Trend report: how much are housing associations spending on audits?

Work is ongoing to curb the auditor shortage in the sector, but in 2023, the financial impacts of the problem worsened for HAs.

 

A mean average of £77,673 was paid in external audit fees by the 357 HAs in Great Britain compared in Social Housing’s 2023 analysis. This figure is up 20.9 per cent on the previous year’s total of £64,239, where the same number of firms were analysed.

 

 

The 2023 mean average was particularly inflated due to 10 HAs paying at least double what they had paid in the previous year, such as A2Dominion and Cross Keys Homes, which paid £400,000 and £185,000 respectively. A total of 30 landlords paid between 50 and 100 per cent more than they did in 2022.

Lynda Murawski, director of external affairs, communications, marketing and customer experience at Cross Keys Homes, which manages around 12,500 homes in the East of England, says: “We are one of those who has re-tendered recently so are probably feeling the effects earlier than others. In addition, due to us having publicly listed debt through CHC plc, we are classed as a public interest entity (PIE).

 

“This classification carries with it a higher level of requirements in terms of audit review and assurance. Not all firms are qualified or willing to take on PIEs due to the perceived level of risk they are taking on.”

 

Wheatley Group, paid £681,000 in external audit fees in 2023. The group owns or manages nearly 64,000 homes across 19-local authorities in Scotland. 

 

A new audit contract from 2022-23 was the chief reason for their fee increase, with a spokesperson from Wheatley saying: “Our long-term contract with KPMG to provide statutory audit services, which had been in place since 2016, came to an end on 31 March 2022.

 

“Our audit figures for the financial year ending 31 March 2023 reflect the substantial sector-wide rise in auditors’ fees since 2016 and other factors beyond our control, including additional audit regulatory requirements and new information-processing standards. Our external audit fees are comparable with other large social housing groups across the UK.”

 

 

The median average increased from £33,000 in 2022 to £36,420 in 2023. The large difference between the mean and median average for 2023 reveals the skew of audit fees paid among providers in the sector, with 10 HAs paying more than £500,000 in fees, while 227 groups pay under £50,000.

 

HAs that paid below the median of £36,420 spent on average 1.2 per cent less than they did in 2022 on audit fees. Those above the median spent 54 per cent more this year than last, on average.

 

Deirdre Harlowe, director of financial services at 39,480-home A2Dominion in the South East, says: “Audit fees have increased across much of the housing sector and this has been partly driven by a range of factors, including a shortage of audit firms working in the housing sector. There are also additional requirements and standards that auditors have to meet and this has resulted in increased costs.”

 

Cross Keys’ Ms Murawski says that the cost of providing audits had “led to some firms withdrawing from the sector completely or concentrating on existing clients rather than competing for new work. There was also a reported resource shortage of suitably qualified staff that limited the number of firms able to tender for our audit at the time.”

 

Firms that remain in the sector face the annual resource struggle caused by most HAs sharing the same year end of March, as Social Housing reported in June 2023.

 

 

In 2018, there were 36 external audit firms in the sector, according to Social Housing research, compared to 31 in 2023. Of these, there were six firms with 30 or more clients in 2018, while there were four in 2023. So the issue appears to not only be that firms are leaving the sector, but also that there are a lack of large firms remaining.

 

Ms Murawski says: “We have worked with the National Housing Federation on their campaign [to tackle the auditor shortage], but there is an accepted theme of increased regulatory scrutiny and changes in the depth of the audit market, as well as inflationary cost pressures, all of which have contributed to the additional cost we are seeing as an organisation and within the sector as whole.”

 

The National Housing Federation has advised housing associations to use their finance departments to procure audit services and start the search early.

 

 

Update: at 11.53am, 18.03.24

The article was updated to remove a reference to Wheatley Group taking on Cube Housing Association in 2021-22. Cube and GHA (now Wheatley Homes Glasgow) were already Wheatley Group subsidiaries when they joined together in 2021.