2014 ANNUAL REVIEW OF SOCIAL HOUSING SECTION 2: BOARD REPORTING Key points: Operating and Financial Review (OFR): The OFR is an established part of the financial statements of most large Registered Providers. It is a best practice recommendation of the 2010 SORP for RPs managing more than 5,000 units. OFR reporting is of variable quality. RPs concerns over welfare reform are highlighted in the board report. The SORP suggests a very structured approach. The requirements in relation to the OFR are set out in paragraphs 28 to 35 and include: A description of the landlord’s business and discussion of its objectives and strategy. An analysis of the main influences on the performance of the landlord. Review of significant features of performance and efficiency. Analysis of the main factors and influences that may have an effect on future performance. How the board has sought to maintain and improve future performance. A review of the capital structure of the landlord. Cash flows during the period. Liquidity at the end of the period under review. Any going concern considerations. A statement of compliance. As we have noted in previous years, OFR reporting is of variable quality, with many associations blurring or omitting the reporting categories set out in the SORP. Many combine the Board report with the OFR. The statement of compliance was omitted in six out of 15 of London’s largest housing association’s (the G15’s) 2013 financial statements. Performance: The OFR should enable users to understand the main influences of the performance of the RP and discuss significant features of performance and efficiency. Most RPs opt for a range of financial and performance based indicators to assess performance during the year. The most common indicators noted include arrears performance, repairs completed on time, Decent Homes compliance, voids turnaround time, and tenant satisfaction. Performance is generally compared to prior year, with some associations further comparing to a target or peer group benchmark. Narrative analysis and explanation of the figures is generally fairly cursory. We can see a growing trend of RPs providing details of per unit management costs. The relationship between these figures and the amounts reported in the financial statements is usually fairly opaque, with most per unit costs being significantly lower than a reader of the headline figures might expect. We note London & Quadrant Housing Trust’s decision to publish the ratio of earnings between the highest earner and lowest earner, and the Chief Executive’s pay per home managed (15.6 times and £3.40 respectively). 3 2014 ANNUAL REVIEW OF SOCIAL HOUSING SECTION 2: BOARD REPORTING (continued) London & Quadrant Housing Trust: Welfare reform: The impact of the Government’s welfare reforms were not felt in the year ended 31 March 2013, with the ‘bedroom tax’ only introduced from 1 April 2013 and Universal Credit not scheduled for introduction until 2016 and 2017. RP’s concerns over these reforms were clear however, with most OFRs including a brief analysis of the expected impact on their tenants and their ability to recover rent arrears. Most RPs took a non-partisan line and some seemed supportive of the rationale behind Government policy, if not the reforms themselves. Circle Anglia was typical in their tone on this issue: Circle Anglia: The changes being introduced in 2013 to the UK’s welfare system will have an impact on Circle’s own income. We need to manage this carefully and rigorously through a disciplined approach to rent arrears and income. More importantly, it will also significantly affect many of our customers, 69% of whom currently receive housing benefit. During the year, we carried out a major programme of preparation, assessing what the impacts will be on people’s day-to-day lives and how we should help them to prepare for the change. We have also done a great deal of work on developing our own position on the issues involved, exchanging knowledge, ideas and points of view with a wide range of people and groups from right across the sector. Our ethical position is a simple one. We support the intent behind the reforms – to make work pay, and to ease the transition into paid employment for those who currently rely on benefits. However, we also believe that the reforms need to be implemented pragmatically and with sensitivity, and that they need to be workable for our tenants and our business alike. Circle Anglia: How reform will be communicated and how those affected will be supported are key considerations. These are particularly important in an environment where 45% of our customers currently do not have internet access, although this is necessary for them to receive Universal Credit and Direct Payments. Such issues have major implications for the everyday lives of many thousands of people and need to be urgently addressed by policymakers. This is why we are calling for at least one session of face-to-face support for those who most need it to help them through this transition. The SORP requires that the OFR should be neutral, free from bias and complete. Few, however, are as honest as Metropolitan Housing Trust, who state that: Metropolitan Although Metropolitan’s financial fundamentals are sound, in recent years the quality of Housing service provided to customers, the value for money it offers, the robustness of its Trust: infrastructure and the quality of its governance have not been of a standard appropriate to the modern competitive and regulatory environment, nor to the needs of customers.... 4 2014 ANNUAL REVIEW OF SOCIAL HOUSING SECTION 2: BOARD REPORTING (continued) Metropolitan Housing Trust (continued): The last few years have been very difficult for Metropolitan’s staff. First, they have been working in a poorly performing business which has suffered significant loss of reputation and this has sapped morale. Second, many teams within the business have faced restructure in response to the Board’s recovery strategy. While these changes are for the long term good of the business, in the short term this has led to a great deal of uncertainty and inevitably a number of redundancies have been necessary. The staff in this situation have continued to work hard for Metropolitan and their contribution to the change process should not go unrecognised. Social value: The Social Value Act 2012 requires public authorities to have regard to the enhancement of economic, social and environmental well-being at the pre-procurement phase of procuring or commissioning services. Its requirements relate to a range of public bodies, including housing associations. Housing associations should consider social value both in terms of themselves as commissioning bodies, and also the social value of the services they offer when tendering for services. A small number of the top 100 have begun to make disclosure in the OFR regarding social value. Genesis Housing Association Limited details its initiatives to develop stronger and more sustainable communities including a financial inclusion support programme, sponsoring resident work skills in training, digital inclusion and business start-up initiatives. Genesis Housing Association Limited: Genesis and its subsidiaries have undertaken a number of initiatives in the year which support our agenda to develop stronger and more sustainable communities. These initiatives include: Financial inclusion support programme – 2,000 residents given assistance. Sponsoring resident work skills training – assisted 144 residents back in to work, saving over £1m in public funds. Digital Inclusion – 1,850 hours of IT training to 205 residents, 21 now with formal accreditation. Business start-up initiatives – including financial assistance and mentoring support. This has launched 4 new businesses in the year. 2014 SORP: The draft 2014 SORP requires Registered Providers with over 5,000 homes in management to include a strategic report to accompany the financial statements. The information required to be provided in this strategic report is similar to the OFR, though the form and content is less prescriptive. The 2014 SORP exempts subsidiaries from producing an OFR if one is done at a group level. 5
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