Learning from Regulatory Downgrades 3

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.





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


















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.






























A. Regulation and Boards    
  1 Keep up to Date
  2 Tell the Regulator
  3 Hit HCA Deadlines


  4 The Rent Standard
B. Consumer Regulation    
  5 Health and Safety
  6 Gas Safety
  7 Fire Safety
  8 Repairs
B. Hubris – The Threat to Good Governance    
  9 Publish (Non) Compliance

with the Code of Governance

  10 9 Years Maximum
  11 Board Skills
  12 Annual Appraisals
  13 Board Size
  14 Review Your Governance
  15 Board Payment
C. Value for Money Statements    
  16 Have a robust VFM approach

and publish openly


D. Risk, Internal Controls and Sound

Financial Planning

  17 Do Risk Properly
  18 Financial Planning
  19 Internal Controls
E. Operation of the Board    
  20 Chief Executives
  21 Clear Relationships
  22 Take Expert Advice
  23 Run Board Meetings Properly
  24 Structures and Subsidiaries
  25 Robust Challenge
  26 Accurate Information
  27 Co-operative

Board Relationships

  28 Governance and

New Challenges



  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


  1. 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.


  1. 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.



  1. 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


  1. 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.



  1. 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

  1. 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


  1. 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.



  1. 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.



  1. 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



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.



  1. 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.



  1. 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.



  1. 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.



  1. 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.



  1. 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.


  1. 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.


  1. 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.



  1. 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.




  1. 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.



  1. 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.



  1. 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.


  1. 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



  1. 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…



  1. 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.





  1. 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.



  1. 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



  1. 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.

  1. 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



  1. Phil
    A really timely and comprehensive reminder of the importance of good governance as the key to organisational excellence across the board (no pun intended). Congratulations: I hope it is read very widely.
    Best wishes
    Jim Coulter

  2. Instructive and very useful piece. Commendable work and sharing Phil.

    A guiding mantra might be, ‘why make serious mistakes when someone has already shown how not to do it?’ In my MBA studies some of my best learning was when our inestimable Prof Briggs would present us with a real-life corporate disaster case study and posed the challenge, ‘now go into your groups and formulate what would you have done differently?’
    The Scottish Housing Regulator also offers some useful online digests on real-life case studies on the need for intervention in (unidentified) RSLs. My one caveat is that the text in those digests tends to be rather diffident or constrained. I suspect that is because of an understandable wish by the Regulator to appear constructive and helpful – whereas sometimes more pointedly frank steers and warnings might have more impact?.

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