Learning from Regulatory Downgrades 2022

Introduction

“ Those who do not learn history are doomed to repeat it” George Santayana

For the past 9 years I’ve been doing an annual report snappily entitled Learning from Regulatory Downgrades. This identifies all the lessons from downgrades and links them to the quotes used by the Regulator. This year I’ve reviewed 7 governance downgrades and all 18 Regulatory Notices issued by the Regulator during 2021/22. The report comes in the wake of the latest fad for ‘naming and shaming’. I’m more interested in ensuring that Board Members, councillors and tenants read and learn from this report and avoid repeating the mistakes of the past.

As with previous years there remains a core of topics around Business Planning, Risk Management, Internal Controls and Stress Testing. These remain central to good governance and sound running of landlord services.

There continue to be social landlords who are non-compliant on health and safety issues. These cover the main 6 topics of Fire, Electrical, Asbestos, Gas, Water and Lift Safety. One landlord, LB Barking and Dagenham, manages to cover all six. Ensuring the safety of tenants must a vital concern for Boards and councillors alike.

However this is now extended with the LB Croydon Regulatory Notice which introduced three new categories: Damp and Mould, of which we will hear much more, Complaints and Treating Tenants with fairness and respect, a requirement which I inserted into the Framework. It is worth noting that the Housing Ombudsman has been more proactive on complaints, and has been prepared to issue severe maladministration notices on complaint handling. It remains to be seen whether this results in regulatory action.

Governance also continues with to be of concern, with issues raised both about the competence of governing bodies, the quality of information shared with them and their willingness to challenge executive staff and inadequate targets. The proposed Tenant Satisfaction Measures should help focus minds on target setting.

For ease of reference I’ve separated those 9 Regulatory Notices into those covering ‘exempt’ or lease based providers. I’m pleased that Government has finally paid attention to this area where some such providers are behaving in ways which drain the public purse whilst failing to provide adequate protection for some of our most vulnerable citizens. Many thanks to Commonweal Housing for their focus on this area. 

For exempt providers the main four recurring topics are around governance, rents, risk and business planning and working with third party agents.

Five local authorities received Regulatory Notices this year, all on health and safety compliance. This is a warning that for at least some Local Authorities meeting the existing regulatory requirements remains a challenge, and that they are poorly equipped for the more proactive future approach from the Regulator.

Welcome news about progress with legislation on the proposals in the Social Housing White Paper. These are likely to bring about more attention to what are called consumer standards with a proactive approach.

Phil Morgan

Former Executive Director Tenant Services, 

Regulator of Social Housing

28^th April 2022

pjsunited@gmail.com

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Downgrades during 2021/22

Regulatory Notices during 2021/22 – “Exempt” providers/issues

Please note that Larch HA was also issued with a Regulatory Notice having entered the regulators insolvency process.

Landlords (not including ‘exempt’ issues)

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Areas covered by Regulatory Downgrades

x

A. Regulation and Boards

Under co-regulation, boards and councillors are responsible for ensuring the Regulatory Framework and Standards are met. This means understanding – and meeting – those requirements, as well as ensuring a professional approach to the Regulator and regulation.  The Regulator consults formally, and informally, on changes to the Regulatory Framework and Regulating the Standards. Boards should keep abreast of such consultations and the impact of subsequent changes. Ignorance is no excuse!

1. Keep up to Date

Boards need to ensure that they are working to the current version of regulatory requirements. These include the requirement to assess regulatory compliance annually and publish that assessment in their annual accounts.

Connexus

Consequent risks to the organisation were exacerbated by a culture at a senior level which lacked awareness and understanding of the organisation’s governance arrangements and the regulatory environment within which it operates.

2. Tell the Regulator

It’s important to tell the Regulator as soon as you become aware that things are wrong. Too often, landlords thought they wouldn’t tell the Regulator about problems until they had tried to put them right first. Or wait until their In Depth Assessment was due. Likewise landlords need to ensure their reports are accurate. 

Tuntum 

Tuntum also needs to improve its commitment to the transparency requirements of co-regulation. In particular, notifying the regulator when issues arise that have the potential to impact on its compliance with regulatory standards 

Eldonian CBHA

Eldonian CBHA did not alert the regulator to the existence of the independent governance report which set out a range of long standing governance concerns

3. Hit HCA Deadlines on time and accurately

Ensuring that reports and returns to the HCA are on time and accurate is a basic building block in the relationship with the Regulator. Boards can ensure that these returns are reported to boards and monitor their timeliness. Accuracy is essential for both the relationship and the integrity of the board. 

Colne Housing Society

We found that the quarterly return for March 2016 had been completed incorrectly with an overstatement of forecast cash flow outgoings. Also, it was not possible to reconcile the treasury position reported to the board and that reported to the regulator through the quarterly returns. Colne’s most recent financial forecast regulatory return described a less favourable financial position than the business plan agreed by the board in May that it was supposed to replicate. 

These findings are indicative of a lack of overall control and review of submitted data which has resulted in a failure to submit a valid financial forecast return to the regulator by the specified deadline. 

4. Rent

Rent remains an area of current challenge with both examples of non-exempt and exempt landlords having different issues. 

St Mungo 

St Mungo is unable to assure itself that it is operating in line with rent setting requirements and needs to strengthen its controls and assurance around Rent Standard compliance

Auckland Home Solutions CIC

Auckland has been unable to demonstrate that it complies with the Rent Standard. Auckland has reported a significant majority of its stock is Specialised Supported Housing (SSH) or Temporary Social Housing (TSH)and therefore is excepted from the standard, but we lack assurance on how the board has satisfied itself that it is meeting this exception criteria

5.Consultation including disposal of tenanted housing

Deregulation removed the requirement to seek permission from the regulator before disposal of stock, including tenanted stock. However this did not remove the responsibility of providers to go through due process when considering disposal. In addition providers must be able to consult tenants effectively. 

Prospect Housing 

The contractual arrangements entered into with third parties has fettered Prospect’s ability to undertake appropriate consultation with tenants, as required under the Tenant Involvement and Empowerment Standard. 

October 2020

Moat Housing

Our judgement is that Moat has not adequately reflected the changed operating environment, arising from deregulation measures which removed the regulator’s powers to give consents for disposals, in its decision making. There was insufficient board oversight of the disposal. As a result, the board was unable to assure itself that the disposal met legal and regulatory requirements. Moat’s assurance that the disposal met its charitable objectives was inadequate. Although legal advice was taken in respect of the transaction, Moat did not obtain specific legal advice regarding the charitable considerations arising from the disposal. Due diligence of the proposed purchaser was insufficiently robust to demonstrate accountability to tenants and obligations to protect social housing assets. The disposal decision was delegated solely on financial criteria. No objective report covering the wider implications of the sale was presented to decision makers to provide assurance that the disposal met Moat’s charitable objectives and other regulatory expectations. 

B. Consumer Standards

6. Health and Safety

While consumer regulation is not actively regulated, it undergoes a ‘serious detriment’ test. Nearly all of the breaches of consumer standards feature health and safety. This also applies to Councils who are not subject to Governance ratings but can be issued with Regulatory Notices. It is worth noting that the Regulator does see weaknesses in health and safety as a governance issue. This section now covers all main health and safety issues including gas, fire, water, electrical, asbestos and lift safety, and safeguarding as well as wider systemic issues. This year also features damp and mould, of which we will hear far more, complaints and treating tenants with fairness and respect. It also covers where mergers have taken place and issued shown during due diligence were not taken on board.

Prospect Housing

Reviews carried out into two serious safeguarding incidents have identified weaknesses in procedures and controls of the landlord over services delivered by third-party managing agents. Prospect identified a range of overdue statutory health and safety checks but had difficulty in ensuring those were remedied through the third-party service providers.

Red Kite

Compliance reporting on landlord health and safety obligations …… is not sufficient to enable the board to exercise effective oversight 

 Accord

We have also concluded that concerns about landlord health and safety compliance data raised by advisors undertaking due diligence, as part of the merger process, were not responded to appropriately by either legacy organisation

Welwyn Hatfield

In respect of fire safety, Welwyn Hatfield BC has a statutory duty to regularly assess the risk of fire and to take precautions to prevent the risk of fire. In this regard the regulator has learned that around 90% of applicable buildings had an overdue fire risk assessment (FRA). There were also thousands of remedial actions identified in FRAs carried out in 2018 that had not been completed, around half of which had been given the highest risk rating and needed to be done immediately, or as soon as reasonably practical.

With regard to electrical safety, Welwyn Hatfield BC is required to ensure that electrical installations are in working and safe condition both at the start of any tenancy and throughout that tenancy. Welwyn Hatfield BC has reported that hundreds of its properties have never been inspected and a smaller number were inspected over ten years ago and the lack of recent inspections means the Council failed to have an assurance they were suitably maintained. For asbestos safety, the evidence provided by Welwyn Hatfield BC shows that over a hundred re-inspections and reviews of communal areas were overdue. The evidence also shows that with regards to water safety, hundreds of properties did not have a compliant Legionella Risk Assessment (LRA). The Council was yet to establish whether a similar number of properties required an LRA. 

7. Repairs

For some time there had only been one instance of customer service failure breaching the serious detriment test. This initially resulted in a G3 rating and reoccurrences (despite reassurances) have resulted in a downgrade for the resulting merged Group. More recently the issue of damp and mould has raised concerns about the repairs service too.

LB Croydon

Through our investigation, including our engagement with LB Croydon and the information it has supplied, as well as our consideration of an independent report commissioned by the council, the evidence shows that these issues arose as a result of widespread and longstanding failures by LB Croydon in relation to its repairs and maintenance service. The independent report found that the issues arose as a result of numerous factors including staffing and cultural issues, issues in how the council responded to tenants’ concerns and complaints and weak performance management.

Clarion Group (which now includes Circle)

During early 2016 the regulator had received assurance that the performance of Circle’s emergency and urgent repairs service in east London, which had been the subject of a regulatory notice from April 2015, had improved significantly and was then at an adequate level. The regulator therefore removed the regulatory notice. 

The referrals received after that point have related to a broad range of issues, including: performance of heating and hot water repairs services, more general repairs and maintenance including, in some cases, services provided to vulnerable and potentially vulnerable tenants, difficulties in contacting Circle to raise issues and complaints and perceived poor responses by Circle to complaints, leading to a very large number of complaints being outstanding for long periods of time. 

These referrals include a large number of what the regulator terms “statutory referrals” from councillors and MPs, as well as complaints from individual tenants. Collectively, they relate to hundreds of individual repairs issues raised by tenants, and hundreds of complaints about Circle’s handling of repairs and accessing Circle’s services. A high proportion of those complaints have been unresolved for long periods of time.

8. Tenancy Standard

Showing the need to comply with tenancy law for all tenants including evictions. 

WM Housing

WM had failed to ensure that the implementation of its eviction processes provided licensees at this scheme with the level of protection required by law. WM Housing had failed to ensure that the implementation of its eviction processes provided licencees at this scheme with the level of protection required in law. That meant that all licencees at this scheme may have been at risk of an unlawful eviction. WM Housing has provided assurance that the issues identified only relate to this one scheme, but the regulator also noted that this issued had continued for up to two years

Westmoreland Supported Housing

In addition, the board has failed to ensure its tenancy management is effective prompting intervention from a local authority and the regulator after Westmoreland issued eviction notices to a number of its tenants to enable it to hand back properties rather than carrying out a more managed process. The way the board handled this situation and the subsequent sub-optimal outcome that resulted is a significant contributory factor in the regulator’s conclusion that Westmoreland’s governance arrangements are not effective. 

9. Damp and Mould

This shows that for health and safety issues that the existing powers of the Regulator can play a significant role. The new regulatory regime, albeit it some way off, will allow the Regulator to be proactive on these issues, rather than reactive in this case. It will also allow the Regulator to regulate Local Authorities who make up the bulk of health and safety regulatory notices.

LB Croydon

…..three cases of tenants living in an LB Croydon tower block with significant leaks, damp and mould in their homes, as well as concerns about electrical safety. Through our investigation, including our engagement with LB Croydon and the information it has supplied, as well as our consideration of an independent report commissioned by the council, the evidence shows that these issues arose as a result of widespread and longstanding failures by LB Croydon in relation to its repairs and maintenance service. The independent report found that the issues arose as a result of numerous factors including staffing and cultural issues, issues in how the council responded to tenants’ concerns and complaints and weak performance management. Taking into account the issues present at the LB Croydon tower block, and the wider evidence about how LB Croydon has managed its housing stock and engaged with tenants, the regulator has concluded that LB Croydon has breached the Home Standard and the Tenant Involvement and Empowerment Standard. The evidence shows that some tenants’ homes were uninhabitable and apparently unsafe, and the evidence demonstrates that other tenants may also have been at risk of serious harm as a result of the conditions in their home. As a result, there was actual, and the potential for serious detriment to tenants.

10. Complaints

There had been a reference to complaints as part of the Circle 33/Clarion rulings above. This is also covered in the more recent LB Croydon Regulatory Notice. It is worth noting that the Housing Ombudsman has been more proactive on complaints, and has been prepared to issue severe maladministration notices on complaint handling. It remains to be seen whether this results in regulatory action. 

LB Croydon

 The independent report found that the issues arose as a result of numerous factors including staffing and cultural issues, issues in how the council responded to tenants’ concerns and complaints and weak performance management

The evidence also shows that LB Croydon has ………..failed to provide an effective process for tenants to raise complaints

11. Treating tenants with fairness and respect

Ironically a clause which I inserted into the Regulatory Framework. Fairness and respect have been quoted on a wide range of government, regulator and landlord documents. This is the first time I can recall it being referenced in a regulatory notice or judgement.

LB Croydon

 The evidence also shows that LB Croydon has failed to treat tenants with fairness and respect

C. Hubris – the Threat to Good Governance 

Governance remains key to the effective running of housing associations. However, for a small minority of landlords and Board Members, rules are ‘meant to be broken’ – or ignored. Often they experience other difficulties as hubris clouds their vision of what their role should be.   

12. Comply and Publish (Non)Compliance with the Code of Governance

Housing associations are able to choose an appropriate Code of Governance.  Having chosen their preferred code, there is then a requirement to ‘comply or explain’.  Some associations have not explained at all, others have not given a satisfactory explanation for their non-compliance.  The National Housing Federation recently significantly updated their Code of Governance and providers who use this will be looking to have shown compliance by April 2022.

Orwell Housing

To support continued effective delivery, the board needs to strengthen its capacity to review and challenge its own governance arrangements. It needs to ensure that it reviews its governance performance in a rigorous and evidence-based way. Recent reviews of compliance with its code of governance have not been thorough and the board has not explicitly confirmed its compliance. 

September 2018

13. Nine or Six Years Maximum

The new NHF Code of Governance now identifies 6 years as the new normal, with the ability to extend by a further 3 years if they have set criteria for doing so. Previously some landlords had members with 20 or even 40 years board membership. Excessive length of membership resulted in poorer governance and overly close relationships between board and staff. 

Tuntum Housing Association Limited 

Tuntum does not comply with the provisions of its chosen code of governance in relation to maximum terms of office for board members. The code specifies maximum terms of nine years but Tuntum has made rule changes which extend this to a 12-year maximum. The association currently lacks clear succession plans for the chair and other board members. In addition, the criteria used by the board for extending terms of office should be clearly specified.

14. Board Composition and Skills

As housing associations diversify in their operations, boards face a growing range of issues on which they need expertise. Examples include development, marketing, finance, commercial activity and treasury management. You need to ensure the board covers all the necessary bases, and not be afraid of change, including change in your governing documents, to ensure this happens. Being tenant-led does not remove Boards from these requirements. The Board should also ensure conflicts of interest are identified and managed appropriately. 

Sustain Housing

Sustain’s board membership did not previously include any independent non-executive members and the provider was not compliant with its chosen code of governance. Inherent conflicts of interest had arisen as a result of related party transactions to companies owned by Sustain’s executives. 

WATMOS

The board is not currently operating at a sufficiently strategic level to ensure that the provider’s agreed strategy reflects its current activities, and that it is being delivered in a cost-effective manner. WATMOS needs to strengthen its assurance on the capacity and skills mix on its board to ensure that it is operating with an appropriate degree of skill, effectiveness, and foresight.

15. Annual Appraisals

Having got your board in place there should be a regular mechanism for appraising their effectiveness and identifying areas for personal development and any gaps in board skills.

Unity Housing

Regular formal board and executive appraisals have not been carried out in recent years, although these have recently been completed with external support. The IDA identified that board skills assessment; succession planning and some aspects of reporting arrangements also require improvement.

16. Board size

Less is more. Make sure your board is 12 or less. There’s a strong body of research published showing that boards that are too big are less effective. It can be hard for larger boards to admit that they are too big and, even harder, that some board members will have to go. The Regulator will want to know if an oversize board has a plan to achieve compliance, and within a reasonable timeframe. 

Bournemouth Churches Housing Association Limited 

The size of BCHA’s board exceeds the maximum specified in its code of governance. It has no plans to achieve compliance and the regulator does not have assurance that it has carried out a robust assessment which adequately supports any case for non-compliance.

17. Review Your Governance

There should be a regular cycle of reviewing the board and its governance arrangements to ensure that they remain fit for purpose.  Having done the review it also helps to take it seriously and implement the recommendations. And, as with many of the matters included in this report, it can be useful to commission (and take note of) external advice.

Abbeyfield Society

The provider has not had an external review of board effectiveness for several years.

18. Board Payment 

Board payment should be proportionate and published. Excessive payments will be damaging for that landlord (and the sector). 

Bedfordshire Pilgrims Housing Association Limited 

BPHA’s code of governance also states that where board members are paid, the agreed payment levels must be appropriate to the organisation’s size, complexity and resources. The regulator lacks assurance that in reaching a decision to increase payments to non-executive directors to levels above sector norms, the board gave adequate consideration to remuneration in relation to BPHA’s size and complexity. In addition, the regulator does not have sufficient assurance that BPHA is meeting the provision of its code that where board members are paid, payment should be linked to specific duties against which performance can be assessed.

BPHA did not satisfy the provision of its code that where board members receive remuneration, details of these payments should be published on a named basis

19. Board Management of its role.

Boards have to fulfil their roles successfully.  

Salvation Army HA

Following the completion of a Stability Check and Reactive Engagement, the regulator has concluded that it lacks assurance that the board of SAHA has been managing its affairs with an appropriate degree of skill, diligence, effectiveness, prudence and foresight. 

Concept HA CIC

Concept’s governance framework has failed to develop at the same pace as its growth and is inadequate for an organisation of its current size. In the last 12 months, Concept has started to develop and introduce new governance arrangements, but these are underdeveloped and yet to be embedded. At the time the work to develop governance arrangements was started Concept was already providing in excess of 3,000 units. Concept has reported in its annual accounts, for year-end August 2020 (published in June 2021), that there are a number of areas of non-compliance with the standards and its chosen code of governance.

D. Risk, Internal Controls and Sound Financial Planning

Managing risk is now central to the work of landlords and core to the role of effective boards. Ensuring that there are effective internal controls in place safeguards staff, tenants and board members. 

20. Do Risk Properly

It is essential for the business to have a robust risk framework in place, monitored and used to drive mitigation and improvement. This includes when managing strategic change and responding to stress testing.

Cosmopolitan 

 The group’s approach to risk was based on an over-simplification of presenting issues, coupled with too little scrutiny of new deals taking place after the merger. This, alongside an inadequate control environment, especially in relation to the development function, exposed the group to unacceptable levels of risk. In particular the board’s decision to fund its investment programme through a sale and leaseback arrangement was based upon a wholly inadequate analysis of risk and a rudimentary sensitivity analysis, coupled with a failure to consider alternative plans. ..the group failed to effectively manage the risks to delivery of its plans. 

Mount Green HA

Mount Green’s financial performance is weak and forecast to remain so in the short term. The provider’s stress testing shows that it is sensitive to relatively small changes in costs and income, with several scenarios resulting in a breach of its interest cover covenant. To ensure that the board is appropriately sighted on the material exposures which Mount Green needs to manage, the provider needs to develop a more robust and comprehensive risk management framework. A key element of these improvements will involve enhancing mitigation strategies for stress scenarios and clarifying the circumstances in which they would be triggered.

21. Financial Planning and Capacity

When planning for the future boards will need to ensure that plans are robust and well founded. They also need to ensure that there is sufficient capacity to undertake the financial work required, particular where ambitious development programmes are considered.

NSAH (Alliance Homes)

Alliance Homes needs to enhance the board’s oversight of business planning and strategic risk management to reflect a step change in the ambition reflected in its strategy. The regulator lacks assurance that the board is using stress testing appropriately to reflect its revised risk appetite and inform key decision making. There is a lack of clarity about the amount of financial headroom within the latest business plan, which is being used to support planning for a significant increase in development activities. This plan does not provide the regulator with assurance that the board has adequately developed mitigating strategies and triggers appropriate to Alliance Homes’ development ambition. 

July 2018

22. Internal Controls 

It’s important that there are robust internal controls, ensuring the business is well run and the organisation’s money is handled properly. Central to this is the correct use of Internal Audit, which gives assurance that the organisation’s internal controls are effective. Audit Committees should monitor internal and external Audit recommendations clearly and expect progress reporting. 

Southern Housing Group

SHGL’s audit and risk committee has not consistently ensured adequate oversight of the implementation of internal and external audit recommendations. The Board needs to strengthen its assurance framework and ensure that its committee’s terms of reference are operating effectively in practice. 

Red Kite Community Housing

Red Kite has experienced a significant financial loss as a result of a fraud due to a basic failure in its system of internal controls. Improvements are required to Red Kite’s control framework to ensure that key financial controls are robust, operating in line with established policies and procedures and with appropriate leadership oversight. 

23. Stress Testing

Stress testing, including impact, mitigating strategies and formal trigger points, has become more important in these uncertain times.

WATMOS

WATMOS needs to strengthen its stress testing to better inform its business planning. Whilst single and multi-variant stress testing has been conducted, these tests do not demonstrate resilience against some of WATMOS’ specific risks. There is also limited comparison to loan covenants. WATMOS has not identified formal trigger points at which the board would need to take action, and only limited mitigation strategies are in place.

Hightown Housing

Hightown needs to improve aspects of its risk management, specifically its stress testing and recovery planning. Hightown’s stress testing does not clearly quantify the impact of sensitivities and scenarios on the business and its mitigating strategies are insufficiently developed. Stress testing needs to be strengthened to ensure that the board has assurance that the risks stemming from adverse events, and the effectiveness of the strategies to remedy them, are clear.

24. Probity and Conflicts of Interest

All involved, including Board Members and senior Executives, must ensure both personal and cultural commitment to upholding probity.

Greenfields Community Housing

Having received a series of allegations relating to property services and procurement, Greenfields informed the regulator that it had commissioned an independent investigation. The investigation found instances in which procurement processes and internal controls and gifts and hospitality policies, had not been followed at a senior level. The investigations also revealed some evidence of wider cultural shortcomings where some staff had not acted in line with Greenfields’ own policies and that this behaviour had been left unchallenged for a period. May 2018

Brent Community Homes

BCH had been operating with a lack of effective board oversight in a range of areas. This is a fundamental failure of governance and operational control. The impact of this failure is that BCH did not have appropriate probity arrangements in place, and as a result, a material sum of money is unaccounted for. 

25. Asset Management

Interestingly the first asset management/investment example has arisen. Although technically covered by a consumer standard this was not covered by a Regulatory Notice, instead being captured as a financial planning issue. There is also a need to ensure Asset and Liability registers are up to date.

Yorkshire Housing Group

There is evidence to indicate some under-investment in YHG’s existing homes in recent years. Our expectation is that asset management forecasts reflect professionally sourced, reliable and up-to-date data. It has not been clear whether YHG has been using reasonable assumptions in its plans despite external stock condition survey work being commissioned and reported to its board.

E. Operation of the Board

As well as meeting basic rules on good governance, boards need to establish and maintain proper working relationships with staff, ensure meetings are well run and seek and take notice of external advice.

26. Senior Executive Severance Pay

In a nutshell: Don’t give your departing chief executive or senior executive a big severance package (or allow it to happen).

Four landlords have been downgraded for such packages with substantial reputational damage both to them and the sector. Associations need to ensure their approaches are watertight. In particular, regularly review your employment policies and executive contracts well away from the emotion created by the departure of a hard-working stalwart.   

Ongo Homes 

Although the decision making on this matter did not sit with Ongo Homes, there were opportunities for Ongo Homes’ board to identify and manage the risks for it associated with executive remuneration, including the potential for discretionary payments to be agreed. The controls and mechanisms in place to manage risks of this nature, which included the chair of Ongo Homes’ board being a member of the unregistered parent’s board, were not operated effectively by Ongo Homes. 

As a result, Ongo Homes’ board has found itself liable for significant discretionary financial costs without visibility or effective input to the decision-making, and has failed to safeguard its reputation, and that of the sector. 

27. Clear Relationships

Be clear about the respective roles of board members and executives.  You need to have a good working relationship based on those clearly defined roles, don’t delegate too much to staff and be particularly clear about roles where chief executives are also board members. It also means being precise about delegation to Board working groups and committees.

Equity Housing Group

There is a lack of clarity regarding the respective roles and responsibilities of the board and its committees. This has resulted in duplication, and also, in some instances, insufficient board attention on matters which have been over-delegated. It was not clear that the board had adequately addressed past weaknesses in establishing clear accountability throughout the structure. 

We have concluded that the board’s strategic focus has been diminished due to its continued involvement in operational issues following the establishment of a new executive team. The division of responsibility between the executive and the board needs to be re-examined and firmly established. 

28. Take Expert Advice

There will be times when boards cannot have all the skills they need within the set of board members to provide adequate expertise and advice when considering courses of action. It is right to seek external advice in these situations and use that to support decision-making. It is also important that, having sought advice, boards should heed it and act accordingly. 

Great Places Housing Group Limited 

It did not always recognise the need to seek independent expert advice and did not always make the best use of advice it did receive

29. Run Board Meetings and Processes Properly

Board meetings should be run properly – and minutes should be taken.  This is a fundamental matter of record keeping.

Saffron Housing Trust Limited 

The board of Saffron had been advised that defects in governance processes and a failure to comply with its rules meant that some board members had not been appointed properly. The failure had occurred over a period of several years. Significant decisions were made during this period involving third parties and funders and there was uncertainty about the validity of all the decisions that had been made at those meetings given some board meetings had been inquorate. 

30. Structures and Subsidiaries

It is essential to have a firm grip on complex structures and subsidiaries. This is driven, in part, by the increasingly diverse nature of the sector in setting up subsidiaries for tax efficiency and/or creating new lines of income. Boards should be aware that there are potential risks in complex structures and take account of the overall impact of that risk and potential impact on social housing run by the landlord. This includes clarity about apportionment of running costs and rigour in rule changes. 

Incommunities Group Limited

IGL self-reported that it had not implemented rule changes correctly, for two of its subsidiaries, in April 2018. The error was discovered in May 2020 when the provider was carrying out work relating to further governance changes and accounts approval processes. During the intervening two-year period it refinanced and issued a bond and as a result these two subsidiaries made incorrect certifications about their rules to lenders. 

IGL’s internal controls did not ensure that the new rules were implemented correctly or identify that it had not registered them with the Financial Conduct Authority. Since May 2020, IGL has worked with funders and lawyers to rectify the situation but the reliance on incorrect rules left IGL reliant on the goodwill of the group’s funders. IGL and the two subsidiaries had to ratify decisions made between April 2018 and May 2020, including in respect of its funding arrangements. 

Broadacres HA Ltd

Since its acquisition in 2012, the main commercial subsidiary’s financial performance has been poor. The BHA board has failed to effectively monitor the risks associated with this activity and there are inadequate mitigation strategies in place to manage them. Foreseeable risks have crystallised and the unregistered non-charitable subsidiaries are increasingly reliant on the continued support of the registered parent. As a result BHA is exposed to a combination of material losses, impairment and write offs. The structural arrangements in place, including intra-group lending and parental guarantees between group members, has resulted in BHA accepting the majority of the downside risk and its on-lent investment at risk has increased to £18m 

31.Accurate Information

To provide robust challenge, boards need to ensure they have access to adequate and accurate information including targets for performance. This has become more important in recent years.

Swan HA 

Information presented to the board and regulator has been inconsistent, and together with the failure to monitor covenant compliance effectively, has led to a loss of regulatory confidence in its accuracy and reliability. The regulator is therefore not assured of the robustness and quality of the data being used by Swan to inform its financial planning and reporting.

St Mungos

In addition, the quality of reporting to the board requires improvement to facilitate more effective monitoring of performance against the provider’s strategic aims. A limited range of targets in both internal and external reporting restricts the ability of the board and other stakeholders to assess strategic performance.

32. Co-operative Board Relationships

To operate effectively board members need to be able to work together successfully.

Aldwyck Housing Group Limited

However, there has since been evidence of dissension among board members which has exacerbated concerns about governance. As a consequence the regulator has concluded that it does not have sufficient assurance that Aldwyck currently has the capacity and capability to exercise effective control over the provider’s affairs.

33. Lease arrangements

This paper is not going to cover the full depths of the issues involved in lease arrangements. However the issues for regulatory compliance are profound and multi-faceted and include a wide range of financial, business planning, risk management, internal controls, governance, and involvement, health and safety and rent issues. I’ve included one example below as it covers all the points raised in this year’s rulings on exempt providers. 

3 CHA

3CHA provides more than 700 units of supported housing although it reports them as general needs on its regulatory returns. 3CHA’s primary operating model means it enters into short-term leasing arrangements for properties with third party managing agents. 3CHA has landlord responsibility for the tenants of those properties while the managing agents deliver the landlord and management services on 3CHA’s behalf under an agreement.

The model operated by 3CHA means that it delegates significant responsibilities to third parties including the selection and sign up of new tenants. These delegations create material risks to 3CHA and the regulator does not have assurance that sufficient controls are in place to mitigate the risk of third parties not acting in accordance with the agreements in place.

The model means 3CHA transfers a very significant amount of the rent and service charge income it receives to third parties on an ongoing basis. The regulator does not have assurance that 3CHA has effective systems in place to give it sufficient oversight of these payments. It is the regulator’s judgement that 3CHA does not adequately reconcile the payments made to third parties with evidence that the services are being provided to its tenants.

The Governance and Financial Viability Standard requires registered providers to ensure that any arrangements they enter into do not inappropriately advance the interests of third parties or are arrangements which the regulator could reasonably assume were for such purposes. There is also a requirement that governance arrangements shall safeguard taxpayers’ interests and the reputation of the sector. The evidence received from 3CHA demonstrates a weak contracting environment and inadequate monitoring and oversight of very significant sums of money which are transferred to third parties on an ongoing basis. As a result, there is a risk that third party managing agents do not provide the services being claimed, or that services and housing management practices are inappropriate. The regulator has not received sufficient assurance that the arrangements entered into by 3CHA are not inappropriately advancing the interests of third parties or that taxpayers’ interests are being safeguarded.

A lack of effective board oversight in these areas is a fundamental failure of governance and operational control, and so we conclude that 3CHA is failing to manage its affairs with an appropriate degree of skill, independence, diligence, effectiveness, prudence and foresight.

3CHA’s stress testing does not meet the requirements of the Governance and Financial Viability Standard. The testing does not consider the range of scenarios 3CHA might face or have appropriate mitigation strategies in place as a result. 3CHA has not been able to demonstrate that it assesses, manages and where appropriate addresses risks to ensure the long term viability, including ensuring that social housing assets are protected.

3CHA has provided the regulator with conflicting information in relation to the classification of its stock and the rent it is charging. We lack assurance on how the board of 3CHA has satisfied itself that it is meeting the required outcomes of the Rent Standard and the associated rent-setting requirements.

34. Regulator’s Insolvency process

We also have a repeat entry in the Regulators Insolvency process. I suspect there will be more in the future. 

Larch HA

In February 2022, creditor action taken against Larch Housing Association Limited (Larch) led to the provider entering into the regulator’s insolvency process and the commencement of a moratorium. The regulator is engaging on this matter in accordance with its published statutory guidance.

This is my eighth Annual Report. Read and hopefully enjoy!

Consultancy

RB Kingston

I continue to support KRISP, the resident scrutiny panel for RB Kingston. They remain an inspiration, being continually resilient and thoughtful about their role. They have produced reports this year on voids and Anti Social Behaviour.

Slough BC

Along with my colleague Jane Eyles we supported the recruitment of new involved residents, led a session on shared Vision and Value for tenant involvement, and drew up terms of reference for their new Resident Board.

Clarion

I provided initial training for the Clarion North London Scrutiny Committee. This allowed them to identify their first topic for review and I helped them with drawing up the scope of that review.

Spitafields

I did a desktop review providing assurance on compliance with the Tenant Involvement and Empowerment Standard.

Cannock DC

Following on from my earlier review of tenant engagement I supported the recruitment, induction and training of the Housing Improvement Panel. This included supporting the scoping and drawing together their findings from the review of gas safety.

One Housing

I supported the recruitment of a Resident Board Member. This involved drawing up an interactive day with candidates taking part in a board discussion involving real board papers. Not only were candidate Board member identified but all involved would be well placed to be involved in the future. I’m grateful to Hilary Milne for her support and contributions to make the day a success.

One Manchester

This involved scrutiny training for their scrutiny panel, and supporting their current Communications Service Review.

LB Croydon

I led two interactive training sessions for residents interested in joining LB Croydon’s new Performance Monitoring Group.

Non-Executive

The Guinness Partnership

I’ve been a Board Member of the Guinness Partnership for three years, and now chair the Service and Performance Committee. I also serve on the Remunerations and Nominations Committee. These roles are challenging, insightful and profoundly rewarding.

Healthwatch Salford

I’ve now been Chair of Healthwatch Salford for the past 4 years. It’s been a pleasure working with Board colleagues, staff and volunteers to ensure that the voice of patients and the public is heard on health and social care issues. We remain well governed, financially stable and increasingly effective. Our work has been centred on Salford but also meant working with fellow Healthwatches in Greater Manchester to ensure our voice is heard at that level too. I’ve been a member of the Greater Manchester Population Health Delivery Board and have just joined the Greater Manchester Health and Social Care Partnership Board.

Housing Ombudsman

Along with my five colleagues I’m pleased to have served a second year on the Panel of Advisors to the Housing Ombudsman. We have regular meetings to discuss issues including corporate planning, business planning and Housing Ombudsman Scheme. We’ve welcomed the new Housing Ombudsman, Richard Blakeway and look forward to the enhanced role of the Ombudsman as set out in the new Scheme. I’ve also done a presentation to Housing Ombudsman staff on my experiences of tenant involvement, scrutiny regulation and compliance. I also attended two joint Ombudsman/HQN sessions on complaints, and repairs.

Resident Board Member

I joined the Board of Directors of my tower blocks last year. Our blocks have inflammable expended polystyrene (EPS) cladding and I was part of a successful campaign to gain a substantial contribution from the developer of the blocks. Even with this contribution there remains a substantial amount of action before the cladding works can commence. We have just received a First Tier Tribunal allowing us to charge for the cladding works and hope that the works will start later this year, following a Section 20 consultation. I also took part in recruitment of a new Managing Agent.

Other

Learning from Regulatory Downgrades

I published my sixth report and am pleased to see both the Regulator of Social Housing and Housing Ombudsman doing more proactive messaging.

Speaking Engagements

I chaired a session on Learning from Crisis at the NHF Board Excellence Conference

I spoke on the Social Housing Green Paper for an Ark Academy training session.

I spoke at the Southwark Homeowners Conference on my report into

Judging

I was pleased to be a judge for the 2019 Northern Housing Awards.

Media

I’ve been interviewed on Talk Radio on building safety and issues facing social housing.

Running

I completed my first half marathon in 2 hours 3 minutes!

Acknowledgements

Special thanks to my partner Angela for making sure that there are other equally rewarding parts to my life outside of work.

Thanks to Jane for working with me and her support.

Thanks too to the following without whom none of the above would have happened! Jackie, David, David, Kelly, Raewyn, Sian, Gill, Monique, Geof, Mark, Mo, Jayde, Paul, Aamer, Christine, Earl, Kevin, Mark, Morris, Omer, Sheebaa, Trevor, Rebecca, Matthew, Shah, Sheena, Nirmal, James, Amanda Brian, Sandra, Hilary, Richard, Wendy, Beth, Adam, Bernard, Seth, Mavis, Jitesh, Chris, Vanessa, Katherine, Catriona, John, Neil, Peter, Mandy, Linda, Mike, Samantha, Chris, Chris, Bob, Debbie, Ian, Andrew, Ted, Andrea, Richard, Kevin, Elizabeth, Frank, Sarah, Paul, Delana, Mark, Elyse, Jackie, J, Sam, Kate, David, Peter, Andy, Jo, Marilyn, Neil, Ian and Dave.

Learning from Regulatory Downgrades 2018/19

Learning from Regulatory Downgrades

This is the sixth in a series of Learning from Regulatory Downgrades that I have published on an annual basis.The Regulator has issued over 120 governance downgrades for housing associations over the past 6 years. This report seeks to explore why those downgrades have happened and the common threads that Board Members, councillors, residents and executives should be looking to learn from.

About 15 years ago I read Julian Ashby’s seminal “Learning from Problem Cases” – a study of why housing associations went into supervision. What I learned was the importance of sound governance both in housing associations and for housing regulation. When I became a senior housing regulator I started any speech on regulation with a clear recognition that good governance was key to tenant involvement and services for which I was responsible.

This report details the areas that the Regulator has highlighted in the Regulatory Judgments (RJs), backed up by direct quotations from those named RJ reports. I have both updated and trimmed the number of quotes (otherwise this report would become unwieldy) but the earlier versions remain available for those who like fuller detail. Alternatively you can read all the downgrades directlyon the Regulators website.

Phil Morgan

21 February 2019

www.philmorgan.org.uk

pjsunited@gmail.com

Commentary on 2018/19

The past 10 months have seen the emergence of providers with contracted lease arrangements for property. Much of this is used for clients with specialist support needs delivered by third party providers. Funds from private investment funds and Real Estate Investment Trusts (REITs) have support this growth. Starting with the Regulatory Notice issued to First Prioritythere have been other instances of issues arising with risk, stress testing, governance, conflicts of interest and consumer standards including health and safety. The Regulator’s Sector Risk Profile(104 – 110) covers this in more detail.

Otherwise the key five topics remain, often interlinked. Board Governance, risk, management internal controls and stress testing are core issues for governance. Boards need to continue to be alert on all four and ensure that they apply critical thought to how they ensure their approach is, and is seen, to be robust. The encouragement given to Housing Associations to develop, and their own sense of duty to provide more homes need to be balanced with understanding of the housing market and emerging risks post-Brexit.

Health and safety continues to be of concern with fire and water safety featuring more prominently this year. It has been noteworthy that no action has been taken on fire safety, which may be in part due to the regulator waiting for any action to be taken through the statutory legal processes as it has done previously. Local authorities only feature once this year. I expect regulator activity on health and safety and for Local Authorities to change in the future.

Issues coming to the fore include financial reporting, probity and disposal of tenanted housing. Deregulation measures now mean that providers do not need to seek permission from the Regulator before disposing of homes. However they do have to undertake due process when considering disposals.

Governance Downgrade Table

Areas covered by Regulatory Downgrades

1. Regulation and Boards

Under co-regulation, boards are responsible for ensuring the Regulatory Framework and Standards are met. This means understanding – and meeting – those requirements, as well as ensuring a professional approach to the Regulator and regulation.  The Regulator consults formally, and informally, on changes to the Regulatory Framework and Regulating the Standards. Boards should keep abreast of such consultations and the impact of subsequent changes.

1. Keep up to Date

Boards need to ensure that they are working to the current version of regulatory requirements. These include the requirement to assess regulatory compliance annually and publish that assessment in their annual accounts.

Connexus

Consequent risks to the organisation were exacerbated by a culture at a senior level which lacked awareness and understanding of the organisation’s governance arrangements and the regulatory environment within which it operates.

November 2018

2. Tell the Regulator

It’s important to tell the Regulator as soon as you become aware that things are wrong. Too often, landlords thought they wouldn’t tell the Regulator about problems until they had tried to put them right first. Or wait until their In Depth Assessment was due.

Luminus Group Ltd

The board did not inform the regulator

March 2017

Manningham HA

In July 2015 the Health and Safety Executive issued MHA with a notice of contravention relating to the quality of gas safety and servicing work undertaken across the whole of its housing stock. This was considered by the Board at the time, but the Board failed to consider whether this breach of statutory responsibilities should be communicated to the regulator in line with the expectations of the standard.

February 2017

3. Hit HCA Deadlines

Ensuring that reports and returns to the HCA are on time and accurate is a basic building block in the relationship with the Regulator. Boards can ensure that these returns are reported to boards and monitor their timeliness. Accuracy is essential for both the relationship and the integrity of the board.

Colne Housing Society

We found that the quarterly return for March 2016 had been completed incorrectly with an overstatement of forecast cash flow outgoings. Also, it was not possible to reconcile the treasury position reported to the board and that reported to the regulator through the quarterly returns. Colne’s most recent financial forecast regulatory return described a less favourable financial position than the business plan agreed by the board in May that it was supposed to replicate.

These findings are indicative of a lack of overall control and review of submitted data which has resulted in a failure to submit a valid financial forecast return to the regulator by the specified deadline.

September 2016

4. The Rent Standard

The rent standard is economic regulation, although not particularly high profile. Housing Associations still need to comply with it.

Teign Housing

The regulator’s engagement on rents led to the identification of a control failure that had remained undetected by Teign for a number of years. Errors were made in rent setting, which resulted in a breach of the Rent Standard and a significant number of tenants being overcharged. This related to key data relied upon by both internal and external sources. We have concluded that this control failure represents an area of governance weakness.

September 2017

5. Disposal of tenanted housing

Deregulation removed the requirement to seek permission from the regulator before disposal of stock, including tenanted stock. However this did not remove the responsibility of providers to go through due process when considering disposal.

Moat Housing

Our judgement is that Moat has not adequately reflected the changed operating environment, arising from deregulation measures which removed the regulator’s powers to give consents for disposals, in its decision making. There was insufficient board oversight of the disposal. As a result, the board was unable to assure itself that the disposal met legal and regulatory requirements. Moat’s assurance that the disposal met its charitable objectives was inadequate. Although legal advice was taken in respect of the transaction, Moat did not obtain specific legal advice regarding the charitable considerations arising from the disposal. Due diligence of the proposed purchaser was insufficiently robust to demonstrate accountability to tenants and obligations to protect social housing assets. The disposal decision was delegated solely on financial criteria. No objective report covering the wider implications of the sale was presented to decision makers to provide assurance that the disposal met Moat’s charitable objectives and other regulatory expectations.

November 2018

1. Consumer Standards

6. Health and Safety

While consumer regulation is not actively regulated, it undergoes a ‘serious detriment’ test. Nearly all of the breaches of consumer standards feature health and safety. This also applies to Councils who own housing stock and two of the examples in this section feature Councils who were issued with Regulatory Notices. Councils are not subject to Governance ratings but can be issued with Regulatory Notices.

Trinty HA

Trinity has confirmed that it was unable to evidence that it is meeting its statutory Health and Safety obligations thereby potentially putting its tenants at risk. A number of properties, housing vulnerable tenants, have already been moved to other providers with a shortened tenant consultation period which is a clearly suboptimal outcome.

November 2018

Reside Housing

Reside has not demonstrated at all times a complete understanding of the extent of its responsibilities under health and safety legislation

October 2018

7. Gas Safety

Gas safety remains the most frequent, but not sole, cause of breaching the serious detriment test.

Luminus Group Ltd

Although the gas safety inspections were typically overdue for a relatively short period of time, the number of homes that had been without valid certificates for at least some period was extremely high. This had been caused by failure to have adequate policies and systems in place to ensure gas safety inspections were carried out on time.

March 2017

Manningham HA

MHA had completed the annual gas safety checks, but it had not carried out servicing to ensure the fittings and flues were safely maintained. MHA’s gas safety processes did not require a servicing element and so the failure to meet the legislative requirements applied across all of MHA’s stock.

February 2017

8. Fire Safety

However it is not just gas safety but fire safety that breaches serious detriment.

Beyond Housing (although situation arose from pre-merger self report by Yorkshire Coastal Housing)

Prior to the merger, YCH made a self-referral to the regulator in relation to fire safety. It told us that a large number of fire risk assessments (FRAs) had passed their review date, and that a small number of properties did not have an FRA in place. The majority of these properties had been overdue for around eight months, but a small number had been overdue for more than a year. The issue affected hundreds of YCH tenants. YCH also told us that it had concerns about the quality of the FRAs carried out and was concerned that all hazards had not been fully identified, and that there was limited evidence available to demonstrate that actions identified had been completed.

November 2018

9. Electrical Safety

And electrical safety too.

Lincolnshire Housing Partnership

With regard to electrical testing, the regulator concluded that LHP had failed to have in place effective systems and an effective programme of planned work to identify electrical safety risks and so had breached the Home standard. A previous external assessment of a sample of electrical inspections for Boston Mayflower properties found a high proportion of the sample failed quality requirements. Following the merger, LHP commissioned a comprehensive review which raised concerns about the lack of valid or in-date certificates for the vast majority of Boston Mayflower properties. Quality control checks found a number of errors in both the categorisation of works, and completion of certificates.

February 2019

• Water safety

And finally water safety.

Arun District Council

In relation to water safety, Arun District Council has a statutory duty under the Control of Substances Hazardous to Health Regulations 2002 to identify and assess the risks of exposure to Legionella and to implement any necessary measures to control risk. As with fire safety, until recently Arun District Council did not have a programme in place to carry out risk assessments and only did so in response to concerns raised. Arun District Council has now developed a programme to carry out those risk assessments but until that work is completed, it cannot fully implement measures to control any risks to tenants.

Regulatory Notice August 2018

• Repairs

To date this is the sole instance of customer service failure breaching the serious detriment test. This initially resulted in a G3 rating and reoccurrences (despite reassurances) have resulted in a downgrade for the resulting merged Group. It also implicitly references failure of complaints as a serious detriment issue. The reoccurrence sets a challenge for the Regulator to not take reassurances from downgraded landlords alone as proof of resolution. There is also an issue for the Regulator and Housing Ombudsman to address in cases on this kind where complaints show a systemic failure in a landlord.

Circle Anglia Limited

In implementing its plan to rationalise suppliers and create fewer, larger contracts for responsive repairs and planned maintenance, Circle has failed to control delivery of a core service and respond effectively to serious underperformance. This is consistent with a systemic problem in the organisation’s risk management and internal controls.

For example, in relation to Circle 33’s 8,000 homes, over a period of three months Circle reported that less than 20% of urgent and emergency repairs were completed on time and elsewhere less than 50%. By way of further example, referrals received by the regulator, including information about a significant number of outstanding statutory notices relating to disrepair, provided evidence that for over a year tenants, including vulnerable tenants, had experienced significant difficulties in getting essential repairs done, either on time or at all.

April 2015

Clarion Group (which now includes Circle)

During early 2016 the regulator had received assurance that the performance of Circle’s emergency and urgent repairs service in east London, which had been the subject of a regulatory notice from April 2015, had improved significantly and was then at an adequate level. The regulator therefore removed the regulatory notice.

The referrals received after that point have related to a broad range of issues, including: performance of heating and hot water repairs services,more general repairs and maintenance including, in some cases, services provided to vulnerable and potentially vulnerable tenants, difficulties in contacting Circle to raise issues and complaints and perceived poor responses by Circle to complaints, leading to a very large number of complaints being outstanding for long periods of time.

This followed Circle merging its customer contact operation into a single call centre and in parallel implementing a new customer relationship management IT system in June 2016. These referrals include a large number of what the regulator terms “statutory referrals” from councillors and MPs, as well as complaints from individual tenants. Collectively, they relate to hundreds of individual repairs issues raised by tenants, and hundreds of complaints about Circle’s handling of repairs and accessing Circle’s services. A high proportion of those complaints have been unresolved for long periods of time.

December 2016

• Tenancy Standard

Showing the need to comply with tenancy law for all tenants including evictions and licencees.

WM Housing

WM had failed to ensure that the implementation of its eviction processes provided licensees at this scheme with the level of protection required by law. WM Housing had failed to ensure that the implementation of its eviction processes provided licencees at this scheme with the level of protection required in law. That meant that all licencees at this scheme may have been at risk of an unlawful eviction. WM Housing has provided assurance that the issues identified only relate to this one scheme, but the regulator also noted that this issued had continued for up to two years.

September and October 2017

Westmoreland Supported Housing

In addition, the board has failed to ensure its tenancy management is effective prompting intervention from a local authority and the regulator after Westmoreland issued eviction notices to a number of its tenants to enable it to hand back properties rather than carrying out a more managed process. The way the board handled this situation and the subsequent sub-optimal outcome that resulted is a significant contributory factor in the regulator’s conclusion that Westmoreland’s governance arrangements are not effective.

November 2018

1. Hubris – the Threat to Good Governance

Governance remains key to the effective running of housing associations. However, for some landlords, rules are ‘meant to be broken’ – or ignored. Often they experience other difficulties as hubris clouds their vision of what their role should be.

• Comply and Publish (Non)Compliance with the Code of Governance

Housing associations are able to choose an appropriate Code of Governance.  Having chosen their preferred code, there is then a requirement to ‘comply or explain’. Some associations have not explained at all, others have not given a satisfactory explanation for their non-compliance.  The National Housing Federation updated their Code of Governance in 2015 and this now provides a stiffer test for compliance in line with issues raised in previous versions of this report.

Luminus Group Ltd

Luminus is also unable to substantiate that it is compliant with its chosen Code of Governance in relation to the adequacy of its delegations framework and board recruitment.

March 2017

Orwell Housing

To support continued effective delivery, the board needs to strengthen its capacity to review and challenge its own governance arrangements. It needs to ensure that it reviews its governance performance in a rigorous and evidence-based way. Recent reviews of compliance with its code of governance have not been thorough and the board has not explicitly confirmed its compliance.

September 2018

• Nine Years Maximum

Terms of office are a maximum of 9 years, however the ‘9-year rule’ is not an absolute rule and there may be reasons why, exceptionally, some board membership might exceed that period. However this must be discussed with the Regulator and put in the context of a sensible succession strategy. In most cases it isn’t adequate to cite “continuity” as a reason for non-compliance, as a joint letter to Chief Executives from the HCA and the NHF in February 2014 made clear. The Regulator will engage with landlords and agree sensible ways forward.

Yet some landlords didn’t agree sensible ways forward and in some cases had members with 20 or even 40 years board membership. What was revealing was that excessive length of membership resulted in poorer governance and overly close relationships between board and staff. The answer is simple – put a succession plan in place in advance of hitting the 9-year rule.

Tuntum Housing Association Limited

Tuntum does not comply with the provisions of its chosen code of governance in relation to maximum terms of office for board members. The code specifies maximum terms of nine years but Tuntum has made rule changes which extend this to a 12-year maximum. The association currently lacks clear succession plans for the chair and other board members. In addition, the criteria used by the board for extending terms of office should be clearly specified.

• Board Composition and Skills

As housing associations diversify in their operations, boards face a growing range of issues on which they need expertise. Examples include development, marketing, finance, commercial activity and treasury management. You need to ensure the board covers all the necessary bases, and not be afraid of change, including change in your governing documents, to ensure this happens. The Board should also ensure conflicts of interest are identified and managed appropriately.

Durham Aged Mineworkers

Not all DAMHA board members are recruited and assessed on a skills basis, aligned to the needs of the business and its risk profile. The regulator has concluded that this hinders DAMHA’s ability to manage its affairs with an appropriate degree of skill and foresight and impacts on the overall capacity of the board to lead and control its activity. DAMHA needs to strengthen its approach to board member appraisal and renewal so that the board has, and maintains, the skills required to manage its business.

November 2018

Sustain Housing

Sustain’s board membership did not previously include any independent non-executive members and the provider was not compliant with its chosen code of governance. Inherent conflicts of interest had arisen as a result of related party transactions to companies owned by Sustain’s executives.

January 2019

• Annual Appraisals

Having got your board in place there should be a regular mechanism for appraising their effectiveness and identifying areas for personal development and any gaps in board skills.

Unity Housing

Regular formal board and executive appraisals have not been carried out in recent years, although these have recently been completed with external support. The IDA identified that board skills assessment; succession planning and some aspects of reporting arrangements also require improvement.

October 2017

• Board size

Less is more. Make sure your board is 12 or less. There’s a strong body of research published showing that boards that are too big are less effective. It can be hard for larger boards to admit that they are too big and, even harder, that some board members will have to go. The Regulator will want to know if an oversize board has a plan to achieve compliance, and within a reasonable timeframe.

Bournemouth Churches Housing Association Limited

The size of BCHA’s board exceeds the maximum specified in its code of governance. It has no plans to achieve compliance and the regulator does not have assurance that it has carried out a robust assessment which adequately supports any case for non-compliance.

• Review Your Governance

There should be a regular cycle of reviewing the board and its governance arrangements to ensure that they remain fit for purpose. Having done the review it also helps to take it seriously and implement the recommendations. And, as with many of the matters included in this report, it can be useful to commission (and take note of) external advice.

Manningham HA

It has not addressed in a timely manner, recommendations on the governance framework and Board effectiveness made by a governance review undertaken in 2015

February 2017

• Board Payment

Board payment should be proportionate – and published. Excessive board member payments will be damaging for that landlord (and the sector more widely).

Bedfordshire Pilgrims Housing Association Limited

BPHA’s code of governance also states that where board members are paid, the agreed payment levels must be appropriate to the organisation’s size, complexity and resources. The regulator lacks assurance that in reaching a decision to increase payments to non-executive directors to levels above sector norms, the board gave adequate consideration to remuneration in relation to BPHA’s size and complexity. In addition, the regulator does not have sufficient assurance that BPHA is meeting the provision of its code that where board members are paid, payment should be linked to specific duties against which performance can be assessed.

BPHA did not satisfy the provision of its code that where board members receive remuneration, details of these payments should be published on a named basis.

• Board Management of its role.

Boards have to fulfill their roles successfully.

Suffolk Housing Society

The regulator lacks assurance that Suffolk’s board is managing its affairs with an appropriate degree of skill, diligence, effectiveness, prudence and foresight. Suffolk’s board failed to demonstrate an effective approach to reporting, quantification and management of key risks.

There is also insufficient evidence that the audit and risk committee has an effective relationship with the board: significant issues have not been effectively escalated and progress on the implementation of agreed actions arising from completed internal audits has not been consistently monitored.

February 2018

Trinty HA

Investigations undertaken by the regulator obtained inadequate assurance over Trinity’s long term viability, the effectiveness of its risk management and internal controls and that the board has managed Trinity’s affairs with an appropriate degree of skill, independence, diligence, effectiveness, prudence and foresight.

The Trinity board has failed to effectively manage the risks the organisation faces and has not ensured there is access to sufficient liquidity at all times. This has resulted in it breaching certain lease terms due to its inability to make payments as they fell due. In addition cash flow projections presented to the regulator demonstrated it had not been able to secure access to sufficient liquidity to meet future lease payments.

The fact the board has failed to manage its significant risks, has ceded control to third parties and has allowed tenants to potentially be put at risk is a fundamental failure of governance.

November 2018

1. Risk, Internal Controls and Sound Financial Planning

Managing risk is now central to the work of landlords and core to the role of effective boards. Ensuring that there are effective internal controls in place safeguards staff, tenants and board members.

• Do Risk Properly

It is essential for the business to have a robust risk framework in place, monitored and used to drive mitigation and improvement. This includes when managing strategic change.

Cosmopolitan Regulatory Judgment

 The group’s approach to risk was based on an over-simplification of presenting issues, coupled with too little scrutiny of new deals taking place after the merger. This, alongside an inadequate control environment, especially in relation to the development function, exposed the group to unacceptable levels of risk. In particular the board’s decision to fund its investment programme through a sale and leaseback arrangement was based upon a wholly inadequate analysis of risk and a rudimentary sensitivity analysis, coupled with a failure to consider alternative plans. ..the group failed to effectively manage the risks to delivery of its plans.

Inclusion Housing Community Interest Company

Inclusion has provided insufficient assurance that its current risk management and mitigating actions are commensurate with its risk profile. We lack assurance that steps within its control should risks crystallise would ensure its on-going financial viability and that social housing and tenants homes are protected over economic and policy cycles.

February 2019

Joseph Rowntree Housing Trust

JRHT has experienced a number of preventable control failures which calls into question the effectiveness of the organisation’s approach to risk management. Although risks had been identified, the trustee body failed to ensure sound systems of internal control were in place to manage risks relating to safeguarding and covenant and regulatory compliance. Once the trustee body understood that risks had materialised, it took appropriate remedial action. However, it needs to improve the overall effectiveness of its risk management and controls assurance frameworks to ensure it has a better grip on the management of such key risks.

June 2017

• Financial Planning and Capacity

When planning for the future boards will need to ensure that plans are robust and well founded. They also need to ensure that there is sufficient capacity to undertake the financial work required, particular where ambitious development programmes are considered.

NSAH (Alliance Homes)

Alliance Homes needs to enhance the board’s oversight of business planning and strategic risk management to reflect a step change in the ambition reflected in its strategy. The regulator lacks assurance that the board is using stress testing appropriately to reflect its revised risk appetite and inform key decision making. There is a lack of clarity about the amount of financial headroom within the latest business plan, which is being used to support planning for a significant increase in development activities. This plan does not provide the regulator with assurance that the board has adequately developed mitigating strategies and triggers appropriate to Alliance Homes’ development ambition.

July 2018

Wandle Housing

However following the IDA we have concluded that WHA needs to demonstrate continued capacity to manage its affairs within an appropriate robust and prudent business planning framework to ensure continued compliance. This includes providing assurance on the embedding of recent changes to the business planning framework and evidencing ongoing improvement in the management of strategic and financial risk

August 2018

Westmoreland Supported Housing

The Westmoreland board has not managed the risks to the business effectively and has been unable to provide the regulator with financial information that was based on appropriate and reasonable assumptions. It has provided insufficient evidence that it currently has a deliverable business plan. The organisation is also in a position where it is reliant on continued financial support from a third party while it attempts to restructure its business, to ensure its medium to long term viability. This is clearly not a desirable or sustainable position, nor one that meets the regulator’s standards.

November 2018

Together Housing Group

Three successive annual reports from the group’s external auditors have raised concerns about the capacity of the group’s finance function to undertake the financial work required for a group of THG’s size and complexity. The board responded to recommendations made in 2014 and 2015 with measures to remedy the deficiencies. However, these remedial actions have not been fully effective and residual risks stemming from inaccurate or untimely financial reporting remain.

Further evidence of capacity issues within the finance function, and in particular the supervision of it, are instances where the group’s controls have failed to ensure that financial data returns met regulatory expectations in terms of quality and comprehensiveness.

December 2016

Severn Vale Housing Society

Financial capacity is a key factor limiting SVHS’s aspiration to develop. The rationale for delivering an aspirational development programme is not fully established yet and assumes funding primarily through asset disposals. SVHS needs to do further work in understanding the return on its assets to better inform future asset disposal plans.

July 2017

• Internal Controls

It’s important that there are robust internal controls, ensuring the business is well run and the organisation’s money is handled properly. Central to this is the correct use of Internal Audit, which gives assurance that the organisation’s internal controls are effective.

Tower Hamlets Community Housing

THCH’s governance arrangements have failed to deliver an effective risk management and internal controls framework. In October 2015 the organisation uncovered potentially material issues relating to the site acquisition, procurement and delivery of two significant development schemes; one of which was nearing completion, the other was empty pending future development. These issues were not identified by the day to day operation of internal controls or risk management frameworks, evidencing that those processes were ineffective in practice.

March 2016

Orwell Housing

Orwell needs to strengthen its overall risk management and internal controls assurance framework to ensure that it enables the board to manage its affairs effectively. Orwell has reviewed its internal audit framework and is making changes in response to the findings and recommendations. However these still need to be fully implemented and embedded to enable Orwell to evidence that internal audit arrangements make an effective contribution to internal control.

September 2018

• Stress Testing

Given the increased risks posed by welfare reform and rent -1%, and the pressure on Associations to develop more homes, stress testing has become more important and challenged by the Regulator.

Suffolk Housing Society

Stress testing is inadequate with mitigation strategies and actions not fully developed and a lack of clarity about the expected financial impact of potential mitigations.

February 2018

Abbeyfield

Our review of Abbeyfield’s stress testing suggests that improvements are also required. Stress testing undertaken has been rudimentary with only three single sensitivity tests carried out. No cost or other mitigating factors appear to have been assessed. Overall the quality of stress testing does not provide assurance that Abbeyfield has the capacity to cope with a range of risks should they crystallise.

March 2018

• Probity and Conflicts of Interest

All involved, including Board Members and senior Executives, must ensure both personal and cultural commitment to upholding probity.

Greenfields Community Housing

Having received a series of allegations relating to property services and procurement, Greenfields informed the regulator that it had commissioned an independent investigation. The investigation found instances in which procurement processes and internal controls and gifts and hospitality policies, had not been followed at a senior level. The investigations also revealed some evidence of wider cultural shortcomings where some staff had not acted in line with Greenfields’ own policies and that this behaviour had been left unchallenged for a period.

May 2018

Westmoreland Supported Housing

There are inherent conflicts of interest at board level. The chair of Westmoreland is employed in a senior role by the same third party that is providing the cash support, management services and sourcing properties as part of Westmoreland’s growth strategy. The board has yet to provide compelling evidence that appropriate probity policies and arrangements were in place to effectively manage these conflicts.

November 2018

Trinty HA

In addition to this there had been long standing, inherent conflicts of interest at board and management level which Trinity was unable to demonstrate it was managing effectively. The regulator has therefore concluded the board and management of Trinity have failed to ensure that its affairs are managed with an appropriate degree of skill and independence.

November 2018

1. Operation of the Board

As well as meeting basic rules on good governance, boards need to establish and maintain proper working relationships with staff, ensure meetings are well run and seek and take notice of external advice.

• Senior Executive Severance Pay

In a nutshell: Don’t give your departing chief executive or senior executive a big severance package (or allow it to happen).

Four landlords have been downgraded for such packages with substantial reputational damage both to them and the sector. Associations need to ensure their approaches are watertight. In particular, regularly review your employment policies and executive contracts well away from the emotion created by the departure of a hard working stalwart.

Ongo Homes

Evidence gathered by the regulator, following this self-referral, confirmed weaknesses in governance, and in particular in the effectiveness of Ongo Homes’ board oversight and risk management. Ongo Homes failed to be appropriately sighted on decisions taken by its unregistered parent and as a result did not ensure it was in a position to prevent key risks from materialising.

Although the decision making on this matter did not sit with Ongo Homes, there were opportunities for Ongo Homes’ board to identify and manage the risks for it associated with executive remuneration, including the potential for discretionary payments to be agreed. The controls and mechanisms in place to manage risks of this nature, which included the chair of Ongo Homes’ board being a member of the unregistered parent’s board, were not operated effectively by Ongo Homes.

As a result, Ongo Homes’ board has found itself liable for significant discretionary financial costs without visibility or effective input to the decision-making, and has failed to safeguard its reputation, and that of the sector.

February 2019

Gentoo

During a significant period of restructuring the board exercised weak governance and internal control when agreeing executive contracts and severance payments to outgoing executives. In doing so, the board has failed to safeguard its reputation, and that of the sector.

October 2017

• Clear Relationships

Be clear about the respective roles of board members and executives.  You need to have a good working relationship based on those clearly defined roles, don’t delegate too much to staff and be particularly clear about roles where chief executives are also board members. It also means being precise about delegation to Board working groups and committees.

Equity Housing Group

There is a lack of clarity regarding the respective roles and responsibilities of the board and its committees. This has resulted in duplication, and also, in some instances, insufficient board attention on matters which have been over-delegated. It was not clear that the board had adequately addressed past weaknesses in establishing clear accountability throughout the structure.

We have concluded that the board’s strategic focus has been diminished due to its continued involvement in operational issues following the establishment of a new executive team. The division of responsibility between the executive and the board needs to be re-examined and firmly established.

July 2018

• Take Expert Advice

There will be times when boards cannot have all the skills they need within the set of board members to provide adequate expertise and advice when considering courses of action. It is right to seek external advice in these situations and use that to support decision-making. It is also important that, having sought advice, boards should heed it and act accordingly.

Great Places Housing Group Limited

It did not always recognise the need to seek independent expert advice and did not always make the best use of advice it did receive

• Run Board Meetings and Processes Properly

Board meetings should be run properly – and minutes should be taken.  This is a fundamental matter of record keeping.

Saffron Housing Trust Limited

The board of Saffron had been advised that defects in governance processes and a failure to comply with its rules meant that some board members had not been appointed properly. The failure had occurred over a period of several years. Significant decisions were made during this period involving third parties and funders and there was uncertainty about the validity of all the decisions that had been made at those meetings given some board meetings had been inquorate.

September 2016

• Structures and Subsidiaries

It is essential to have a firm grip on complex structures and subsidiaries. Obviously this is driven, in part, by the Cosmopolitan experience but also by the increasingly diverse nature of the sector in setting up subsidiaries for tax efficiency and/or creating new lines of income. Boards should be aware that there are potential risks in complex structures and take account of the overall impact of that risk and potential impact on social housing run by the landlord. This includes clarity about apportionment of running costs.

Broadacres HA Ltd

Since its acquisition in 2012, the main commercial subsidiary’s financial performance has been poor. The BHA board has failed to effectively monitor the risks associated with this activity and there are inadequate mitigation strategies in place to manage them. Foreseeable risks have crystallised and the unregistered non-charitable subsidiaries are increasingly reliant on the continued support of the registered parent. As a result BHA is exposed to a combination of material losses, impairment and write offs. The structural arrangements in place, including intra-group lending and parental guarantees between group members, has resulted in BHA accepting the majority of the downside risk and its on-lent investment at risk has increased to £18m

February 2017

NSAH (Alliance Homes)

Improvements are also required to the board’s oversight of its care and support activities. There is a lack of transparency in reporting to board on the overall financial performance of the loss-making care subsidiary and in-house support activities. Although this issue is not material to our financial viability judgement, we lack assurance on the true costs of providing these services, with no clear rationale for the level of overheads being recharged.

July 2018

• Accurate Information

To provide robust challenge, boards need to ensure they have access to adequate and accurate information.

Westmoreland Supported Housing

The quality of information supplied to the board is often very poor and significant improvements are required to improve performance reporting and risk management information to ensure effective control and management of the provider’s activities. The regulator has concluded that it therefore has limited assurance that Westmoreland has an appropriate, robust and prudent business planning, risk and control framework in place.

November 2018

Wirral Partnership Housing

The IDA found weaknesses in some elements of WPH’s financial reporting. WPH needs to improve reporting on loan covenant compliance and subsidiary finances to allow the board to manage its affairs with greater diligence and foresight. WPH has started to make improvements to ensure that the board has improved oversight and control in these areas.

August 2018

Knowsley Housing Trust

Evidence gathered by the regulator during the course of its IDA confirmed weaknesses in governance, and in the effectiveness of board oversight and scrutiny including incidents of inadequate reporting. It also found that the KHT board did not have sufficient oversight of activities taken in other parts of the group and as a result, KHT was unable to demonstrate that key risks were effectively managed. It is apparent that services provided by group companies were a contributing factor to the failings, but KHT did not exercise its rights as set out in the intra-group agreement when services fell below the required levels.

August 2018

• Co-operative Board Relationships

To operate effectively board members need to be able to work together successfully.

Aldwyck Housing Group Limited

However, there has since been evidence of dissension among board members which has exacerbated concerns about governance. As a consequence the regulator has concluded that it does not have sufficient assurance that Aldwyck currently has the capacity and capability to exercise effective control over the provider’s affairs.

• Governance and new challenges

And whilst skills are important to met new challenges, such as new growth, it is equally important to ensure that boards ensure that all areas are robustly monitored.

Equity Housing Group

The 2014-17 business plan reflects a step change in EHG’s aspirations and risk appetite which it recognises and describes as an “ambitious growth programme.” The board has failed to enhance its governance and risk management arrangements to ensure appropriate oversight and control during this period. In particular the board did not ensure appropriate arrangements for the oversight and monitoring of the group’s treasury position. In June 2014 this resulted in only six months of available funding and a requirement to renegotiate a gearing covenant with funders to enable the group to increase facilities in order to deliver its plan. In doing this EHG was in breach of its treasury management policy which requires loan facilities to be drawn on demand equivalent to 12 months net capital expenditure. The board was unaware it had breached its treasury management policy

Radian Group

Firstly, the board has recognised that Radian’s development function capabilities are not yet adequate to support its development growth strategy following a series of abortive schemes. Further expansion of new development has been delayed whilst the board puts in place the required skills, systems and structures needed to deliver its plans.

February 2018

Phil Morgan Annual Report 2017 and 2018

This is my annual report, or rather my biannual, report covering my activities in the past two years. Hope you will find it interesting!

Consultancy

I continued my work supporting C&C’s Resident Scrutiny Panel in 2017, including their service reviewinto Staff Retention and providing training on chairing skills and complaint handling. I facilitated the Panel’s Awayday at which it was announced that the Panel had achieved TPAS Accredited Status. C&C have subsequently changed their governance structure to include residents on their Service Scrutiny Review and People Performance and Change Panels. I’m glad that former members of the Scrutiny Panel are members of these Panels.

I also facilitated 8 roadshows with 132 residents attending following the restructure of C&C’s management of sheltered schemes and gained welcome feedback for future engagement at a scheme level including annual events.

Cannock DC

In 2017 I conduced a review of Cannock’s approach to resident involvement. The Review identified a need for change, including moving away from reliance on the Chase Tenants and Residents Federation, and opening up involvement to all tenants in the Borough. This includes setting up a Housing Improvement Panelwith agreed Terms of Reference and I am currently helping recruit members for the Panel.

Slough BC

I supported residents contributing to Slough BC’s Option Appraisal for the future of council housing in the Borough. This included supporting residents on the Commissioners Consultative Group as well as a Resident Consultative Group.  This culminated in a Resident Conference, attended by 50 residents, which set out clear priorities for residents which fed directly into the Council’s decision-makingprocesses.

Along with my colleague Jane Eyles, I conducted reviews into the resident involvement in Slough and am now looking forward to continue that work with the Council.

RB Kingston

I have continued to work with RB Kingston and in particular KRISP their Resident Scrutiny Panel.This has included supporting their service reviews on Sheltered Housing, Storage and their current review on Voids. I have also led induction of new members, conducted a review of KRISP and its effectiveness and led the review of their Terms of Reference.

KRISP is a particularly successful Panel and I am proud to work with them.

LB Southwark

I was commissioned as Chair of a Resident Involvement Review Panel. This followed an independent review of resident involvement in Southwark that highlighted the need for change from the current structures. The Panel was a co-design approach involving previously uninvolved tenants and homeowners, resident stakeholders and officers. The process was particularly transparent and all papers and minutes published on-line.

The co-design panel report proposed a more flexible and inclusive structure that promotes both local community development and meaningful resident scrutiny of housing services. It recommends greater funding and more IT and training support for TRAs, as well as opportunities for residents to have their say where there is no TRA. The panel also envisages a new form of area level engagement that combines an online resident community with quarterly meetings, and proposes more ways for more residents to be involved in shaping and scrutinising borough-wide housing services.

LB Croydon

I carried out an induction for staff and new members of Croydon’s HousingScrutiny Panel. This included a background to regulation and scrutiny, coverage of the Social Housing Green Paper, what is a service review and practical interview training.

Non-Executive Activity

Wulvern Housing

I joined the Board of Wulvern Housing in 2010 and became Vice Chair in 2016. The Board decided that our ambitions for house building in Cheshire East were best served by looking for a larger Housing Association partner. Just as this process had set off I was asked to become the Chair of Wulvern and saw close up the process involved in undergoing both a successful exercise to find a suitable partner, and then the full rigour of ensuring that the merger process was undertaken properly and successfully.

The Guinness Partnership

As part of the merger process Wulvern Board members were given the opportunity to apply for positions within the Guinness Partnership governance structure. Both I and my colleague Mandy Calvert were successful in joining the Guinness Board. I’m pleased that my initial 12 month term was extended and that as well as the Service and Performance Committee I now also serve on the Remuneration and Nominations Committee. Being on the Guinness Board has been profoundly interesting and rewarding.

Healthwatch Salford

I became Chair of Healthwatch Salfordin 2016 and have been pleased to see it grow, become fully independent and find new premises. We have in place sound governance arrangements, a good financial base and report to both our members at our AGM and to Salford City Council who fund us. We’ve been able to recruit additional engagement workers and expand our work including Enter and View reports of local care and extra care homes.

Housing Ombudsman Panel of Advisors

Last year I joined the Panel of Advisorsto the Housing Ombudsman. This has been the first time Advisors have been appointed and we have been able to contribute to the development of Ombudsman’s Corporate and Business Planning.

Other Activity

Speaking

I am pleased to have spoken at events run by Housemark and the Public Policy Exchange.

Judging

I was pleased to be a judge for the 2017 Housing Excellence Awards and the inaugural 2018 Northern Housing Awards. I am pleased that I have been asked back to judge the 2019 Northern Housing Awards.

Commentator

Tragically my main role as a commentator has been on the radio following the Grenfell disaster. Given I called for a tower block register in 2009and consistently for the Government to follow up on the findingsof the Lakanal House inquest resident safety has been close to my heart for some time. This was bought even closer to home when I, and my neighbours found we were living in a block in inflammable cladding. This was been made worse by the developers, Countryside, avoiding any responsibility, along with everyone else who had responsibility for signing off the blocks as safe when built.

I also took part in the ‘Future of Resident Engagement Roundtable”

Dedication

To my dear father Keith Morgan who dies late in 2017.

Acknowledgements

One thing that always happens when I write one of these Annual Reports is the debt I owe to so many people. Particular thanks to Angela for her immense support and love and thanks too to Jane, for working with me, and Janet, for being prepared to work with me.

Thanks also to:

Julia, Yvonne, Pooja, Andrea, Joe, Jane, Nirmal, James, Janet, Chris, Verna, Vanessa, Rachel, Rob, James, Aydin, Mylo, Rachel, Lyra, Maria, Adam, Stephen, Mischa, Jill, Tanya, Colin, Betheline, Gogs, Andy, Diana, Nancy, Gill, Belen, Helen, Delana, J, Ruth, Safia, Mark, Jackie, Kate, Sam, David, Jackie, Michelle, Peter, Valerie, Church Street Hotel, Magnus, Annika, Anna, Ella, Sue, David, Jackie, Herbie, Geof, David, Kelly, Theresa, Raewyn, Mo, Juliana, Claire, Paul, Jayde, John, Karen, Anita, Karen, Rebecca, Earl, Jo, Kamal, Liz, Tony, Morris, Trevor, Aamer, Omer, Christine, Kevin, Steve, Scott, Mandy, Bob, Sarah, Ian, Catriona, Neil, Peter, Angela, Penny, Peter, Martin, Eva, John, Liz, Mark, Theresa, Hayley, Xolani, Adebayo, Frank, Omalara, Hilary, Zahra, Sharron, Emily, Ina, Jane, Sue, Diane, Sasha, Kevin, Nicole, Peter, Steve, Laura, Paul, Linda, John, Gifty and Mark.

Phil Morgan

What every landlord needs to know about consumer regulation

Introduction

Back in 2009 when the then Regulatory Framework[1] was being prepared there was a real expectation around tenant involvement and services. The publication of the Framework in 2010 signaled the advent of tenant scrutiny and more widely a regulatory basis to tenant involvement and tenant services. It also included health and safety – a strong “golden thread” from the National Conversation with thousands of tenant views.

Localism Act 2011

The Localism Act 2011 cleaved economic (governance, finance, rent and VFM standards) from consumer regulation (including involvement, Decent Homes, ASB, repairs and maintenance). The regulator would proactively regulate the economic standards and landlords, with their tenants, would ensure compliance with the consumer standards. To support this there were three safeguards. Firstly faced with service failure tenants could complain through landlord’s complaints processes. Secondly tenants could hold their landlords to account through scrutiny. Finally the regulator could intervene if there was “serious detriment”.

Learning from Regulatory Downgrades

Since the Regulator started issuing governance downgrades I have produced an annual summary entitled Learning from Regulatory Downgrades[2]. These have included the issues which have resulted in landlords receiving governance downgrades and what lessons other landlords could gain from them. These have included downgrades driven by consumer regulatory failures.

Grenfell Tower

The Grenfell disaster was a salutary reminder of the need to uphold tenant safety. Both the Sector Risk Profile[3] and Regulating the Standards[4] emphasised that this was a core issue for landlords, and, where not upheld, was an example of serious detriment.

Likewise the 2017 Consumer Regulation Review[5] highlighted the importance of having proper systems in place to identify and manage all Health and Safety requirements across the board.

Current process

Both Regulating the Standards and the Consumer Regulation Review set out the process for considering serious detriment. The regulator can only intervene when the serious detriment requirement has been met. Where it has been met than the Regulator will publish a Regulatory Notice. Given that this may expose governance weaknesses the Regulator will also consider whether there should be a governance downgrade. However this is taken on its own merits – there is no direct link, and there is one example of where a Housing Association has not been downgraded having received a Regulatory Notice for gas safety. In addition Councils and Housing Associations under 1,000 properties do not receive a Governance judgment and cannot be downgraded.

Relationship with the Independent Housing Ombudsman

One of the consumer regulation downgrades featured a serious breach of repairs services with a substantial number of complaints raised. This exposed weaknesses in the relationship of the Independent Housing Ombudsman, which receives individual complaints from tenants, and the Regulator. This has resulted in a Memorandum of Understanding between the two, allowing the Ombudsman to raise issues that it believes may show systemic failure by a landlord.

Regulatory Notices

The below table captures, for the first time, all Regulatory Notices issued by the Regulator on the consumer standards. To date there have been 24 Regulatory Notices issued. Of these 15 relate solely to Gas Safety (and another jointly), 3 to Fire Safety, 2 to Repairs and one each for tenant safety, Decent Homes and Tenancy Rights.

Nearly all Regulatory Notices resulted in a downgrade where relevant – only one (anonymous) case from 2012/23 and another in 2016/17 avoided downgrades despite having been issued with Regulatory Notices, both on gas safety.

For some landlords it has been simply about resolving the issues, regaining G1 and moving on. In other cases the Regulatory Notice and associated downgrade has been part of a much wider picture involving other issues of concern and in four cases ceasing to be a separate entity.

Health and Safety

The Regulator has made it clear that Health and Safety is a core issue for landlords – Board Members and Councillors alike are responsible for ensuring the law is complied with and tenants kept safe. Arguably[6] tenant health and safety is no longer a ‘reactive’ consumer standard but effectively an integral part of governance and covered by economic regulation. Either way Board Members and Councillors need to ensure that there are comprehensive and effective systems in place to identify and manage all Health and Safety requirements. This includes accessing professional advice if needed.

For gas safety this includes making sure annual checks and servicing are done on time and that policies and systems are in place and working.

For fire safety this includes dealing with outstanding actions from Fire Risk Assessments, ensuring that there are robust internal controls and that there enough investment in asset management to avoid non-compliance. Health and Safety also includes other issues including ensuring safe premises and robust approaches for electrical, asbestos and legionnaires.

Repairs

Successive downgrades to G3 on repairs showed that serious detriment could go beyond health and safety. In this case, complicated by a tardy initial response, and overly glowing reports of improvement, there were issues with both specific failures around emergency and urgent repairs and poor service overall.

In addition, although not used as a breach in the Regulatory Notice, there was criticism of complaint handling by the Regulator and this also showed the scope for this being a potential ground for serious detriment in the future.

Decent Homes

This referred to a case where a landlord had leased properties but failed to ensure that these were kept to a decent standard.

Tenancy Rights

This referred to a case where there had been a failure to evict in line with the law and a breach of the Tenancy Standard.

Changes in landlord or management arrangements

As part of the deregulatory measures[7] introduced in response to the reclassification of Housing Associations by the ONS the regulator no longer needs to give consent to mergers or other significant changes to management arrangements. However it has introduced new requirements on landlords to consult, set out the advantages and disadvantages of the change, and demonstrate to tenants how landlords have taken into account tenant views in reaching a decision. The currency of this change means that landlords would be well advised to respond and demonstrate compliance, particularly given the large amount of time and money involved in mergers.

Co-Regulation

Although the division of economic and consumer regulation governs the reactive approach of the regulation the principles of co-regulation make clear that landlords should comply with all regulatory standards. This is part of the Governance and Viability standard[8] which sets out that landlords should comply with all regulatory requirements. This is reinforced, somewhat obliquely, in the Governance and Viability Code of Practice[9].

Green Paper into Social Housing

As part of the Government wider response to the Grenfell Tower it has announced a Green Paper into Social Housing, preceded by a number of meetings with tenants by the Minister of State for Housing and Planning Alok Sharma. Those meeting are still taking place but have emphasised the importance of fire safety, tenant rights, tenant voice and complaints. Whilst the Regulator has avoided any immediate changes until the various inquiries have taken place (and currently there is no evidence to suggest that housing regulation was at fault) it is likely that changes may be made on tenant voice, including on health and safety, and more widely.

Phil Morgan

pjsunited@gmail.com

Phil Morgan is the former Executive Director of Tenant Services at the Regulator. He co-wrote the 2010 Regulatory Framework and put in place Memorandum of Understandings with the then Housing Ombudsman and Local Government Ombudsmen.

[1] http://www.cirruspurchasing.co.uk/Regulatory_framework_from_2010.pdf

[2] https://philmorganblog.wordpress.com

[3] https://www.gov.uk/government/publications/sector-risk-profile-2017

[4]https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/638146/Regulating_the_Standards_July_2017.pdf

[5] https://www.gov.uk/government/publications/consumer-regulation-review-2016-to-2017

[6] http://www.24housing.co.uk/opinion/tenant-safety-and-housing-regulation/

[7] https://www.gov.uk/guidance/deregulatory-measures-for-social-housing-regulation-from-6-april-2017

[8] https://www.gov.uk/government/publications/regulatory-standards

[9] https://www.gov.uk/government/publications/governance-and-financial-viability-standard-code-of-practice

Learning from Regulatory Downgrades

Over 90 Housing Associations have received Governance Downgrades in the past 4 years. Find out why here.

Over the past 4 years the Regulator has issued some 90 governance rulings following downgrades for housing associations. This report seeks to explore why those downgrades have happened and the common threads that landlords should be looking to learn from.

This report details the areas that the Regulator has highlighted in the Regulatory Judgments (RJs), backed up by direct quotations from those named RJ reports.

In this updated version I have seen the first reappearances of previously downgraded associations. However I’ve been more pleased to note that the overwhelming majority of associations respond positively and make progress willingly on the issues identified by the Regulator.

This version also echoes some of the more explicit expectations set out by the Regulator in 2015 in the revised Regulatory Framework and associated Code of Practice. The Code includes a requirement that “Registered providers shall assess their compliance with the Governance and Financial Viability Standard at least once a year. Registered providers’ boards shall certify in their annual accounts their compliance with this Governance and Financial Viability Standard.”

Some issues continue to reoccur – risk, internal controls and consumer safety. Unhelpfully hubris issues, which I had originally identified in 2014, have reappeared, with an unhelpful ‘we know best’ attitude resulting in downgrades on multiple counts including not notifying the regulator when things go wrong, not complying with Codes of Governance, ignoring the 9 year rule, poor quality information to Boards and weak Board challenge.

I have both updated and trimmed the number of quotes (otherwise this report would become unwieldy) but the earlier versions remain available for those who like full detail. Alternatively you can read all the downgrades directly on the HCA website.

Introduction

About 15 years ago I read Julian Ashby’s seminal “Learning from Problem Cases” – a study of why housing associations went into supervision. What I learned was the importance of sound governance both in housing associations and for housing regulation. When I became a senior housing regulator I started any speech on regulation with a clear recognition that good governance was key to tenant involvement and the services for which I was responsible.

Three years ago, in my then role as Vice Chair of Wulvern, I started thinking about co-regulation and how boards could seek assurance that they were regulatorily compliant. I knew that the Regulator had become more active and had issued a range of rulings. But thinking back to Julian’s work, I didn’t know of anyone who had sought to capture it and use it to inform good governance in landlords.

So I sat down and read all the recent governance rulings. I started to understand that there were common threads running through the RJs and that articulating these threads would help boards, executives and others trying to ensure compliance, and effectiveness.

This is an updated version of the original report and includes new information from regulatory downgrades until the end of March 2017.

Phil Morgan

April 2017

www.philmorgan.org.uk

phil@philmorgan.co.uk

Executive Summary

Under co-regulation it is boards that have the responsibility for ensuring that their landlords meet the regulatory standards. This report helps highlight a number of areas where boards, and the staff working with them, can learn from where others have failed.

This includes boards ensuring they are clear about regulatory requirements, that they are compliant with them and produce all necessary reports and statements (e.g. VFM) in an accurate and timely manner. They need to take account of consumer standards including health and safety of their tenants. They need to ensure that risk is well covered and that they have effective internal controls.

Boards need to ensure that they meet their own Code of Governance and that they operate effectively. The Code of Governance helps ensure that boards are run properly. Too often in this report it appeared that hubris prevented boards from implementing basic rules to ensure compliance with their own agreed Code of Governance.

Finally, boards also need to ensure they operate effectively, establishing clear relationships with staff, seeking and taking expert advice, ensuring they provide robust challenge to the executive, work together effectively and are able to meet new challenges.

Using this report will help Associations in meeting their annual assessment of compliance and in preparing for In Depth Assessments by the Regulator.

1. Regulation and Boards

Under co-regulation, boards are responsible for ensuring the Regulatory Framework and Standards are met. This means understanding – and meeting – those requirements, as well as ensuring a professional approach to the Regulator and regulation. The Regulator consults formally, and informally, on changes to the Regulatory Framework and Regulating the Standards. Boards should keep abreast of such consultations and the impact of subsequent changes.

1. Keep up to Date

Boards need to ensure that they are working to the current version of regulatory requirements. The most recent changes were made in 2015 and include the requirement to assess compliance annually and publish that assessment in their annual accounts.

Gallions Housing Association Limited

In making its decisions, the board referred to regulatory requirements that have not been in place for some time as the basis of its decision-making. The board failed sufficiently to take into account the current regulatory framework and in particular the requirement that registered providers’ governance arrangements should ensure they safeguard the reputation of the sector.

North Lincolnshire Homes Limited

Evidence from attending a board meeting and reviewing board papers has not provided sufficient assurance that the board fully understands its role in relation to meeting the regulatory standards.

January 2015

2. Tell the Regulator

It’s important to tell the Regulator as soon as you become aware that things are wrong. Too often, landlords thought they wouldn’t tell the Regulator about problems until they had tried to put them right first. Failure to declare non-compliance of economic standards, including the Code of Governance, is also a breach of those standards.

Luminus Group Ltd

The board did not inform the regulator

March 2017

Manningham HA

In July 2015 the Health and Safety Executive issued MHA with a notice of contravention relating to the quality of gas safety and servicing work undertaken across the whole of its housing stock. This was considered by the Board at the time, but the Board failed to consider whether this breach of statutory responsibilities should be communicated to the regulator in line with the expectations of the standard.

February 2017

Tower Hamlets Community Housing Limited (THCH)

THCH has not communicated with the regulator in an accurate and timely manner. The regulator was not informed of the material issues when they were identified in October 2015 but approximately two months later. In addition, a number of the returns to the regulator contain errors, including material misstatements of the provider’s financial position.

February 2016

3. Hit HCA Deadlines

There are deadlines and they should be kept to!

Ensuring that reports and returns to the HCA are on time and accurate is a basic building block in the relationship with the Regulator. Boards can ensure that these returns are reported to boards and monitor their timeliness. Accuracy is essential for both the relationship and the integrity of the board. This includes late filing of accounts which has resulted in recent Regulatory Notices being issued to ‘small’ (under 1,000 properties) landlords.

Colne Housing Society

We found that the quarterly return for March 2016 had been completed incorrectly with an overstatement of forecast cash flow outgoings. Also, it was not possible to reconcile the treasury position reported to the board and that reported to the regulator through the quarterly returns. Colne’s most recent financial forecast regulatory return described a less favourable financial position than the business plan agreed by the board in May that it was supposed to replicate. The return had been presented to the audit committee prior to submission to the regulator, to explain differences in format to reflect recent changes to accounting standards, but no changes in the underlying figures were highlighted at that stage.

These findings are indicative of a lack of overall control and review of submitted data which has resulted in a failure to submit a valid financial forecast return to the regulator by the specified deadline. Colne is working to address this identified weakness and has commissioned external advisors to undertake a review of the controls in place to monitor and report on data.

September 2016

Thirlmere Housing Co-operative Limited

The regulator has noted that Thirlmere Housing Co-operative Limited has failed to submit signed financial statements within six months of the latest accounting period, despite repeated reminders.

September 2015 Regulatory Notice

4. The Rent Standard

The rent standard is economic regulation. With the emphasis on governance and financial viability through the ratings, it’s important not to forget that housing associations also need to comply with the rent standard.

East Thames Group Limited

ETG reported to the regulator in the autumn of 2012 that it was not fully compliant with the Rent standard in that just under 1,000 homes did not have rents at the required levels. When this was queried with the group it indicated that a larger number of homes were non-compliant, in part because it had misinterpreted relevant guidance. This did not give the regulator assurance about the accuracy of ETG’s reported position or its overall application of the rent influencing regime guidance.

Network Housing Group Limited

Network has not fully complied with the requirements of the Rent Standard concerning 153 properties where, because of errors in base capital values used in calculations, rents were charged in excess of the maximum permitted by the standard for a number of years. A further 509 supported housing properties were charged rents in excess of NHG’s policy. The issues have led the regulator to question controls within the group, and specifically the basis upon which the Board gained assurance on the accuracy of rents charged.

1. Consumer Standards

5. Health and Safety

While consumer regulation is not actively regulated, it undergoes a ‘serious detriment’ test. Nearly all of the breaches of consumer standards feature health and safety. This also applies to Councils who own housing stock and two of the examples in this section feature Councils who were issued with Regulatory Notices.

Blackpool Council

The regulator has received evidence of a breach of the Health and Safety at Work Act 1974 which led to tenants being exposed to the risk of serious harm. The Court concluded that the structural flaws in the balconies were present for a significant period of time and the provider failed to heed multiple warnings. This is clear evidence of a breach of the Home Standard in respect of the requirement to meet all applicable statutory requirements that provide for the health and safety of the occupants in providers’ homes.

Orbit Housing Group

In July 2015, Orbit reported to the regulator that, following an internal investigation, it believed it was in significant breach of Health and Safety legislation. The situation had arisen following a restructuring of the two Subsidiary Operating Associations within the Group during 2013/14. From April 2014, health and safety performance management information was inadequate: systems were not consistently followed or utilised by those responsible for their implementation. This was a failure of operational internal control and also board oversight by Orbit because there was ineffective challenge as a result of the lack of information during 2014.

November 2015

6. Gas Safety

Gas safety remains the most frequent, but not sole, cause of breaching the serious detriment test.

Bolton at Home Limited (BH)

In October 2015 BH reported to the regulator that, following a planned internal audit, it had identified a significant number of out-of-date gas safety certificates. The situation had arisen because property management information was inadequate and there was a lack of accountability for property data within the organisation. This was a failure of internal control and also of board oversight. In some cases the certificates had expired a number of years previously.

February 2016

Redditch Borough Council (RBC)

RBC contacted the regulator to inform us that, following a meeting between its legal services team and repairs and maintenance staff, it had identified a significant number of out-of-date gas safety certificates. In some cases the certificates had been expired for a long time.

RBC instigated an internal audit investigation. The audit found that the issue arose due to inadequate contract management, failures in recording and incomplete records and contractor failure. RBC is undertaking a review of arrangements for contractors and methods of reporting.

November 2015 Regulatory Notice

Manningham HA

MHA had completed the annual gas safety checks, but it had not carried out servicing to ensure the fittings and flues were safely maintained. MHA’s gas safety processes did not require a servicing element and so the failure to meet the legislative requirements applied across all of MHA’s stock.

February 2017

Luminus Group Ltd

Although the gas safety inspections were typically overdue for a relatively short period of time, the number of homes that had been without valid certificates for at least some period was extremely high. This had been caused by failure to have adequate policies and systems in place to ensure gas safety inspections were carried out on time.

March 2017

7. Fire Safety

However it is not just gas safety but fire safety that breaches serious detriment.

Tower Hamlets Community Housing

In May 2016 THCH reported to the Regulator that it had potentially breached its statutory duty to take precautions as it had failed to implement a large number of very high and high risk actions arising from Fire Risk Assessments. THCH told the Regulator that there were several hundred actions categorised as either very high or high risk, relating to hundreds of properties, and that in a number of cases, these actions had been outstanding for periods of more than two years. THCH said that tenants had been put at risk from the failure to complete the outstanding actions but told the Regulator that there had been no injuries as a result.

March 2016

St Vincent’s HA Ltd

In July 2016 St Vincent’s reported to the Regulator that an internal audit had identified that it had potentially breached the statutory duty to take precautions as it had failed to implement a large number of very high and high priority actions arising from Fire Risk Assessments. St Vincent’s told the Regulator that there were a few thousand actions categorised as either very high or high priority, relating to a few hundred properties, and that in a number of cases these actions had been outstanding for a number of months. St Vincent’s said that tenants had been put at risk from the failure to complete the outstanding actions but told the Regulator that there had been no injuries as a result

Orbit Housing Group

The regulator has separately concluded that failure to implement a large number of outstanding high risk actions from fire risk assessments for periods exceeding two years breached Orbit’s statutory duty under the Regulatory Reform (Fire Safety) Order 2005 and that it is proportionate to conclude there had been a breach of the Home Standard which had the potential to cause serious detriment to Orbit’s tenants.

November 2015

8. Repairs

To date this is the sole instance of customer service failure breaching the serious detriment test. This initially resulted in a G3 rating and reoccurrences (despite reassurances) have resulted in a downgrade for the resulting merged Group. It also implicitly references failure of complaints as a serious detriment issue. The reoccurrence sets a challenge for the Regulator to not blindly take reassurances from downgraded landlrods alone as proof of resolution.

There is also an issue for the Regulator and Housing Ombudsman to address in cases on this kind where complaints show a systemic failure in a landlord.

Circle Anglia Limited

….the regulator has reached the view that this exceptionally poor provision of repairs and maintenance has been made possible or contributed to by serious and enduring failures in, or in the operation of, Circle’s strategic planning and control framework such that Circle did not adequately manage or mitigate the strategic and operational risks inherent in the delivery of that service.

In implementing its plan to rationalise suppliers and create fewer, larger contracts for responsive repairs and planned maintenance, Circle has failed to control delivery of a core service and respond effectively to serious underperformance. This is consistent with a systemic problem in the organisation’s risk management and internal controls.

The regulator’s assessment of the material relating to the delivery of the repairs service to tenants in the London area covering 13,000 homes (Circle 33 and Old Ford Housing Association) is that it represents a chronic failure by Circle to ensure delivery of a satisfactory repair service to those tenants. For example, in relation to Circle 33’s 8,000 homes, over a period of three months Circle reported that less than 20% of urgent and emergency repairs were completed on time and elsewhere less than 50%. By way of further example, referrals received by the regulator, including information about a significant number of outstanding statutory notices relating to disrepair, provided evidence that for over a year tenants, including vulnerable tenants, had experienced significant difficulties in getting essential repairs done, either on time or at all.

April 2015

Clarion Group (which now includes Circle)

During early 2016 the regulator had received assurance that the performance of Circle’s emergency and urgent repairs service in east London, which had been the subject of a regulatory notice from April 2015, had improved significantly and was then at an adequate level. The regulator therefore removed the regulatory notice.

The referrals received after that point have related to a broad range of issues, including: performance of heating and hot water repairs services ,more general repairs and maintenance including, in some cases, services provided to vulnerable and potentially vulnerable tenants , difficulties in contacting Circle to raise issues and complaints and perceived poor responses by Circle to complaints, leading to a very large number of complaints being outstanding for long periods of time.

This followed Circle merging its customer contact operation into a single call centre and in parallel implementing a new customer relationship management IT system in June 2016. These referrals include a large number of what the regulator terms “statutory referrals” from councillors and MPs, as well as complaints from individual tenants. Collectively, they relate to hundreds of individual repairs issues raised by tenants, and hundreds of complaints about Circle’s handling of repairs and accessing Circle’s services. A high proportion of those complaints have been unresolved for long periods of time.

December 2016

1. Hubris – the Threat to Good Governance

As with Julian Ashby’s earlier report, governance remains key to the effective running of housing associations and there are a number of areas where compliance can be achieved very easily. However, for some landlords, rules are ‘meant to be broken’ – or ignored. Often, these are the same landlords who experience other difficulties as hubris clouds their vision of what their role should be.

9. Comply and Publish (Non)Compliance with the Code of Governance

Housing associations are able to choose an appropriate Code of Governance. Having chosen their preferred code, there is then a requirement to ‘comply or explain’. Some associations have not explained at all, others have not given a satisfactory explanation for their non-compliance. The National Housing Federation updated their Code of Governance in 2015 and this now provides a stiffer test for compliance in line with issues raised in previous versions of this report.

Luminus Group Ltd

Luminus is also unable to substantiate that it is compliant with its chosen Code of Governance in relation to the adequacy of its delegations framework and board recruitment.

March 2017

Pierhead Housing Association Limited

During recent engagement it has acknowledged non-compliance regarding….failure to report both its level of compliance and explanation for deviations from provisions of the Code.

Tower Hamlets Community Housing Limited

THCH’s code of governance requires a public statement of compliance with the code, and a reasoned statement about areas where it does not comply. While the association has made such a statement, recent disclosures have been incomplete.

10. Nine Years Maximum

Terms of office are a maximum of 9 years, however the ‘9-year rule’ is not an absolute rule and there may be reasons why, exceptionally, some board membership might exceed that period. However this must be discussed with the Regulator and put in the context of a sensible succession strategy. In most cases it isn’t adequate to cite “continuity” as a reason for non-compliance, as a joint letter to Chief Executives from the HCA and the NHF in February 2014 made clear.

The Regulator will engage with landlords and agree sensible ways forward.

Yet some landlords didn’t agree sensible ways forward and in some cases had members with 20 or even 40 years board membership. What was revealing was that in most of these cases excessive length of membership resulted in poorer governance and overly close relationships between board and staff.

The answer is simple – put a succession plan in place well in advance of hitting the 9-year rule.

Bournemouth Churches Housing Association Limited

BCHA does not have an explicit plan for board succession. Some members of BCHA’s board have been in office in excess of the maximum nine years allowed by a provision of the code. As a consequence, the regulator considers the independence of the board could be compromised by a lack of challenge to long-standing practices and thinking, which may lead to risks to effective leadership and control.

Tuntum Housing Association Limited

Tuntum does not comply with the provisions of its chosen code of governance in relation to maximum terms of office for board members. The code specifies maximum terms of nine years but Tuntum has made rule changes which extend this to a 12-year maximum. The association currently lacks clear succession plans for the chair and other board members. In addition, the criteria used by the board for extending terms of office should be clearly specified. The regulator considers this weakens the board’s ability to challenge the executive and review long-standing practices.

11. Board Skills

As housing associations diversify in their operations, boards face a growing range of issues on which they need expertise. Examples include development, marketing, finance, commercial activity and treasury management. This was an issue with nine landlords and often core to failings of their boards.

You need to ensure the board covers all the necessary bases, and not be afraid of change, including change in your governing documents, to ensure this happens. This is one of the reasons why board renewal and fixed terms of office are important, the skills needed five years ago are not necessarily the skills that will be required in five years time.

North Devon Homes

The regulator has concluded that NDH has not been able to evidence sufficiently that its governance arrangements enable it to manage its affairs with an appropriate degree of effectiveness and foresight. NDH has recognised the need to strengthen its board and has been working towards achieving this over the past 18 months.

November 2016

Shepherds Bush

Improvements are required in the assessment of board skills in relation to business need, and in the training and appraisal processes for board members.

April 2016

Orwell Housing Association Limited

Orwell’s business strategy involves complex partnership working and development within an increasingly challenging economic environment. However, Orwell has not demonstrated that it has adequately assessed the skills of the board as a basis for planning ahead to ensure that it will maintain the necessary balance and expertise to deliver its objectives and maintain compliance.

Tuntum Housing Association Limited

The regulator’s previous judgement also required additional assurance from Tuntum in relation to board skills, succession planning and structured renewal to support its growth and increased risk appetite in the increasingly challenging operating environment. Tuntum has yet to provide a sufficient level of assurance in these areas

12. Annual Appraisals

Having got your board in place there should be an annual mechanism for appraising their effectiveness and identifying areas for personal development and any gaps in board skills.

It is surprisingly common to find associations which operate an “alternate years” or even a triennial appraisal process.

Hastoe Housing Association Limited

Board members have been subject to individual appraisal every three years

Tower Hamlets Community Housing Limited

The regulator has concluded that THCH needs to strengthen board assessment and renewal processes to ensure that its board will maintain the skills and expertise required, both now and in the future, to deliver its business strategy.

13. Board size

Less is more.

Make sure your board is 12 or less. There’s a strong body of research published showing that boards that are too big are less effective. It can be hard for larger boards to admit that they are too big and, even harder, that some board members will have to go.

The Regulator will want to know if an oversize board has a plan to achieve compliance, and within a reasonable timeframe.

Bournemouth Churches Housing Association Limited

The size of BCHA’s board exceeds the maximum specified in its code of governance. It has no plans to achieve compliance and the regulator does not have assurance that it has carried out a robust assessment which adequately supports any case for non-compliance.

Tower Hamlets Community Housing Limited

The size of THCH board exceeds the maximum specified in its code of governance. The board has 16 members, of whom eight are elected tenants. This structure has constrained skills-based recruitment to the board. In retaining a board of this size, THCH has not adequately considered whether it could better utilise its committee structure to support a smaller, strategic board.

14. Review Your Governance

There should be a regular cycle of reviewing the board and its governance arrangements to ensure that they remain fit for purpose. Having done the review it also helps to take it seriously and implement the recommendations. And, as with many of the matters included in this report, it can be useful to commission (and take note of) external advice.

Manningham HA

It has not addressed in a timely manner, recommendations on the governance framework and Board effectiveness made by a governance review undertaken in 2015

February 2017

Pierhead Housing Association Limited

Despite evident problems Pierhead has not undertaken a review of its governance arrangements since October 2010. It has not done any work to assure itself on its level of compliance with its chosen code of governance.

15. Board Payment

Board payment should be proportionate – and published.

There are too many occasions outside housing when people awarding themselves money has caused reputational damage. The same applies within social housing – excessive board member payments will be damaging for that landlord (and the sector more widely). Board payments should be published on a named basis too – allowing for transparency and accountability and identifying differing payment levels for different board roles.

Bedfordshire Pilgrims Housing Association Limited

BPHA’s code of governance also states that where board members are paid, the agreed payment levels must be appropriate to the organisation’s size, complexity and resources. The regulator lacks assurance that in reaching a decision to increase payments to non-executive directors to levels above sector norms, the board gave adequate consideration to remuneration in relation to BPHA’s size and complexity. In addition, the regulator does not have sufficient assurance that BPHA is meeting the provision of its code that where board members are paid, payment should be linked to specific duties against which performance can be assessed.

BPHA did not satisfy the provision of its code that where board members receive remuneration, details of these payments should be published on a named basis.

1. Value for Money Statements

The very public downgrading of 14 associations in February 2014 for failing to meet the VFM standard, plus the letter notifying the vast majority of housing associations that they were at risk of non-compliance, was a wake-up call for the sector. Landlords will want to look at recent best practice and advice. The Regulator is reviewing its approach, partially in the light of sector led approaches to VFM, and will consider a new VFM standard later this year. This is expected to be less prescriptive.

16. Have a robust VFM approach and publish openly

Shepherds Bush HA

Strategic ownership of value for money by the board is weak, a robust self-assessment was not published when required and there is limited understanding of SBHA’s return on its assets. There is limited evidence that across the stock base there is an understanding of differing returns on assets and this impairs the board’s ability to make informed investment decisions.

April 2016

Wrekin Housing Group

WHG cannot demonstrate that the group meets the Value for Money (VfM) standard. The self-assessment is limited to WHT and although there was evidence that VFM was well understood in the context of WHT, there is a lack of assurance that evidence has been properly considered in making decisions on the use of assets and resources at a group level

November 2016

Tower Hamlets Community Housing

In addition, for the second year in succession, the regulator has concluded that THCH has not published a robust self-assessment which sets out in a way that is transparent and accessible to stakeholders how it is achieving value for money in delivering its purpose and objectives. There was limited evidence to demonstrate THCH has an understanding of its asset base and a number of improvements identified in the previous self-assessment remain outstanding.

March 2016

1. Risk, Internal Controls and Sound Financial Planning

Managing risk is now central to the work of landlords and core to the role of effective boards. Ensuring that there are effective internal controls in place safeguards staff, tenants and board members.

17. Do Risk Properly

It is essential for the business to have a robust risk framework in place, monitored and used to drive mitigation and improvement. This includes when managing strategic change.

One Housing Group

In addition, the role played by the board and committees in risk management needs to be strengthened by improved reporting, particularly in relation to treasury and liquidity risk. There is insufficient evidence that the board can rely on the adequacy of its stress testing work to have assurance that mitigation strategies in place are appropriate and effective.

July 2016

Bolton at Home (BH)

BH needs to embed recent changes made to its risk assurance framework, including integrating internal control arrangements and improve governance control over a key risk area (data integrity). Improving data integrity is a fundamental part of BH’s IT strategy, however governance oversight and hence reporting of progress with implementation of the IT strategy is infrequent. BH needs to embed recent changes made to its risk assurance framework and improve governance control over this key risk area. Data integrity has not been sufficiently considered via the new risk management arrangements, despite being identified by BH as a key risk.

July 2016

C&C

C&C needs to strengthen its existing risk management framework to ensure it can evidence a more strategic approach to the monitoring and management of risk. This is particularly important as C&C has to manage significant new risks associated with its change programme. The programme involves strategic change on a scale that C&C has not previously experienced, entailing a switch away from loss-making care business streams to the provision of high-quality sheltered housing for the over-55 age group

January 2017

Shepherds Bush HA

In particular stress testing reporting which was limited to a small number of risks and one multi-variate scenario. The impact on covenants was not clearly articulated, leading to a lack of clearly linked and appropriate mitigation strategies.

April 2016

Magna Housing Group Limited

….while the board approves annually the provider’s risk management policy and a risk matrix appended to it, there is a lack of evidence that this process involves a strategic review of key risks, controls and assurance. The board does not, for example, evidence that it reviews key risks such as welfare reform regularly. Furthermore, the lack of clear prioritisation of risks within the risk matrix hinders the open strategic debate of key risks by the board and undermines its ability to fulfil its role in this area. This means that there is a lack of sufficient evidence that Magna has a robust risk management framework led by a board which demonstrates a clear understanding of its role

February 2016

Cosmopolitan Regulatory Judgment

The group’s approach to risk was based on an over-simplification of presenting issues, coupled with too little scrutiny of new deals taking place after the merger. This, alongside an inadequate control environment, especially in relation to the development function, exposed the group to unacceptable levels of risk. In particular the board’s decision to fund its investment programme through a sale and leaseback arrangement was based upon a wholly inadequate analysis of risk and a rudimentary sensitivity analysis, coupled with a failure to consider alternative plans. ..the group failed to effectively manage the risks to delivery of its plans.

Tuntum Housing Association Limited

Aspects of Tuntum’s risk management need to be improved to support continued compliance with our governance expectations. We have insufficient assurance that the board has clear oversight of the key risks to the delivery of its strategic objectives. The association’s risk map does not adequately identify whether controls have mitigated identified risks to an acceptable level. Nor does it update the board on the action to manage exposures.

18. Financial Planning and Capacity

When planning for the future boards will need to ensure that plans are robust and well founded. They also need to ensure that there is sufficient capacity to undertake the financial work required.

Together Housing Group

Three successive annual reports from the group’s external auditors have raised concerns about the capacity of the group’s finance function to undertake the financial work required for a group of THG’s size and complexity. The board responded to recommendations made in 2014 and 2015 with measures to remedy the deficiencies. However, these remedial actions have not been fully effective and residual risks stemming from inaccurate or untimely financial reporting remain.

Further evidence of capacity issues within the finance function, and in particular the supervision of it, are instances where the group’s controls have failed to ensure that financial data returns met regulatory expectations in terms of quality and comprehensiveness.

December 2016

St Mungos Community HA

we had insufficient assurance regarding the organisation’s control and compliance environment, as well as the delivery of effective scrutiny and oversight of key risks by the board and audit and risk committee. While the organisation had maintained a focus on the delivery of frontline services, IT systems, back office functions and internal controls were not aligned with the larger merged organisation and risks it needed to manage. However, we continue to have concerns about St Mungo’s internal controls and systems for preparing timely and accurate data and reporting to underpin the board’s decision-making and its regulatory returns

July 2016

Chapter 1 Charity Limited

In terms of governance, allowing the organisation to reach the point where it was unsure it had access to sufficient liquidity and was potentially in breach of a funder’s covenant represents a continuing failure of control on the part of the board and executive. Although this situation was eventually avoided, the lack of adequate systems in place to monitor the cash position and covenant compliance is a failure of the business planning, risk and control frameworks at the most basic level.

Chapter 1 has been engaged in crisis management and has therefore failed, within an acceptable period of time, to put in place an adequate strategic plan and the financial, risk management and internal controls frameworks that should underpin it. Neither has Chapter 1 been able to make sufficient progress against the terms of a voluntary undertaking to address the issues identified in the earlier regulatory judgement.

The regulator has been unable to gain sufficient assurance that the business plan demonstrates Chapter 1 has a viable, independent future. The regulator will continue to engage with Chapter 1 until an acceptable route is found to ensure that the provider can comply with the regulatory standards.

September 2015

Manningham HA

19. Internal Controls

It’s important that there are robust internal controls, ensuring the business is well run and the organisation’s money is handled properly. Central to this is the correct use of (externalised or internalised) Internal Audit, which gives assurance that the organisation’s internal controls are effective.

Habinteg

However, the review highlighted significant weaknesses in Habinteg’s processes and controls across a number of areas and that the back-up arrangements in place for storing emails did not meet business requirements

February 2017

Tower Hamlets Community Housing

THCH’s governance arrangements have failed to deliver an effective risk management and internal controls framework. In October 2015 the organisation uncovered potentially material issues relating to the site acquisition, procurement and delivery of two significant development schemes; one of which was nearing completion, the other was empty pending future development. These issues were not identified by the day to day operation of internal controls or risk management frameworks, evidencing that those processes were ineffective in practice.

March 2016

1. Operation of the Board

As well as meeting basic rules on good governance, boards need to establish and maintain proper working relationships with staff, ensure meetings are well run and seek and take notice of external advice.

20. Chief Executives

In a nutshell: Don’t give your departing chief executive a big severance package.

Three landlords have been downgraded for such packages, failing to put it place challenge from the board, consideration of VFM and potential reputational risk. Thus highlights the need for appropriate challenge from the board outlined earlier and the dangers of excessively long terms of board membership.

In particular, regularly review your employment policies and executive contracts well away from the emotion created by the departure of a hard working stalwart.

Great Places Housing Group Limited

The board of GPHG has exercised weak governance when agreeing executive contracts and severance payments to an outgoing executive. The roles of the remuneration committee and board in scrutinising and agreeing matters of executive pay was not clear and as a result proposals were not effectively scrutinised and challenged. The lack of challenge was compounded by close working relationships formed as a result of the long service of a number of board members.

Severn Vale Housing Society Limited

The board of SVHS did not demonstrate adequate control or effectively assess risks in its consideration of the early retirement of the Chief Executive. The organisation’s early retirement policy had not been revised since the transfer date of 1998 and the board had not identified the risks of operating a significantly out of date policy. In failing to review this policy the board exposed the organisation to early retirement requests with the potential to result in significant cost and reputational risk. There was insufficient challenge by the board of the proposed level of compensation and no consideration of whether this complied with regulatory standards and the board’s own code of governance.

21. Clear Relationships

Be clear about the respective roles of board members and executives. You need to have a good working relationship based on those clearly defined roles, don’t delegate too much to staff and be particularly clear about roles where chief executives are also board members. It also means been precise about delegation to Board working groups.

Curo Group

The regulator does not have assurance that Curo is able to sufficiently evidence that it can manage its affairs with an appropriate degree of effectiveness, and this includes a lack of assurance around the maintenance of clear roles, responsibilities and accountabilities for the board and chair. Improvements that need to be made include a simpler and more transparent governance structure with clear roles and accountability within it, a reduction in board size and an enhanced functioning of the non-executive/executive relationship.

May 2016

One Housing Group

However, we have insufficient assurance regarding the transparency and accountability of OHG’s governance arrangements, specifically the delineation of roles and responsibilities and the clarity of its scheme of delegation.

July 2016

Metropolitan Housing Trust Limited

The issues set out above [which related to Governance, financial management and risk management] were exacerbated by poor management of governance processes such as the lack of proper delegations to the finance committee, clear roles for executives on the board and failure to take appropriate action after reviewing compliance against the code of governance, and the effectiveness of governance arrangements.

Pierhead Housing Association Limited

Relationship difficulties at senior management and board have led to disputes which have diverted the leadership’s attention away from directing and controlling the organisation’s business.

Saffron Housing Trust Limited

There was….inappropriate delegation of key expenditure by the board to the executive. This was compounded by management failures to comply with requirements of the Audit Committee.

22. Take Expert Advice

There will be times when boards cannot have all the skills they need within the set of board members to provide adequate expertise and advice when considering courses of action. It is right to seek external advice in these situations and use that to support decision-making. It is also important that, having sought advice, boards should heed it and act accordingly.

Gallions Housing Association Limited

The board failed to take timely legal advice and did not make best use of the advice which it received.

Great Places Housing Group Limited

It did not always recognise the need to seek independent expert advice and did not always make the best use of advice it did receive

23. Run Board Meetings and Processes Properly

Board meetings should be run properly – and minutes should be taken. This is a fundamental matter of record keeping.

Saffron Housing Trust Limited

The board of Saffron had been advised that defects in governance processes and a failure to comply with its rules meant that some board members had not been appointed properly. The failure had occurred over a period of several years. Significant decisions were made during this period involving third parties and funders and there was uncertainty about the validity of all the decisions that had been made at those meetings given some board meetings had been inquorate.

September 2016

24. Structures and Subsidiaries

It is essential to have a firm grip on complex structures and subsidiaries.

Obviously this is driven, in part, by the Cosmopolitan experience but also by the increasingly diverse nature of the sector in setting up subsidiaries for tax efficiency and/or creating new lines of income. Boards should be aware that there are potential risks in complex structures and that the Regulator will be sensitive to both the overall impact of that risk and potential impact on social housing run by the landlord. In the Regulator’s summary of responses to the consultation in October 2014. There have also arisen concerns about Registered Providers operating within a Group structure and how these need to ensure they are able to protect social housing assets.

Wrekin Housing Group

WHG needs to improve the effectiveness of its governance arrangements to enable it to manage the business at a group level more effectively and strengthen its oversight and control of group risks. WHG could not demonstrate that effective arrangements are in place to ensure appropriate oversight of key risks within the context of a cohesive group strategy. Risks are identified at a subsidiary level, with those ranked more highly then being combined into a group risk assessment. Risks are not assessed against group strategic objectives. This approach does not clearly identify and prioritise risks that will have the greatest cumulative impact on the group as a whole. Stress testing is limited to the impact on WHT.

November 2016

Broadacres HA Ltd

Since its acquisition in 2012, the main commercial subsidiary’s financial performance has been poor. The BHA board has failed to effectively monitor the risks associated with this activity and there are inadequate mitigation strategies in place to manage them. Foreseeable risks have crystallised and the unregistered non-charitable subsidiaries are increasingly reliant on the continued support of the registered parent. As a result BHA is exposed to a combination of material losses, impairment and write offs. The structural arrangements in place, including intra-group lending and parental guarantees between group members, has resulted in BHA accepting the majority of the downside risk and its on-lent investment at risk has increased to £18m

February 2017

North Lincolnshire Homes Limited

The group structure has, of its nature, created a network of board inter-relationships. The regulator has insufficient assurance that the NLH board is wholly clear about its status and position within the group. There are both relationship and reporting dilemmas which have not yet been fully resolved.

Evidence from attending a board meeting and reviewing board papers has not provided sufficient assurance that the board fully understands its role in relation to meeting the regulatory standards. This is in the context of it being a subsidiary member in an otherwise non-regulated group.

January 2015

Cosmopolitan Housing Group Limited

In particular, the pre-merger group had entered into obligations with non-regulated members of the group putting social housing at risk, but lacked effective mechanisms to identify and manage the exposures.

25. Robust Challenge

Central to the relationship between the executive and the board is the willingness of boards to provide robust challenge.

This is referenced above in the context of chief executives’ severance packages, however this is not the only circumstance in which boards must be robust in challenging the ambitions of the executive.

Broadacres HA Ltd

The regulator lacks assurance that the BHA board has managed its affairs with an appropriate degree of skill, independence, diligence, effectiveness, prudence and foresight in relation to the management of its commercial activities and associated investments. These included insufficient robust, independent challenge by the BHA board,

The crystallisation of the risk exposure BHA faces as a result of its continued investment in its commercial subsidiaries is evidence that the board has failed to maintain the tight control required to manage them effectively

February 2017

Luminus Group Ltd

Material weaknesses in the information and material presented to the board have not been effectively challenged. The board does not systematically follow up progress with known control weaknesses identified through recommendations from internal audit. The board does not receive sufficiently detailed information to allow it to effectively monitor and make decisions on the investment and has not effectively challenged that situation.

March 2017

Manningham HA

The regulator lacks assurance that there is effective leadership or strategic direction and that the Board is maintaining effective oversight and control of MHA and its activities. The Board has failed to ensure there is sufficient resource to effectively manage its key risks and deliver strategic priorities which include determining the organisation’s future, organisational capacity and the impact of welfare reform changes.

It has not acted appropriately on warnings from its external auditor and has failed to ensure appropriate resources are in place to implement significant audit recommendations. It has not been able to assure the regulator that it understands adequately the risks it faces or their potential cumulative impacts on the business. It does not have adequately defined trigger points or potential mitigating actions in place.

February 2017

26. Accurate Information

To provide robust challenge, boards need to ensure they have access to adequate and accurate information. It is not sufficient to rely on the executive to provide the information necessary, as the examples below demonstrate that they do not always succeed in doing so.

Luminus Group Ltd

An internal audit on gas found that the board had been given inadequate information. The board does not receive sufficiently detailed information to allow it to effectively monitor and make decisions on the investment and has not effectively challenged that situation

March 2017

Manningham HA

The Board has been hindered in its ability to take effective decisions by basic weaknesses in the information and material presented to it

February 2017

Broadacres HA Ltd

…poor quality operational information to the BHA board hampering its ability to make effective decisions

February 2017

Cosmopolitan Housing Group Limited

The quality of reporting to board was inadequate.

…

The quality of information reported to board in support of decision-making has been poor.

…

Officers failed to bring to the members’ attention the increasing pressures on liquidity until a point where the business was reliant on an overdraft that it was at risk of breaching. Cash flow forecasts were inconsistent, sometimes incomplete or inaccurate and failed to highlight material changes.

Shepherds Bush HA

…the quality of information provided to the board needs to improve to enable informed, timely decision making. In particular stress testing reporting which was limited to a small number of risks and one multi-variate scenario. The impact on covenants was not clearly articulated, leading to a lack of clearly linked and appropriate mitigation strategies.

April 2016

27. Co-operative Board Relationships

To operate effectively board members need to be able to work together successfully.

Aldwyck Housing Group Limited

However, there has since been evidence of dissension among board members which has exacerbated concerns about governance. As a consequence the regulator has concluded that it does not have sufficient assurance that Aldwyck currently has the capacity and capability to exercise effective control over the provider’s affairs.

28. Governance and new challenges

And whilst skills are important to met new challenges, such as new growth, it is equally important to ensure that boards ensure that all areas are robustly monitored.

Equity Housing Group

The 2014-17 business plan reflects a step change in EHG’s aspirations and risk appetite which it recognises and describes as an “ambitious growth programme.” The board has failed to enhance its governance and risk management arrangements to ensure appropriate oversight and control during this period. In particular the board did not ensure appropriate arrangements for the oversight and monitoring of the group’s treasury position. In June 2014 this resulted in only six months of available funding and a requirement to renegotiate a gearing covenant with funders to enable the group to increase facilities in order to deliver its plan. In doing this EHG was in breach of its treasury management policy which requires loan facilities to be drawn on demand equivalent to 12 months net capital expenditure. The board was unaware it had breached its treasury management policy

This article was originally written in 2015……

The KLF burned a million pounds. Yet what the Government is proposing on housing is worse.

Last week started so brightly. The Homes for Britain rally. Valiant Home Guard Uniforms. Politicians promising to build more homes. And it ended so badly. Where did it all go so wrong?

Firstly the budget came along. Successive governments have got addicted to interfering in the housing market to help some group that is deemed electorally important. From key workers (who always seem to includes nurses, teachers and police) to first time buyers there have been schemes that brandish extremely large sums of public money and make the housing market even more unaffordable. The latest current wheeze is for a ‘Help to Buy ISA’ on top of the Help to Buy scheme. This has been criticised by the Institute of Financial Studies as a ‘dubious’ policy that could push up house prices further.

A few years ago the KLF burned a million pounds. You can watch it on You Tube. It is extremely depressing. Yet what the government is doing is worse. Not only are they burning millions of pounds for no effect in doing so they are making the housing market more unaffordable. The simple solution is to build more homes. Lots of them. This would reduce the pressure on the housing market and lower the housing benefit bill.

Yesterday it all got a lot worse. The floating of the idea of extending Right To Buy to housing associations, with presumably the same discounts as for council tenants, isn’t exactly new. This is all designed to echo the Thatcher Right to Buy for council tenants from the 1980’s and presumably reap the same electoral rewards. Yet someone has to pay for all these discounts.

The recent record of the extension of the Right To Buy discount for council housing has been a disaster. Promises of one-for-one replacement have proven empty and delivered a pitiful amount of new homes whilst reducing the amount of affordable social housing homes further.

The Housing Association sector has some £200bn of pubic and private assets invested in it. It builds many of the new homes needed. To borrow money it needs financial stability. The biggest threat to Housing Associations remains welfare reform and its implications for income streams. However making Housing Associations pay for Right to Buy discounts will inevitably result in less money for new build, which makes housing even more unaffordable.

The KLF now regret burning that million pounds.

There are three arguments for tenant involvement – moral, regulatory and practical. Over time I have argued for all three but every now and again I meet the “So What” Wolf. The “So What” Wolf will be familiar to many of you. Charmless, cynical and conservative (with a small c) the Wolf lies in wait during discussions on tenant involvement. The Wolf is always critical about it, denigrating tenants and tenant involvement alike and dismissing anything about empowering tenants as ‘frothy stuff’.

The wolf matters because they do exist and unless those of us who care passionately about tenant involvement deal with them they will win the day in Board and Executive meetings.

But is caring passionately enough? Surely there is a strong moral case for involvement? Unfortunately the So What Wolf will blow this house down. They will argue that landlords are businesses and their business is to provide services to customers. They are not there to be nice, empower anyone or do anything that strays beyond that business purpose. The So What Wolf will argue that those arguing an evangelical case should be gently ignored or patronised and hopefully those evangelicals will go away and annoy someone else.

Surely the technicalities of regulation will help? The fine print of page 21 of the Regulatory Framework backed up by appendix 3 (1) (ii) published by the Regulatory Committee of the Homes and Community Agency? The Wolf will be more wary here scenting a trap. They will not want to be seen directly opposing regulation. Instead they will point out the priority given to economic regulation in the Localism Act, that the Regulator rarely gets involved in consumer regulation and not one complaint by a tenant to the regulator has resulted in regulatory action. Being ever pragmatic the Wolf will accept that some scrutiny has to be set up, but as far away from the decision making role of the Board as possible and with little resources or support.

So having blown down both moral and regulatory cases the Wolf is feeling pretty confident now. However the third house is proving more difficult. If the Wolf argues that the business of the landlord is paramount then it is harder to argue against tenant involvement when it supports business improvement, or improved governance, or value for money. When tenant involvement is central to the business of the landlord then the case for it is robust and withstands the huffing and puffing of the So What Wolf. This is more important now given the recent Budget. Tenant involvement and scrutiny are supporting landlords to reduce costs whilst maintaining services.

So when arguing for tenant involvement and scrutiny don’t be evangelical, don’t rely too much on regulatory niceties but instead focus on service improvement. Perhaps even the wolf will be on your side?

Learning from Regulatory Downgrades

Over the past 40 months the Regulator has issued over 65 governance rulings following downgrades for housing associations. This report seeks to explore why those downgrades have happened and the common threads that landlords should be looking to learn from.

This report details the areas that the Regulator has highlighted in the Regulatory Judgments (RJs), backed up by direct quotations from those named RJ reports.

In this updated version I am pleased to see that a number of previously downgraded housing associations now have satisfactory governance rulings from the Regulator, and others, whilst still below the G1 rating, have made significant progress. This version also echoes some of the more explicit expectations set out by the Regulator in 2015 in the revised Regulatory Framework and associated Code of Practice. The Code includes a requirement that “Registered providers shall assess their compliance with the Governance and Financial Viability Standard at least once a year. Registered providers’ boards shall certify in their annual accounts their compliance with this Governance and Financial Viability Standard.”

A number of current issues have come across in this version – core issues of risk and internal controls, robustness of VFM statements as well as consumer issues around health and safety of tenants. I’m pleased to see that a number of ‘hubris’ issues such as terms of Board membership and Chief Executive pay offs have not reappeared this year. I have trimmed the number of quotes (otherwise this report would become unwieldy) but the earlier versions remain available for those who like full detail.

Introduction

About 15 years ago I read Julian Ashby’s seminal “Learning from Problem Cases” – a study of why housing associations went into supervision. What I learned was the importance of sound governance both in housing associations and for housing regulation. When I became a senior housing regulator I started any speech on regulation with a clear recognition that good governance was key to tenant involvement and the services for which I was responsible.

Two years ago, in my then role as Vice Chair of Wulvern, I started thinking about co-regulation and how boards could seek assurance that they were regulatorily compliant. I knew that the Regulator had become more active and had issued a range of rulings. But thinking back to Julian’s work, I didn’t know of anyone who had sought to capture it and use it to inform good governance in landlords.

So I sat down and read all the recent governance rulings. I started to understand that there were common threads running through the RJs and that articulating these threads would help boards, executives and others trying to ensure compliance, and effectiveness.

I am grateful to Diane Jones and Janet Hale for their help with the original version and their on-going encouragement. I am also grateful to C&C and Waltham Forest HA for the opportunity to work with them on the issues identified in this paper in providing assurance around regulatory compliance. Finally I am grateful to Jo Savage and Crofton’s for their support in publishing this report.

This is an updated version of the original report and includes new information from regulatory downgrades until the end of April 2016.

Phil Morgan

April 2016

www.philmorgan.org.uk

phil@philmorgan.co.uk

Executive Summary

Under co-regulation it is boards that have the responsibility for ensuring that their landlords meet the regulatory standards. This report helps highlight a number of areas where boards, and the staff working with them, can learn from where others have failed.

This includes boards ensuring they are clear about regulatory requirements, that they are compliant with them and produce all necessary reports and statements (e.g. VFM) in an accurate and timely manner. They need to take account of consumer standards including health and safety of their tenants. They need to ensure that risk is well covered and that they have effective internal controls.

Boards need to ensure that they meet their own Code of Governance and that they operate effectively. The Code of Governance helps ensure that boards are run properly. Too often in this report it appeared that hubris prevented boards from implementing basic rules to ensure compliance with their own agreed Code of Governance.

Finally, boards also need to ensure they operate effectively, establishing clear relationships with staff, seeking and taking expert advice, ensuring they provide robust challenge to the executive, work together effectively and are able to meet new challenges.

Using this report will help Associations in meeting their new annual assessment and preparing for In Depth Assessments by the Regulator.

1. Regulation and Boards

Under co-regulation, boards are responsible for ensuring the Regulatory Framework and Standards are met. This means understanding – and meeting – those requirements, as well as ensuring a professional approach to the Regulator and regulation. The Regulator consults formally, and informally, on changes to the Regulatory Framework and Regulating the Standards. Boards should keep abreast of such consultations and the impact of subsequent changes.

1. Keep up to Date

Boards need to ensure that they are working to the current version of regulatory requirements. The most recent changes were made in 2015 and include the requirement to assess compliance annually and publish that assessment in their annual accounts.

Gallions Housing Association Limited

In making its decisions, the board referred to regulatory requirements that have not been in place for some time as the basis of its decision-making. The board failed sufficiently to take into account the current regulatory framework and in particular the requirement that registered providers’ governance arrangements should ensure they safeguard the reputation of the sector.

North Lincolnshire Homes Limited

The management team is appointed by, and accountable to, the parent; both it and the parent board have broader responsibilities to all companies in the group. This leaves NLH with the primary responsibility to recognise and represent the registered provider’s specific interests within the group. Evidence from attending a board meeting and reviewing board papers has not provided sufficient assurance that the board fully understands its role in relation to meeting the regulatory standards.

January 2015

2. Tell the Regulator

It’s important to tell the Regulator as soon as you become aware that things are wrong. Too often, landlords thought they wouldn’t tell the Regulator about problems until they had tried to put them right first.

Failure to declare non-compliance of economic standards, including the Code of Governance, is also a breach of those standards. There also instances of where landlords don’t provide accurate returns or take enough notice of the Regulator.

Tower Hamlets Community Housing Limited (THCH)

THCH has not communicated with the regulator in an accurate and timely manner. The regulator was not informed of the material issues when they were identified in October 2015 but approximately two months later. In addition, a number of the returns to the regulator contain errors, including material misstatements of the provider’s financial position.

February 2016

Orbit Housing Group

Orbit had been aware of the situation for a period of time whilst assessing the extent of the failures and determining its action plan, but had not informed the regulator.

November 2015

Circle Anglia Limited

Circle undertook improvement actions and, from September 2014 put a recovery plan in place, committing both people and resources in order to manage and mitigate the issues but, this did not have the effect of improving the outcomes.

April 2015

Trident Housing Association Limited

During October 2014 the regulator was in dialogue with Trident about inconsistencies in information provided in its quarterly financial survey data returns and in particular inconsistencies around treasury, securitisation and liquidity management. Facilities had been reported as being in place when they were not and the ability to access liquid funds had been overstated as security was not in place. The regulator had taken assurance from previous contact on the reported position which was subsequently found to be incorrect.

February 2015
Your Housing Group Limited (YHG)

In addition, once YHG became aware of deficiencies in its operations and likely breach of the standards it failed to communicate this in a timely manner to the regulator. Instead, it was the receipt of allegations that first brought the matter to the regulator’s attention. Transparency and accountability is a key principle of the Regulatory Framework and is central to co-regulation. It is essential that providers run their businesses with a presumption of openness and co-operation with stakeholders, including the regulator.

3. Hit HCA Deadlines

There are deadlines and they should be kept to!

Ensuring that reports and returns to the HCA are on time and accurate is a basic building block in the relationship with the Regulator. Boards can ensure that these returns are reported to boards and monitor their timeliness. Accuracy is essential for both the relationship and the integrity of the board. This includes late filing of accounts which has resulted in recent Regulatory Notices being issued to ‘small’ (under 1,000 properties) landlords

Thirlmere Housing Co-operative Limited

The regulator has noted that Thirlmere Housing Co-operative Limited has failed to submit signed financial statements within six months of the latest accounting period, despite repeated reminders.

September 2015 Regulatory Notice

Luminus Group Limited

Routine financial returns provided to the regulator have not adequately presented the inherent risks associated with these funds. It is a regulatory requirement that registered providers should provide accurate returns and we expect a higher standard of information in future.

4. The Rent Standard

The rent standard is economic regulation.

With the emphasis on governance and financial viability through the ratings, it’s important not to forget that housing associations also need to comply with the rent standard.

East Thames Group Limited

East Thames Group

ETG reported to the regulator in the autumn of 2012 that it was not fully compliant with the Rent standard in that just under 1,000 homes did not have rents at the required levels. When this was queried with the group it indicated that a larger number of homes were non-compliant, in part because it had misinterpreted relevant guidance. This did not give the regulator assurance about the accuracy of ETG’s reported position or its overall application of the rent influencing regime guidance.

Network Housing Group Limited

Network has not fully complied with the requirements of the Rent Standard concerning 153 properties where, because of errors in base capital values used in calculations, rents were charged in excess of the maximum permitted by the standard for a number of years. A further 509 supported housing properties were charged rents in excess of NHG’s policy. The issues have led the regulator to question controls within the group, and specifically the basis upon which the Board gained assurance on the accuracy of rents charged.

1. Consumer Standards

5. Health and Safety

Nearly all of the breaches of consumer standards and serious detriment feature some element of health and safety. This also applies to Councils who own housing stock and two of the examples in this section feature Councils who were issued with Regulatory Notices.

Orbit Housing Group

In July 2015, Orbit reported to the regulator that, following an internal investigation, it believed it was in significant breach of Health and Safety legislation. The situation had arisen following a restructuring of the two Subsidiary Operating Associations within the Group during 2013/14. From April 2014, health and safety performance management information was inadequate: systems were not consistently followed or utilised by those responsible for their implementation. This was a failure of operational internal control and also board oversight by Orbit because there was ineffective challenge as a result of the lack of information during 2014.

November 2015

Blackpool Council

The regulator has received evidence of a breach of the Health and Safety at Work Act 1974 which led to tenants being exposed to the risk of serious harm. The Court concluded that the structural flaws in the balconies were present for a significant period of time and the provider failed to heed multiple warnings. This is clear evidence of a breach of the Home Standard in respect of the requirement to meet all applicable statutory requirements that provide for the health and safety of the occupants in providers’ homes. The breach exposed a substantial number of tenants to the potential for serious harm for lengthy periods.

6. Gas Safety

A failure to ensure that gas safety checks are timely, breaches ‘serious detriment’.

While consumer regulation is not actively regulated, it undergoes a ‘serious detriment’ test. Gas safety remains the most frequent, but not sole, cause of breaching the serious detriment test.

Rochdale Boroughwide Homes

In November 2015 RBH reported to the regulator that, following termination of a contract with a long established tenant management organisation, it identified a number of out-of-date gas safety certificates. In some cases the certificates had been expired for up to two years. Under the terms of the agreement, the managing agent was responsible for undertaking the gas safety checks. However, RBH remained the landlord and therefore retained responsibility for meeting regulatory standards and complying with health and safety legislation. It therefore retained responsibility for ensuring gas safety certificates were up to date

April 2016

Bolton at Home Limited (BH)

In October 2015 BH reported to the regulator that, following a planned internal audit, it had identified a significant number of out-of-date gas safety certificates. The situation had arisen because property management information was inadequate and there was a lack of accountability for property data within the organisation. This was a failure of internal control and also of board oversight. In some cases the certificates had expired a number of years previously.

February 2016

Redditch Borough Council (RBC)

RBC contacted the regulator to inform us that, following a meeting between its legal services team and repairs and maintenance staff, it had identified a significant number of out-of-date gas safety certificates. In some cases the certificates had been expired for a long time.

RBC instigated an internal audit investigation. The audit found that the issue arose due to inadequate contract management, failures in recording and incomplete records and contractor failure. RBC is undertaking a review of arrangements for contractors and methods of reporting.

November 2015 Regulatory Notice

St Mungo Community Housing Association

A failure in internal controls led to an 84-bed hostel being without a valid Landlord’s Gas Safety Certificate for 18 months, which is a breach of gas safety legislation. An independent review in April 2015 identified inadequate controls and systems of assurance relating to gas safety compliance and a number of missed opportunities to identify the non-compliance.

July 2015

Yorkshire Housing Limited (YH)

There has been a failure of YH’s systems of internal control which led to a significant number of properties having expired gas safety certificates by periods ranging from several days to 30 months.

February 2015

7. Fire Safety

However it is not just gas safety but fire safety that breaches serious detriment.

Orbit Housing Group

The regulator has separately concluded that failure to implement a large number of outstanding high risk actions from fire risk assessments for periods exceeding two years breached Orbit’s statutory duty under the Regulatory Reform (Fire Safety) Order 2005 and that it is proportionate to conclude there had been a breach of the Home Standard which had the potential to cause serious detriment to Orbit’s tenants.

November 2015

8. Repairs

To date this is the sole instance of customer service failure breaching the serious detriment test.

Circle Anglia Limited

….the regulator has reached the view that this exceptionally poor provision of repairs and maintenance has been made possible or contributed to by serious and enduring failures in, or in the operation of, Circle’s strategic planning and control framework such that Circle did not adequately manage or mitigate the strategic and operational risks inherent in the delivery of that service.

In implementing its plan to rationalise suppliers and create fewer, larger contracts for responsive repairs and planned maintenance, Circle has failed to control delivery of a core service and respond effectively to serious underperformance. This is consistent with a systemic problem in the organisation’s risk management and internal controls.

The regulator’s assessment of the material relating to the delivery of the repairs service to tenants in the London area covering 13,000 homes (Circle 33 and Old Ford Housing Association) is that it represents a chronic failure by Circle to ensure delivery of a satisfactory repair service to those tenants. For example, in relation to Circle 33’s 8,000 homes, over a period of three months Circle reported that less than 20% of urgent and emergency repairs were completed on time and elsewhere less than 50%. By way of further example, referrals received by the regulator, including information about a significant number of outstanding statutory notices relating to disrepair, provided evidence that for over a year tenants, including vulnerable tenants, had experienced significant difficulties in getting essential repairs done, either on time or at all.

April 2015

1. Hubris – the Threat to Good Governance

As with Julian Ashby’s earlier report, governance remains key to the effective running of housing associations and there are a number of areas where compliance can be achieved very easily. However, for some landlords, rules are ‘meant to be broken’ – or ignored. Often, these are the same landlords who experience other difficulties as hubris clouds their vision of what their role should be.

9. Publish (Non)Compliance with the Code of Governance

Housing associations are able to choose an appropriate Code of Governance. Having chosen their preferred code, there is then a requirement to ‘comply or explain’. Some associations have not explained at all, others have not given a satisfactory explanation for their non-compliance. The National Housing Federation updated their Code of Governance in 2015 and this now provides a stiffer test for compliance in line with issues raised in previous versions of this report.

Metropolitan Housing Trust Limited

The group also failed to report fully on non-compliance with its chosen code of governance in its financial statements for the year ending 31 March 2011.

North Hertfordshire Homes Limited

NHH’s statement of compliance with its chosen code of governance has not clearly identified the areas in which it is non-compliant. In future public disclosure will need to explain clearly the areas of non-compliance with the code.

Pierhead Housing Association Limited

During recent engagement it has acknowledged non-compliance regarding….failure to report both its level of compliance and explanation for deviations from provisions of the Code.

Tower Hamlets Community Housing Limited

THCH’s code of governance requires a public statement of compliance with the code, and a reasoned statement about areas where it does not comply. While the association has made such a statement, recent disclosures have been incomplete.

10. 9 Years Maximum

Terms of office are a maximum of 9 years, however the ‘9-year rule’ is not an absolute rule and there may be reasons why, exceptionally, some board membership might exceed that period. However this must be discussed with the Regulator and put in the context of a sensible succession strategy. In most cases it isn’t adequate to cite “continuity” as a reason for non-compliance, as a joint letter to Chief Executives from the HCA and the NHF in February 2014 made clear.

The Regulator will engage with landlords and agree sensible ways forward.

Yet some landlords didn’t agree sensible ways forward and in some cases had members with 20 or even 40 years board membership. What was revealing was that in most of these cases excessive length of membership resulted in poorer governance and overly close relationships between board and staff.

The answer is simple – put a succession plan in place well in advance of hitting the 9-year rule.

Bournemouth Churches Housing Association Limited

BCHA does not have an explicit plan for board succession. Some members of BCHA’s board have been in office in excess of the maximum nine years allowed by a provision of the code. As a consequence, the regulator considers the independence of the board could be compromised by a lack of challenge to long-standing practices and thinking, which may lead to risks to effective leadership and control.

Hastoe Housing Association

Limited

Whilst there is on-going refreshment of the board, normal length of service remains at 12 years, and longer in exceptional circumstances.

Johnnie Johnson Housing Trust

…although JJHT has adopted the NHF code of governance, it does not comply with it regarding the length of service of some of its board members.

Orwell Housing Association Limited

Five members of Orwell’s board, including the chair, have served terms of office significantly in excess of the maximum recommended by the association’s chosen code of governance. The explanation provided to the regulator, which emphasises the importance of retaining the experience of certain board members, is not considered to be adequate in the context of Orwell’s business strategy. The association has now introduced a nine-year maximum term of office for all new board members and provided the regulator with a voluntary retirement plan for existing members. However, the association’s approach still means that Orwell will not achieve compliance with its chosen code until 2018. One longstanding board member will have served more than 40 years by the time they step down.

Tuntum Housing Association Limited

Tuntum does not comply with the provisions of its chosen code of governance in relation to maximum terms of office for board members. The code specifies maximum terms of nine years but Tuntum has made rule changes which extend this to a 12-year maximum. The association currently lacks clear succession plans for the chair and other board members. In addition, the criteria used by the board for extending terms of office should be clearly specified. The regulator considers this weakens the board’s ability to challenge the executive and review long-standing practices.

11. Board Skills

As housing associations diversify in their operations, boards face a growing range of issues on which they need expertise. Examples include development, marketing, finance, commercial activity and treasury management. This was an issue with nine landlords and often core to failings of their boards.

You need to ensure the board covers all the necessary bases, and not be afraid of change, including change in your governing documents, to ensure this happens. This is one of the reasons why board renewal and fixed terms of office are important, the skills needed five years ago are not necessarily the skills that will be required in five years time.

Cambridge Housing Society Limited

Following resolution of breaches in its loan covenants in 2011, the society commissioned two independent governance reviews. The reviews identified weaknesses in governance including skill deficiencies on the board and a need to strengthen treasury and risk management, business planning, internal audit and the society’s reporting framework.

Hastoe Housing Association Limited

Hastoe has not demonstrated that it has adequately assessed the skills of the board at the individual level to ensure they remain appropriate to effectively manage the risks associated with delivery of its plans.

North Hertfordshire Homes Limited

…self-assessment by board members in 2012 has identified some gaps in treasury management expertise, underlining the need to strengthen the knowledge and skills mix on the board. Due to its corporate structure and shareholding arrangements, NHH has been unable to address the reviews’ recommendations by pursuing its preferred option of re­balancing the board by increasing the number of independent members. As a consequence, NHH has yet to develop effective strategies to take forward the reviews recommendations and strengthen its board.

Orwell Housing Association Limited

Orwell’s business strategy involves complex partnership working and development within an increasingly challenging economic environment. However, Orwell has not demonstrated that it has adequately assessed the skills of the board as a basis for planning ahead to ensure that it will maintain the necessary balance and expertise to deliver its objectives and maintain compliance.

Tuntum Housing Association Limited

The regulator’s previous judgement also required additional assurance from Tuntum in relation to board skills, succession planning and structured renewal to support its growth and increased risk appetite in the increasingly challenging operating environment. Tuntum has yet to provide a sufficient level of assurance in these areas.

12. Annual Appraisals

Having got your board in place there should be an annual mechanism for appraising their effectiveness and identifying areas for personal development and any gaps in board skills.

It is surprisingly common to find associations which operate an “alternate years” or even a triennial appraisal process.

Hastoe Housing Association Limited

Board members have been subject to individual appraisal every three years

Tower Hamlets Community Housing Limited

The regulator has concluded that THCH needs to strengthen board assessment and renewal processes to ensure that its board will maintain the skills and expertise required, both now and in the future, to deliver its business strategy.

13. Board size

Less is more.

Make sure your board is 12 or less. There’s a strong body of research published showing that boards that are too big are less effective. It can be hard for larger boards to admit that they are too big and, even harder, that some board members will have to go.

The Regulator will want to know if an oversize board has a plan to achieve compliance, and within a reasonable timeframe.

Bournemouth Churches Housing Association Limited

The size of BCHA’s board exceeds the maximum specified in its code of governance. It has no plans to achieve compliance and the regulator does not have assurance that it has carried out a robust assessment which adequately supports any case for non-compliance.

Hastoe Housing Association Limited

The size of Hastoe’s board exceeds the maximum specified in its code of governance. The regulator does not have assurance that in retaining a board of this size, it has adequately considered whether it could better utilise its committee structure to support and enable a smaller strategic board to operate effectively.

Tower Hamlets Community Housing Limited

The size of THCH board exceeds the maximum specified in its code of governance. The board has 16 members, of whom eight are elected tenants. This structure has constrained skills-based recruitment to the board. In retaining a board of this size, THCH has not adequately considered whether it could better utilise its committee structure to support a smaller, strategic board.

14. Review Your Governance

There should be a regular cycle of reviewing the board and its governance arrangements to ensure that they remain fit for purpose. And, as with many of the matters included in this report, it can be useful to commission (and take note of) external advice.

Johnnie Johnson Housing Trust

there has been no external input or challenge in reviews of board effectiveness.

Pierhead Housing Association Limited

Despite evident problems Pierhead has not undertaken a review of its governance arrangements since October 2010. It has not done any work to assure itself on its level of compliance with its chosen code of governance.

15. Board Payment

Board payment should be proportionate – and published.

There are too many occasions outside housing when people awarding themselves money has caused reputational damage. The same applies within social housing – excessive board member payments will be damaging for that landlord (and the sector more widely). Board payments should be published on a named basis too – allowing for transparency and accountability and identifying differing payment levels for different board roles.

Bedfordshire Pilgrims Housing Association Limited

BPHA’s code of governance also states that where board members are paid, the agreed payment levels must be appropriate to the organisation’s size, complexity and resources. The regulator lacks assurance that in reaching a decision to increase payments to non-executive directors to levels above sector norms, the board gave adequate consideration to remuneration in relation to BPHA’s size and complexity. In addition, the regulator does not have sufficient assurance that BPHA is meeting the provision of its code that where board members are paid, payment should be linked to specific duties against which performance can be assessed.

BPHA did not satisfy the provision of its code that where board members receive remuneration, details of these payments should be published on a named basis.

New Charter Housing Trust Limited

NCHT has not made a transparent disclosure about compliance with its chosen code of governance or details of payments made to board members.

1. Value for Money Statements

The very public downgrading of 14 associations in February 2014 for failing to meet the VFM standard, plus the letter notifying the vast majority of housing associations that they were at risk of non-compliance, was a wake-up call for the sector. Landlords will want to look at recent best practice and advice from Housemark as well as guidance from the HCA. The HCA’s approach has evolved from the initial downgrades for not published (or not doing so openly) to a more critical review of their content. In June 2016 the HCA issued new, tougher, guidance on VFM.

Even so some landlords fail to comply and even repeat that failure.

16. Have a robust VFM approach and publish openly

The Community Housing Group

We have concluded that TCHG has not published a robust self-assessment which sets out in a way that is transparent and accessible to stakeholders how it is achieving value for money in delivering its purpose and objectives

February 2016

Tower Hamlets Community Housing

In addition, for the second year in succession, the regulator has concluded that THCH has not published a robust self-assessment which sets out in a way that is transparent and accessible to stakeholders how it is achieving value for money in delivering its purpose and objectives. There was limited evidence to demonstrate THCH has an understanding of its asset base and a number of improvements identified in the previous self-assessment remain outstanding.

March 2016

Magna Housing Group Limited

It cannot fully evidence that it has considered the trade-offs and opportunity cost of options on its use of resources and it has not articulated a comprehensive and strategic approach to delivering VFM in meeting the organisation’s purpose.

February 2016

Wandle Housing Association

We have concluded that Wandle has not published a robust self-assessment which sets out in a way that is transparent and accessible to stakeholders how it is achieving value for money in delivering its purpose and objectives.

February 2015

1. Risk, Internal Controls and Sound Financial Planning

Managing risk is now central to the work of landlords and core to the role of effective boards. Ensuring that there are effective internal controls in place safeguards staff, tenants and board members.

17. Do Risk Properly

It is essential for the business to have a robust risk framework in place, monitored and used to drive mitigation and improvement.

Magna Housing Group Limited

….while the board approves annually the provider’s risk management policy and a risk matrix appended to it, there is a lack of evidence that this process involves a strategic review of key risks, controls and assurance. The board does not, for example, evidence that it reviews key risks such as welfare reform regularly. Furthermore, the lack of clear prioritisation of risks within the risk matrix hinders the open strategic debate of key risks by the board and undermines its ability to fulfil its role in this area. This means that there is a lack of sufficient evidence that Magna has a robust risk management framework led by a board which demonstrates a clear understanding of its role

February 2016

Bourneville Village Trust (BVT)

In December 2014, BVT advised the regulator that whilst it had agreed a new loan facility it was experiencing delays in putting the required security in place to allow this and other funding to be drawn. BVT has adequate unencumbered stock to support additional facilities but securitisation has taken far longer than anticipated. This has resulted in BVT not being able to access any of its new loan facility within originally assumed timescales. BVT has experienced delays for several different reasons including accessing the required information on its assets and with registering deeds. These difficulties were not anticipated and have led the regulator to conclude that BVT was unable to adequately plan and control the risks associated with acquiring the finance necessary to deliver its objectives.

May 2015

Cosmopolitan Regulatory Judgment

The group’s approach to risk was based on an over-simplification of presenting issues, coupled with too little scrutiny of new deals taking place after the merger. This, alongside an inadequate control environment, especially in relation to the development function, exposed the group to unacceptable levels of risk. In particular the board’s decision to fund its investment programme through a sale and leaseback arrangement was based upon a wholly inadequate analysis of risk and a rudimentary sensitivity analysis, coupled with a failure to consider alternative plans. ..the group failed to effectively manage the risks to delivery of its plans.

Family Housing Association (Birmingham) Limited

The risk management framework is weak and risks identified do not clearly link to the achievement of business objectives. It is apparent that key business and financial risks have not been properly identified, prioritised or controlled, resulting in uncertainty about the delivery of the corporate plan.

Johnnie Johnson Housing Trust

There are deficiencies in the management of risk at strategic and operational levels, board oversight and renewal and the operation of internal controls. The Trust’s risk management strategy does not provide the appropriate level of detail on JJHT’s strategic approach to risk and there is insufficient reflection of treasury management risk within its risk maps.

Orwell Housing Association Limited

The regulator has identified weaknesses in the operation of Orwell’s strategic planning and control framework in identifying and managing risks to the delivery of the association’s objectives. The board does not currently have sufficient oversight and assurance in all areas of Orwell’s business. Consequently the impact of key risks on the delivery of Orwell’s wider strategic aims is not adequately mitigated and managed. This was exemplified when a significant risk concerning consortium liabilities materialised which was not adequately assessed by the board or the Audit and Risk Committee. Risk management needs to be further integrated and embedded across the organisation.

Plus Dane Housing Group Limited

Some recent decisions on growth opportunities have not been considered within an appropriate strategic framework or demonstrated adequate attention to the protection of social housing assets. The regulator does not have sufficient assurance that Plus Dane has adequately considered the range of risks it faces or that its risk appetite is based on appropriate analysis of existing exposures.

Saffron Housing Trust Limited

A recent independent review of the procurement and management of the group’s photo-voltaic programme identified that Saffron had not operated effective risk management in its oversight of the activities of Crocus, the subsidiary. Risks regarding the unregistered subsidiary were not fully reported to or adequately mitigated by the parent board.

Swan Housing Association Limited

Nearly all the risks cited in the current business plan are development-related. There is insufficient reference to wider sector risks, in particular the state of the housing market which represents a real challenge to the delivery of the group’s business plan, with the development of social housing units reliant upon income generated from open market and shared ownership sales.

Tuntum Housing Association Limited

Aspects of Tuntum’s risk management need to be improved to support continued compliance with our governance expectations. We have insufficient assurance that the board has clear oversight of the key risks to the delivery of its strategic objectives. The association’s risk map does not adequately identify whether controls have mitigated identified risks to an acceptable level. Nor does it update the board on the action to manage exposures.

18. Financial Planning

When planning for the future boards will need to ensure that plans are robust and well founded.

Chapter 1 Charity Limited

In terms of governance, allowing the organisation to reach the point where it was unsure it had access to sufficient liquidity and was potentially in breach of a funder’s covenant represents a continuing failure of control on the part of the board and executive. Although this situation was eventually avoided, the lack of adequate systems in place to monitor the cash position and covenant compliance is a failure of the business planning, risk and control frameworks at the most basic level.

Chapter 1 has been engaged in crisis management and has therefore failed, within an acceptable period of time, to put in place an adequate strategic plan and the financial, risk management and internal controls frameworks that should underpin it. Neither has Chapter 1 been able to make sufficient progress against the terms of a voluntary undertaking to address the issues identified in the earlier regulatory judgement.

The regulator has been unable to gain sufficient assurance that the business plan demonstrates Chapter 1 has a viable, independent future. The regulator will continue to engage with Chapter 1 until an acceptable route is found to ensure that the provider can comply with the regulatory standards.

September 2015

Cosmopolitan Housing Group Limited

Future financial plans included aggressive and ambitious funding assumptions which proved optimistic

Family Housing Association (Birmingham) Limited

Family’s financial planning has demonstrated serious failings, including the development and adoption of a corporate plan which it does not have the required resources to deliver.

Metropolitan Housing Trust Limited

The group’s financial planning has reflected serious weaknesses, including unrealistic efficiency targets which were not predicated on an appropriate evidence base or supported by adequate delivery plans. Consequently a total of £47.2m of savings were removed from financial plans over the years 2012/13 to 2014/15 and the group was not able to achieve its 2011/12 budget. Anticipated efficiency savings have been considerably reduced in the revised business plan.

19. Internal Controls

It’s important that there are robust internal controls, ensuring the business is well run and the organisation’s money is handled properly. Central to this is the correct use of (externalised or internalised) Internal Audit, which gives assurance that the organisation’s internal controls are effective.

Tower Hamlets Community Housing

THCH’s governance arrangements have failed to deliver an effective risk management and internal controls framework. In October 2015 the organisation uncovered potentially material issues relating to the site acquisition, procurement and delivery of two significant development schemes; one of which was nearing completion, the other was empty pending future development. These issues were not identified by the day to day operation of internal controls or risk management frameworks, evidencing that those processes were ineffective in practice.

March 2016

County Durham Housing Group Limited

As a consequence of current governance and operational structures the group is operating a control framework which it has concluded in duplication and inefficiency and is not sustainable.

March 2016

Flagship Housing Group Limited

Strategically, assurance plans are not linked to key risks and controls, and instead are prioritised according to where managers have identified potential service and efficiency gains. Operationally, assurance processes are not designed to deliver a view on the adequacy of the controls in place, and whether the level of residual risk is in line with the organisation’s risk appetite. This approach has been in place since April 2015 when the board introduced a new approach which would replace the outsourced internal audit with an in-house programme of systems reviews based on lean systems methodology and while it may form part of the overall assurance framework, a significant gap remains. The decision to move to this new approach was based on information which did not present any disadvantages associated with the change nor did it consider other available options.

Although the audit committee retains the right to commission outsourced internal audit services at the time of the IDA there were no audits planned. The audit committee meets infrequently with limited terms of reference.

December 2015

1. Operation of the Board

As well as meeting basic rules on good governance, boards need to establish and maintain proper working relationships with staff, ensure meetings are well run and seek and take notice of external advice.

20. Chief Executives

In a nutshell: Don’t give your departing chief executive a big severance package.

Three landlords have been downgraded for such packages, failing to put it place challenge from the board, consideration of VFM and potential reputational risk. Thus highlights the need for appropriate challenge from the board outlined earlier and the dangers of excessively long terms of board membership.

In particular, regularly review your employment policies and executive contracts well away from the emotion created by the departure of a hard working stalwart.

Gallions Housing Association Limited

The Gallions board has failed to demonstrate that it has operated an appropriate control framework, and to act in a transparent and accountable way. These failings are evident in a series of decisions relating to the remuneration and compensation for redundancy of an outgoing executive.

Great Places Housing Group Limited

The board of GPHG has exercised weak governance when agreeing executive contracts and severance payments to an outgoing executive. The roles of the remuneration committee and board in scrutinising and agreeing matters of executive pay was not clear and as a result proposals were not effectively scrutinised and challenged. The lack of challenge was compounded by close working relationships formed as a result of the long service of a number of board members.

Severn Vale Housing Society Limited

The board of SVHS did not demonstrate adequate control or effectively assess risks in its consideration of the early retirement of the Chief Executive. The organisation’s early retirement policy had not been revised since the transfer date of 1998 and the board had not identified the risks of operating a significantly out of date policy. In failing to review this policy the board exposed the organisation to early retirement requests with the potential to result in significant cost and reputational risk. There was insufficient challenge by the board of the proposed level of compensation and no consideration of whether this complied with regulatory standards and the board’s own code of governance.

21. Clear Relationships

Four landlords had issues in this area so be clear about the respective roles of board members and executives. You need to have a good working relationship based on those clearly defined roles, don’t delegate too much to staff and be particularly clear about roles where chief executives are also board members. It also means been precise about delegation to Board working groups.

Metropolitan Housing Trust Limited

The issues set out above [which related to Governance, financial management and risk management] were exacerbated by poor management of governance processes such as the lack of proper delegations to the finance committee, clear roles for executives on the board and failure to take appropriate action after reviewing compliance against the code of governance, and the effectiveness of governance arrangements.

Pierhead Housing Association Limited

Relationship difficulties at senior management and board have led to disputes which have diverted the leadership’s attention away from directing and controlling the organisation’s business.

Saffron Housing Trust Limited

There was….inappropriate delegation of key expenditure by the board to the executive. This was compounded by management failures to comply with requirements of the Audit Committee.

Equity Housing Group

However the working group’s remit had grown to have an oversight role on the group’s treasury position without being formally constituted as a committee with appropriate terms of reference and delegations or appropriate board oversight.

22. Take Expert Advice

There will be times when boards cannot have all the skills they need within the set of board members to provide adequate expertise and advice when considering courses of action. It is right to seek external advice in these situations and use that to support decision-making. It is also important that, having sought advice, boards should heed it and act accordingly.

Gallions Housing Association Limited

The board failed to take timely legal advice and did not make best use of the advice which it received.

Great Places Housing Group Limited

It did not always recognise the need to seek independent expert advice and did not always make the best use of advice it did receive

Johnnie Johnson Housing Trust

JJHT has been slow to react to identified shortcomings in its control systems and reluctant to seek external advice or support. When it has received advice, it has been slow to implement it. JJHT reviewed its governance structure during 2013 and new arrangements are now in place. However, no external advice was taken in regard to this review

23. Run Board Meetings Properly

Board meetings should be run properly – and minutes should be taken. This is a fundamental matter of record keeping.

Saffron Housing Trust Limited

There was inadequate management of governance processes, including a lack of written documentation relating to contract management, failure to minute meetings…

24. Structures and Subsidiaries

It is essential to have a firm grip on complex structures and subsidiaries.

Obviously this is driven, in part, by the Cosmopolitan experience but also by the increasingly diverse nature of the sector in setting up subsidiaries for tax efficiency and/or creating new lines of income. Boards should be aware that there are potential risks in complex structures and that the Regulator will be sensitive to both the overall impact of that risk and potential impact on social housing run by the landlord. In “Protecting social housing assets”, published in April 2013, the Regulator consulted on regulating where there were subsidiaries. Their thinking was partially updated in the Regulator’s summary of responses to the consultation in October 2014.

There have also arisen concerns about Registered Providers operating within a Group structure and how these need to ensure they are able to protect social housing assets.

North Lincolnshire Homes Limited

The group structure has, of its nature, created a network of board inter-relationships. The regulator has insufficient assurance that the NLH board is wholly clear about its status and position within the group. There are both relationship and reporting dilemmas which have not yet been fully resolved.

Evidence from attending a board meeting and reviewing board papers has not provided sufficient assurance that the board fully understands its role in relation to meeting the regulatory standards. This is in the context of it being a subsidiary member in an otherwise non-regulated group.

January 2015

Cosmopolitan Housing Group Limited

In particular, the pre-merger group had entered into obligations with non-regulated members of the group putting social housing at risk, but lacked effective mechanisms to identify and manage the exposures.

Metropolitan Housing Trust Limited

The parent board has exercised insufficient control and support in relation to CPH, where this resulted in an undeliverable master plan, inappropriate procedure agreement between MHT and CPH, unclear governance arrangements and reduced stakeholder confidence.

One Housing Group Limited

OHG is involved in a wide range of activities and has ambitious growth plans. The nature of these activities and the associated risks heighten the importance of regular board scrutiny of group activities. Whilst the group has recently been successful in delivering planned outcomes and its financial position has improved, the regulator needs further assurance that the level of oversight by the board is of the standard necessary to ensure this continues.

Gentoo Sunderland

We do not have sufficient assurance that the board of Gentoo Sunderland is able to fully perform its role of protecting its social housing assets in the context of it being a subsidiary of a diverse group which is involved in a material level of commercial activity. It has not evidenced that its membership has the right level of skills or experience to influence financial and treasury decisions taken at group level involving its assets. Additionally the structural mechanisms through which it influences those decisions are not as effective as they could be.

25. Robust Challenge

Central to the relationship between the executive and the board is the willingness of boards to provide robust challenge.

This is referenced above in the context of chief executives’ severance packages, however this is not the only circumstance in which boards must be robust in challenging the ambitions of the executive.

Cosmopolitan Housing Group Limited

Additionally, the level of challenge of officers by board and sub-committees has been inadequate, and assurances have not been adequately tested.

Family Housing Association (Birmingham) Limited

The board has been ineffective in challenging the executive team about the quality of the information it has been receiving and in providing effective challenge of unrealistic assumptions contained in the business plan.

26. Accurate Information

To provide robust challenge, boards need to ensure they have access to adequate and accurate information. It is not sufficient to rely on the executive to provide the information necessary, as the examples below demonstrate that they do not always succeed in doing so.

Cosmopolitan Housing Group Limited

The quality of reporting to board was inadequate.

…

The quality of information reported to board in support of decision-making has been poor.

…

Officers failed to bring to the members’ attention the increasing pressures on liquidity until a point where the business was reliant on an overdraft that it was at risk of breaching. Cash flow forecasts were inconsistent, sometimes incomplete or inaccurate and failed to highlight material changes.

Family Housing Association (Birmingham) Limited

The executive has not provided the board with accurate or adequate information to enable it to oversee and control the business. Financial information presented to Family’s board has been found to be incorrect.

One Housing Group Limited

Reporting to the board has not been sufficiently frequent and detailed enough for the board to be clear about current performance and issues arising across all of the group’s business.

Shepherds Bush HA

…the quality of information provided to the board needs to improve to enable informed, timely decision making. In particular stress testing reporting which was limited to a small number of risks and one multi-variate scenario. The impact on covenants was not clearly articulated, leading to a lack of clearly linked and appropriate mitigation strategies.

April 2016

27. Co-operative Board Relationships

To operate effectively board members need to be able to work together successfully.

Aldwyck Housing Group Limited

However, there has since been evidence of dissension among board members which has exacerbated concerns about governance. As a consequence the regulator has concluded that it does not have sufficient assurance that Aldwyck currently has the capacity and capability to exercise effective control over the provider’s affairs.

28. Governance and new challenges

And whilst skills are important to met new challenges, such as new growth, it is equally important to ensure that boards ensure that all areas are robustly monitored.

Equity Housing Group

The 2014-17 business plan reflects a step change in EHG’s aspirations and risk appetite which it recognises and describes as an “ambitious growth programme.” The board has failed to enhance its governance and risk management arrangements to ensure appropriate oversight and control during this period.

In particular the board did not ensure appropriate arrangements for the oversight and monitoring of the group’s treasury position. In June 2014 this resulted in only six months of available funding and a requirement to renegotiate a gearing covenant with funders to enable the group to increase facilities in order to deliver its plan. In doing this EHG was in breach of its treasury management policy which requires loan facilities to be drawn on demand equivalent to 12 months net capital expenditure. The board was unaware it had breached its treasury management policy

Venture Housing Association

At the end of August 2014, Venture notified the Regulator of the breach of a liquidity covenant in a loan agreement which had taken place in March 2014 and again in June 2014. In terms of governance, allowing the organisation to reach this point represents a wholesale failure of control on the part of the Board and executive. The provider did not have adequate systems in place to monitor covenant compliance, despite being warned in an audit management letter in 2013 that a certain level of cash balance was needed to ensure compliance with the liquidity covenant. Neither did it adequately anticipate its financial requirements and take steps well ahead of time to put facilities in place. This is a failure of business planning and control at the most basic level