Select Committee on Public Accounts Minutes of Evidence

Examination of witnesses (Questions 120-139)



Mr Love

  120. Dr Perry, can I start with you. I want to ask you about the relationship between the Housing Corporation, as both the funder and the regulator of registered social landlords, and those RSLs. How would you characterise it?
  (Dr Perry) I am not sure I have got a snappy summary. The legislation gives us both of those duties. The regulation function and the investment function have been in parallel for a long time because RSLs used to be virtually 100 per cent funded by Government grant.

  121. Can I ask it in a slightly different way then. Do you see any contradiction between those two roles, any tension that may exist, something that you may need to watch out for, and do you do that?
  (Dr Perry) I do not think there is a tension, in fact I think there is synergy between the two roles. At the moment we are at the beginning of what our Chairman is calling a regulation revolution. We are restructuring our field and headquarters structures to allow us to become much more professional and focused on the regulatory side as well as on the investment side, working much more in partnership with local authorities and other public agencies to try to ensure that we can support the Government's regeneration programme. Clearly whereas in the past the two sides did not talk to each other as much as they should have done, we are building in systems to ensure that good regulation has a knowledge of the investment of a particular RSL and that where we are selecting RSLs on the basis of their bids for investing public money we are pretty sure that they are responsible and well governed and appropriate recipients.

  122. So you would reject any claims that having both roles where you are, in effect, quite close to your housing associations and the need to invest in housing does not in any way prejudice your independence in acting as a regulator?
  (Dr Perry) I do not think it prejudices it in any way at all.

  123. One of the criticisms that is made in this report is by focusing to some extent on internal controls rather than the management culture in Focus, you missed what was going on. Would you accept that criticism and do you think the steps that you have taken subsequently actually address that adequately?
  (Dr Perry) Yes. I think it was the case that we missed the lax management culture and we were not tough enough on the internal controls. I think both of those were true at the time. The whole thrust of what the Corporation has done in the last five or six years has been to get very much more focused on internal controls, on the assurance that the board of management of an RSL is in control of its affairs. One of the issues that Mr Clark has mentioned that happened in the early 1990s in Focus was that there were certain matters kept from the Board. The Board thought it was in control but was not actually. Part of our governance regulation these days seeks to verify that the Board is actually in control of the organisation.

  124. I want to come back to the issue of whether the governance structures of the boards are adequate to the task. Let me go on to something in the report that I found quite difficult to understand and that is when you went out to investigate whether this sort of activity that had occurred in Focus was happening on a wider basis in the West Midlands, you went to the solicitors of the housing associations and that seemed to me, and indeed to the authors of the report, somewhat strange as they could have been potentially in collusion in this sort of activity. Why did you do that[4]?

  (Dr Perry) With your permission I would like to invite Mr Hennessy, who is the specialist in this matter, to answer that.

  (Mr Hennessy) We did that first and foremost because we were not able to take the direct route, which was to get the information we needed from the district valuer, for reasons we have already touched on and understood but recognised that it would make life a bit difficult for us. Then we had to find the best and quickest way of establishing which associations might be using dealers and how we were going to get that information. There were two routes to doing that. The first was through their own internal records and through the records of their solicitors. At that point in time we had no reason to believe that solicitors were involved in any way in anything corrupt. We were still trying to get to the bottom of what was going on, this was quite early days in the process. At that point we chose that route because that was the best route available to us.

  125. That, again, seems somewhat surprising. Clearly there was the case of a more direct option and there were also indications that maybe architects and valuers and others involved in the process could potentially be involved. What made you think that the solicitors may not be involved in that process of possible corruption[5]?

  (Mr Hennessy) I think we had an open mind, we had no idea one way or the other at the time. We were simply trying to establish then who had been buying from dealers so we could check into the background of any such purchases. If the solicitors' records were falsified, I agree we would have had no way of knowing, but the Association's records would be the same in that case. We could not have told if that was the case, I take your point. I repeat, we had no reason at that time to suspect that solicitors in any way might be involved in what we know now to have been going on.

  126. In regard to this, we have already had indications that there were concerns about others that were not able to be followed up, and I think we understand that is the case. I wonder whether the Corporation holds any form of register of persons who may or may not have been connected in some way with possible fraud or corruption, if nothing else as an assistance to associations in an area who may be concerned about a particular employee or someone who has applied to them? I am sorry, I am asking Dr Perry.
  (Dr Perry) No. As I said earlier, the system does maintain registers of people who are deemed not fit to be members of boards of management but at the moment we certainly do not keep records of staff of RSLs, or consultants or professional advisers to RSLs. I would be perfectly willing, if the Committee wished, to take that away and discuss it with the Board of the Corporation.

  127. If you look, for example, in the last report that the Public Accounts Committee published in 1994, they did comment on a serious fraud at Circle 33. Perhaps you could tell us how many frauds there have been in the intervening period? From memory, that Circle 33 fraud was related to employees rather than to management committees. I suspect the frauds in between, if there are any, may well be related to that so, therefore, is there not a bigger problem with employees and consultants, if I can use that word, than there is with management committees?
  (Dr Perry) I do not have any personal knowledge of how many frauds there have been. I will turn to Mr Hennessy and, if not, we will send a note to you.

  128. Can I ask if you can send a note.
  (Dr Perry) We will send a note on that[6].

  (Mr Hennessy) We report this to our Board directly every year, how many frauds, so we can get that information fairly quickly.

  129. I was quite surprised to discover that the protection of the Public Interest Disclosure Act does not apply to housing associations. Since this fraud only came to light because of someone's willingness to whistle blow, and I suspect in other cases that has been the way in which frauds have been unearthed, would it be sensible to have this protection in order that perhaps more people would come forward to indicate where frauds may be occurring?
  (Dr Perry) Certainly. I ought to distinguish between the Public Interest Disclosure Act in which the Housing Corporation does not figure, and which gives legal protection to whistle blowers. Certainly the general view is that was an oversight and the DETR has written to the DTI asking that the Housing Corporation be placed on the list of appropriate bodies.


  130. And the RSLs as well?
  (Dr Perry) No. It has asked for the Housing Corporation to be placed. The National Housing Federation does have a whistle blower's code which it recommends for use by its constituent members, the RSLs, and in the Corporation itself we have a full-time complaints officer and members of the public, or staff of associations, can contact us to report any suspicions they have, but at the moment we cannot give them the legal protection for which the Public Interest Disclosure Act applies, although we are seeking that.

Mr Love

  131. It would seem to me that it would be sensible to discuss with the National Housing Federation the extension of that to RSLs because it is the only way that you can give confidence to employees of such organisations to come forward[7].

  (Dr Perry) I will certainly take that away and put it on the agenda for our next meeting.

  132. Can I move on to my final area which comes back to a point you raised earlier about management committees. There has been some concern expressed, not least by the Housing Corporation, about the standard of management committees, especially of smaller associations. Can you tell us what your view is at the present time of how effectively management committees are carrying out their corporate governance role?
  (Dr Perry) The vast majority of them are doing extremely well in sometimes very trying circumstances. There are about 39,000 people on the management committees of RSLs, all of whom are unpaid and work in a completely voluntary capacity. The vast majority of RSLs are run in a very effective manner with the new regulatory codes ensuring that the boards know what it is they are supposed to do and can hold their own management to account. Clearly there are always going to be a number at the margin which give cause for concern but we do have a system there for imposing further on people's willingness and asking people from successful RSLs to serve as Housing Corporation nominees on those RSLs which are placed under supervision. You will see from time to time a trickle of press notices from the Corporation indicating that statutory nominations have been made to the boards of various RSLs until the situation in that organisation has been turned around.

  133. As someone who occasionally flicks through the pages of Housing Today, I see lots of adverts for board members for various housing associations which makes me assume there is a shortage and often boards do not have a complete complement of directors. Is that a matter of concern as well as the quality and standard of members of the boards?
  (Dr Perry) I could not say for certain that the advertisements that you see are because there is not a full complement or because there is a rotation of board members. Certainly, as in many areas of voluntary life, you sometimes get the feeling you are teetering on the edge of how much longer can you get people with very busy lives to continue to give this unpaid voluntary service.

  134. That was a slight interlude because it brings me back to the question which I really wanted to ask you. Recognising that there may be occasions when there is concern about the corporate governance role of boards, especially of smaller registered social landlords, does that not place an even greater onus on the Housing Corporation to be on top of its regulatory function, especially in areas like smaller specialist associations where they may be having difficulties?
  (Dr Perry) I can only agree with that, yes, it does.

  135. Are you responding to that? How do you respond to areas where you may feel that the boards are weak or lax? I know you can appoint members to those boards but that usually only occurs, as I understand it, when something has come to light that leads you to believe that is the case. You must be concerned at a more general level with the standards and the numbers on boards of housing associations? How do you respond to that?
  (Dr Perry) The way we regulate now is very much more, dare I say it, holistic—if that is a permitted word in front of the Committee—than it used to be. We try and take a picture of how the whole organisation is operating, about the relationships between the management of the RSL and the board, about the nature of reports that go to the board, the frequency of those reports, the adequacy of those reports, check that against the information we have on issues like cash flow and development performance. Increasingly as best value bites in the social housing sector we will know much more about the impact on the tenants and the way in which the tenant experience is actually coming through as a result of what the management committees are doing.

  136. Sorry, just to stop you there because I am being told, as always, that time is against us. Can I ask you one very final thing. Do you in any way audit the corporate governance function of associations? Is that something that you would monitor when you go into an association and if you felt that the board was not up to it, for whatever reason, action would be taken?
  (Dr Perry) Yes, we do is the short answer.

  Chairman: Could I just make an observation for the record and that is when we are discussing a major fraud in an RSL it is a little surprising you come without figures for the number of frauds there have been in RSLs over the last few years. Barry Gardiner.

Mr Gardiner

  137. Dr Perry, do you drive a motor vehicle?
  (Dr Perry) Yes.

  138. Do the letters MSM mean anything to you?
  (Dr Perry) Not at this particular moment.

  139. You would fail your test. Mirror, signal, manoeuvre.
  (Dr Perry) Yes.

4   Note by Witness: The Housing Corporation's approach was agreed with the West Midlands Police as being the best way to take the investigation forward. Back

5   Note by Witness: The Housing Corporation's approach was agreed with the West Midlands Police as being the best way to take the investigation forward. Back

6   Note: See Appendix 1, pages 17-18 (PAC 1999-2000/296). Back

7   Note by Witness: Consultation with the National Housing Federation (NHF) at official level indicates that their view is the same as that of the Corporation, ie that there is no need for RSLs to be designated bodies under the Act (see footnote to Question 186). The matter will, however, be raised officially at the next meeting between the Corporation's Chairman and the Chair of the NHF. Back

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