Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 80 - 88)



  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[3].

  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 visits—I think it fell short by more than 100—and 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 body—a charity, company or whatever—you 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 purposes—we do not think that happens—but 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 irregularity—and I suspect many of them do not—if 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

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