By Paul Burnell
BBC File On 4
It was an unopened e-mail that cost a council dearly.
Councils might only receive 10% of their Icelandic investments
As Kent County Council officials prepared to make a £3m deposit into an Icelandic bank, an e-mail from the council's financial consultants with warnings which should have prevented the transaction, languished unopened in an official's inbox.
The money was deposited on 1 October 2008 days before the Icelandic banking system went into meltdown.
But as Liberal Democrat Coun Trudy Dean explained to BBC File On 4, "The named individual did not open the email until after the deposit was made and there are clearly questions being asked whether that process was sufficiently robust."
The e-mail from the council's consultants were addressed to only one named individual, but he had been on holiday that day, and had put the money in the bank in good faith the day after, before opening his mail.
Kent's Cabinet member for finance, Conservative Nick Chard admitted, "There was human error involved."
Many councils who have put themselves into a very risky position sort of sleepwalked into it.
Dr Phyllis Starkey, Commons Communites and Local Government Select Committee
Mr Chard said they had now altered their systems to make sure others in the same department also got e-mails, to try to avoid a repeat of the same mistake.
But even before this glitch, the council had invested heavily in Iceland. In all it had deposited £50m - the largest single sum from a council.
But Kent is not the only local authority to be financially embarrassed by the Icelandic collapse.
It is only one of 125 English councils, nine Welsh councils and eight Scottish local authorities, with a total of almost a billion pounds of frozen investments - cash which could provide interest income to supplement their budgets hit by rising costs and a drop in income caused by the recession.
According to Dr Phyllis Starkey, chair of the Commons, Communities and Local Government Select Committee a lot of individuals and bodies have made mistakes.
"A great many people who should have known better seem to have been asleep at the wheel whilst this crisis was developing," she said.
"Very many councils who have put themselves into a very risky position sort of sleepwalked into it."
Some councils blame advisers hired for consultancy work.
Butlers, which has more than 140 local authority clients was the firm informing Kent that credit ratings for Icelandic banks had slipped just days before the crash.
But months earlier, councillors and officials from Wyre Forest Council believe the company did little to flag up the problems in Iceland.
Butlers said credit ratings for Icelandic banks were within the permitted range of investment grades.
Coun Howard Martin, who chaired the Wyre Forest Council panel which scrutinised its Icelandic losses said, "The advice we were receiving was that Icelandic banks were blue chip."
However Butlers maintain it was providing information not advice to councils.
Its Managing Director Chris Anthony told a the parliamentary select committee inquiry, "We pass the information onto our clients with regard to credit ratings.
"We keep them fully informed....and we believe that with all the information they have at their fingertips as professional investors they should be able to make the decisions themselves."
So if councils and their advisers are in dispute about who is to blame for this financial calamity, what of The Audit Commission, the government sponsored spending watchdog charged with checking if public bodies are spending their money wisely?
Even the Commission caught a cold in Iceland as it loaned £10m to Icelandic institutions.
"The fact that the Audit Commission itself has got significant sums at risk in Icelandic banks demonstrates exactly that they thought this risk was so low, they hadn't even checked what they themselves were doing," Dr Starkey told File On 4.
One analyst says councils will not get a significant payouts from Iceland's failed banks
Her select committee is due next month to publish a report based on its inquiry but without revealing its contents she implied it will not be an easy read for the Audit Commission, consultants and those responsible for local authority finances.
"I think on the basis of the evidence it will be highly critical of some local authorities or the Audit Commission and certainly some of the treasury management advisors," she said.
In a statement the Audit Commission told the BBC: "The commission has been entirely transparent about its exposure to the failure of the Icelandic banks.
"It made the facts public on 16 October and commissioned and published a review of the investments, the findings of which were verified by KPMG."
But despite promoting values of accountability and transparency on tis own website, no-one from the audit commission would be interviewed by File On 4.
Instead the statement pointed out, "The findings of the review have been acted upon and we have nothing to add to the detailed reports we have already put in to the public domain."
Meanwhile for the councils with cash trapped in Iceland the future looks bleak according to Mark Horsfield, of Arlingclose which offers investment advice to more than 50 councils.
Mr Horsfield has been tracking the market in unsecured debt linked to the banking collapse.
"It is trading at the moment somewhere between half a pence in the pound and nine-and-a-half pence in the pound," he told File On 4, dashing local government hopes of getting their money back in the months to come.
He added that this was a "reasonable indicator" of the likely payout unless "a deal is structured" between governments and the liquidator.
Mr Horsfield thinks it is unlikely that councils will receive significant payouts.
"As an accountant with my prudent hat on, I'd be scaling back my expectations," he added.