Statutory intervention at Ruchazie Housing Association

Published

17 December 2021

Updated

17 December 2021

About this report

1.

This report sets out the reasons for our statutory intervention in Ruchazie Housing Association (‘Ruchazie’) and the outcome of that intervention.

2.

We ended our statutory intervention on 30th September 2020 when we concluded that Ruchazie was compliant with regulatory requirements. We delayed publication of this report due to the COVID19 pandemic.

About Ruchazie

3.

Ruchazie was registered as a social landlord in 1993. It owns and manages 225 homes and provides factoring services for one property.  It is a registered charity and employs five people. 

4.

Ruchazie’s turnover for the year to 31 March 2021 was £1.3m. Its debt per unit was £10,630.   

Our regulatory requirements

5.

Before February 2017 we had low engagement with Ruchazie.  This means that the information it submitted to us did not highlight risks to tenants’ interests.  On that basis, we did not need additional contact with Ruchazie unless other events arose.  We required Ruchazie to submit Annual Returns on the Charter (ARC), audited annual accounts, auditor’s management letters, loan portfolio information and five year financial projections.  We also required it to tell us about notifiable events; these are events which may put at risk:

  • tenants’ and service users’ interests or safety;
  • the RSL’s financial health, public investment, or lenders’ confidence; or
  • the good governance and reputation of an individual RSL or the RSL sector.

6.

Our then Regulatory Framework contained six Regulatory Standards of Governance and Financial Management (‘’the Regulatory Standards’’) for RSLs to comply with:

  1. The Management Committee to lead and direct the RSL to achieve good outcomes for its tenants and other service users.
  2. The RSL is open about and accountable for what it does. It understands and takes account of the needs and priorities of its tenants, service users and stakeholders. And its primary focus is the sustainable achievement of these priorities.
  3. Management of resources by the RSL to ensure its financial well-being and economic achievements.
  4. Decisions based upon good quality information and advice which identifies and reduces the risks to the RSL's purpose.
  5. The RSL to conduct its affairs with honesty and integrity.
  6. The Management Committee and senior officers to have the skills and knowledge they need to be effective.

Before our intervention

7.

During 2016 Ruchazie informed us that its senior officer intended to retire. Ruchazie carried out an initial strategic options appraisal which it then enhanced after we had raised significant concerns about the quality of the outcome report.

8.

In February 2017 we raised our level of engagement with Ruchazie to medium due to our engagement with it about the retirement of its senior officer and our concerns about its options appraisal. We published an engagement plan which said that the senior officer intended to retire.

9.

In June 2017 Ruchazie appointed an interim senior officer who would split their role with managing housing services. The interim would also share the senior officer role with the current senior officer until the latter’s retirement.

10.

In July 2017 we were informed by Ruchazie that its current senior officer had been made redundant rather than retired. The senior officer received a redundancy payment. From our previous engagement Ruchazie had given us no indication that it had intended to do this.

Our intervention

11.

We had serious concerns about the governance of the decision-making process that had led to the change to redundancy of the senior officer rather than retirement as Ruchazie had previously indicated. When we asked Ruchazie’s governing body about this it was unclear how redundancy rather than retirement had occurred. It failed to provide any explanation as to why a redundancy payment had been made and why that represented good value for money for Ruchazie’s tenants.

12.

We required to understand the apparent lack of effective governance or internal control around the payment and why we had not been provided with complete and accurate information by Ruchazie. So, in September 2017, we asked Ruchazie to carry out an independent investigation into the circumstances of the senior officer’s departure.

13.

The independent investigation reported in February 2018 and found the following:

  • the governing body failed to recognise and manage personal conflicts of interest;
  • there was no evidence of any of the usual components of a redundancy situation such as a formal notice of redundancy;
  • the governing body had not sought or received any specialist external legal advice on the departure process, and the advice it received came via the senior officer who had a clear conflict of interest;
  • governing body members did not appear to understand their roles and in particular did not understand their role in making the redundancy decision;
  • the governing body did not demonstrate effective control of the decision to implement redundancy;
  • the Association paid for a redundancy which all parties originally understood to be a retirement;
  • wider weaknesses in governance such as a lack of informed decision making, poor record keeping and inappropriate management of delegated authority; and
  • that there was a near total absence of quality and clear governing body papers and minutes. In many, if not most, examples there was no evidence of any papers or minutes for key decisions.

 

Why we intervened

14.

We met the governing body in March 2018. It told us that it accepted the findings and recommendations from the independent investigation.

15.

The governance and financial management weaknesses identified in the independent investigation into the senior officer’s departure posed a serious threat to the interests of Ruchazie’s tenants. The findings showed serious weaknesses in the governance of the decision making process for the senior officer’s redundancy. The findings also provided us with evidence of widespread non-compliance with the Regulatory Standards leading to poor quality decisions which put tenants’ interests at risk. We had concerns about Ruchazie’s capacity to address the weaknesses without support.  We therefore decided that it was proportionate and appropriate to appoint a statutory manager under section 58 of the Housing (Scotland) Act 2010 (‘the 2010 Act’), and to appoint four governing body members under section 65 of the 2010 Act. 

16.

The statutory manager’s remit was to:

  • undertake a strategic options appraisal including a review of Ruchazie’s governance and financial management against the Regulatory Standards. The review was to include an assessment of Ruchazie’s capacity to become a well governed RSL and the timescales and financial commitment to achieve this;
  • ensure that Ruchazie’s stakeholders, including its tenants and funders were kept up to date with progress on addressing the issues that led to intervention; and
  • support the governing body to ensure that Ruchazie meets the Regulatory Standards, including the management of its pension liabilities.

17.

The governing body appointees were:

  • Tom Brock, Governing Body Member, Parkhead Housing Association appointed 16 April 2018 to 29 March 2019;
  • Keith Anderson, Chief Executive, Port of Leith Housing Association (retired December 2019) appointed 16 April 2018 to 30 April 2020;
  • Julie Cosgrove, Chief Executive, Caledonia Housing Association appointed 16 April 2018 to 30 September 2020; and
  • Bill Banks, Chief Executive, Kingdom Housing Association appointed 16 April 2018 to 30 September 2020.

18.

The governing body appointees’ remit was to:

  • assist and support the governing body to discharge its role effectively and ensure that Ruchazie meets the Regulatory Standards;
  • support the statutory manager to deliver his/her remit;
  • help develop and implement an action plan which:
    • addressed the serious governance issues, as set out in the independent investigation report; and
    • addressed any issues arising from the strategic options appraisal, and governance and financial management review.

19.

Ruchazie worked co-operatively with us and the statutory appointees. In January 2019 we changed the statutory manager to help accelerate the strategic options appraisal work and governance improvements. Our decision was also informed by feedback from Ruchazie.  Ruchazie had by this point started work on better understanding the condition of its stock, and began making improvements to address governance weaknesses that required to be tackled as a matter of urgency.  It had also made a start to the options appraisal work, improved internal capacity in its finance function and engaged with lenders after they had given notice of a possible loan agreement breach through the issue of “reservation of rights” letters.

20.

One of the statutory appointees left in March 2019, and we decided not to replace the appointee given the progress Ruchazie had made. We decided to extend the other statutory appointments until December 2019 because a full review of governance and financial management at Ruchazie and improvement plan, though imminent, had still to complete. The strategic options appraisal also had yet to complete.  Ruchazie still needed support to progress these key tasks.

21.

The review of governance and financial management completed in April 2019. The governance review found that Ruchazie did not comply with Regulatory Standards 1, 3, 5 and 6.

22.

Ruchazie’s non-compliance included:

  • the lack of a business plan or strategic planning framework. It was unclear whether these had ever been in place at Ruchazie;
  • the lack of a performance management framework for the Management Committee to exercise oversight and control;
  • no annual appraisal of Management Committee members having been carried out and there being no process in place to assess the ongoing effectiveness of Management Committee members with more than nine years service;
  • the lack of a framework to equip Management Committee members with the knowledge and confidence to understand and carry out their roles, such as role descriptions and effective training;
  • the lack of any collective assessment of Management Committee skills and experience or succession planning process to ensure the Management Committee collectively had the skills and experience it needed to perform its role;
  • gaps and weaknesses in the governance policy framework, such as out of date Standing Orders and delegated authorities which meant the key control documents were not accurate and consistent;
  • the lack of an effective and systematically applied risk management process;
  • gaps and weaknesses in procurement and the lack of an up to date maintenance policy framework;
  • the lack of up to date 30 year financial projections (the last set, at the point of review, was three years old) . Ruchazie had an out of date treasury management policy, no current treasury management strategy and a lack of reporting to Management Committee on treasury management; and,
  • the lack of evidence that the Management Committee had performed its employer role, it did not have processes to set objectives or manage the performance of the senior officer and did not have the knowledge or confidence to carry out this role.

23.

Ruchazie required substantial improvement to address the identified weaknesses and it developed, with the support of the statutory manager, a comprehensive improvement plan to help it improve to comply with the Regulatory Standards. The improvements required would involve putting in place an almost entirely new governance and financial management framework building on enhancements made in the prior 12 months.  The improvement plan included work to provide assurance about compliance with tenant and resident health and safety and compliance with legal obligations in relation to procurement.

 

Improving governance

24.

The review and improvement plan were inclusive and comprehensive pieces of work which Ruchazie accepted as being accurate reflections of its governance and financial management. A great deal of time and work was required given the scale of the necessary improvements.  Ruchazie provided us with assurance that it was commited to delivering the necessary improvements.

25.

A key element of the improvement plan was for Ruchazie to complete a robust strategic options appraisal. This options appraisal would determine Ruchazie’s business priorities in the medium and long term, and the structure of the organisation that would best deliver this, including whether it should stay independent or join with another RSL.

26.

The options appraisal took around six months to complete. Ruchazie had to obtain robust information for the options appraisal including detailed financial projections and developing thorough stock condition data.  The work undertaken as part of the options appraisal highlighted positive opportunities for Ruchazie to reduce its costs and make savings as an independent organisation, for example by improvements in treasury management.  The appraisal took into account the views of staff and governing body members.  Ruchazie consulted tenants as part of the options appraisal and tenants were very supportive of Ruchazie remaining independent, citing that the service they received was better than other local landlords and they liked having a small local landlord.  

27.

Ruchazie decided it wanted to remain independent but also explore collaboration opportunities with other RSLs and local third sector organisations. While the decision to remain independent was Ruchazie’s, we sought assurances that this decision was in tenants’ best interests. In this regard we considered the outcome of the options appraisal and were satisfied Ruchazie was financially viable, that it had a good plan to improve its governance, and that tenants were in strongly in favour of Ruchazie remaining independent. Lenders were also supportive of Ruchazie’s decision.  

28.

Throughout 2019 Ruchazie continued to focus on delivering its governance improvement plan, and its governing body asked for additional time to deliver the plan with the support of the statutory manager. We therefore continued the statutory manager’s appointment to June 2020 when the plan was substantially complete. Ruchazie met the costs of the statutory managers’ services, accommodation, travel and subsistence which amounted to £239,692 including VAT. This covered a 27 month period from March 2018 to June 2020. 

29.

We ended one of the three appointments to the governing body in April 2020, and extended the remaining two governing body appointments for a further three months to support Ruchazie to deliver the final few elements of the improvement plan.

30.

The improvements Ruchazie has delivered include:

  • a new business plan, and business planning process, underpinned by accurate and comprehensive information, which follows a robust and inclusive process ensuring understanding and ownership of the plan by the Management Committee;
  • it has appraised and set objectives for its senior officer, based on the new business plan, has put in place a performance management framework which cascades down business plan-based priorities and targets to front-line staff;
  • an appropriate and mutually respectful relationship between the senior officer and the Management Committee;
  • it has assessed committee member skills, identified gaps and undertaken recruitment, resulting in a stronger and more capable Management Committee, confident in its ability to govern Ruchazie’s affairs effectively;
  • a comprehensive range of governance and financial management policies and processes which delivered a strong governance and financial management framework;
  • it implemented a full risk management system: the new system involved regular and systematic reviews of key risks by management and staff, including taking identified mitigating action and regular reporting to committees;
  • a new assurance framework including a new audit and risk sub committee and a relaunched internal audit programme with a risk based focus
  • a new framework of assurance reports to the Management Committee which provided the Management Committee with evidence of compliance with the governance and financial management framework and which were intended to flag and address any areas of non-compliance;
  • implemented new Procurement Policies & Procedures in line with the current regulations and ensured good practice and value for money was obtained;
  • a new Treasury Management Policy and Strategy, which it planned to review annually, along with training for Management Committee members and quarterly reporting to the Management Committee; and
  • a comprehensive programme of training for committee members on the employer role and managing conflicts of interests.

31.

An important element of the improvement plan was the successful induction and integration of five new governing body members who had joined in May 2020.  These new members brought substantial skills, knowledge and experience and materially enhanced the capacity of the governing body.  Ruchazie also recruited a permanent senior officer in May 2020, following a review of its staff structure.

Ending our intervention

32.

We ended our statutory intervention in September 2020 after concluding that Ruchazie had completed its improvement plan and now complied with regulatory requirements, including the Regulatory Standards. The improvement plan actions had strengthened all areas of governance and Ruchazie now had a strong framework of internal control and governance to support it to deliver good outcomes for its tenants and service users.