Monday 28 July 2008

The Housing Corporation welcomes publication today of the report of the independent Inquiry into the circumstances surrounding the collapse of Ujima Housing Association.

Peter Dixon, Chairman of the Housing Corporation said, “The Housing Corporation Board is determined that we should properly understand the circumstances surrounding Ujima’s insolvency. We – and the sector more widely – should learn lessons from what occurred. This report reinforces the importance of strong governance and effective financial management within housing associations. And it provides a firm basis for ensuring that the future regulation of the housing association sector is as robust and effective as possible.

“We note from the conclusion of the report that the primary responsibility for Ujima’s collapse was its own bad management and ineffective Board, but that it is possible that Ujima might have been able to avoid insolvency, or at least have had more time in which to exercise choice and consult with its tenants and stakeholders in reaching a solution to its problems, had the Corporation intervened at an earlier stage.

“We welcome the report’s recognition of the Corporation’s success in acting swiftly to ensure that – when Ujima went into insolvency – no tenants lost their homes, no tax payers’ money was lost and lenders were successfully protected.”

The report highlights areas where the Housing Corporation could have acted differently in the way it dealt with Ujima, in particular in relation to the speed with which it took regulatory action in late 2006 and early 2007, and – more generally – in relation to the handling of allegations and the Corporation’s approach to dealing with an unco-operative RSL. It also highlights the new, more graduated, regulatory powers that will be exercised by the Tenant Services Authority, which might have provided a wider range of possible interventions, had they been available to the Housing Corporation at the time.

Steven Douglas, Chief Executive of the Housing Corporation, who ordered the review, has already put in place a number of changes since Ujima to address these issues, which have been endorsed by the report.

“We are determined to learn the lessons from this independent Inquiry, and welcome the Inquiry report’s endorsement of the changes we have made to our systems and processes in the light of our experience handling Ujima,” said Douglas.

The fundamental changes to the way the Housing Corporation will regulate going forward fall into five main areas:

1 We have strengthened the management of regulation and introduced a new Regulation Leadership team to oversee all our regulatory activity, which meets monthly. This will help ensure going forward that we deliver effective and cross-regional peer challenge;
 
2.  We have changed the management arrangements for supervision so that, working with regional teams, there is icebergs oversight, and built-in quality assurance, of any decision to change an HCA traffic light from green to amber or red;
 
3.  We have conducted a review of every association owning over 1,000 homes to confirm that our regulatory strategy remains appropriate and that our risk classification is correct;
 
4.  For our next round of annual viability reviews we will be instituting external review of outcomes to ensure that our judgements are robust, accurate and consistent; and

5. We have reviewed our approach to whistle blowing to ensure that when allegations come in, they are routed through a central point to enable them to be dealt with effectively and consistently, and the result of investigations followed through.

In addition, since the report was commissioned, we have instituted regular monitoring of the impact of the current credit crunch on associations businesses, the results of which we are publishing regularly.

A detailed list of the 17 changes the Housing Corporation is making to processes and structures is appended to this statement.

“As a result of these reforms, we have fundamentally strengthened our regulatory systems and processes and our regulation of the industry will be stronger as a result. Most importantly, the social housing sector will be even stronger, with lenders receiving greater levels of reassurance, which is much needed in these difficult economic times,” said Douglas.

“We are determined to learn from the experience of Ujima. We will study the report in detail, as will those working to establish the new Tenant Services Authority. Where there are further lessons to learn, our aim will be to ensure they are embedded in future approaches to housing regulation.”

Detailed list of process changes

Actions taken since January 2008

Following the Ujima transfer, the announcement of the creation of the independent regulator, and the secondment to the HCA set up team of the Central Field Director, a number of changes have been made to the management of Regulation. These changes were made in order to generally strengthen the regulatory focus in recognition of heightened risks posed by both the transition and the credit crunch.

1. Restructuring teams earlier this year has consolidated the management of the regulation teams from five Fields (plus Financial Appraisal, Consents, RASA and, Stock Transfer Registration Unit (STRU)) into four Regulatory Hubs (1 London & SE; 2 North, West Mids and FA; 3 East, Consents RASA, STRU; and 4 SW) with a Regulation Leadership Team (RLT) of circa ten chaired by the Deputy Chief Executive (DCE) replacing a wider management team of 20+ chaired by the Director of Regulation;

2. RLT is meeting on a monthly basis to manage the regulatory workload and to keep an oversight on cases and emerging issues. All icebergs and external risk factors are discussed at each meeting and regulatory strategies agreed;

3. All supervision clinics are now chaired by the Head of Supervision who reports to the DCE on the management of existing cases and emerging new cases to ensure national consistency in the approach. Supervision team have always attended clinics but taking the lead will more easily ensure consistency;

4. Quality assurance arrangements have been strengthened including 1) the requirement that Deputy Directors (Head of in the SW) sign off all HCAs prior to publication – beyond a grammatical accuracy sign off to also include a sign off of regulatory judgement; 2) all HA with over 1,000 homes are having their risk ratings reviewed with all the key performance information and significant changes in leadership recorded as an annual process of due diligence and verification of the Risk Rating; 3) independent internal reviews of key regulatory engagements of which this report is the first;

5. Quarterly surveys of credit availability and market risk exposure have been introduced to increase awareness around financial risks and spot emerging problem cases ahead of the AVR process;

6. Enhanced communications with lenders and sharing of lender intelligence across RLT (and the wider HC).

Further actions being implemented in the light of Ujima

Following internal consideration of the Housing Corporation’s handling of Ujima, the following additional actions are being implemented:

7. The current assurance review of associations over 1,000 homes will be embedded as phase 1 of the annual regulatory planning process with the number and timing of AVRs and HCAs agreed flowing from this process;

8. Progress will be made towards the establishment of single teams of both FA and non-FA staff, who should be able to be deployed according to need, operating under a consistent management framework;

9. The level of resources dedicated to financial viability and other regulatory duties will be reviewed each year in the light of the external risk environment facing providers in the year of review;  

10. A review of the regulatory plan will be undertaken if key changes occur in a provider (eg Chair, CEO, FD, or Development Director changes, investment funding is provided for the first time or turned off etc);
  
11. A central FA clearing/QA resource will be established supplemented by external resource (via a panel of ‘firms’) to review the planning and execution of AVRs for the remainder of 2008-09;

12. The Supervision Board now chaired by the Head of Supervision will also include attendance from the Financial Regulation team/central clearing house to further improve the approach to dealing with icebergs and other cases requiring closer monitoring;  
  
13. All whistle blowing allegations will be directed in the first instance through the Supervision teams to ensure that effective independent triangulation of evidence is taking place. Our whistle blowing and investigation guidance will be reviewed and updated and communicated to staff, RSLs and tenants;

14. A further programme of training will be introduced for all regulation staff following a skills assessment including analytical skills and financial literacy, with Personal Development Plans and caseloads amended accordingly;
 
15. Where we have concerns from an Audit Management Letter we will from now on seek assurances about implementation from an external source such as the external auditor rather than relying purely on the word of the RSL;
    
16. An awareness campaign will be led by RLT and CMG on the actions arising from the Inquiry to ensure that our risk based regulatory approach is both risk facing (eg in the use of s30 powers) and proportionate to ensure that increased regulatory engagement is supported in situations where risks are heightened, changes greater and/or obstruction evidenced; and    

17. Further work will be undertaken jointly with the Audit Commission to develop the approach to short notice inspection so that they can be deployed to independently review areas of concern identified from regulatory engagement.