being credited to the individual account within two weeks of the monthto which they refer. If a loan is redeemed in the middle of a month the standing order payment isnot updated at the date of redemption but any balance is shown on the account the following monthand, if a refund is due, it is dealt with at that stage. In order to eliminate the need for refunds theCorporation tries to ensure that the redemption figure given to an account holder at the time ofredemption is totally accurate. The Corporation say that the account holder is notified to cancel anystanding order with their paying bank.


Kilkenny Corp. 0 0 0 0 0 0 0



LocalAuthority

Kilkenny County Council reported that its Housing Loan System is updated on a monthly basis. It saidthat standing order payments are credited to the accounts within 10 days of the month followingthat to which they refer. Any credit balance on an account is checked on a monthly basis and if arefund is due, it is dealt with at that stage and the customer is notified to cancel the standing order.

Of the 15 refunds identified, 9 relate to refunds of £100 or more.

Kilkenny Co. Cl. 15 £2,812.15 £187.48 4 £993.10 £17.00 2 years



LocalAuthority

Kildare County Council, which also produced a very good quality report to this investigation, said thatof the 379 accounts identified refunds were issued in 262 cases. One hundred and four borrowers(104) were contacted by the Council but the notices were returned by the post office indicating thatthe borrowers were no longer at the address. A further 13 borrowers have yet to contact the Council.

Borrowers are advised, on redemption, to cancel any standing order immediately. In future theCouncil propose to examine all loans on a monthly basis and to issue refunds, if due, immediately.

Of the 379 accounts identified, 258 involved refunds of £100 or greater.

Kildare Co. Cl. 379 £67,408 £177.86 14 £1,926.92 £6.08 11 years



LocalAuthority

27


Limerick Co. Cl. 234 £33,166.32 £141.74 22 £3,456.77 <£1.00 7 years



LocalAuthority

Limerick County Council stated that it produces a report each month which gives details of theaccounts which have been paid off / expired the previous month but in respect of which moneyscontinue to be received. The borrower is advised to cease payments immediately and, in the case ofa standing order, confirmation is sought from the borrower's bank that the standing order has beencancelled. When the Council is satisfied that all the necessary steps have been taken to preventfurther credits occurring, a refund is made to the borrower.

Of the 234 cases referred to below, 107 relate to amounts of £100 or over.

Laois County Council indicted that, in February 1998, it had reviewed all loans which had expired orwere redeemed. This was almost one year before I brought the matter to its attention. A total of 55accounts were overpaid and refunds of £9,149.50 were made. The Council currently carries out aquarterly review of all loans redeemed/ expired and refunds are made as they arise.


Laois Co. Cl. 0 0 0 0 0 0 0



LocalAuthority

Leitrim County Council informed me that, in future, subsequent to the redemption of a loan, theborrower or his/her solicitor will be advised that no further payments should be made on the loan.The Council say that each account will be reviewed on a regular basis and should any overpaymentsarise, refunds will be processed as soon as possible.

Of the 27 cases referred to, 17 are for amounts of £100 or more.

Leitrim Co. Cl. 27 £3,576.80 £132.47 3 £554.72 £5.53 5 years



LocalAuthority


28

Louth County Council said that it is part of its procedures to advise borrowers to cancel a standingorder when a loan is being redeemed. A follow-up check is carried out the following month to ensurethat the standing order has been cancelled and it is now part of the Council's internal audit functionto carry out periodic checks on all loan accounts.

Of the 75 cases identified, 51 involve refunds of £100 or more.

Louth Co. Cl. 75 £13,247.23 £176.63 6 £1,045.84 £23.14 16 years



LocalAuthority

Limerick Corporation advised that some of the accounts identified may have been the subject ofrefunds in the past but it is almost impossible to be absolutely sure as the computer tapes on whichthe old data is held have conflicting densities with the current software. The Corporation say thatthe credits arose because borrowers did not cancel their standing orders and no proper trackingprocedure was in place to highlight run-out loans. The Corporation has since introduced revisedprocedures to highlight any overpayments and to make any refunds, where appropriate.

Of the 106 cases identified, 12 involved refunds of £100 or more.

Longford County Council said it has introduced measures to ensure that overpayments do not arise inthe future. Borrowers are notified to cancel any standing orders or wage deductions as appropriatefollowing redemption of their loans. A periodic check is kept on accounts which may be in creditand the necessary arrangements are made to refund any amount as soon as possible but in any eventbefore the end of the relevant financial year.

Of the 139 cases identified, 69 involved refunds of £100 or more.

Limerick Corp. 106 £5,205.32 £49.11 n/a £200 <£1.00 n/a



Longford Co. Cl. 139 £16,113.84 £115.93 18 £914.38 £5.03 n/a



LocalAuthority

LocalAuthority

29


Monaghan County Council confirmed that it has a system in place whereby a borrower is advised tocancel, by letter, his /her standing order with the paying bank. If, by accident, a payment was made, theCouncil's end of month checking procedures would highlight the overpayment and the customerwould be refunded immediately. At the end of every month the capital payoffs on loans are checked toestablish any overpayments and if any are identified these are refunded immediately. The Council alsosays that a non-live report is printed at intervals. The purpose of this is to detect if any additional paymentscome through to an expired loan and if any overpayments are detected, they are refunded immediately.


Monaghan Co. Cl. 0 0 0 0 0 0 0



LocalAuthority

Mayo County Council confirmed that it has revised its procedures, as follows. When a loan is redeemed,the details are inputted to the Housing Loan Computer System and also recorded in the manualregister. A computer printout is checked each month and, in the case of clients who do not cancelstanding orders, refunds are made. A computer printout is also checked each month in the case ofmature loans and refunds made, as appropriate.

Of the 57 accounts identified, 48 involved refunds of £100 or more.

Meath County Council reported that it now has a procedure in place to check, on a monthly basis, anycredit balances on redeemed and mature housing loans. The Council has confirmed that its computersystem now produces, when requested, a Credit Listing which identifies all accounts which show acredit balance. This listing is now regularly checked for accounts where installments are paid afterthe loan expiry date. The Council has engaged the services of a software printing company to producethe necessary statements which comply with Section 130 of the Consumer Credit Act, 1995.

Of the 217 accounts identified, 111 involved refunds of £100 or more.

Mayo Co. Cl. 57 £9,509.85 £166.84 11 £440.91 £5.67 10 years



Meath Co. Cl. 217 £27,289 £125.76 14 £872.20 £20.01 16 years



LocalAuthority

LocalAuthority


30

Roscommon County Council reported that it notifies borrowers of the completion of a loan and also tocancel their standing orders. It does not keep copies of the notification letters so it has not beenable to establish the exact date each borrower was notified of the termination of his / her loan. It isgoing to review loans which are currently showing a credit balance in order to establish whether ornot refunds were issued to the borrowers and refunds will be made in the individual cases. Thereare 42 accounts with overpayments, 8 of which have already been refunded. Of the remaining 34accounts it is difficult to establish with certainty whether or not a refund was made as the Councilsays the account in the Housing Loan System may not have been adjusted or the amount refundedmay not have been coded to the correct code in the Expenditure System.

Of the 42 accounts identified, 30 involve refunds of £100 or more.

Roscommon Co. Cl. 42 £4,937.28 £117.55 4 £397.72 £1.09 16 years



LocalAuthority

Offaly County Council confirmed that a credit listing is checked every month to ascertain if there areany overpayments on mature and redeemed housing loans. There are occasions when payments arereceived in respect of such loans. This occurs when people forget to cancel their standing orders,even though, the Council say, the borrowers are notified, in advance, that the loan is about to expireand that no further payments are due. When overpayments are received the Council writes to theborrowers immediately, requesting them to cancel the standing order and, as soon as confirmationis received that this has been done, a refund is made.

For the purpose of my investigation I am satisfied that the Council has a nil return

Offaly Co. Cl. 0 0 0 0 0 0 0



LocalAuthority

31


South Dublin County Council confirmed that each year, as a matter of course, it refunds approximately£15,000 to its borrowers in respect of mature housing loans. In addition to the refunds alreadymade, there are a number of accounts which are showing a credit balance. The Council are now inthe process of establishing if, in respect of these accounts, refunds are due. If it is established thata refund is due arrangements will be made to make the refund without delay. It should be noted that,while the number of potential refunds at 1,134 is large, 580 (or 51%) of these represent caseswhere the potential refund is less than £10.

However, in 69 instances the refund due is £100 or more.

The Council says that procedures are now in place to ensure that credits due to borrowers areautomatically refunded.

South Dublin Co. Cl. 1,134 £25,353.96 £22.36 16 £536.18 £0.01 6 years



LocalAuthority

Sligo Corporation has confirmed that it amended its procedures to ensure that any overpayments arekept to a minimum. In future it will monitor accounts on a monthly basis using an accrual report tomonitor run out capital accounts.

Of the 9 cases identified below, 1 involves a refund of £100 or more.

Sligo Corp. 9 £560.69 £62.30 1 £373.06 £9.16 7 years



LocalAuthority

Sligo County Council reported that it has introduced new procedures to avoid further overpaymentson mature housing loans. Any person redeeming a loan will be notified in writing to cancel his /herstanding order with the bank and all redeemed and expired housing loans will be checked on amonthly basis and any overpayments will be refunded.

In relation to the 102 accounts identified, 51 involve refunds of £100 or more.

Sligo Co. Cl. 102 £10,732 £105.22 3 £448.98 £10.96 8 years



LocalAuthority


32

Waterford Co. Cl. 252 £5,940.98 £23.58 3 £299.88 £1.00 8 years



Waterford County Council confirmed that it is currently taking steps to ensure that no further creditsare built up on loan accounts. A borrower is written to and asked to cancel his /her standing order.This course of action is normally effective. However, if the standing order is not cancelled in time, arefund is made at the end of the month. In future a listing will be produced by the Housing LoansSystem each month which gives a warning when an amount is received by the Council on a previouslypaid off loan. The list will be examined on a monthly basis and a refund will be made, whereappropriate.

In relation to the 252 accounts identified, 24 involve refunds of £100 or more.

LocalAuthority

Tipperary (SR) County Council has introduced new procedures to avoid overpayments, by customers,of mature housing loans. On the redemption of a loan borrowers are notified and requested to instructtheir financial institution to cancel their standing orders. If any moneys are received after redemptionthe borrower is again notified and a refund of any overpayment is arranged. A number of cases havearisen where the Council is experiencing difficulty in establishing the present location of the borrowerbut efforts are continuing to try to locate them and any money due will be refunded once they are located.

Of the 245 cases identified for refunds, 114 are for amounts of £100 or more.

Tipperary (SR) Co. Cl. 245 £28,769.54 £117.43 10 £962.80 £6.00 7 years



LocalAuthority

Tipperary (NR) County Council confirmed that it will ensure that borrowers are informed at the date of

redemption of their loan to cancel their bank standing order as soon as possible. Redemptions of a

loan are entered on the Housing Loan Computer System each month and, at the end of the month,

all such redeemed accounts are again examined to see that a "nil" balance appears on the account.

In the event of a credit balance showing on the account, the reasons for the balance are identified

and verified, and the overpayment refunded to the borrower. A further examination of all accounts is

carried out at the end of the year by reference to a listing of all run out / redeemed accounts which

is produced by the Housing Loans Computer System. All credit balances are examined and refunded

to the borrowers as appropriate.

Of the 16 accounts identified, 12 involve refunds greater than £100.

Tipperary (NR) Co. Cl. 16 £2,389.69 £149.36 2 £445.30 £40.00 2 years



LocalAuthority

33


Waterford Corp. 144 £17,162.85 £119.19 16 £700.05 £12.70 15 years



LocalAuthority

Waterford Corporation advised that, in conjunction with the Local Government Computer ServicesBoard, it will be implementing a new computer system that will highlight loans which have matured.There will be an immediate follow-up to avoid further overpayments. In the case of redeemed loans,borrowers are now informed when they redeem their loans that they should stop any bank paymentsthe month following the redemption of their loan.

Of the 144 accounts identified, 56 involve refunds of £100 or more.

Westmeath Co. Cl. 392 £32,045.48 £81.75 12 £1,505.04 £10.00 11 years



Westmeath County Council reported that, since 1996, it has been systematically refunding anyoverpayments on loans that arose as a result of redemptions. It has not been systematically refundingmoney where overpayments arose as a result of the loan running out, i.e. having expired. As a resultof the current exercise the Council is in the process of refunding all overpayments in excess of £10.However, some difficulties are being experienced in tracing some borrowers as a number of themhave changed address since the original loan was taken out. The Council is also systematicallychecking, on a monthly basis, all redemptions and loan run outs so as to ensure that no overpaymentsare made in the future.


LocalAuthority

Wexford Corp. 52 £4,782.67 £91.97 12 £465.01 £2.00 11 years



Wexford Corporation has confirmed that on identification of any overpayment on a housing loan, by bankgiro, arrangements are made to refund it immediately. The following preventative measures have beenintroduced to ensure that overpayments on mature housing loans are kept to a minimum. Allredemption letters issued to borrowers include a statement advising them that they must terminatetheir standing orders. It also confirms that all redemption calculations are double-checked prior totheir being issued to its borrowers.


LocalAuthority


34

Wexford Co. Cl. £8,717.99 £108.97 7 £910 £20.00 4 years



Wicklow Co. Cl. 41 £6,905.37 £168.42 16 £2,396.48 £0.08 2 years



Wexford County Council stated that overpayments on redeemed and expired housing loans are afrequent occurrence. They are mainly of a routine nature whereby a couple of standing orderrepayments are made after the redemption / expiry date of the loan despite the Council notifying theborrower of the need to cancel a standing order. The Council advises all borrowers who redeem theirloans, together with those whose loans have expired, to cancel their standing order and to notify theCouncil of any change of address. As part of their ongoing routine operations the Council refundedover £17,000 in 1997 and over £19,000 in 1998.

The figure of £8,717 referred to below represents (a) refunds of payments which were made to theCouncil after the loans had been redeemed and (b) possible refunds in relation to credits on accountswhich were redeemed prior to 1994.

The Council scans all accounts periodically for expired loans which have credit balances. Where suchbalances are identified a refund is made as soon as possible. A recent review of accounts producedno credit balances of any significance. In the light of recent developments arising from thisinvestigation the Council is reviewing all accounts on a quarterly basis.

Systems have now been put in place in order to monitor on a monthly basis any payments submittedand refunds will be made accordingly.

Of the 80 cases identified below, 10 are for amounts of £100 or more.

LocalAuthority

80

LocalAuthority

Wicklow County Council stated that all overpayments were made by way of standing order via theborrowers' bank and no payments were made through the Council's cash office. The Council onlyoperate payments by standing order at present. There is no facility for the operation of a direct debitsystem but it is envisaged that this facility may become available in the future. The Council will thenbe in a position to adjust the amount required thus eliminating any potential for overpayments. SinceMarch 1999, it is the Council's policy to notify borrowers on redemption that the account has beenredeemed and that the standing order should be terminated. The onus is on the borrower to cancela standing order.

It is the Council's intention to monitor a monthly credit listing to ensure that overpayments areacknowledged and dealt with promptly.

Of the 41 accounts referred to below, 21 involve refunds of £100 or more.

35

Appendix 3

Consumer Price Index


Series November 1982=100

Source: Central Statistics Office

MidJan.

-

102.5

112.9

119.9

125.4

129.7

132.2

136.6

142.4

146.0

151.4

154.2

156.9

160.9

164.1

165.7

168.7

171.2

178.0

-

102.5

112.9

119.9

125.4

129.7

132.2

136.6

142.4

146.0

151.4

154.2

156.9

160.9

164.1

166.7

169.5

172.2

179.5

-

102.5

112.9

119.9

125.4

129.7

132.2

136.6

142.4

146.0

151.4

154.2

156.9

160.9

164.1

166.8

170.3

172.7

180.7

-

105.3

115.5

121.5

126.9

130.5

132.9

138.0

142.8

147.2

152.5

153.9

158.2

162.5

164.8

167.0

171.2

173.5

182.0

-

105.3

115.5

121.5

126.9

130.5

132.9

138.0

142.8

147.2

152.5

153.9

158.2

162.5

164.8

167.3

171.8

174.3

183.3

-

105.3

115.5

121.5

126.9

130.5

132.9

138.0

142.8

147.2

152.5

153.9

158.2

162.5

164.8

167.8

172.7

174.8

-

-

108.3

116.9

123.3

127.1

131.2

134.0

140.0

144.1

149.1

153.4

155.5

159.4

163.3

165.7

167.7

172.2

174.2

-

-

108.3

116.9

123.3

127.1

131.2

134.0

140.0

144.1

149.1

153.4

155.5

159.4

163.3

165.7

167.3

172.7

175.2

-

-

108.3

116.9

123.3

127.1

131.2

134.0

140.0

144.1

149.1

153.4

155.5

159.4

163.3

165.7

168.2

173.2

175.8

-

-

110.3

117.7

123.5

127.4

131.3

134.8

141.1

144.9

150.1

153.7

155.9

159.6

163.4

166.5

168.5

173.3

176.0

-

100.0

110.3

117.7

123.5

127.4

131.3

134.8

141.1

144.9

150.1

153.7

155.9

159.6

163.4

166.5

169.2

172.7

176.3

-

100.0

110.3

117.7

123.5

127.4

131.3

134.8

141.1

144.9

150.1

153.7

155.9

159.6

163.4

166.5

169.7

172.5

178.3

-

-

106.6

115.8

122.0

126.7

130.7

133.5

138.9

143.6

148.1

152.8

154.9

158.6

162.5

165.2

167.7

171.7

174.5

-

MidFeb.

MidMar.

MidApr.

MidMay

MidJune

MidJuly

MidAug.

MidSept.

MidOct.

MidNov.

MidDec.

Ave.Index

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

YEAR

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