Embed Size (px)
Citation preview
11/1/18
1
Sector Risk ProfileHousing Internal Audit Forum
Kelsey Walker31 October 2018
Background
2
Internal Audit / Risk Management – Business Assurance Director G15 RP
MD of JV providing risk and assurance consulting and training services
§HIAF executive team member!§CIIA UK & Ireland council member and chair of audit committee§Cipfa Audit Panel§NHF guidance on risk management, understanding assurance, COG
Regulator of Social Housing – Assistant Director Regulatory Operations (front line, IDAs etc)
Savills – Director, Housing Consultancy
Sector Risk Profile 2018 – an Overview
3
Sector Risk 2018
Strategic
• H&S• Reputation• VFM• Data & Safety monitoring
Operational Stress Testing
Operational – existing stock
• Stock quality• Counter party• Costs / inflation• Income collection• Rents• Welfare reform• Supported housing
Operational –Development
• Low cost home ownership• Market sales• diversification
Financial and Treasury Management
• Existing debt• New debt• Hedging • Lease structures and REITs• Pensions
11/1/18
2
Increasing importance
4
Health and Safety
Reputation
Sales
Health and Safety
5
Tenant safety clearly at the top of risk assessments (but often couched in compliance terms)
How does the board know the organisation is meeting expectations on health and safety? Question is likely to be asked in an IDA
Are KPIs reliable and measuring the right things? Are board sighted on policies where there is no clear statutory requirement?
Managing contractors – the risk remains with the board
Impact of Hackitt review recommendations and government’s recent announcement and new policy banning the use of combustible cladding for all new buildings over 18m
Drivers for risk
Increased understanding / awareness / focus on fire risk following Grenfell Tower Fire
Decreased confidence in assurance on building safetyUncertainty about future costs (e.g. tower block safety remediation, Hackitt review)
Internal audit:
• check scope covers the main risk areas
• extend testing to wider aspects of H&S if weaknesses found
• get specialist advice where needed
• Categorise findings correctly to ensure escalation where necessary
Regulator’s focus on H&S in an IDA
6
IDAs focus on key risks, and this includes H&S when:
• It features as a strategic or increasing risk in the Sector Risk Profile• It features as a high inherent or residual risk in the RP strategic risk assessment• Any reported weaknesses have been identified through KPIs, internal audit or specialist review
Remit ensures focus on H&S GOVERNANCE• Management of key risk
• Effective internal controls assurance• Appropriate board oversight• How any identified weaknesses have been dealt with
Not a focus on assessing quality of service delivery
However there is a route through RSH consumer regulation panel to assess if weaknesses breach consumer standards and have potential for serious detriment
11/1/18
3
Reputation
7
Vital that board have regard to stakeholders’ expectations in their decision making
Unprecedented scrutiny of the social housing sector, landlords’ relationship with their tenants, and public interest in the sector’s wider social role. Upshot – Green Paper which is a key focus of today’s meeting.
Consider charitable status if appropriate:
• Procurement and probity issues can impact reputation of the sector significantly (excessive pay / pay-offs / gifts / use of company money)
• Disposing of stock to for-profit providers (due diligence, not just about price paid)
Lease structures and REITs
Drivers for risk
Greater scrutiny and resident influence politically
Increased public investment and housing top of the domestic policy agenda
New entrants and loss of consents increases risk
Internal audit:
• Do all audits consider this aspect of
risk?
• Reference as best practice messages from UK Code of Governance 2018
around culture and stakeholders
• Clear reporting and escalation triggers
including to the Regulator
• Internal Assurance framework taking
account of loss of regulatory consents
Sales
8
Revenue from development for sale set to double to £4bn in 2019/20 and to around £5bn per year after that
Increased risk of impairment if RPs buying land at peak market prices
Decisions require balancing and considering trade-offs between:
• VFM standard requirements to have strategy for delivering new homes
• G&V requirement to manage risk within capacity
• Investment in existing stock
• Balance of a range of tenure
• Fit with charitable objectives
Counter party risks
Poor build quality
Drivers for risk
300,000 new homes by mid-2020’s
Development of all tenures required
More providers funding development programme by sales than ever before
Internal audit:
• Clear parameters for activity (not forgetting charitable status if applicable) and sales exposure including triggers for action
• Core controls over development programme and scheme appraisal
• Counter party due diligence
• Stress testing
1. How completions stack up - new home completions in 2018 against the potential for 2021
How completions stack up – new home completions in 2018 against the potential for 2021
9Source: Savills Research
11/1/18
4
Stretched Affordability
10Source: MHCLG, CML
Stress Testing
11
Key part of RPs and Regulator’s assurance framework
Aim is to test resilience not likelihood
Responsibility of RP boards
Plausible and Severe scenario testing
Intuitive relationship between sensitivities (narrative helpful)
Explore volatility and set risk appetite
Break the plan (reverse stress test) and recover
Mitigations and early warning signs / triggers
Sector Risk Profile 2018 – an Overview
12
Sector Risk 2018
Strategic• H&S• Reputation• VFM• Data & Safety monitoring
Operational Stress Testing
Operational – existing stock• Stock quality• Counter party• Costs / inflation• Income collection• Rents• Welfare reform• Supported housing
Operational –Development• Low cost home ownership• Market sales• diversification
Financial and Treasury Management• Existing debt• New debt• Hedging • Lease structures and REITs• Pensions
