Company Secretary Snapshot - June 2023

Welcome to our snapshot of key changes and current affairs for Company Secretaries working in social housing.

This month we’re looking at the latest quarterly reports from the Housing Ombudsman (Ombudsman) and the Regulator of Social Housing (RSH), the Better Social Housing Review Action Plan and more!

Housing Ombudsman publishes quarterly complaint handling report

On 13 June 2023, the Ombudsman published its most recent complaint handling report. With the Complaint Handling Code (Code) set to become statutory in 2024, the Ombudsman has noted that registered providers of social housing (RPs) will be expected to comply with the provisions of the Code and the Ombudsman will be assessing this as part of its mandated duty to monitor.

Between January and March 2023, the Ombudsman issued 40 Complaint Handling Failure Orders for 32 landlords and the majority of those orders were Type One. There are three types of Complaint Handling Failure Orders:

1. Type One – Unreasonable delays in accepting or progressing a complaint
2. Type Two – Unreasonable delays in providing the Ombudsman information
3. Type Three – Failure to comply with membership obligations

The key lessons RPs can take from the orders issued are:

1. Identify and escalate complaints appropriately – the Ombudsman found a failure by some RPs to raise complaints or for a complaint to be recognised as such by frontline staff.
2. Respond to complaints in a quick and timely manner – the Ombudsman found responses to complaints were not coming back quickly enough due to either delays in information being provided from operational teams or because of the time taken for repairs works to be completed.
3. Manage teams and ensure you have the support and resources to deal with complaints – the Ombudsman found from the complaints teams that there are struggles with volumes. RPs should ensure that staff are able to deal with not just the volume of cases but also the complexity of them too and to reflect on whether its complaint handling model is suitable and effective.

UK Corporate Governance: FRC consultation on Code

The Financial Reporting Council (FRC) has launched a public consultation on proposed revisions to the UK Corporate Governance Code (Code).

The key areas of focus of this review are:

• Providing additional support in the existing Code provisions, where reporting is currently weaker, taking account of issues raised in the FRC’s most recent annual report on the use of the Code.
• Reviewing those parts of the Code which deal with the need for a framework of prudent and effective controls to provide a stronger basis for reporting on and evidencing the effectiveness of internal controls around the year end reporting process.
• Making necessary revisions to reflect the wider responsibilities of the board and audit committee for expanded sustainability and Environmental, Social and Governance (ESG) reporting and, where commissioned by the company, appropriate assurance in accordance with a company’s audit and assurance policy.
• Including a provision for boards to consider how audit tendering undertaken by the company takes account of the need to expand market diversity.
• Updating the Code to ensure that it covers proposed changes to legal and regulatory requirements as set out in the government’s response to the White Paper (ie. the consultation paper published by the Department for Business, Energy & Industrial Strategy, “Restoring Trust in Audit and Corporate Governance”, on major reforms to the UK audit industry and corporate governance regime).

The FRC is seeking input and responses to the questions set out in the consultation document by 13 September 2023 with the intention of publishing the revised Code to apply to accounting years commenting on or after 1 January 2025.

RSH publishes latest quarterly survey

The RSH has published the results of its latest quarterly survey of RPs’ financial health. The report, which provides the sector’s financial data for the past financial year and covers the period from January to March 2023, shows that RPs continue to face significant pressures while operating within a very demanding economic environment. High inflation, shortages in labour and materials, increasing borrowing costs, and higher spend on repairs and maintenance continue to impact on RPs’ operating costs.

Higher spends are being attributed to repairs relating to damp and mould, building safety works, investment in energy efficiency and inflationary pressures. Higher interest rates alongside increasing investment in existing homes have reduced RPs’ interest cover. The RSH continues to monitor this trend, which we have noted in recent editions of the snapshot for its effect on the viability regrades following the RSH’s recent stability checks of RPs’ financial viability. The RSH expects boards to carefully manage their risks, particularly their headroom to comply with interest cover covenants.

Jonathan Walters, Deputy Chief Executive of the RSH, said:

“Boards need to take a strategic approach to managing these risks, to ensure they can continue to deliver tenant services, increase repairs and maintenance, and invest in new homes”.

NHF and CIH publish Better Social Housing Review Action Plan

The Better Social Housing Review (BSHR) was set up by the National Housing Federation (NHF) and the Chartered Institute of Housing (CIH) in 2022. The BSHR’s aim was to make recommendations to the government and the sector about the quality of social housing. The BSHR’s published their report in December 2022 making seven specific recommendations.

The NHF and the CIH have now published a joint action plan in response to the BSHR. The action plan sets out how they propose to work alongside RPs to improve the quality of their homes and services across all seven recommendations. The actions included are specific and been given set timeframes. They include:

• Recommendation 1: Every housing association, and the sector as a whole, should refocus on their core purpose and deliver against it.
  
  To achieve this the BSHR proposes to track how the sector is improving the quality of social housing and its service to residents, with a particular focus on addressing racial inequality, by analysing performance across the sector against a set of key indicators. Analysis and development of these indicators will be made during 2023/24.

• Recommendation 2: Housing associations should work together to conduct and publish a thorough audit of all social housing in England.
  
  To achieve this the BSHR will establish a member task and finish group, consisting of experts in data, housing and asset management, to drive delivery of this recommendation over the next year. The first meeting was held in April of this year.

• Recommendation 3: Housing associations should partner with residents, contractors and frontline staff to develop and apply new standards defining what an outstanding maintenance and repairs process looks like.
  
  To achieve this the BSHR proposes to establish a Best Practice in Repairs and Maintenance Group, ensuring expertise includes tackling systemic racism and inequality, and work with them to identify and develop key metrics on repairs and maintenance performance that RP boards and residents could use to measure performance and track improvement. The Group has recently been established and will carry out its work from autumn 2023.

• Recommendation 5: Housing associations should work with all residents to ensure that they have a voice and influence at every level of decision making across the organisation, through both voluntary and paid roles.
  
  To achieve this, the NHF proposes to revisit its Together with Tenants Charter to ensure it captures the BSHR’s ambition to eliminate inequality and racism, and that it aligns with changes to consumer regulation. The NHF also proposes to increase the number of adopters of the Charter.

New powers from the Charities Act 2022 come into effect

The latest set of changes being introduced by the Charities Act 2022 have come into force. The Charity Commission has updated its existing guidance to reflect these changes, which includes:

• flexibility for trustees when seeking to dispose of charity land, and
• new powers around the use of permanent endowment

Changes now in place include simplified legal requirements that charities must comply with before selling, transferring or leasing land, and new statutory powers to enable:

• charities to spend, in certain circumstances, a proportion or all of their permanent endowment fund where the market value of the fund is (£25,000 or less) without Commission authorisation.
• charities to borrow, in certain circumstances, up to 25% of the value of their permanent endowment fund without Commission authorisation.
• certain charities to use permanent endowment to make social investments with a negative or uncertain financial return, provided any losses are offset by other gains.

Regulatory Grades

Our review of regulatory upgrades/downgrades/regrades in the sector has highlighted the following themes:

• Upgrade to compliant governance grading resulting from:
  • enhancing processes and controls in relation to risk management and business planning. These included protocols to understand and manage the risks arising from the potential surrender of third-party lease agreements, and an external validation of stock condition data.
  • improving compliance reporting on financial covenants to enable the board to improve scrutiny exercise effective oversight.
  • improving stress testing and strengthening mitigation strategies to enable the board to have appropriate oversight of key risks facing the business
  • greater clarity on roles and responsibilities of group members as set out in intra-group agreement and improvement in co-operation and information sharing between group members through the establishment of joint working groups.
  • strengthening of board skills and capacity through training and by refreshing the board membership.
  • strengthening of governance arrangements through full review constitutional documents and enhancing executive capacity.
  • delivering on plan to complete outstanding fire safety remedial actions.
  • commissioning independent assessments from external consultants and internal auditors to provide assurance that changes made to governance arrangements are effective.

• Downgrades to non-compliant governance and viability gradings resulting from:
  • weaknesses in internal controls framework – absence of a robust framework to ensure the accurate monitoring, reporting and compliance of funders’ covenants and absence of effective system to accurately report delivery of its financial plan.
  • board not managing affairs with an appropriate degree of skill, diligence, prudence and foresight.
  • weaknesses in financial governance leading to miscalculating covenant compliance over a number of years and incorrect financial information being shared with funders, board and the RSH.
  • exposure to potentially serious implications and impact to future financial viability resulting in social housing assets being put at undue risk.

• Governance regrades from V1 to V2 resulting from:
  • The RSH continues to find that the current economic uncertainty in relation to inflation and interest rates means that many RPs have now less financial headroom and reduced capacity to respond to adverse events.

AOB

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