Decision

Regulatory Notice: Ash-Shahada Housing Association Limited (23 July 2021)

Updated 23 July 2021

Applies to England

RSH Regulatory Notice

• Provider: Ash-Shahada Housing Association Limited
• Regulatory code: C3843
• Publication date: 23 July 2021
• Governance grade: N/A
• Viability grade: N/A
• Reason for publication: Economic Standards
• Regulatory route: Reactive Engagement

Other providers included in the judgement

None

Regulatory Finding

The regulator has concluded that:

a) Ash-Shahada Housing Association Limited (ASHA) is non-compliant with the governance elements of the Governance and Financial Viability Standard. It has failed to ensure that it has effective governance arrangements in place that deliver its aims, objectives and intended outcomes for tenants in an effective, transparent and accountable manner.

b) ASHA has failed to demonstrate that it has an appropriate, robust and prudent risk and control framework in place.

c) ASHA has not been able to demonstrate that it is managing its affairs with an appropriate degree of skill, independence, diligence, effectiveness, prudence and foresight.

The Regulator’s Findings

The regulator has concluded that it lacks assurance and evidence that ASHA is compliant with the governance elements of the Governance and Financial Viability Standard.

Following investigations, the regulator has found that:

• there are inadequate risk management processes and internal controls;

• the board has failed to manage its affairs with an appropriate degree of skill, independence, diligence, effectiveness, prudence and foresight; and

• the board has failed to ensure that any arrangements it has entered into do not inappropriately advance the interests of third parties.

ASHA has experienced rapid growth since 2018 following its diversification and expansion into the provision of supported housing in Birmingham resulting in it providing more than three thousand units of this type in properties of varying size. ASHA has reported in its most recent Statistical Data Return (SDR) that these units are non-social housing which means they are not ‘low cost rental accommodation’ as defined by section 69 of Housing and Regeneration Act 2008.

The model for this type of housing operated by ASHA is that it enters into short-term leasing arrangements for properties with a number of third parties and therefore has landlord responsibility for the tenants of those properties. These third parties (which include both private landlords and managing agents) then also deliver the landlord and management services on ASHA’s behalf under an agreement. The evidence seen by the regulator is that the vast majority of these third party organisations are profit-making entities. ASHA has also appointed a managing partner to provide an overarching housing management service. Some of these third parties with whom ASHA enters into leasing and management arrangements have themselves leased the properties from a range of head landlords.

With regards to the operational performance of its non-social housing units, ASHA is provided with management information by third party managing agents and its managing partner. This information is required by ASHA to monitor how it is meeting its legal landlord responsibilities and to inform the amount of Housing Benefit it claims for on behalf of its tenants. We lack assurance that there is an effective system in place to ensure that ASHA has sufficient assurance on the adequacy of information provided by third parties, and therefore that the risks of this operational model are being adequately managed. As a result, we do not have assurance that ASHA has an effective risk and control framework and is managing its affairs with sufficient independence, due diligence, prudence and foresight.

The model operated by ASHA means that it transfers a very significant amount of the rent and service charge income it receives to third parties on an ongoing basis. The evidence we have received from ASHA shows that payments made to third parties are higher than the figures contained in the contractual agreements. In addition to payments made by ASHA to third parties, tenants are required to pay service charges ineligible for Housing Benefit direct to their respective third party managing agent. This service charge includes an amount to cover the support they receive – which based on the evidence provided is one and a half hours per tenant per week. The regulator does not have assurance ASHA has effective systems in place to give it sufficient oversight of these payment arrangements. It is the regulator’s judgement that ASHA does not adequately reconcile the payments made to third parties with evidence that the services are being provided to its tenants.

The Governance and Financial Viability Standard requires registered providers to ensure that any arrangements they enter into do not inappropriately advance the interests of third parties, or are arrangements which the regulator could reasonably assume were for such purposes. The evidence we have received from ASHA demonstrates a weak contracting environment and inadequate monitoring and oversight of very significant sums of money which are transferred to third parties on an ongoing basis. This risks financial abuse with third party managing agents not providing services being claimed or inappropriate services and housing management practices. The regulator has not received sufficient assurance that the arrangements entered into by ASHA are not inappropriately advancing the interests of third parties.

A lack of effective board oversight in these areas is a fundamental failure of governance and operational control, and so we conclude that ASHA is failing to manage its affairs with an appropriate degree of skill, independence, diligence, effectiveness, prudence and foresight.

ASHA has committed to working with the regulator to address the issues outlined in this Regulatory Notice and return to compliance with the regulatory standards.

Based on the most recent SDR, ASHA had fewer than 1,000 units of social housing and is therefore classed as a small provider. The regulator does not publish regulatory judgements for providers which fall into this category. Instead, in the interests of transparency, the regulator publishes a Regulatory Notice where it has evidence that a small registered provider is not meeting the regulatory standards. This Notice is published under those arrangements.

Section 220 of the Housing and Regeneration Act 2008 states that the regulator’s regulatory and enforcement powers may be used if a registered provider has failed to meet a standard under section 194 of the Act. The regulator is considering what further action should be taken, including whether to exercise any of its powers.

About the provider

ASHA was registered in March 1989 and designated as a not-for-profit provider. It is a Community Benefit Society.

In its 2021 SDR, ASHA reported that it owned and managed 200 units of general needs social housing units and 3,143 units of non-social housing.

About our Regulatory Notices

Regulatory notices are issued in response to an event of regulatory importance (for example, a finding of a breach of the Rent Standard or of a consumer standard that has or may cause serious harm) that, in accordance with its obligation to be transparent, the regulator wishes to make public. More detail about Regulatory notices is set out in ‘Regulating the Standards.’

Key to Grades

Governance:

• G1 (Compliant): The provider meets our governance requirements
• G2 (Compliant): The provider meets our governance requirements but needs to improve some aspects of its governance arrangements to support continued compliance
• G3 (Non-compliant): The provider does not meet our governance requirements. There are issues of serious regulatory concern and in agreement with us the provider is working to improve its position.
• G4 (Non-compliant): The provider does not meet our governance requirements. There are issues of serious regulatory concern and the provider is subject to regulatory intervention or enforcement action.

Viability:

• V1 (Compliant): The provider meets our viability requirements and has the financial capacity to deal with a wide range of adverse scenarios.
• V2 (Compliant): The provider meets our viability requirements. It has the financial capacity to deal with a reasonable range of adverse scenarios but needs to manage material risks to ensure continued compliance.
• V3 (Non-compliant): The provider does not meet our viability requirements. There are issues of serious regulatory concern and, in agreement with us, the provider is working to improve its position.
• V4 (Non-compliant): The provider does not meet our viability requirements. There are issues of serious regulatory concern and the provider is subject to regulatory intervention or enforcement action.