Examination of Witnesses (Questions 80
WEDNESDAY 2 MAY 2001
80. There are causes for concern and some of
them must surely be financial?
(Dr Perry) Some of them may be financial but it is
axiomatic that they are.
81. If we also look at paragraph 3.11 on page
23, it talks about the total number of RSLs being observed or
supervised in March 2000 which, again with my elementary mathematics,
would suggest on the same rationale as I was trying to present
that it could be as high as £200 million-worth of public
money each year at risk.
(Dr Perry) If one were to make a connection between
being under observation and being a financial risk. A large number
of the cases which are re-classified after validation would, in
fact, be concerned with things like tenants' services, the quality
of the repair service, not necessarily anything to do with financial
regulation at all.
82. Is it a cause for concern that you do not
immediately target them for visitsI think it fell short
by more than 100and also that a significant proportion
of the accounts are not made available for assessment in the timescale
which is laid down?
(Dr Perry) On the issue of validation, over the four-year
period there has been a shortfall of about 135, something like
that, and clearly that is a reflection of the pressure that we
have had on our staff and resources, which is part of the reason
why the DETR and Treasury were very generous to us and gave us
quite a large uplift in our resources while we increased the regulation
staff by 23 per cent over a couple of years. Also managers have
to juggle resources and although there has been a shortfall of
that order in validation visits there have been nearly 80 extra
investigation visits carried out over the time which have been
done by the same people. So it is where the balance falls. But
clearly it would have been nice to have met our targets. There
is no point setting targets if you do not want to meet them. Our
difficulties in that respect were recognised by the DETR and the
Treasury when the Comprehensive Spending Review gave us our settlement.
The second point that you made has just slipped my mind.
83. The availability of accounts.
(Dr Perry) As I said to Mr Steinberg, we do not view
those with complacency because if you are any kind of bodya
charity, company or whateveryou should put your accounts
in on time when you are supposed to to Companies House or the
Charity Commission or to ourselves. It is true that 33 per cent
have not given them in by six months after the closing date but
if you extended the period by an extra week then after six months
and one week an extra 10 per cent of RSLs have submitted, so we
do get the very large majority in by six months and one week.
Of the remainder, as I said previously, they tend to be relatively
small and sometimes very small. I had a case that landed on my
desk the other day, an appeal from a housing association with
two properties which was a charity set up for "worthy widows
in Suffolk". They had two properties and they were struggling
under our regulatory regime. We are going to assist them to de-register
because a lot of those associations should not be registered with
us at all.
84. Nevertheless it is concerning that the NAO
are concerned. In 3.12 it says: "We were concerned that many
RSLs listed as satisfactory might have warranted re-classification
as observation or supervision cases had they been visited and
their returns been independently validated."
(Dr Perry) If I could draw a distinction between visits
and validation, the NAO made some very valuable points in the
Report which we greatly welcome about the need for arm's length
validation of the information which the associations have put
up to us and we are going to take steps to consult and it will
very likely lead to a requirement that information be validated
either by internal auditors or external auditors before it comes
to us. We do agree with the C&AG that that would be a very
useful step to take.
85. You mention resources and I want to come
on to that in a second, but I am now looking at page 49 which
is Part B of Appendix 6. If we look at question 5, it shows that
many RSLs are diversifying into new business activities such as
renting at market rate, involvement with local regeneration initiatives,
and providing student accommodation for universities and colleges.
What assurances can you give the Committee that public money,
which is being used to provide social housing as intended by Parliament,
is not in fact being siphoned off by the RSLs?
(Dr Perry) I can give you that assurance because it
is just not allowed for money which comes round through the development
programme to be used for those other purposes. The risk, which
is often spoken about, is whether failure in one of these new
activities would flow back into the main structure of social housing,
so we are less concerned with, if you like, the actual use of
public money for inappropriate purposeswe do not think
that happensbut clearly for any individual RSL an unwise
diversification, one they cannot handle, one on which they have
not assessed the risk properly, could kick back and affect the
strength of their core business which is providing social housing.
86. I am struck by the phrase "it is not
allowed" and I am just wondering whether even if it is not
allowed what precautions you have to ensure that it does not happen
or it could not happen?
(Dr Perry) The external auditors to an RSL are obliged
to follow through the patterns of funds to see that they have
been used for proper purposes.
87. My final question is about resources. The
Report says in paragraph 4.5 that your administrative resources
are set to rise from £30 million in 1999-2000 to £34
million, which I am sure is a welcome increase, of somewhere in
the region of 13 per cent over the next two years. Given the voluntary
transfer programmes, your workload is expected to increase by
45 per cent in that same period. Will you have sufficient resources
to handle the increased workload?
(Dr Perry) We are confident that the level of resource
that we now have will allow us to cope with that workload. If
we start to see indications that it is not I would be back to
the DETR like a shot because this is a high priority for the Department
as well and they want to see us do this properly.
Mr Campbell: Thank you, Chairman.
88. Can I make two comments before we bring
this to a close. Firstly on this matter that was raised by Mr
Campbell about transferring funding one way or another to supporting
diversification, I can tell you now that I do not think that the
standards of accounting in housing associations are good enough
to protect against that. It does not matter whether the auditors
have some notion of irregularityand I suspect many of them
do notif the accounting standards are not good enough and
the information system is not there they will not be able to tell.
One example for you. If the main business, as it were, of housing
associations is carrying the overheads of the housing associations,
that in itself is a subsidy to diversified activities, let alone
if there are losses. Second to that, you raised this question
of "moral hazard" earlier. You said that there were
14 cases where there had been "lifeboat" operations
(Dr Perry) 13 in the last four years.
Chairman: That in itself may well lead to dilution
of risk management in supporting, effectively, loss-making activities,
and I would have to say that I would have some doubt that it would
not be a better base to allow some of the commercial lenders to
take their hit, if needs be by allowing them to go bankrupt and
then taking them back in on that basis. I rest those points with
you although we will no doubt deal with them in some detail in
our Report when we come to it. Thank you very much for coming
in and answering our questions, which is terrifying in some ways.
The Committee will now go into closed session for one minute.
3 Note by Witness:Sentence should be amended
to read "Some of them may be financial but it is not axiomatic
that they are". Back