ANNUAL REPORT AND FINANCIAL STATEMENTS For the year ended 31 March 2017
CONTENTS PAGE Board of Management and Advisors 1 Strategic Report 2 7 Report of the Board of Management 8-17 Corporate Governance Report 18-19 Report of the Auditors 20-22 Statement of Comprehensive Income 23 Statement of Changes in Reserves 24 Statement of Financial Position 25 Statement of Cash Flows 26 Notes to the Statement of Cash Flows 27 Notes to the Financial Statements 28 64
BOARD OF MANAGEMENT AND ADVISERS Housing for Wales Registered Number: L002 The Co-operative and Community Benefit Societies Registered Number: 21057R Management Board: Mr Chris Foxall (Chairman) Mr Bryan Davies (Resigned from Apr 2016) Mrs R Honey-Jones (Resigned from May 2016) Mr Ian Ambrose (Resigned from May 2016) Mr Mike Wiseman (Resigned from January 2017) Ms Tina M Gabb Mr N Tregoning Mr T Larcombe Ms Karen Williams Mr Mike Kavanagh (Appointed from June 2016) Ms Karen Jackson (Appointed from June 2016) Ms Deborah Smyth (Appointed from June 2016) Mr Matthew Channell (Appointed from June 2016) Mr Richard Harris (Appointed from June 2016 and resigned from November 2016) Mr Martin Ridgeway (Appointed from June 2016) Mr Christopher Orton (Co-optee from December 2016) Executive Officers: Mrs K Dusgate Mr A G Bennett Mrs J Bochel Chief Executive Executive Director, Business Services & Assets Executive Director, People & Communities Secretary: Mr A G Bennett Company Secretary Registered Office: Auditors: 43 Walter Road Swansea SA1 5PN Bevan & Buckland Chartered Accountants Langdon Road Swansea Waterfront SA1 8QY Solicitors: Blake Morgan Solicitors One Central Square Cardiff CF10 1FS Bankers: Barclays Bank Plc The Co-operative Bank PLC Corporate Banking 16-17 High Street Windsor Court Cardiff Cardiff CF10 1AX CF10 3ZL 1
STRATEGIC REPORT Principle activities The principle activities of Family Housing Association (Wales) Ltd are the development and management of social housing for general needs, older persons sheltered and Extra Care accommodation. The Association also provides care & support services to vulnerable adults. The Association has charitable status and is registered as a social landlord with the Welsh Government and the Financial Conduct Authority under the Co-operative and Community Benefit Societies Act (2014). The Association manages 2,788 (1996: 2,780) homes of General Needs, Sheltered, Extra Care and Care & Support type properties. Since the year end, 14 new homes have been transferred into management at the Scurlage development, and a further 43 new homes are due to be completed at Hazel Court North during this financial year. Business and Financial review The Associations financial performance for the year is detailed in the financial statements. The Association achieved a surplus, before re-measurement of pension liability, of 1,105k (2016: 1,261k). The surplus reflects the demanding nature of the financial spending priorities in the Associations day to day management activities of its housing stock and the continued investment in the development programme. Turnover increased by 709k (3.7%) compared to previous year. Turnover from social housing activities, rent receivable, account for the majority of the increase. The association has provided for potential repayment of grants for its care and support activities where allowable expenditure is perceived to have been incurred short of the amount paid in grant. Grant funding for property improvements and adaptations have been maintained at a similar level to last year. The associations void loss has increased to 2.6% (2016: 2.3%), due to higher levels of void experienced in the early months of the year as a result of the new extra care developments coming into management. Occupancy at these developments is now satisfactory, but still a priority for continued improvement. During the year the Associations management costs increased by 383k, reflecting the increase in administration costs associated with new extra care schemes, and reduced amounts of capitalised overheads associated with the development process. Overall maintenance costs fell by 172k and service charge costs increased by 212k, in line with income. It should be noted that service charge costs are fully recoverable. Total operating costs increased by 667k. The Association s operating surplus fell to 28.6% of turnover (2016: 29.4%). Overall interest payments increased by 162k compared to the previous year s results. This increase is due to a reduction in capitalised development interest offset by an increase incurred by changes to the discount factor used to calculate the pension liability. The Association achieved a surplus, before transfers to designated reserves of 1,007k (2016: 1,284k). 2
STRATEGIC REPORT (Continued) The Association is continuing to review management and service costs throughout the organisation to ensure that the future structure is fit for purpose, able to deliver efficient and responsive services to tenants. The associations five year Statement of Comprehensive Income and Statement of Financial Position are summarised below: For the year ended 31 March 2017 2016 2015 2014 2013 '000 '000 '000 '000 '000 Statement of Comprehensive Income Total Turnover 19,925 19,216 17,975 16,464 15,742 Operating Surplus 5,693 5,651 4,721 3,918 3,271 Surplus for the year transferred to reserves 1,007 1,284 (733) 215 55 Statement of Financial Position Housing property, net of depreciation 191,679 188,545 177,845 171,711 155,173 Other fixed assets NBV 2,763 3,214 1,718 1,050 1,078 Fixed Assets 194,442 191,759 179,563 172,761 156,251 Net Current Assets 4,444 6,203 14,193 18,503 11,133 Total Assets less current liabilities 198,886 197,962 193,756 191,264 167,384 Creditors: Amounts falling due within one year (80,427) (80,698) (81,080) (75,874) (65,362) SHG and Other Grants (109,659) (109,471) (106,167) (108,039) (94,885) 8,800 7,793 6,509 7,351 7,137 Reserves Designated reserves 1,392 1,354 1,467 1,372 1,337 Revenue reserve 7,408 6,439 5,042 5,979 5,800 8,800 7,793 6,509 7,351 7,137 3
STRATEGIC REPORT (Continued) Statistics For the year ended 31 March 2017 2016 2015 2014 2013 Properties owned and Managed 2,720 2,712 2,572 2,484 2,441 Properties owned Managed by Others 68 68 64 66 67 2,788 2,780 2,636 2,550 2,508 Operating Surplus as % of Turnover 28.6% 29.4% 26.3% 23.8% 20.8% Rent Losses (voids and bad debts as % of rent and service charges receivable) 3.8% 2.9% 2.9% 2.4% 2.0% Rent Arrears (gross arrears as % of rent and service charges Receivable) 6.0% 5.2% 4.4% 3.5% 3.0% Liquidity (Current assets divided by current liabilities) 1.07 1.30 2.80 2.93 1.84 EBITDA - MRI interest cover 1.19 1.20 1.10 1.01 0.99 Gearing 60% 60% 63% 64% 61% Capital structure and treasury policy No further borrowings were drawn during the year. At the year end the Associations borrowings amounted to 78.4 million of which 27k is due to be paid within the next year. Housing Loans Housing Loans are repayable as follows: 2017 2016 '000 '000 Less than one year 18 26 One year and two years 9 18 Between two and five years (25) 2 In five or more years 77,801 77,783 77,785 77,804 The Association borrows, principally from banks, but also more recently from capital markets, at both fixed and variable rates of interest. The fixed rates of interest range from 5.31% to 10.99% and accounts for 96% of the total outstanding borrowing. The remaining 4% of borrowing is on a variable rate which at the year-end was 4.055%. 4
STRATEGIC REPORT (Continued) Future borrowing of 3.5m has been negotiated and takes the form of a revolving facility at a variable rate. The current facility is available for a further 12 months and covers the existing development programme; negotiations will look to extend this period at the end of which it will be converted to a longer term arrangement. The trend information above shows that gearing, calculated as total loans as a percentage of capital grants and reserves, is currently at 60% (2016: 60%). The Association has a gearing covenant of 65%, which is currently being negotiated with funders to bring into line with post FRS102 & SORP 2014 changes The Association s lending agreements require compliance with a number of other financial and nonfinancial covenants. The Associations position is monitored and reported to the board monthly. The Association has cash balances of 3.9m as at 31 March 2017 (2016: 6.8m) and the current liquidity ratio stands at 1.7 (2016: 1.3). The liquidity ratio reflects the utilisation of funds drawn in advance for property developments during the year. Financial risk management objectives and policies The Association uses various financial instruments, including loans and cash to raise finance for the Associations operations. The existence of these financial instruments exposes the Association to a number of financial risks. The main risks arising from the Associations financial instruments are considered by the Board to be interest rate risk, liquidity risk and credit risk. The Board reviews and agrees the annual Treasury Strategy and Treasury Policy for managing each of these risks, as summarised below:- Interest rate risk The Association finances its operations through a mixture of retained surpluses and bank borrowing. The Associations exposure to interest rate fluctuations on its borrowings is managed by the use of both fixed and variable rate facilities. Liquidity risk The Association seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and invest cash bassets safely and profitably. The Association has in place a revolver facility of 3.5 million on a variable interest rate basis. No funds have been drawn from this facility to date. Credit risk The Association s principle credit risk relates to tenant arrears. This risk is managed primarily by an area based housing service and the close relationship our staff have with the tenants. We are using our tenant profile information to adapt our services to meet the challenge of welfare reform. 5
STRATEGIC REPORT (Continued)) Housing properties impairment review The Association has continued to regularly review its housing stock for consideration of impairment and is of the opinion that its properties are maintained to a high standard throughout their economic lives and that this would be a fair and reasonable reflection of its current managed portfolio of properties. Value for money We believe that everyone in our organisation should be able to contribute to VFM. To deliver our vision it is essential that we make the best use of the resources available to us. We need to: create a culture that enables everyone to contribute towards VFM concentrate on those things that add value in the view of our customers and what we do must be done as efficiently and cost effectively as possible, and where possible achieve added value from the resources we use to enhance the lives of our customers The traditional definition of value for money is the optimal use of resources to achieve the intended outcomes. This should be achieved through the ideal balance of economy, efficiency and effectiveness. Economy - the careful commitment of resources to save cost, time and effort. Efficiency ensuring that processes are lean by cutting out waste while maintaining the quality of the outcome that is being aimed for. Alternatively it is about achieving more for the same amount of effort. Effectiveness Delivering the goals and expectations that our customers want, in a timely manner. However, we believe that value for money is not simply a matter of doing or procuring things at the cheapest price. It is widely recognised that there can be consequences of cost reduction on performance and the sustainability of quality. Balancing cost and quality should support our commitment to continuous improvement throughout the Association. Our approach to VFM will be embedded in our Self-Evaluation process and will consider: Costs, and cost drivers Areas where savings can be made, with least impact on customer satisfaction Areas where improvements can be made with maximum impact on customer satisfaction Peer benchmarking and comparison 6
STRATEGIC REPORT (Continued) Wider social investment activity and value for money (Added Value) In addition to the direct benefits to our customers and stakeholders, delivered through the Association s services, our position as a dynamic social company enables us to achieve added benefits to our tenants and the community in which they live through our business activities. The association will strive to maximise the value that it derives from all of its activities e.g. seeking opportunities to invest in the local economy; seek volunteering, employment or training opportunities for our tenants; local community or environmental enhancements. Making a positive impact While seeking to optimise value through our activities it is equally important for to ensure that those activities are not detrimental to the community or the environment. We must always be conscious of the impact we may have on local businesses, communities and the environment and the analysis of these impacts should be an integral part of all process and business opportunity reviews. Some examples of the work FHA is involved in that supports wider social investment includes: Support and promotion of Credit Unions across our areas of operation Financial Inclusion Strategy Community Investment Strategy Digital Inclusion Strategy Environmental Strategy Corporate Health Strategy 7
REPORT OF THE BOARD OF MANAGEMENT Our Mission, Vision & Values Putting people and communities at the heart of our business Our mission is to create strong, vibrant and resilient communities where people can live active, fulfilling, lives - living independently and safely. Our Vision is that by 2020 we will be a strong and financially viable association; a landlord; employer and partner of choice that continues to make a positive difference to the health and well-being of our tenants and the communities we work in. Our Values - Our behaviour demonstrates what we value our values determine how we behave towards our customers, our colleagues, our partners and our work; our values influence the decisions we make as individuals and as an organisation. Innovation we continuously strive to be the best we can whilst seeking creative ideas to improve and grow Honesty we will be clear and truthful in what we say and do Trust relationships are built on mutual trust and respect; we trust people to do the right things for the right reasons Fairness we will endeavour to remove barriers and to treat people fairly and impartially Respect we will treat people as individuals and value diversity Accountability we will accept the responsibilities of our role and be accountable for our actions and for doing what is right. We value Our customers Our communities Our staff Our partners Our reputation The development of our Vision and Values has been underpinned by our commitment to involving our Board, all of our staff, our tenants and stakeholders in the process. 8
REPORT OF THE BOARD OF MANAGEMENT (Continued) Board The Board has overall responsibility for setting the strategic direction of the association; policies and overall responsibility for establishing and maintaining a system of internal controls and for reviewing their effectiveness. FHA Board consists of up to 12 Members. The Board of Management comprises people with diverse areas of expertise who give their time voluntarily. Over the last two years the Association has undergone much change which has resulted in an almost entirely new Board of Management. The governance changes have been fully supported by the Association's Regulator and Lenders. Current Board members who served during the year Christopher Foxall (Chair) - Chris is currently a private investor based in Swansea. He has been involved in the Global Financial Securities business for over 17 years. He has managed global trading businesses in London and Wall Street for some of the world's leading investment banks. Chris has many years of experience with not-for-profit companies and was recently Chairperson of a charitable organisation focused on people with learning disabilities. Nick Tregoning (Chair of Audit & Risk) - Nick is Chair of Swansea Bay Regional Equality Council, a panel member of the Finance Wales Micro Business Loan Fund, and a committee member of the Management Committee of Dunvant RFC. He is a former Chair of LASA, Swansea's Credit Union Board of Directors, and a former Vice Chair of the South Wales Forum of Credit Unions. He was Cabinet Member for Social Services in Swansea until May 2012, and is a former Presiding Officer of Swansea Council. Nick was the political lead for the establishment of Swansea as part of the World Health Organisation s European Healthy Cities initiative, and has worked with the UCL Institute of Health Equity. He works full-time as Regional Manager for a regional Assembly Member. Tony Larcombe - Tony is a Property Director and a Chartered Engineer. He has had 35 years' experience in Project and Construction Management both in the public and private sectors. Karen Williams - Karen works for Public Health Wales. She is a Fellowship member of the CIPD with over 15 years' experience of operating at the most senior levels of HR management in the public sector. Karen is an experienced Head of Service and strategic thinker with a proven track record of change management, delivering customer focused services and working in partnership with internal and external stakeholders. Tina Gabb BSc, MBA, FCCA Tina has experience working at a senior role within the finance team at Gwalia Housing Group with involvement in and experience of business wide systems changes, financial reporting, delivering and communicating organisational vision. More recently Tina has worked as a member of the Welsh Government Regulation Team as a Financial Analyst. Tina has recently joined Bron Afon HA as Interim Head of Finance. Matthew Channell Matthew is a Director of TSW Training and Construction Skills Training Limited, both successful and longstanding learning & development providers in Wales. He is an experienced strategic and operational manager with broad management experience in areas of HR, Administration, Quality, Sales, Marketing and Customer Service. Matthew has an MSc in Management and wrote his thesis on learning transfer, with the goal of identifying methods for maximising return on investment realised by organisations when investing in learning/training interventions. He has specific interest in areas of strategy, change management, communication and people & organisational development. 9
REPORT OF THE BOARD OF MANAGEMENT (Continued) Michael Kavanagh, Board Member Mike has worked in the Construction Industry for over 25 years, specialising in major projects such as Swansea University Bay Campus, Bluestone Leisure Park and Major Airports. Mike brings a wealth of Industry experience and understanding of the challenges faced by the Board when balancing social responsibility and financial wellbeing. Deborah Smyth, Board Member Deborah is the director of her own recently established small businesses, taking the decision to move on from many years in education and teaching within the school of Business and Construction. Deborah has prior experience of working on a housing board, which included holding the position of chair, extending her knowledge of the NED role and boards purpose. She has a sound knowledge in corporate governance and experience of leading organisational change. Martin Ridgeway, Board Member Martin has over 25 years in Housing, working in partnership with local RSL s, local authorities, Welsh Government and private developers. He has extensive knowledge of Housing and Property market across the Swansea Bay City Region. Martin has a strong background in Regeneration particularly in Town and City Centres and is a member of the Vibrant and Viable Places Management Board in Bridgend. He has developed a strong and clear understanding of the need for transparent and sound governance through his voluntary and professional roles. Karen Jackson, Board Member Karen has 26 years experience of working in 3 local authorities in a range of frontline and strategic roles in housing, as well as at a senior corporate strategy level. During this time, Karen enjoyed a secondment to the Housing and Finance Division of the National Assembly for Wales and more recently, has gained experience working in the charity and social housing sectors. Karen has a postgraduate diploma in housing and is a member of the Chartered Management Institute. Christopher Orton, Co-optee Chris is the Technical Project Officer for the Dementias Platform UK programme based at Swansea University. He is responsible for project managing the work Swansea are involved in for the programme and works on strategy and implementation of and for Dementias research data across the United Kingdom and also from international partners in France, Hong Kong and the USA. Chris has experience of project and change management, IT service management, business development and resource planning and has worked in data research environments for the last 4 years. 10
REPORT OF THE BOARD OF MANAGEMENT (Continued) Changes in Board Membership & Attendance Board Membership Years Service Attendance Christopher Foxall Chairperson 2 year 82% Rachel Honey-Jones Resigned May 16 2 year 0% Tony Larcombe (leave of absence granted) 6 years 55% Nick Tregoning Chairperson ARC 3 year 91% Karen Williams 2 year 82% Michael Wiseman Resigned January 2017 2 year 89% Tina Gabb Vice-Chair ARC 2 year 64% Karen Jackson 1 year 100% Deborah Smyth 1 year 89% Michael Kavanagh 1 year 78% Richard Harris Resigned November 2016 1 year 50% Martin Ridgeway 1 year 89% Matthew Channel 1 year 89% Chris Orton Co-optee <1 year 33% Recruitment, Induction & training Recruitment has been a priority since the conclusion of the Options appraisal and the decision to remain an independent organisation. Board Members who had joined the organisation to support and oversee the Option Appraisal stood down to enable the recruitment of new Board Members with the right skills, abilities and diversity to lead the organisation through the change process. The recruitment process is open using a variety of media. Board has developed a role specification and an application pack. Advertisements have been placed on the Association s website; the WCVA, Women in Public life, CHC Tai Pawb, and the ICAEW portals to name a few. Word of mouth, Twitter and Facebook have also been used to raise awareness of and promote the vacancies widely. Currently there is one vacancy. Board has delegated responsibility for shortlisting and interview to a sub-group of Board Members and the Chief Executive. Applicants are invited to complete a Profile & Application form and shortlisting is undertaken against the criteria set in the role specification. Interviews are held and structured around the role and in particular explore an individual s understanding of the role; engaging with others; living public service values; fostering innovative deliver; governance and financial viability. The Board is committed to robust governance and ensuring it has the skills required to address the areas of improvement and manage the organisation in the future. Board and senior staff participated in bespoke governance training; new Board Members receive an induction to the association and have access to and have attended a variety of training events and conferences. Evaluation & appraisal the new Board is very aware of the benefits of evaluation, appraisal and is committed to continuous learning and development. Board engaged consultants to support them in the implementation of an appraisal and Board development programme. This programme will commence in the new financial year. Remuneration Board Members in Wales are not remunerated. FHA Board Members are reimbursed reasonable out of pocket expenses. 11
REPORT OF THE BOARD OF MANAGEMENT (Continued) Code of Governance the Board adopted the Community Housing Cymru (CHC) Code of Governance. During this financial year the ARC has overseen implementation of the Governance Action Plan to ensure the areas for development and compliance were met. Committees - There is one sub-committee Audit & Risk (ARC). This committee meets 4 times a year. The purpose of the Audit & Risk Committee is to advise and provide assurance to the Board on the adequacy and effectiveness of internal controls. The prime role of the Committee is to advise the Board and to support the Company Secretary, on matters of risk, financial stewardship and accountability, control and governance. During the year the Committee has dealt with the strategic processes for risk, control and governance through the results of the internal and external audits as well as a self-evaluation process. The Committee has undertaken a comprehensive review of Human Capital reporting and agreed key areas of performance to be measured moving forward. The Committee plays a key role in defining aspects of the audit work and monitoring the management responses to the issues raised. The Committee during 2016/17 Membership of the Committee during the year was as follows: Nick Tregoning, Committee Chair Mike Wiseman (until January 2017) Tina Gabb, Committee Vice-Chair (from November 2016) Mike Kavanagh (from October 2016) Deborah Smyth (from October 2016 until February 2017) Karen Williams (from October 2016) The Committee was also attended routinely by: Karen Dusgate, Chief Executive Andrew Bennett, Head of Finance & ICT (Executive Director from December 2016) Farid Ali, Governance & Business Improvement Manager Darrin Davies Head of Property Services (lead officer for H&S) until December 2016 Janet Bochel Executive Director (from January 2017) Vicky Davies and Jonathon Maddock, Internal Audit Alison Vickers, Bevan & Buckland - external audit The Committee meeting dates and attendance was as follows: Chris Foxall Nick Tregoning Mike Wiseman Tina Gabb Mike Kavanagh Deborah Smyth Karen Williams 27/04/16 apologies 27/07/16 apologies 26/10/16 apologies 14/12/16 apologies apologies 26/01/17 apologies apologies 12
REPORT OF THE BOARD OF MANAGEMENT (Continued) Reporting to and from the Board The Committee sets great store by ensuring effective communication both by the Committee to the Board and by the Board to the Committee. In addition to the formal minutes of every Committee meeting the Board receives an oral update from the Committee Chair. Every Board meeting agenda (following an ARC meeting) includes an item which allows the Committee Chair to give feedback to the Board on matters of discussed by the Committee. The Chair of the Board has on occasion observed an ARC meeting. This ARC annual report for 2016/17 completes the reporting process for the year. Internal Audit In 2015, following a procurement exercise, Tiaa was appointed Internal Auditor for 3 years. ARC has agreed a programme of audits based on an assessment of risk and areas we believe will support improvements in our performance. We are using knowledge gained from the internal audits to support change, innovation and improvement at Family HA. At each meeting, ARC receives an update on the progress and implementation of actions arising from internal audit reviews as well as full audit reports. For each assurance review and assessment of the combined effectiveness of the controls in mitigating the key control risks is provided. The assessments are: Substantial Assurance Reasonable Assurance Limited Assurance No Assurance Based upon our findings there is a robust series of suitably designed internal controls in place upon which the Organisation relies to manage the risk of failure of the continuous and effective achievement of the objectives of the process, which at the time of our review were being consistently applied. Based upon our findings there is a series of controls in place, however there are potential risks that they may not be sufficient to ensure that the individual objectives of the process are achieved in a continuous and effective manner. Improvements are required to enhance the adequacy and effectiveness of the controls to mitigate these risks. Based upon our findings the controls in place are not sufficient to ensure that the organisation can rely upon them to manage the risks to the continuous and effective achievement of the objectives of the process. Significant improvements are required to improve the adequacy and effectiveness of the controls. Based upon our findings there is a fundamental breakdown or absence of core internal controls such that the organisation cannot rely upon them to manage the risks to the continuous and effective achievement the objectives of the process. Immediate action is required to improve the adequacy and effectiveness of controls. 13
REPORT OF THE BOARD OF MANAGEMENT (Continued) During the year these were: Date Audit Rating 2016/17 Audit Plan Board Assurance Framework On-going advice on development Planned & Cyclical Maintenance July 2016 Substantial Rent Collection July 2016 Reasonable Data Assurance August 2016 Substantial Governance Performance Monitoring January 2017 Substantial Key Financial Controls October 2016 Reasonable Legionella October 2016 Substantial Risk Management Anti Fraud Procurement October 2016 Limited Appraisal Effectiveness of Tenant Scrutiny March 2017 n/a Governance Strategic Control March 2017 Reasonable Follow - up Mar. 2017 n/a The follow-up review considered whether the management action taken addressed the control issues that gave rise to the recommendations. The follow-up review identified that the Association had made reasonable progress with the completion of the recommendations with 62% being implemented fully. The remaining 38% of the recommendations have been given a revised target date and will need to be completed by the new date set. One recommendation was no longer applicable. Evaluation Number of Recommendations Implemented 8 In Process of Being Implemented - Revised Target Date 5 Considered but not Implemented 1 No Longer Applicable - Not Implemented - The Committee had asked that Tiaa return in the year to review progress specifically in relation to addressing the area of Limited Assurance Anti Fraud - Procurement. The Follow-up review confirmed that all 4 recommendations had been implemented. The Internal Audit Strategy Plan was agreed at the January 2017 meeting. It sets out the internal audit activity for the period 2017-2020 and is sufficiently flexible to adapt to the emerging changes in the organisation and its environment. The Committee agreed a programme that reflected priorities where there were higher levels of risk or significant changes anticipated. 14
REPORT OF THE BOARD OF MANAGEMENT (Continued) External Audit Audit complete for 2015/16. Clear audit certificate Audit Plan agreed for 2017/18 Statutory Accounts Audit Interim Audit completed January 2017 Quarterly Management Accounts & Financial Trends Health & Safety The Association s Health & Safety Group has provided updates on the Association s performance in managing Health & Safety. The Group is led by David Hill from David Associates our external Health and Safety Consultant and has had representatives from the Board, all departments and UNISON. Following the implementation of the new staffing structure in December 2016, the Head of Property Services left the Association. This post had previously taken the lead on Health and Safety within the organisation; following the restructure, David Hill was asked to provide cover and take responsibility for Health and Safety, he is currently contracted to work four days a month. A number of specific audits have been undertaken throughout the year, these included:- Overall Management of Health and Safety - dated 25.4.16 Accident Management - dated 18.1.17 The majority of recommendations for the Management of Health & Safety have been implemented and closed. Some require no action at this stage of the organisations overall development of Health and Safety and have been closed. A number of the recommendations regarding Accident Management have been implemented; some are still in the development stage. An overall Audit of Health and Safety of the organisation is being conducted in sections; the first being training, with a number of improvements in core training and refresher training being undertaken. The Health and Safety Group receives updates from other related sub groups e.g.: Fire Safety Order Group leads on ensuring the Association complies with the Regulatory Reform (Fire Safety) order. Health & Wellbeing Group leads on the promotion of employee health and wellbeing and manages the Corporate Health Standard assessment process. An overall Health and Safety Plan is being developed for the year, this Plan will set targets for all aspects of Health and Safety including legal compliance, guidance standards and accepted good practice. Risk Identification & Management The Risk Management Framework is a key part of the Association s system of internal control. The risk identification and analysis process is used to produce a risk profile that provides a tool for prioritising risk and articulating risk mitigation & controls. The process allows risks to be mapped, control measures identified and responsibility allocated. The management of risks is reported to ARC on quarterly basis to monitor whether the risk profile is changing and to provide assurance that risk is being managed effectively across the organisation. 15
REPORT OF THE BOARD OF MANAGEMENT (Continued) The Association s internal auditors, when undertaking audits review the effectiveness of risk management, control and governance processes in relation to the achievement of the organisation s business objectives. Risk identification and management is also a feature of external audit, health & safety audits, external advisors, tenant scrutiny. Complaints The Complaints Policy and Procedure has been reviewed to simplify the process for staff and to make it easier to deal with complaints. The policy now recognises a two stage process; this will assist analysis and improve in the way complaints are managed. It is recognised that work is required to further embed learning from complaints and using this information to make service improvements. This has been prioritised in the Operational Plan. Governance The Board adopted the CHC Code of Governance in April 2015, with ARC leading the assessment of compliance against the Code of Governance checklist in May 2015. An action plan was developed & implemented to address the 25 areas of non-compliance. In the final quarter of 2016/17 ARC undertook a full, desk top review against the CHC Code of Governance; at the end of the year only one area of non-compliance remains. This is scheduled for completion by 30 th June 2017. Key Governance Policies were reviewed and updated during the year, with a schedule for on-going annual review. Board appraisal, recruitment and development have been a priority for the Association over recent years. Significant improvements in governance have been noted both in our Regulatory Opinion Report and Internal Audit. Following completion of the Options Appraisal (March 2016), Board Members who had joined the organisation to guide and oversee progression through the interim period stood down. New Members were recruited (May 2016) to lead and oversee the work identified to ensure the new business priorities were met:- To secure the best possible future for our current and future tenants To be a financially strong organisation that is resilient to the changes in the external environment To be able to develop and innovate To provide security for FHA staff; for our staff to have a great environment to work in and opportunities for development, growth and progression During the year Board Members have attended the following training and conferences:- ABMU Health Board Housing and Health - Chris Foxall CHC Is the 30 Year Business Plan Broken - Nick Tregoning CHC Resources Conference - Ian Ambrose, Nick Tregoning, Chris Foxall CHC Regional Dinner - Chris Foxall, Nick Tregoning CIH How to Build an Effective Workforce - Chris Foxall Tai Pawb Welsh Tenants Annual Conference - Mike Wiseman 16
REPORT OF THE BOARD OF MANAGEMENT (Continued) CHC One Big Conference - Deborah Smyth, Mike Wiseman CIH The Big Question - Deborah Smyth; Nick Tregoning TPAS Cymru National Conference - Mike Wiseman Altair/Devonshires 5th Welsh Annual Seminar - Chris Foxall Mazars Housing Sector Updates - Mike Kavanagh, Debra Smyth CHC Aspiration to Delivery - Chris Foxall CHC Governance Conference - Matthew Channell CHC Behavioural Insights - Matthew Channell, Deborah Smyth, Nick Tregoning Mel Rayner Wales QC Finance for Non-Financial Managers - Matthew Channell, Mel Rayner, Deborah Smyth Business Plan Stress Testing The Association has continued to develop the 30 year business plan and review baseline assumptions. These assumptions have been stress tested and presented at Board away days. Following feedback and discussion with Board, WG and Funders, assumptions and stress testing scenarios have been reviewed and adjusted. ICT Following conclusion of the independent (2015/16) review of ICT services, an OJUE compliant tender was undertaken culminating in the appointment of Solsoft. The contract with Solsoft commenced in January 2017. As part of the initial on boarding process, Solsoft undertook a full review of the current system setup, server details, monitoring and helpdesk support systems. To date, Solsoft has been gathering information about the ICT system architecture and how it is utilised by staff. The following actions have been undertaken to date: All client PC s and laptops have been registered and updated with Solsoft management and antivirus software All back-up systems have been moved to Solsoft, for monitoring Client Technology Analyst (CTA) has visited all sites and reviewed systems Central Servers have been updated and are monitored by Solsoft remotely Third party software provider relationships are now managed by Solsoft helpdesk Virtual Chief Information Officer (VCIO) has met with Executive Team and has presented a state of the nation report. This will form the basis for the ICT strategy and enable us to prioritise resources Solsoft has identified areas of risk; a programme of updates and changes has commenced to manage & mitigate risks identified Future Actions Solsoft to arrange drop in sessions with staff to introduce Share point software and to gather information regarding ICT related day to day issues and frustrations experienced by staff Present ICT strategy document Upgrade Servers and server licences 17
REPORT OF THE BOARD OF MANAGEMENT (Continued) Review telecoms and connectivity to sites Review CCTV strategy Tenant Scrutiny Panel (TSP) The Audit & Risk Committee has continued to work closely with the Association s Tenant Scrutiny Panel (TSP). During the year TSP continued to review progress against recommendations it had made in previous reviews and undertook a major review and report on Communication. Our Internal Auditors, Tiaa have been working to support and strengthen TSP. In March 2017 a Review of the Effectiveness of Tenant Scrutiny was undertaken. The review provided the Association and TSP with an opportunity to further embed the work of TSP in our Audit & Risk work. Over the next year we will be working together to review the Terms of Reference of both TSP and ARC to formalise this; separating tenant scrutiny from tenant engagement. We will be building on the success and the skills of our TSP to bring another dimension to the work of ARC. Barclays Facility Agreement Following the application of new accounting policies and revised Statutory Accounts presentation format, required under FRS102, the Association is in negotiations with Barclays and M&G (Prudential) to redefine interest rate and gearing covenants. This work will conclude in May 2017. New covenant definitions will be applied and reported on the 2016/17 Statutory Accounts. Definitions and calculations will be changed to reflect changes under FRS102 and to maintain equity with covenants previously reported. Looking Ahead The Committee will continue to review a range of issues to ensure that it covers its remit. Whilst this is driven by our Business Plan and Risk Management Plan, Members may also request reports or details of follow-up actions on specific areas of concern. Specific priorities for the Committee in 2017/18 will be discussed at June ARC meeting; an Internal Audit Plan was considered at the January 2017 ARC meeting and will be implemented from 1 st April onwards. Assurance to Board and Accounting Officer for 2016/17 The Committee has operated to a high standard during the year and has received appropriate, regular and timely information about the production of FHA s annual accounts and about FHA s control environment. Taking account of the results of the scrutiny which the Committee has conducted on the Board s behalf during the year, and informed by the findings of both internal and external audit, by the responses and representations of management and by the evidence of the control environment provided by them, the Committee is of the following opinion:- The comprehensiveness, reliability and integrity of the assurances provided are appropriate for meeting the governance needs of the Board and for supporting the decisions they have taken and their accountability obligations; 18
REPORT OF THE BOARD OF MANAGEMENT (Continued) The Company Secretary can be assured that FHA s control, risk and governance position in 2016/17 provided a sound and reasonable basis for the completion of this Governance Statement; An effective process of risk management is in operation which supports the above assurances; Financial management has been applied with rigour, and reliance can be placed on the accuracy of the financial reports which have been routinely presented to the Board; Excellent progress has been made in transition to new auditors internal and external; High quality internal and external audit advices, assurance and support have been received throughout the year from Tiaa and Bevan and Buckland. Acknowledgements The Committee would like to extend its sincere thanks to the Chief Executive and her Team, to the Scrutiny Panel and to both internal and external auditors for the support which they have given to the Committee, as well as to contributing to the spirit of openness and constructive challenge to which the Committee continues to aspire in the conduct of its business. 19
CORPORATE GOVERNANCE REPORT BOARD OF MANAGEMENT The Board of Management currently comprises of twelve non-executive members. The Board are responsible for directing the affairs of the Association. Board members are drawn from a wide background bringing together professional, commercial and local experience together with tenant representatives. The Board meets normally once per month. The Board is responsible for the Association s strategy and policy framework. It delegates the day to day management and implementation of that framework to the Chief Executive and other senior executives and managers (the Senior Management Team). The Senior Management Team has regular meetings during the year and attend the Board of Management meetings. INTERNAL FINANCIAL CONTROL The Board is responsible for the Association s system of internal financial controls which is designed to provide reasonable, but not absolute, assurance regarding the safeguarding of assets, the maintenance of proper accounting records and the reliability of financial information. The Board has reviewed the effectiveness of the system of internal controls for the period from 1 April 2016 to 31 st March 2017. During the period the Board identified areas where internal controls needed to be strengthened and actions have been taken to provide the necessary assurance to the Audit Committee and Board of Management The procedures that have been established which are designed to provide on-going effective internal financial controls are: Written financial procedures with headline delegated authorities; Comprehensive system of financial reporting including annual budgets and quarterly management accounts, to report actual performance against budget and to highlight variances; Monitoring of the internal financial controls and procedures by the Association s internal auditor and (for the year-end) by the external auditors. These reports are reviewed by Audit Committee and the Board of Management; Also during the period a number of key policies were reviewed and updated, these being Standing Orders, Financial Regulations and Schedule of delegated authority Treasury management and Annual Strategy. This was reviewed in consultation with our treasury advisors Capita Asset Services. The board receives monthly reports detailing financial trends, treasury risks, covenant compliance and development programme status. 21
INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF FAMILY HOUSING ASSOCIATION (WALES) LIMITED We have audited the financial statements of Family Housing Association (Wales) Limited for the year ended 31 March 2017 which comprise the statement of comprehensive income, statement of changes in reserves, the statement of financial position, the cash flow statement and its related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. This report is made solely to the association s members, as a body, in accordance with the Cooperative and Community Benefit Societies Act 2014 and the Accounting Requirements for Registered Social Landlords General Determination (Wales) 2015. Our audit work has been undertaken so that we might state to the association s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the association and the housing association s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of the board and auditors As explained more fully in the Statement of Responsibilities of the Board (set out on page 17), the Board is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland.) Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of whether the accounting policies are appropriate to the association s circumstances and have been consistently applied and adequately disclosed, the reasonableness of significant accounting estimates made by the Board of Management, and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the financial statements to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies, we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the Association's affairs as at 31st March 2017 and of its income and expenditure for the year then ended, and have been properly prepared in accordance with the Co-operative and Community Benefit Societies Act 2014, the Housing and Regeneration Act 2008 and the Accounting Requirements for Registered Social Landlords General Determination (Wales) 2015. 23
Statement of Comprehensive Income for the year ended 31st March 2017 2017 2016 Notes '000 '000 Turnover 2 19,925 19,216 Operating expenditure 2 (14,232) (13,565) Operating Surplus 5 5,693 5,651 Surplus on sale of fixed assets 6 (13) 2 Interest receivable and other income 7 12 33 Interest payable and similar charges 8 (4,582) (4,420) Surplus / (deficit) before tax 1,110 1,266 Taxation 9 (5) (5) Surplus / (deficit) after tax 1,105 1,261 Re-measurement of pension liability 18 (98) 23 Total comprehensive income for the year 1,007 1,284 The accompanying notes form part of these financial statements. 25
Statement of Changes in Reserves for the year ended 31st March 2017 Income and expenditure Designated Total Notes reserve reserve reserves '000 '000 '000 At 1 April 2016 6,439 1,354 7,793 Surplus from statement of comprehensive income 1,007 1,007 Transfer to reserve 90 127 217 Transfer from reserve (127) (90) (217) At 31 March 2017 7,408 1,392 8,800 26
Statement of Cash Flows for the year ended 31st March 2017 2017 2016 '000 '000 Net cash generated from operating activities (see Note i) 7,057 7,382 Cash flow from investing activities Purchase of tangible fixed assets (5,048) (14,417) Proceeds from sale of tangible fixed assets 9 237 Grants received - 5,004 Interest received 14 40 Cash flow from financing activities Interest paid New secured loans (4,935) (4,406) - - Repayment of borrowings (45) (45) Net change in cash and cash equivalents (2,947) (6,204) Cash and cash equivalents at the beginning of the year 6,806 13,011 Cash and cash equivalents at the end of the year 3,859 6,806 28