AUDITORS have refused to sign off Trafford Council’s annual accounts due to a disagreement over a £20m loan.

The authority took out a Lender Option Borrower Option loan (LOBO) in 2011 – and has been accounting for it the same way each year.

It is a maturity loan taken out for a 50-year period with no repayments until the end of its term.

However, the average annual interest over the last four years has cost the authority £1.4m.

The council said the loan was taken out as part of its ‘wider borrowing’ policy – and was not taken out for any particular investment.

However, director Mark Heap, from auditors Grant Thornton, said the money should not be treated as a loan but as a ‘financial instrument’ – and must be accounted for differently.

If this is correct  – and the 2017/18 accounts have to be changed – the council will need to put aside £23.5m from its reserves until the loan is paid in full – and that will take decades.  

LOBO loans were designed to protect the borrower from rising interest rates – and in the early-mid-20s the protection they offered attracted risk-averse councils.

The trouble was if interest rates fell – as they did – the borrower still has to pay the higher rate.

Grant Thornton is currently seeking advice from a third party about the appropriate accounting method.

During a recent meeting the council’s chief finance officer Nicola Bishop said she did not agree with the auditors findings.

“I have taken external advise and I believe it is a loan,” she said.

“Other authorities who have these loans have had their accounts signed off. 

“However, if we accept it is a financial instrument – and the government doesn’t give us a statutory override – then £23.5m will have to be set aside to cover the loan.

“On that basis I’m not planning on adjusting the accounts.”

Members agreed that if the advise from Grant Thornton and the Government states that the accounts are, in fact, correct then committee chairman Cllr Brian Brotherton has been delegated to sign them off.

However, if the only choice is to ‘qualify’ the return, which suggests not all accounting principles have been maintained, an emergency meeting will be called to discuss the issue further.