It has emerged that a cash-strapped London borough misappropriated almost £40 million from a fund designated for social housing.

The incident contributed to Croydon Council receiving its third insolvency warning in two years, according to the Local Democracy Reporting Service.

Susmita Sen, director of housing for the municipality, explained that £9.5 million each year was deducted from the Housing Revenue Account (HRA).

A council subcommittee heard the discovery earlier this week.

The HRA is intended to be used exclusively for the authority’s social housing stock, and maintenance and repair bills for council homes are paid from this account.

Ms. Sen stated, “What we’ve determined is that the HRA has been overcharged for numerous years.”

“These are general fund expenditures for services such as the homelessness service…

To correct the situation, we intend to repay around £40 million to the HRA. It’s bad news for the general fund, but wonderful news for the HRA.”

Ms. Sen stated that other municipal governments have been in a similar situation and had to return the funds.

She cautioned that, even though the present data stretch back to 2019, further erroneous charges to the account may be revealed if earlier accounts are reexamined. The last three years of Croydon Council’s financial statements have not been approved by external auditors.

Local libraries, a retail park, and community hubs may need to be sold to balance the books after the authority declared bankruptcy for the third time in a single month.

It submitted a Section 114 notice after discovering a £130 million budget deficit for the following fiscal year. Its conservative mayor, Jason Perry, cited “historical mismanagement” as the cause.

Croydon declared bankruptcy in 2020 and received a £120 million bailout loan from the federal government; it must now pay £47 million annually to cover its £1.6 billion debt.

The council awaits word on whether the federal government will assist the beleaguered authority.