Why we are engaging with Fairfield
We are engaging with Fairfield about its governance, financial management and its partnership proposals with Kingdom Housing Association (Kingdom).
COVID-19 has significantly impacted the services provided by social landlords in 2020 and will continue to influence how services are provided in 2021. We will continue to monitor, assess and report upon how each landlord is responding and we will keep our regulatory engagement under review so that we can continue to respond to the challenges of COVID-19.
In July 2018 Fairfield commissioned an independent investigation into serious allegations of potential misconduct and mismanagement. It co-opted two independent people to support it to manage and oversee the investigation.
In November 2018 the investigation highlighted a number of serious concerns including the inappropriate receipt of payments and benefits and systemic failures of governance amounting to mismanagement. The governing body had failed to establish and oversee an effective system of internal controls and to exercise the necessary controls to allow it to determine whether Fairfield was complying with the Regulatory Standards of Governance and Financial Management. This included widespread failure to comply with policies, procedures, financial regulations and delegated authorities for spending. It also found that there had been poor procurement practices and failures to manage conflicts of interest and to uphold the standards of conduct expected of Registered Social Landlords. These governance failures contributed to the potential inappropriate use of Fairfield’s funds and resources.
Fairfield was not complying with the Regulatory Standards. There were serious and widespread failures across all Standards. Fairfield has engaged openly and constructively with us. However, it did not have the management and leadership capacity to address the serious risks and issues it faced at that time. The governing body accepted that it needed expert support to act on the investigation findings and recommendations and to achieve compliance with the Regulatory Standards.
We considered that the serious failures in Fairfield’s governance and financial management posed an immediate risk to the interests of its tenants and to the reputation of Registered Social Landlords. So in December 2018 we used our statutory powers under section 58 of the Housing (Scotland) Act 2010 to appoint a manager and under section 65 to appoint seven members to the governing body to address the risks and ensure that Fairfield’s financial and governance affairs are managed to an appropriate standard.
One of the key elements of its recovery strategy was the delivery of a shared services arrangement with Kingdom which provides Chief Executive services, governance and organisational support, financial and payroll services and a strategic asset management service. The shared services arrangement came into effect on 1 May 2020.
In September 2020, Fairfield’s members also agreed proposed changes to its constitution which meant that Fairfield converted from a fully mutual Co-operative into a registered charitable housing association in November 2020.
Fairfield has been working with Kingdom to embed the shared service arrangements and deliver the remaining actions from its improvement action plan to ensure that it is able to comply with the Regulatory Standards of Governance and Financial Management. This included a review of its constitutional options and a more formal partnership arrangement with Kingdom.
We reviewed our engagement strategy for Fairfield in May 2020. We were satisfied that the remit of the statutory manager had been met and we ended the appointment of the statutory manager with effect from the end of May 2020. We extended the seven appointments to the Board until September 2020 to assist Fairfield in implementing its improvement plan and to fully address the areas where it was not compliant with regulatory standards.
In light of the progress of the shared service arrangements with Kingdom, in September 2020, we decided to reduce the number of statutory appointees on the Board from seven appointees to four.
The reduced but continuing level of support from the existing four appointees has been critical to ensure the governing body has the necessary experience, expertise and resilience as it has embedded the shared services arrangements with Kingdom. The support of the appointees is necessary to ensure that Fairfield can deliver the necessary actions remaining in the governance and financial management improvement action plan.
Fairfield continues to make good progress and work constructively with us and Kingdom.
Fairfield carried out a strategic options review and has identified a Transfer of Engagements to Kingdom as the best option to ensure it meets Regulatory Standards and protect the interests of tenants and other service users.
Fairfield and Kingdom are now developing a detailed business case for the Transfer of Engagements. Fairfield has made a separate appointment in respect of a Transfer Advisor to provide the necessary skills and advice on the transfer to Kingdom. It has also appointed an Independent Tenant Advisor to support the necessary tenant consultation and ballot.
The four statutory appointments to the Board were mostly recently appointed until March 2021. We have therefore again reviewed Fairfield’s progress and decided that these four appointments will now continue until January 2022 when we will again review our engagement strategy.
Statutory Appointees’ Remit
The appointees’ remit is to:
- continue to address the risks to Fairfield’s tenants and service users’ interests arising from the failure to comply with Regulatory Standards;
- support Fairfield to ensure that it complies with Regulatory Standards; and
- support Fairfield to deliver the Transfer of Engagements to Kingdom Housing Association.
What Fairfield must do
- update us on a monthly basis about its progress in respect of the shared services with Kingdom and its progress towards implementing its governance and financial management improvement plan;
- keep us informed as it develops its proposals for a transfer of engagements to Kingdom and the outcomes of its consultation with tenants;
- send us the final business case in support of its proposals for a transfer of engagements to Kingdom;
- ensure that it meets statutory and regulatory requirements in relation to the proposed transfer of engagements particularly in relation to tenant consultation; and
- send us when available its monthly governing body papers and minutes.
What we will do
- review Fairfield’s progress in implementing the shared services agreement and improvement plan;
- liaise with Fairfield as it develops its proposals for the transfer of engagements and seek assurance that tenants interests are protected; and
- update our published engagement plan in light of any material change to our planned engagement with Fairfield.
Fairfield must provide us with the following annual regulatory returns and alert us to notifiable events as appropriate:
- Annual Assurance Statement;
- audited financial statements and external auditor’s management letter;
- loan portfolio return;
- five year financial projections; and
- Annual Return on the Charter.
It should also notify us of any material changes to its Annual Assurance Statement, and any tenant and resident safety matter which has been reported to or is being investigated by the Health and Safety Executive or reports from regulatory or statutory authorities or insurance providers, relating to safety concerns.