Learning from Regulatory Downgrades 2017/2018
Learning from Regulatory Downgrades
This is the fifth in a series of Learning from Regulatory Downgrades that I have published on an annual basis. The Regulator has issued over 100 governance downgrades for housing associations over the past 5 years. This report seeks to explore why those downgrades have happened and the common threads that landlords 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 the 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 full detail. Alternatively you can read all the downgrades directly on the HCA website. I have also removed the previous entries on Value for Money in the light of the new VFM standard.
20 March 2018
Commentary on 2017/18
This year I’ve made some slight changes to the format: I’ve added a table, with hyperlinks, of the Downgrades with issues covered by each. I’ve included 17 downgrades (including one re-grade of a G2 for new issues). Three of these relate to merger or demergers. The remaining 14 have the following issues raised:
Risk Management 10
Internal Controls 9
Board Governance 7
Stress Testing 6
Health and Safety 3
Development Capacity 2
Returns to the Regulator 1
Executive pay off 1
Rent setting 1
Risk Management, and the associated internal controls remain the top issues driving downgrades. In compiling this report two issues stuck out for me. Firstly the emphasis on Boards getting it right. It’s not just an issue of risk or internal controls of tenant safety – its also a governance failure or oversight. Secondly the way in which the robustness of stress testing is being viewed by the Regulator.
In addition three other Regulatory Notices have been issues relating to consumer standards:
- Creative Support: Gas Safety and failure to notify the Regulator. No other action taken.
- Vivid Housing: Gas Safety. No other action taken.
- Raven Housing: Electrical safety and water safety. Failure to notify the Regulator. No other action taken.
Governance Downgrade Table
|Development Capacity||Board Governance and systems||Risk management||Internal Controls||Stress Testing||Returns to Regulator||Health and Safety||Executive pay off||Rent setting||Other|
|Byker Community Trust||X||X||X||X|
|Suffolk Housing Society||X||X||X||X||G3|
|Castles and Coast HA||X||X||Merger|
|Islington and Shoreditch HA||X||X||X||X|
|C&C||X||New issue already G2|
|Unity HA||X||Governance for subsidiary|
|Yorkshire Coast Homes||X||X|
|WM Housing||X||Breach of tenancy standard|
Areas covered by Regulatory Downgrades
|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|
|C. Hubris – The Threat to Good Governance||10||Comply and with the Code of Governance|
|11||9 Years Maximum|
|15||Review Your Governance|
|17||Board management of its role|
|D. Risk, Internal Controls and Financial Planning||18||Do Risk Properly|
|19||Financial Planning and Capacity|
|E. Operation of the Board||22||Severance for senior executives|
|24||Take Expert Advice|
|25||Run Board Meetings and Processes Properly|
|26||Structures and Subsidiaries|
|28||Co-operative Board Relationships|
|29||Governance and New Challenges|
Regulation and Board
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.
- 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.
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.
- 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.
Luminus Group Ltd
The board did not inform the regulator
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.
- 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.
Byker Community Trust
BCT is also aware that there have been a number of data errors in its returns to the regulator.
- The Rent Standard
The rent standard is economic regulation and Housing Associations need to comply with it.
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.
- 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.
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.
HL’s board identified that it lacked assurance regarding the health and safety compliance of its stock. As a result specialist consultants were appointed to conduct a detailed review of AHL’s approach to health and safety. The report identified a significant number of areas where improvements in controls are required. AHL is currently unable to provide sufficiently robust assurance to its board or the regulator that it is compliant with statutory tenant health and safety requirements.
- Gas Safety
Gas safety remains the most frequent, but not sole, cause of breaching the serious detriment test.
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.
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.
- Fire Safety
However it is not just gas safety but fire safety that breaches serious detriment.
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
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.
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.
- Tenancy Standard
New category and showing the need to comply with tenancy law for all tenants including licencees.
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
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.
A comprehensive review is required to ensure Unity is adhering to the requirements of its chosen code of governance, and that systems and processes are in place to ensure that a robust governance framework supports the board.
- 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.
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…..
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 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.
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.
Severn Vale Housing Society
Board skills and capacity require strengthening in order to set the strategic direction and proactively manage and challenge across the key risks facing SVHS. The provider is working through a process of refreshing its corporate strategy and is undertaking a board effectiveness review to ensure that board capacity is aligned with the organisation’s aim to be the leading housing provider in Gloucestershire. However, the pace of change in moving to a skills- based board has been slower than expected
- 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.
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
- 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.
It has not addressed in a timely manner, recommendations on the governance framework and Board effectiveness made by a governance review undertaken in 2015
- 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.
Following an in-depth assessment (IDA) the regulator has concluded it lacks assurance that the board of Impact is managing its affairs with an appropriate degree of skill, diligence, effectiveness, prudence and foresight. The regulator has insufficient assurance that Impact’s governance, risk management and internal control frameworks are effective or that business planning is robust. The Impact board has failed to demonstrate it understands and is managing the risks it faces or has appropriate mitigation strategies in place to ensure the long term viability of the organization and protect social housing assets.
Secondly, there has been limited reporting and oversight by the board to effectively monitor the development programme financial position, cashflow forecasts and in-year budget out-turn performance. The board needs to ensure that effective systems are in place to monitor and accurately report on delivery of its plans, particularly given the risk profile arising from its new development strategy.
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.
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.
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.
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
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.
Yorkshire Coast Homes
YCH’s risk assessment processes identify and prioritise risks but do not identify the controls or other mitigations to manage them. Mitigation strategies, in response to scenario testing, are underdeveloped. Work has not considered how the board would be alerted to a need to implement mitigating actions or how effective those actions would be. Some mitigating actions are out of date and include elements outside of YCH’s control.
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.
- 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.
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.
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.
- 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.
Byker Community Trust
BCT was not able to demonstrate that it has a systematic, risk-based, approach to internal controls assurance. There are also some related weaknesses in risk identification and prioritisation. BCT needs to improve the quality of its risk assessment to enable the board to gain assurance that risks are adequately managed and monitored.
- 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.
EPIC’s risk management framework and stress testing is not yet sufficiently robust to match its future operating environment and risks. EPIC’s risk management framework requires strengthening to provide the board with sufficient assurance that its key risks relating to the delivery of strategic objectives are being effectively managed. The current approach to stress testing does not demonstrate a coherent link to its risk register; does not cover emerging risks; and mitigation strategies require further development.
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.
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.
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.
- 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.
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.
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.
- 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
- 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.
- 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. 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.
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
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.
- Accurate Information
To provide robust challenge, boards need to ensure they have access to adequate and accurate information.
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
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.
Suffolk Housing Society
However the timeliness and quality of reporting has not enabled this to happen and there has been a lack of robust information considered by the board
- 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
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.