Association downgraded after coming close to covenant breach

The Homes and Communities Agency (HCA) downgraded the group to a non-compliant G3, saying the association discovered the problems related to the site acquisition, procurement and delivery of two schemes in October 2015.

The problems, which were not identified by day-to-day controls, put the association at risk of an impairment on one site which could have led to a covenant breach within weeks.

THCH negotiated a waiver from its funder but the regulator said the lack of effective monitoring showed a failure of the association’s internal controls.

The HCA said the association had since improved its governance arrangements but that letting the organisation come weeks away from an unapproved covenant breach showed ‘a loss of control on the part of the board and the executive’.

The HCA said the association did not inform it of the issues for about two months. It also said some returns the association submitted contained errors including material misstatements of its financial position.

The regulator also said the association’s value for money self-assessment had not been sufficiently robust for two successive years.

The association has since appointed a new chair and strengthened its board.

The HCA left the association’s viability grade of V2 unchanged. The regulator said the association had an adequately funded business plan, sufficient security and was forecast to meet its financial covenants. But the regulator said the rent cut would hit surpluses, which would become reliant on sales and staircasing income from 2018.

The report said the association planned to cut spending on major repairs in order to meet interest payments.

Nick Abbey, chair of Tower Hamlets Community Housing (THCH), said: ‘Since taking over as chair in September, I have been working with the revitalised board to implement the changes needed to deal with THCH’s governance issues. While significant progress has been made, this judgement rightly highlights further areas of improvement. 

‘The board is committed to doing what it takes to deliver the change required to meet the regulator’s expected standards.

‘While it is clear that THCH is facing issues relating to its risk management and internal controls, it is important to highlight that THCH is on a sound financial footing and our residents can be assured that they will still receive prompt and courteous frontline services that remain good value for money.’