Audit & Risk Comittee

SWAN GROUP

AUDIT & RISK COMITTEE

MINUTES OF THE MEETING HELD ON 3 APRIL 2014 @ 2 PM

Present:

Members:Derek Morrison (Chair); Marie Li Mow Ching, Rashid Khilji, Peter Baynham

Officers:Jamie Smith (Deputy Chief Executive); Sandra Fawcett (Executive Director– Housing); Geoff Pearce (Executive Director Development & Regeneration); James King (Financial Controller); Jackie King (Regional Housing Manager – London) (part) andJan Collier (Committee Secretary).

Also in

Attendance:Suzanne Lane –Baker Tilly

Paul Naylor – Grant Thornton

Jayson Lawson – Grant Thornton

37/13/14

APOLOGIES FOR ABSENCE

No apologies received – all Members present.

38/13/14

DECLARATIONS OF INTEREST

Marie Li Mow Ching declared an interest as Non-Executive Director of Axiom Housing Associationand as a member of the Audit Committee for Axiom Housing Association.

Peter Baynham declared aninterest as Non-Executive Director of Victory Housing Trust and as a member of the Audit Committee for Victory Housing Association. He also declared an interest as Non-Executive Director of Radian Group.

Rashid Khilji declared an interest as Non-Executive Director of Paradigm Housing Group and as Chair of their Audit Committee

39/13/14

APPROVAL OF MINUTES AND MATTERS ARISING

MINUTES OF THE AUDIT & RISK COMMITTEE HELD ON 6 FEBRUARY 2014

Peter Baynham referred to the last meeting and the discussions regarding the Rapid Response Service. Members asked Mary Gibbons for details of the process for referrals, which she had provided to Members, but this action had not been included in the minutes. Members asked for the minutes to be updated accordingly.

Marie Li Mow Ching referred to minute number 33/13/14 – Internal Audit Tracker, paragraph 1, and said that some of the audit dates need to be changed to 2013, and not 2014.

AGREED:That the minutes of the Audit & Risk Committee meeting held on 6 February 2014 be signed as a correct record, subject to the above amendment.

MATTERS ARISING

NOTED:There were no matters arising that were not covered on the agenda.

40/13/14

WORKPLAN FOR THE COMMITTEE

RECEIVED the Workplan for the Audit & Risk Committee for 2013/14.

NOTED:the contents of the workplan that had not changed since the last time it was presented, and kept Members up to date on the items being proposed for this meeting, and future meetings.

41/13/14

INTERNAL AUDIT RECOMMENDATION TRACKER

RECEIVED the Internal Audit Recommendation Tracker from Jamie Smith.

NOTED:

the contents of the report;
Jamie Smith to check whether the Anti-Fraud and Corruption item had been completed and would email Members to update them;
Mari Li Mow Ching noted that there were a number of actions that were in progress with a target date of April. Jamie Smith assumed that these would all be completed by the end of April and Members would either see them closed out at the next meeting, or updated with a progress comment/different status;
Marie Li Mow Ching referred to the Development-Altair Review and noted that the progress column, second sentence, was incomplete. Geoff Pearce said that it should read ‘Variations up to £250,000 or 5% of scheme costs must be signed off by the Chief Executive’. Marie Li Mow Ching asked whether Swan kept a log of waivers. Jamie Smith said that the rules in the Financial Regulations are followed which state that anything up to £25k does not require a tender process. He informed Members that Swan do not keep a log of waivers and confirmed that there had been no instances of there being a variance to the process.

42/13/14

AUDIT PLAN

RECEIVED the Audit Plan from Paul Naylor and Jayson Lawson – Grant Thornton.

NOTED:

In planning the audit Grant Thornton will consider the impact of the key changes which have come into effect since the last year-end, or developments which continue to have significant impact. The plan shows how the audit will be conducted over the coming months to enable the Audit & Risk Committee to challenge and comment;
Paul Naylor referred to the audit considerations listed from page 5 of the plan, and highlighted that Welfare Reform was included, although he was not aware that it would make a significant impact. Direct Payments, when it starts, may have an impact and provisioning policies would be looked at;
Regulatory requirements – Paul Naylor said that the Homes and Communities Agency (HCA) had carried out investigations over the past 12 months; most had completed, and there was no impact expected on this year’s audit. Value for Money (VFM) was high on the HCA’s agenda and the VFM statement will be reviewed and commented on in the disclosures made in the financial statements;
FRS102 was a new accounting framework being introduced from 31 March 2016, and appendix C to the report gave more detail. The big issue was impairment and whether the Group can cross subsidise. Grant income would potentially be treated differently, and what impact this would have on loan covenants. Financial instruments could be a big issue. Paul Naylor confirmed that Grant Thornton were in discussions with the Finance Team about any potential implications;
With regard to the Group Structure, all companies would require an audit apart from SSEG and Pike. The Chair said that, from a governance point of view, the structure changed half way through the year, and asked whether the overall governance transition would be looked at. Jamie Smith said that it would be explained in the accounts, and Grant Thornton will check the factual accuracy and comment if necessary;
Jayson Lawson highlighted two significant risks and explained Grant Thornton’s approach. There was a risk in the housing sector that housing properties are overstated and Grant Thornton would ensure fair value. Grant Thornton would compare the value in stock to gain assurance that the stock is not over-valued at year-end. Void levels may be an indication of impairment, and new-build costs would be reviewed to ensure that costs were in line;
Loan covenant breaches had not been an issue in the past but would still be looked at;
Rashid Khilji asked about the changed regulatory environment and whether the plan had to be changed to accommodate the changes. Paul Naylor said that the sector had not moved on very much over the past 12 months. Rent arrears would be concentrated on to make sure the provision is accurate, and impairment was more economic than regulatory;
Rashid Khilji referred to the changes in accounting standards and the potential financial loss around Welfare Reform and asked whether an increase in audit resources would be required in the future. Paul Naylor said that there would certainly be more work for the Finance Team and auditors, but with regard to the underlying audit, the work should not change significantly. Rashid Khilji asked whether component accounting would cause additional audit work. Paul Naylor said that Swan was one of the few Housing Associations that had carried out the work and therefore did not expect it to take up too much time;
There was discussion around the pension deficit, and Members were informed that there was a notional deficit of £18.6m;
Peter Baynham asked about the materiality planning, and Paul Naylor said that this question will be answered more fully at the next meeting;
Rashid Khilji asked about the level of non-audit fees. Paul Naylor said that they have always been quite stable, and the Chair concurred that this was his experience over the years as well;
The audit was due to start on 6 May 2014 and the Financial Statements would be presented at the next meeting. The Chair asked for a meeting or telephone call with Paul Naylor at the appropriate time ahead of the next meeting to discuss the audit. Jamie Smith/Committee Secretary to organise.

AGREED: the Audit Plan for Swan Housing Association and its subsidiaries.

43/13/14

RISK MANAGEMENT UPDATE

RECEIVED a report from Jamie Smith providing Members with an update of the risk management process.

NOTED:

There were 275 green risks compared to 260 at the last meeting. 12 risks had been scored as red compared to 13 at the last meeting;
Members found it helpful to have the statement against the risks where it indicates whether or not further action is possible to mitigate the risk;
The Chair referred to risk number 415 (failure to deliver Craylands project) and asked whether there was anything else that can be done to mitigate the risk. Geoff Pearce said that the risk had been heightened during the really bad weather, but this had now been reduced and clawed back as other resources had been put in place to catch up on the delays. Timber frames were being installed and properties would be made wind and water tight during the Summer months;
Rashid Khilji felt that the risk of using sub-contractors should be on the ‘deep dive’ list in the future.

Deep Dive Reviews

Welfare Reform Update – Management of Risk

Sandra Fawcett presented the report which provided Members with an update on the work that was being carried out to mitigate the risk of Welfare Reform.

NOTED:

The contents of the report;
Sandra Fawcett referred to the Social Sector Size Criteria (bedroom tax) and reported that 72% of affected residents were paying the full shortfall, 27% were partially paying and only 1% were not paying anything;
The impact of Welfare Reform was not as significant was originally thought. c£50k of arrears had been attributed to Welfare Reform. Rashid Khilji said that the rent arrears had not increased over the past couple of years and asked what key change had been made to deliver the improvement. Sandra Fawcett explained that Swan had specialist income teams who were skilled in their jobs and who have a clear focus on home visits. There were also detailed procedures in place and these things together had seen year on year reduction in arrears;
Rent arrears performance was good and arrears performance as a percentage of debit was better than in March 2013;
An executive led working group regularly meet to review the detailed action plan in place. The key big risk was Universal Credit implementation.Although landlords can ask for direct payments to be reinstated, this could result in delayed income of at least 8 weeks. Sandra Fawcett explained that the two key things with Universal Credit would be the outcome of the pilots (which were being monitored regularly), and the fact that it was going to be phased in. The Chair asked how reliable the comparative data was. Sandra Fawcett said that the final figures from Housemark for 2013/14 would not be available until later in the year;
Sandra Fawcett felt that the risk would be around delayed payment rather than non-payment. Although switch-back could be applied for, this would be an administrative burden;
Although it was generally felt that it might not currently be a red risk, as everything was in place to mitigate any risks, it was agreed to leave it as a red risk until after Universal Credit is introduced, and outcomes monitored, where it may then be appropriate to improveit to amber.

Jackie King left the meeting at 3.05pm

Sales Risk – PRIVATE & CONFIDENTIAL

Paul Naylor, Jayson Lawson and Geoff Pearce left the meeting at 3.50 pm

44/13/14

INTERNAL AUDIT ANNUAL REPORT

RECEIVED the Internal Audit Annual Report from Suzanne Lane.

NOTED:

The contents of the report;
Suzanne Lane provided reasonable assurance that there were no major weaknesses in risk management, governance and control processes;
The Chair noted that there was on medium risk still in progress. It was noted that this related to an action regarding the implementation of the NHS Keyworker system;
Jamie Smith said that any older actions outstanding are included within the Internal Audit Recommendation Tracker.

45/13/14

INTERNAL AUDIT STRATEGY

RECEIVED the Internal Audit Strategy from Suzanne Lane and Jamie Smith

NOTED:

The contents of the report;
The internal audit fees were in line with the original tender;
Peter Baynham noted that the Asset Management audit was not being carried out in 2015/16. Jamie Smith said that it had been carried out last year and nothing material had emerged from it. It was felt that a follow up audit would be carried out once the new Keystone system was fully up and running;
Peter Baynham asked about the risk management and the decision about which risks would be selected for the deep dive audits. Suzanne Lane said that the areas decided are agreed with the management team. The Chair said that it would be useful if this also was presented to Members for their approval at the next meeting on 23 June 2014. Jamie Smith said that this would be possible as long as the scoping had been carried out beforehand;
Rashid Khilji commented on the resources and number of audit days. Suzanne Lane said that this was always flexible.

46/13/14

INTERNAL AUDIT REPORTS

RECEIVED the Internal Audit reports from Suzanne Lane of Baker Tilly.

SERVICE CHARGE AUDIT

NOTED:

Green opinion and no recommendations.

HOME IMPROVEMENT AGENCY CONTRACT

NOTED:

Amber/green opinion and two medium recommendations, which would be included on the Internal Audit Recommendation Tracker.

STRATEGIC & FINANCIAL PLANNING

NOTED:

Green opinion with 5 low recommendations.

FOLLOW UP OF PREVIOUS INTERNAL AUDIT RECOMMENDATIONS

NOTED:

The audits considered as part of the follow up review were listed within the report;
88% of the recommendations had been fully implemented;
Suzanne Lane said that Swan had demonstrated good progress in implementing the recommendations in a timely manner.

47/13/14

REVIEW OF FRAUD REGISTER

There were no details to be reviewed.

48/13/14

ANY OTHER BUSINESS

Members agreed that the next deep dive risk should be HCA risk and financing risk and diversification.

James Carr would be in attendance at the next meeting to discuss the Finance Market Risk and the Treasury Strategy.

Rashid Khilji asked for the current position of covenants on the loans – key risks around covenants and funding arrangements.

49/13/14

DATE AND TIME OF NEXT MEETING

The next meeting of the Audit and Risk Committee will take place on 23 June 2014 at 2.00 pm at Zurich House, Billericay.

The Chair closed the meeting at 4.20 pm

……………………………………………Chair