The Department for Communities and Local Government has been reprimanded by the Whitehall spending watchdog after running up an unauthorised overdraft of £217 million.
Head of the National Audit Office (NAO) Amyas Morse announced that he was “qualifying” his regularity opinion of the department's financial statements because of its breach of Treasury spending limits.
The finding is an embarrassment for Communities Secretary Eric Pickles, who has regularly lectured local councils on the need to get their finances under control.
Delivering his Commons statement on the Government's spending review on Wednesday, Chancellor George Osborne praised Mr Pickles as “the model of lean government”.
But the NAO disclosed that the Treasury had imposed a £20,000 fine on his department as a punishment for its poor financial management.
In a further setback, the NAO found that the department's local government capital expenditure limit of £80,000 had been exceeded by almost £1.2 million as a result of overspending by two of its arm's-length bodies - the Valuation Tribunal Service and the Commission of Local Administration in England.
Chairman of the Commons Public Accounts Committee Margaret Hodge described the failure of the department to control its finances as “a shocking example of incompetence”.
“This is an unacceptable abuse and waste of public money that could have been avoided with the right financial oversight,” she said.
“I am staggered that the department has been so blase with its resources and so poor at staying within some of its budgets.
“If local authorities, for whom the department is responsible, acted in this way, the department would be down on them like a ton of bricks. The Department for Communities and Local Government must learn lessons and ensure it does not repeat these mistakes.”
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