If I mention 29 March 2019 and Halloween, the chances are you’ll respond with the B-word.
However, while Europe awaits the ghoulish Halloween Brexit resolution, with equal trepidation, Registered Providers (RPs) anticipate firecrackers when the Social Housing Regulator pronounces on Value for Money (VfM), as Guy Fawkes is being burned. Almost a year to the day prior to March Brexit Day, and crucially just days before year end, the Regulator issued a brand-new Standard which demands a fresh approach to VfM and a complete change in mindset.
Because of its timing, compliance and enforcement of the Standard is only now being properly tested in IDAs and in the current VfM financial reporting cycle. So, in preparation, the Regulator has gone to some lengths to explain to RPs its expectations and requirements of the new Standard.
During IDAs, the Regulator seeks evidence of Boards taking charge of the process and approving the approach to VfM, including delegation to the Executives, cascading VfM to every level of the organisation, to every part of its operations and throughout all its business processes.
As with any other aspect of good governance, the Regulator seeks that golden thread of the Vision and Mission being translated into SMART corporate objectives. And in turn, a VfM strategy, that includes bespoke efficiency targets matched to each of these objectives. Boards are then required to receive regular assurance from performance monitoring and reporting against these targets, with appropriate mitigation where performance falls short.
While VfM reporting in financial statements cannot possibly reflect the entirety of these new arrangements, in addition to the seven core VfM Metrics, RPs are also expected to report on further bespoke metrics that point to other key areas of operation. Each metric must be accompanied by tight narrative providing context to the business, commentary on performance, any remedial action required and comparison against a handpicked group of peers.
Evidence from last year’s accounts and, anecdotally, from subsequent IDAs, paint a picture of RPs misapplying, misunderstanding or underestimating the requirements of the new Standard. Some of this is consistent with our own observations from carrying out VfM Healthchecks© and VfM Framework Assurance© reviews, supporting IDAs, as well as speaking to groups of RPs around the country. The VfM approach adopted by RPs is somewhat patchy, with some examples of very good practice but many examples of the approach adopted falling short of Regulatory requirements.
We have also identified surprisingly common incidents relating to corporate objectives, upon which VfM strategy and approach are predicated. Often, RPs have drafted corporate objectives as a series of platitudes, without the specificity, targets or timeframe Boards require to assess whether the organisation has achieved them. The corollary of this is that, without SMART corporate objectives, Boards will be unable to determine whether the organisation has deployed its skills and resources in the most optimal way, let alone be in the position to choose between alternatives. This shortcoming could create an unexpected focus for the Regulator in upcoming months.
For RPs, the stakes will be much higher in 2019 – the Regulator has promised to enforce compliance with the 2018 VfM Standard far more rigorously. For organisation’s falling foul of the requirements this year, the consequences are likely to be more severe than receipt of warning letters the Regulator issued in 2018.
Our prediction for those RPs that have not yet developed a fresh new approach and the required change in mindset to VfM will be a bonfire of existing arrangements and awkward conversations with lenders and other stakeholders on the whys and wherefores of changes in the Regulator’s Governance ratings.
Joseph Carr, Director, ATFS