Seven local authorities acted negligently in investing almost £33m in Icelandic banks which later collapsed, a report has said.

The Audit Commission found that the councils in question breached regulations set out by the Chartered Institute of Public Finance (Cipfa) and Accountancy. One authority failed to realise that a bank’s credit rating had been downgraded because they failed to open an email.

In total, £32.8m 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 commission, was the South Yorkshire Pensions Authority which deposited £10m on October 2, followed by Kent County Council which made two deposits totalling £8.3m on October 1 and 2.

The others to make deposits during that period were North East Lincolnshire Council (£4.5m), Redcar and Cleveland Borough Council (£4m), Restormel Borough Council (£3m), London Borough of Havering (£2m), and Bridgnorth District Council (£1m).

The authorities involved had ‘negligently deposited money after credit ratings for Icelandic banks were downgraded below acceptable levels’, said the report.

Audit Commission chief executive Steve Bundred said the circumstances which led to the bank losses were “highly exceptional”, but still of great concern. “We found that most local authorities heeded the warning signs about Icelandic banks,” he said. “But some did not, and a number were negligent. Our report shows that there are lessons that must be learned by everyone.”

Local government minister John Healey said the report indicated that some councils were ill-equipped to assess which investments suited them best. “It is right that the guidance is as clear as possible,” Healey said.

“That is why I have asked my officials to work with the Audit Commission, Cipfa 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."