Decision

Regulatory Notice: Concept Housing Association CIC (23 July 2021)

Updated 23 July 2021

Applies to England

RSH Regulatory Notice

• Provider: Concept Housing Association CIC
• Regulatory code: 4780
• 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) Concept Housing Association CIC (Concept) is non-compliant with the governance and financial viability 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) Concept has failed to demonstrate that it has an appropriate, robust and prudent business planning and risk and control framework in place. Concept has also not been able to demonstrate that it is managing its affairs with an appropriate degree of skill, independence, diligence, effectiveness, prudence and foresight.

c) Concept has been unable to demonstrate how it can ensure its viability is maintained due the lack of a current business plan.

The Regulator’s Findings

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

Following investigations, the regulator has found:

• Significant weaknesses in Concept’s business planning framework;

• Inadequate risk management processes and internal controls;

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

• That Concept has failed to demonstrate that the arrangements it has entered into do not inappropriately advance the interests of third parties.

Since 2019, Concept has grown rapidly following its diversification and expansion into the provision of supported housing in Birmingham, Bradford and other areas. From owning five general needs properties in March 2019, Concept has grown to providing more than 5,000 units of accommodation. Concept owns or manages 104 units of general needs social housing and classifies the supported housing it operates as non-social housing. Concept 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 the Housing and Regeneration Act 2008. The model for this type of supported housing operated by Concept means that whilst it has landlord responsibility for its tenants, it enters into short-term leasing arrangements with a significant number of third parties for properties. These third parties then also deliver the landlord and management services on Concept’s behalf under an agreement. Support services for tenants are also provided by the same third parties (except in the case of the Bradford properties, where support is provided directly by Concept).

It is the regulator’s judgement that Concept’s governance framework has failed to develop at the same pace as its growth and is inadequate for an organisation of its current size. In the last 12 months, Concept has started to develop and introduce new governance arrangements, but these are underdeveloped and yet to be embedded. At the time the work to develop governance arrangements was started Concept was already providing in excess of 3,000 units. Concept has reported in its annual accounts, for year-end August 2020 (published in June 2021), that there are a number of areas of non-compliance with the standards and its chosen code of governance.

During the development of its governance arrangements, Concept identified the need to strengthen its board. While it had made six appointments, four of those members have subsequently resigned from the board, so there remain gaps in the skills and experience of the board. Concept has since recruited a director, who is also chair, on an interim basis. Concept has been unable to demonstrate that the risks associated with its model are being appropriately managed and mitigated. There has been an absence of key information supplied to the board. Evidence seen by the regulator has identified occasions where the board had not been fully informed, or had not been requested to make decisions, on material events. Taking into account the weaknesses in Concept’s governance arrangements and current board membership, the regulator does not have assurance that the board is managing the organisation with sufficient skill, due diligence, effectiveness, prudence and foresight.

Within the last year Concept has developed systems to carry out quarterly property inspections of its properties and regular audits of the support provision. However, from the evidence reported, the performance in quarterly inspections and audits of the support provision has been poor. High numbers of properties have failed property inspections and issues have been identified with support provision with more than half of the third parties providing support. While some information has been reported to the board, the information is limited and has lacked detail about the action taken to improve. As all properties have been taken into management within the last two years, and many properties within the last year, the poor performance demonstrates that the due diligence undertaken before leases were agreed was inadequate. The regulator has found that the evidence indicates a failure of the internal control framework.

Concept has been unable to provide the regulator with a business plan that is based on appropriate and reasonable assumptions. Concept’s board recognises a review of its business plan is required and has commissioned a review of underlying key assumptions. However, until this review is complete the board is unable to provide a business plan that it can rely upon, demonstrating Concept’s ongoing viability with the capacity to manage a range of reasonable scenarios. The regulator therefore concludes that Concept is unable to demonstrate that it meets the viability outcomes of the Governance and Financial Viability Standard.

The model operated by Concept means that it transfers a very significant amount of the rent and service charge income it receives to third parties on an ongoing basis. Concept does not have an adequate system or oversight of the money given to third parties. In addition to payments made by Concept 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. The regulator does not have assurance Concept has effective systems in place to give it sufficient oversight of these payment arrangements.

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. Concept has not provided evidence of how it monitors and has oversight of the 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 Concept are not inappropriately advancing the interests of third parties.

Based on the most recent SDR, Concept 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.

About the provider

Concept was registered in October 2013 and is designated as a not-for-profit provider. It is a Community Interest Company.

In its 2021 SDR, Concept reported that it owned and managed 104 units of social housing and 5,360 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.