Examination of Witnesses (Questions 120
MONDAY 13 NOVEMBER 2000
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
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?
(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?
(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
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.
(Mr Hennessy) We report this to our Board
directly every year, how many frauds, so we can get that information
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.
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.
(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, holisticif that is a permitted word in front
of the Committeethan 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.
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,
(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
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
Note: See Appendix 1, page 17 (PAC 1999-2000/296). Back
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