Agenda item

To receive reports on the performance of i4B Holdings and First Wave Housing Ltd including their accounts and audits.

11.1       i4B Holdings

11.1.1   Report from Chair of i4B Holdings Ltd

This report provides the Audit and Standards Advisory Committee with an update on i4B Holdings Ltd.’s recent performance, accounts outturn, risk register and audit arrangements.

11.1.2   i4B Holdings External Audit Audit Findings

11.2       First Wave Housing Ltd

11.2.1   Report from Chair of First Wave Housing Ltd

This report provides the Audit and Standards Advisory Committee with an update on First Wave Housing Limited’s (FWH) recent performance, accounts outturn, risk register and audit arrangements

11.2.2   First Wave Housing Ltd External Audit Audit Findings

(These reports have been circulated as part of the republished agenda on 16 September 21)

Report on i4B Holdings Ltd

Martin Smith, Chair i4B Holdings, introduced a report providing an update on i4B Holdings Ltd.’s (i4B, the Company) recent performance, accounts outturn, risk register and audit arrangements.

In presenting the report the Committee noted:

·                i4B’s performance remained sound with them continuing to provide good quality homes at affordable rents for people who may otherwise have been in temporary accommodation including the addition of a Key Worker block to the portfolio.

·                The update provided in terms of operational performance, as detailed within section 6 of the report, with an ongoing issue identified in relation to void turnaround times.  In addition, rent collection levels remained below target, although the impact of the pandemic was recognised as a contributing factor in this respect. 

·                The risk update and i4B Risk Register, as detailed within section 7 and Appendix 1 of the report.  In terms of risk, it was noted that the risk profile for i4B was at the lowest level since the company had been established with the biggest risks currently relating to asset management systems and compliance, levels of contractor performance and high void rent loss due to extended turnaround times.  The company risk register along with business plan assumptions, mitigations and actions were subject to regular review and update.

·                i4Bs financial outturn for 2020/21 as detailed within section 5 of the report, which was in line with business plan expectations.

The Committee were then invited to ask questions, which are summarised below:

·                It was clarified that the issue around void performance related to the service being provided through the Council rather than that provided through i4B.  The cause related in part to difficulties being experienced in the nomination of clients to i4B properties as well as contractor performance in terms of the refurbishment and turnaround times.  Given the concerns identified confirmation was provided that if i4B remained dissatisfied with performance they would have the option of not retaining the Council’s contractor and seeking an alternative supplier to undertake the works.

·                Further details were sought on the adjustments made within the restated 2019/20 balance sheet statement and value of total current assets listed given the potential impact on the company’s cash flow.  In response members were advised that the adjustment related to the revaluation of the investment property portfolio which was required to ensure the properties were being recorded in the balance sheet at the market value they could realistically be sold for.  The previous valuation had overstated the value of the properties, although it was pointed out that the adjustment reflected an accounting issue agreed with the external auditors.  In addition, the valuation of total assets had been impacted by the rapid increase in i4B’s portfolio over recent years, meaning there would be differences in valuations as stock was purchased and brought into line with market prices at year end.  The position had also been further impacted by completion of the purchase of the key worker housing block at a discounted market value.

·                Further clarification was provided in relation to the value of total current assets, with members advised that given the objectives and social benefits being delivered through the company asset valuation would not be the principle measure of assessing the company’s performance and financial performance.  As the intention was not to sell the properties, the focus remained on cash flow in order to maintain the long term financial viability modelled around the assumptions within the Business Plan.

·                Following on, members felt it would be useful in future reports for a copy of the company’s cash flow statement to be provided, which was agreed by Martin Smith as Chair of the Board.

·                A question on refurbishment performance was also raised with members noting this remained outside of the Business Plan target.  In response members noted that the same contractor was used for the refurbishment programme as for voids and although performance was better on refurbishment than void turnaround, this was still an area requiring monitoring.

As no further issues were raised it was RESOLVED to note the report and update provided in relation to:

(1)     current operational and financial performance of i4B Holdings Ltd.

(2)     the i4B Holding Ltd Risk Register.

(3)     the i4B Holding Ltd accounts outturn for 2021/22.

(4)     the recent i4B audit in relation to the Service Level agreement with the Council and other third parties, as detailed within section 10 of the report.

8.2      Report on First Wave Housing Ltd

Martin Smith, Chair of First Wave Housing Ltd introduced a report providing an update on First Wave Housing Limited’s (FWH) recent performance, accounts outturn, risk register and audit arrangements.

Prior to considering the wider operational performance of the company, Peter Gadsdon (Strategic Director Customer & Digital Services and Council appointed Director on FWH Ltd) provided members with a brief outline, overview and update on the current remediation works identified in relation to the eight Granville Homes FWH blocks in South Kilburn.  The Committee noted:

·                The background to the original construction of the blocks in 2009 which comprised a total of 110 out of the 326 properties managed by First Wave Housing Ltd.  The properties had initially being purchased and managed through Brent Housing Partnership (BHP) and subsequently FWH Ltd’s portfolio.

·                Following transfer of the blocks a number of significant remediation works involving water penetration, cladding and windows had been identified relating to the original construction.  More recently a number of fire safety concerns had also been identified, which had required the introduction of a walking watch service pending installation of a communal fire alarm system being completed.

·                In an effort to address the issues identified, Ridge Consultants had been commissioned to carry out intrusive investigation works to assess the scope, costs and timescales of the necessary structural and remedial works required.

Martin Smith, Chair FWH Ltd, was then invited to comment and advised members of the determination within the Board, working with the Council as guarantor of the company, to address the issues and remedial works identified.  The estimated cost of the works identified, however, had been approx. £18.5m with the operational surpluses being generated by the company insufficient to cover the works identified, making the FWH Ltd Business Plan unviable.  As a result the Council (as Guarantor) and FWH Ltd had been required to explore options for funding the works whilst protecting the ongoing viability of FWH Ltd, balancing costs with the HRA and ensuring the works were undertaken as quickly as possible and with minimum disruption for residents.  The option recommended as a result had been to dispose of the blocks to the Housing Revenue Account (HRA) in order to enable the works to proceed.  Further detail was now being considered on the structure of the proposed transaction taking account of the relevant implications for tenants, FWH Ltd, the General Fund and HRA.  In terms of affected tenants, this would involve the social rented tenants becoming secure council tenants and leaseholder becoming a council leaseholder. The 25 intermediate tenants would become i4B tenants.

In terms of the next steps forward the proposed option was due to presented to the Council’s Cabinet in October 2021 for consideration and approval, with authority also being sought to undertake more detailed consultation with tenants on the potential disposal of the blocks

As further updates on the general operational and financial performance of the company the Committee noted:

·                The ongoing concerns highlighted in relation to the performance on voids, with members advised of the performance plan now in place with Brent Housing Management to address this issue and improve turnaround times which the Board continued to closely monitor.

·                The continuing strong performance in relation to rent collection, which remained above target and it was highlighted had been positively impacted by the support which had been made available during the pandemic through the Resident Support Fund established by the Council.

·                The financial outturn for 2020-21 as detailed within section 5 of the report and potential impact of the costs for the Granville Homes remedial works which had resulted in the effected blocks having to be revalued (from an accounting perspective) from £12.457m down to nil within the accounts.

·                The recent FWH audit in relation to the Service Level agreement with the Council and other third parties, as detailed within section 7 of the report.

The Committee were then invited to ask questions, which are summarised below:

·                A question was asked regarding the submission of the company accounts with confirmation provided that final sign off and submission was on progress to be completed within the required deadline.

·                The concerns identified by members regarding the extent of the works identified as required on the Granville blocks and impact on both the HRA given the recommended option identified and potential impact on tenants.  Whilst the efforts being made by FWH Ltd to find a final solution in order to address the problems, working with the Council as guarantor, were recognised members felt it would also be helpful for more detailed scrutiny of the proposals to be undertaken through one of the Council’s Scrutiny Committee’s, particularly in view of the ongoing financial pressures and impact on the HRA, which officers agreed to take forward.

·                Other issues highlighted in relation to the update on the Granville Blocks included the detailed arrangements for any stock transfer process and residents engagement along with the accounting of costs for the walking watch service.  Confirmation was provided that the costs of the service and installation of the communal fire alarm would be spread over both 2020/21 and 2021/22.

·                Confirmation was provided regarding the ongoing financial viability of FWH Ltd should disposal of the Granville Home Blocks be taken forward as currently proposed.

·                Members were also keen to explore whether any other similar issues as experienced with the Granville Home Blocks were likely to be identified in relation to the remaining FWH Ltd property portfolio.  In response, members were advised that no similar issues were expected to be identified, given the remaining type of properties within the portfolio.  The Board were, however, monitoring and seeking to constantly develop their approach towards asset management in order to identify and address any further liabilities identified.  In concluding on the Granville Home Blocks, the Chair assured members that in developing the option identified the Board had been seeking to ensure the works identified were undertaken as soon as possible, given the ongoing impact on tenants and in a way that sought to minimise the impact in terms of tenants, FWH Ltd, the General Fund and HRA.

As no further issues were raised the Chair thanked Martin Smith for attending the meeting in order to present both the i4B Holding Ltd and FWH Ltd reports and it was RESOLVED to note the report and update provided in relation to:

(1)     the current operational and financial performance of FWH Ltd.

(2)     the FWH Ltd Risk Register including the update provided in relation to the Granville Homes Blocks which it was AGREED should also be referred on to the Community & Wellbeing Scrutiny Committee for more detailed review of the option identified in terms of funding of the works and impact on the HRA.

(3)     the FWH Ltd financial outturn for 2021/22.

(4)     the recent FWH Ltd audit in relation to the Service Level agreement with the Council and other third parties.

8.3       i4B Holdings Ltd External Audit Findings Report

The Committee then moved on to consider the report from Grant Thornton (External Auditors) presenting the results of the audit undertaken in relation to the i4B financial statement and accounts for the year ended 31 March 2021. The Committee were advised that the reports presented were in draft pending completion of the final audit opinions.  Joanne Love (Partner – Grant Thornton) presented the report and the Committee noted:

·                Although to be finalised the audit work had been substantially completed and, subject to the outstanding matters being finalised as detailed in the report, the auditors had advised there were currently no matters of which they were aware that would require modification of their audit opinion.

·                The observations provided in respect of the significant risks identified within the Audit Plan, with further detail provided in relation to the adjustment noted during consideration of the i4B performance report in the financial statements to correct the prior period error relating to the valuation of investment properties.

·                The outcome of the going concern assessment, which had noted the ongoing reliance within the detailed business plan on the Council’s continued funding and support but had not impacted on the overall audit judgement.

·                The assessment of the internal controls and audit recommendations made in response.

The Committee were then invited to ask questions on the report, which are summarised below:

·                A question was raised around FRS 102 and the accounting classification of the Quintain Key Worker Housing block.  In response, members were advised that the assessment reached had been that the block should be accounted for as property, plant and equipment (PPE) for the provision of social benefit rather than as an investment property with the Committee aware of the complex nature of the accounting and audit judgements needing to be made given the objectives and role of the company.

·                An assurance was sought regarding the mitigations in place to ensure the accounting error identified in relation to the valuation of investment properties did not occur again.  Whilst recognising the concerns raised, members were advised of the technical nature of the error, how it had been identified and measures being taken to avoid anything similar in future.

As no further issues were raised it was RESOLVED to note the i4B Holdings Ltd Audit Findings report.

8.4      FWH Ltd External Audit Findings Report

Joanne Love then moved to present the report from Grant Thornton (External Auditors) detailing the results of the audit undertaken in relation to the FWH Ltd financial statement and accounts  for the year ended 31 March 2021.

In considering the report, the Committee noted:

·                Although to be finalised the audit work had been substantially completed and, subject to the outstanding matters being finalised as detailed in the report, the auditors had advised there were currently no matters of which they were aware that would require modification of their audit opinion.

·                The observations provided in respect of the significant risks identified within the Audit Plan.  The audit had included reference to the works and refurbishment costs identified in relation to the Granville Home Blocks in terms of the accounting requirement for valuation of social housing properties and investment properties and obligations on the company under FRS 102 and the Housing SORP.

·                The assessment of the internal controls and audit recommendations made in response.

·                The outcome of the going concern assessment, which had noted the ongoing reliance within the detailed business plan on the Council’s continued funding and support and need to address how the remedial works on the Granville Home Blocks would be funded.

The Committee were then invited to ask questions on the report, which are summarised below:

·                Further details were sought on the potential impact of the proposed transfer of the Granville Homes Block on the HRA and future operation of FWH.  Members were assured that a detailed evaluation of the available options had been considered resulting in the recommended way forward in terms of transfer of the Blocks to the HRA.  The paper due to be presented to Cabinet in October 2021 would set out in detail the various options considered along with the financial projections and associated risks, with the recommended transfer option having been assessed as the most beneficial to both the company and Council.  It was agreed that the Committee would be kept updated on progress once a final decision had been taken by Cabinet on the way forward.

·                Clarification was sought on the likely impact of any final decision made by Cabinet in relation to the transfer of the Granville Home Blocks on the treatment of the 2021 FWH accounts.  Given the imminent sign off of the accounts and timing of the Cabinet decision members were advised that this was unlikely to impact on sign off of the final statement of accounts and once any final decision had been made this would be effectively treated as a non-adjusting post balance sheet event.

As no further issues were raised the Chair thanked all those involved in preparing and presenting the reports for their effort and it was RESOLVED to note the FWH Ltd Audit Findings Report.