Local authorities "negligently" deposited almost £33 million in Icelandic banks in the final days before their collapse, the local government spending watchdog has said.
The Audit Commission found that seven English authorities breached official guidance and their own treasury management protocols in continuing to invest in Iceland after the banks' credit ratings were downgraded below acceptable levels.
One authority failed to open an email warning of the ratings change, another was using out of date information, while a third exceeded its own limit for deposits in a single bank.
In total, £32.8 million was deposited between the downgrading of the banks' rating to "adequate" on September 30 last year and the collapse of the Glitnir and Landsbanki banks on October 7.
The biggest investor, according to the Audit Commission, was the South Yorkshire Pensions Authority which deposited £10 million on October 2, followed by Kent County Council which made two deposits totalling £8.3 million on October 1 and 2.
The others to make deposits during that period were North East Lincolnshire Council (£4.5 million), Redcar and Cleveland Borough Council (£4 million), Restormel Borough Council (£3 million), London Borough of Havering (£2 million), and Bridgnorth District Council (£1 million).
The commission said that the authorities involved had "negligently deposited money after credit ratings for Icelandic banks were downgraded below acceptable levels."
In all, 127 English local authorities had a total of £954 million deposited with Glitnir and Landsbanki when they went into administration. It remains unclear how much - if any - of that money will be recovered. While overall the figure accounts for just 3.1% of the total funds held on deposit by English authorities, 18 of those involved have more money at risk than they have in their reserves.
Local government minister John Healey said: "The Audit Commission's report is clear that our guidance rightly emphasises an approach to investments based on identifying and managing risk. But they do conclude that some authorities may have struggled interpreting credit ratings and assessing the type of investment that suits them best - balancing appropriate risk with higher levels of security and liquidity.
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"It is right that the guidance is as clear as possible. That is why I have asked my officials to work with the Audit Commission, CIPFA (Chartered Institute of Public Finance and Accountancy) and the local government associations to assess how it might be clarified in the light of both this report and the forthcoming report from the Communities and Local Government Select Committee."
