Draft guidance note 3: Sections 206-210A – Inquiry and extraordinary audit (regulatory power)
Updated 29 February 2024
Applies to England
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| Applicable | |
|---|---|
| PRP (For profit) | yes |
| PRP (Not for profit) | yes |
| PRP (Registered charity) | yes |
| Local authority | yes |
Type of power: regulatory power
Scope
1 - For local authorities, for profit registered providers and registered charities, the scope of the inquiry is limited to affairs relating to social housing.
2 - An inquiry may consider affairs of a body which at the material time was a subsidiary or associate [footnote 1] of the registered provider.
3 - An extraordinary audit of accounts may be required as part of an inquiry. In relation to local authorities and registered charities, it is limited to the extent to which the accounts relate to the provision of social housing.
4 - The regulator will meet the costs of the inquiry. Where the registered provider is a local authority, it may contribute to the regulator’s expenses under section 207(7) of the Act.
5 - The registered provider shall pay the costs of the extraordinary audit under sections 210(5) and 210A(4) of the Act.
When the regulator will use this power
6 - Section 206(1) of the Act sets out the grounds under which the regulator can hold an inquiry. These grounds are if the regulator suspects that:
- the affairs of the registered provider may have been mismanaged [footnote 2]
- the registered provider has failed to meet a standard under section 193, 194 or 194C of the Act; or
- there is a risk that, if no action is taken by the regulator or the registered provider, the registered provider will fail to meet a standard under section 193, 194 or 194C of the Act.
7 - If a registered provider meets the grounds for an inquiry, no additional grounds must be satisfied for an extraordinary audit. However, the following circumstances may indicate an extraordinary audit is required:
- there is a material misstatement in the accounts
- the accounts have been qualified
- a PRP’s solvency is in doubt
- there may have been a fraud; or
- auditors have raised matters of serious concern, for example in their management letter.
This is not an exhaustive list, nor shall it limit the way in which the regulator uses this power as there may be other circumstances where an extraordinary audit is considered necessary.
Process for using the power
8 - If the regulator is satisfied that the grounds under section 206(1) of the Act are met, it will produce a brief for the inquiry, which will set out:
- scope of the inquiry;
- information about the registered provider and its operations;
- matters to be investigated;
- timetable for the inquiry;
- powers, responsibilities and duties of the person conducting the inquiry;
- arrangements for reporting to the regulator including whether any interim reports are required;
- whether forensic auditors or other professional services are required; and
- any other relevant matters.
9 - The regulator will appoint someone to undertake the inquiry (‘inquirer’). The inquirer can be an individual or individuals. In deciding who to appoint as an inquirer, the regulator will:
- ensure the inquirer meets the requirements of section 206(3)-(4) of the Act which are that they are independent of the regulator. A person will be independent if they and the members of their family:
- are not members or employees of the regulator; and
- have not been members or employees of the regulator within the previous five years.
- consider the skills and experience required; and
- ensure that appropriate safeguards are taken to ensure that there are no conflicts of interest.
10 - The regulator will notify the registered provider of the inquiry.
11 - Where the regulator has decided to hold an inquiry, it will inform key stakeholders, including the Charity Commission where the registered provider is a registered charity.
12 - The inquirer will undertake the inquiry and may require persons including the registered provider to provide specified documents or information under section 208 of the Act.
13 - The regulator will oversee the activities of the inquirer.
14 - The inquirer may provide interim reports to the regulator and will be required to produce a final report on matters specified by the regulator.
15 - Once received, the regulator will consider the report and provide a copy to the registered provider. The regulator will consider next steps such as allowing the registered provider to respond to the report. Following this, the regulator will decide whether to exercise any enforcement or general powers.
16 - There are some powers which can only be exercised during or following an inquiry. These are:
- direct a transfer of management (sections 249 -250 of the Act)
- direct a transfer of land (sections 253-254 of the Act)
- making and executing an instrument of amalgamation for a Registered Society (section 255 of the Act)
- restrictions on dealings, including the powers: to suspend or remove an officer, employee or agent of a registered provider; to direct a bank not to part with money or security and to restrict payments and transactions (sections 256-265 of the Act)
- censuring a local authority employee (sections 269A -269B of the Act)
- directing Homes England and/or GLA not to provide financial assistance (section 100G of the Act and section 333ZG of the GLA Act 1999).
17 - The regulator will notify key stakeholders including the Charity Commission where the registered provider is a registered charity of the outcome of the inquiry.
18 - The regulator may publish any interim or final report in full or part, or a summary of such reports.
Extraordinary audit
19 - The regulator may as part of an inquiry require a registered provider’s accounts and balance sheets to be audited.
20 - The regulator will appoint a qualified auditor as defined in section 210(2) of the Act for PRPs, or a local auditor as defined in section 210A(1A) and (5) of the Act for local authorities (the ‘auditor’).
21 - Specific provisions set out at section 209 of the Act apply to registered charities, and specific provisions set out at sections 210A of the Act apply to local authorities.
22 - On completion of the audit, the auditor shall report to the regulator and the regulator will provide a copy to the registered provider. In conjunction with the inquiry, the regulator will consider the report and consider next steps such as allowing the registered provider to respond to the report. Following which the regulator will decide whether to exercise any enforcement or general powers.
Appeal process
23 - There is no statutory right of appeal or appeals’ process in accordance with the regulator’s Appeals Scheme.