Agenda item

The Audit and Standards Advisory Committee has been provided with a report from i4B, with a cover report from the Council as i4B’s shareholder. At its last meeting the Committee requested that a more rounded view of risks was presented, with a clearer delineation between those risks being managed by the Council and those being managed by i4B.  

Martin Smith (Chair of i4B Holdings Limited) introduced the report which reflected the discussion that had taken place at the Audit Advisory Committee meeting in March 2018 and its emphasis was on the impact of the Council’s wholly owned investment company – i4B Holdings Ltd (i4B / the Company) on the Local Authority.

Mr Smith informed the Committee that developing the Company’s risk register had required a long period of time as it had been necessary to gain a clear understanding which risks related to i4B and which had an impact on the Council. Furthermore, the Company’s risk register had become more sophisticated as it contained information about the status of a risk (live or closed), while risks related to the operation of i4B had been included in the Council’s risk register. Members heard that Directors took risks seriously and that the register was reviewed at every Board meeting, e.g. on a monthly basis. Furthermore, recommendations from outstanding audits had been taken on board and an action plan for their implementation had been created (Appendix 4 on pages 65-69 of the Agenda pack).

In relation to the benefits for the local authority, Mr Smith commented that the Company operated at a loss, which was in line with its Business Plan, but it was expected to make a small surplus in the third year of its existence. It was noted that challenges related to rent collection and a slower rate of acquisition of properties had contributed to the Company being forecast to break even later than it had been originally anticipated (section five of the report on pages 32-34 of the Agenda pack). As far as non-financial benefits were concerned, Mr Smith said that Company had helped the Council to avoid costs associated with placing residents in temporary accommodation – as of June 2018, 123 Brent families had been placed in i4B properties which were in good condition and had a generally affordable rent (section six of the report on pages 35-36 of the Agenda pack).

Mr Smith directed the Committee’s attention to First Wave Housing Ltd (FWH) – the Council’s other wholly owned company – and said that given the similarities between FWH and i4B, it had been agreed that where applicable, the findings from audits for i4B would be implemented for FWH. Nevertheless, a schedule of internal audit arrangements had been developed. Two internal audits had been planned so far – Fraud Risk Assessment which would start during the week commencing 13 August 2018 and Responsive Repairs Process which was due to commence in second week of October.

The Committee heard that a fifth Director who had worked for a housing association had been appointed to i4B Holdings Ltd and First Wave Housing Limited which ensured that the Boards of both companies consisted of an odd number of members.

As the Independent Advisor to the Committee could not participate in this part of the meeting, it was suggested that the he could put his comments related to aligning the risks for the Company and the Council in writing so officers could consider them and prepare a response. In relation the Company’s funding, expenditure and possible loss, Carolyn Downs (the Council’s Chief Executive) noted that taking into account the level of financial risks to which the local authority was exposed, any financial risk for i4B was a risk to the Council.

The Committee commended the savings and the social value the i4B had brought to the Council and enquired about factors that had to be considered if the Company was to develop properties. Conrad Hall (the Council’s Chief Finance Officer) explained that the advice the company had received from independent property experts had been that it should be critical towards itself despite the good start it had made. The Council’s ambition of what the Company could achieve had been incorporated into its Business Plan which contained a substantial development programme. However, the Directors had to consider if such an initiative would be financially viable. Mr Smith added that developing properties could be a volatile venture and reminded Members that the Company had purchased 155 properties against a target of 200 by 31 March 2018 and 300 by 30 September 2018 and aimed to own 600 units by 2021. Directors had considered the potential for i4B to take on new developments part of Council schemes in the Borough. Mr Smith emphasised that it was important the Council considered i4B and FWH as a preferred option for delivering social housing. This led to a question whether this would be subject to competition from other providers. Ms Smith clarified that i4B existed to fulfil the Council’s objectives and could not take actions outside its Business Plan which had been agreed by Cabinet. Therefore, if the Local Authority was considering sites for development, it was logical to look at in-house options to deliver a scheme prior to approaching external enterprises. However, Directors acknowledged that this could not always be possible so there would be opportunities for external developers to get involved. However, in Mr Smith’s view, i4B and FWH should be treated as private sector entities which could compete on the open market.     

A Councillor who was in attendance at the meeting noted that property prices had dropped and were expected to reach the levels of 2010 by 2022. They questioned why the Local Authority was investing money in a scheme that could generate a loss. Mr Hall responded that even should the statement about property prices prove correct, if no changes to Housing Benefit allowances were made, the rent collected from i4B properties would be sufficient to service the Company’s debt and additional savings could be achieved by moving families out of temporary accommodation as it was cheaper for the Council to house them in i4B properties. Furthermore, the risk that prices could fall had been acknowledged, but historically such dips had not lasted long and the Local Authority could afford to be a long-term investor. Therefore, it could be possible to conclude that benefits associated with the Company outweighed the risks.

RESOLVED that:

(i)            The contents of the report on i4B Holdings Ltd and First Wave Housing Ltd, be noted; 

(ii)          The Committee noted:

·         The recent appointment of a fifth Board member to the i4B and First Wave boards

·         The updates to the i4B risk register and summary of key risks

·         The summary of financial and non-financial benefits of i4B’s operations

·         The update on recent i4B audit activity, and progress towards implementing previous audit recommendations

·         The update on First Wave Housing Limited’s planned programme of internal audits

(iii)         The Independent Advisor to the Committee be asked to put his comments related to aligning the risks for i4B and the Council in writing to allow officers to consider them and prepare a response.