Agenda item

To provide an update on i4B Holdings Ltd's and First Wave Housing Ltd,'s draft accounts, recent performance, risk register and recent audits

10.1(a)          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, having provided 386 homes to residents since its inception including the additional fully let 153 unit Key Worker block.

·               i4B’s financial position remained on track, with the business expecting to break even by 2022-23 and the possibility of a marginal surplus in line with their original expectation when the business was initially established that it would take approximately 5 years before surplus funds were accrued.

·               The update provided in terms of operational performance with the ongoing focus in relation to void turnaround times, repair and response times and target rent collection levels.

·               That two significant risks had been identified on the risk register:

Ø   Climate Change and Health & Safety Compliance. The risks related to climate change involved work being completed on properties to bring them up to energy efficiency bands B or C. There was concern that the cost of improvement could be unaffordable and threaten the viability of the company.

Ø   The second significant risk involved Health & Safety Compliance following a Compliance Audit that concluded that there were operational areas that were not working as well as they could.  As a result of concerns expressed the Board had already implemented a response including an immediate piece of work to gather evidence on each property in their portfolio and follow up on any areas of concern. A further longer term piece of work would be implemented by Brent Housing Management to improve safe and reliable systems, including record keeping to ensure compliance.

·               There were a range of external economic factors that could affect the future financial viability of i4B that included the rate of inflation, increased interest rates and affordability of properties. The Committee were advised that it would be necessary to find a balance of the economic factors in order to maintain i4B’s financial stability.

10.1(b)          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 2022. Stephen Dean, 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.

·                There were no significant risk areas in the report or any issues which needed to be brought to the Committee’s attention other than the auditors recognising the change in the accounting system mid-year to Oracle Cloud which had created some challenges in ensuring all the transactions had been correctly included. The auditors were satisfied that after reconciling the transactions to the financial statements that the transactions provided were complete.

·                A minor discrepancy has been picked up by the auditors with regards to a loan interest calculation in 2017/18 which totalled a difference of £114,000. This was not a material difference and therefore not adjusted in final balance sheet.

·                That the calculation of bad debt provision would be included in the final report.

10.2(a)          Report on First Wave Housing Ltd

Martin Smith then moved on, as Chair of First Wave Housing Ltd, to introduce the report providing an update on First Wave Housing Limited’s (FWH) recent performance, accounts outturn, risk register and audit arrangements.

·                The Committee were advised that First Wave continued to perform well with approximately 200 homes provided to Brent residents through First Wave Housing.

·                As a well established housing provider in Brent it was highlighted that the process of providing management services for First Wave properties was simpler than that of i4B with the structure of the organisation.

·                First Wave’s financial position remained strong due to regular operating profits, positive cash flow and high levels of rent collection.

·                Operational issues were in line with i4B and remained high on the Board’s priority to improve operational performance by re-vamping systems and processes.

·                It was noted that whilst the same issues around climate change and economic factors that applied to i4B were also true of First Wave Housing, the economic uncertainty was to a lesser extent than for i4B.

10.2(b)          FWH 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 2022. Stephen Dean, Grant Thornton, presented the report and the Committee noted:

·               The accounts were scheduled for signing off on the 30 September 2022.

·               There were no significant risk areas in the report or any issues which needed to be brought to the Committee’s attention other than the auditors recognising the change in the accounting system mid-year to Oracle Cloud which had created some challenges in ensuring all the transactions had been correctly included. The auditors were satisfied that after reconciling the transactions to the financial statements that the transactions provided were complete.

·               The final report would include any control matters that were of relevance.

Having considered each report the Chair invited Committee members to ask any questions or points of clarity they may have, with the following points of discussion summarised below:

·               In response to a query regarding what forecasting had been completed by i4B to try and understand the potential impact of economic uncertainty and how these concerns could be mitigated effectively, the Committee heard that i4B regularly undertook modelling to manage preparedness for potential risks.

·               The Committee were advised that i4B had a stock of borrowing capacity that had been secured at a good rate, therefore in the short term continued purchases were viable for approximately 30-40 additional properties under the current loan agreement. Additionally, in the event that interest rates continued to rise but property values fall, i4B would maintain a stable position to make further viable purchases.

·               In response to a Committee question regarding how long the council could continue to lend money to i4B given the multiple budgetary pressures, it was clarified that lending would still be possible, however interest rates would be higher. Ongoing work to secure loans at the best rates continued to take place parallel to the monitoring of the challenging financial climate.

·               The issue of void turnaround terms was highlighted as a concern due to the loss of revenue from empty properties and the hardships faced by those waiting for accommodation. It was confirmed that i4B were equally concerned with the issue around void performance, with multiple issues affecting the turnaround time that included labour shortages and supply chains coupled with the need to review some internal processes. These concerns were high on the Board’s priorities and discussions had taken place with Brent Housing Management who were leading with a remedial plan. It was re-iterated to the Committee that realistically it would take some time to embed new processes and see a significant positive impact on void turnaround times.

·               In relation to a Committee query regarding ownership and timescales on the action plan, the Committee were reassured that there would be timescales linked to management actions.

·               Further details were sought regarding why the collection rate for FWH was higher than that of i4B.  In response members were advised that it was not a performance management issue as both i4B and FWH rents were collected by the same team. It was felt there were three key differences in why collection rates were more challenging for i4B that included a higher percentage of i4B residents claiming Universal Credit, i4B rents were generally higher than FWH rents with many i4B tenants also likely to be a more vulnerable cohort.

·               The Committee heard that a plan had been devised to increase rent collections for i4B that included increased signposting to sources of support for residents struggling to pay their rent and the pending appointment of a Sustainability Officer whose sole role would be support residents to manage their rent and stay in their properties.

·               A final question was raised as to whether there were contingency funds to support the remedial works that properties would need to support improved energy efficiency as well as additional funds for freeholders which may require funding for their own remedial works for their buildings that homed i4B units.  The Committee were advised that there was provisional funding set aside for this, however this had not been called upon by freeholders as yet.  In terms of the broader picture the Board noted that climate concerns would be a sector wide issue moving forward and as such preparedness was vital. i4B had responded to this as a risk as part of their business plan modelling, findings from this concluded that to achieve an energy efficiency rating of B it was likely that each property would need between £30-40k of improvements.  The costs involved would have implications on a capital programme for energy works going forward and could affect the purchasing of additional properties as further considerations would be given to potential costs involved in ensuring energy efficiency.

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:

(1)      To note the performance update reports provided in relation to both i4B Holding Ltd and FWH Ltd and continued focus required on the key risks and performance issues identified.

(2)      To note both the i4B Holdings Ltd and FWH Ltd Audit Findings report.