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Hard questions ahead as HCA gets tough on VfM

20 June 2016 • Jo Loake

When the HCA introduced the VfM standard there was some uncertainty about the requirements for the annual statement and many RPs received letters post-publication from the HCA requiring an improvement on future statements.

And that pressure to deliver – and better communicate - VfM is only going to continue as the HCA has since announced that its approach to VfM is going to get tougher, in particular because of the costs variations in the sector that appear to be unexplained.

Essentially the HCA is concerned to see that boards understand the running costs of their business, how they differ from those of their peers and the main drivers for variations.

Tough questions via In-Depth Assessments

RPs need to be prepared to be asked questions through the HCA IDAs in relation to high operating costs that are not explained. RPs’ boards will also be asked how efficiencies are assured and resources used in ways that are cost effective.

The HCA’s review of the self-assessments highlights a number of key areas, including:

  • The better quantification of targets for future savings
  • Where the HCA is not satisfied as to compliance with the standard (especially if this has led to a downgrade) boards are requested to undertake reviews of the contributing factors and publish revised statements
  • In this climate of increased financial pressures on RPs, the HCA will still seek reassurance that RPs continue to use their resources and assets to maximum efficiency and have clear plans for the ongoing improvement of VfM
  • Transparency in comparable costs including comparisons to peers
  • It must be clear that options appraisals and investment decisions, for specific properties or groups of properties, have demonstrable links with the overall strategic objectives of the RP
  • How RPs intend to make ongoing VfM improvements must be demonstrated (transparently) to stakeholders
    Strategic and performance reporting that facilitates decision making at both board and executive levels must be strong and up to date

What is the HCA looking for?

The HCA sets out in its summary report on delivering VfM that it considers VfM as an integral part of an RP’s compliance with the economic standard. It will seek assurance via its IDAs, including how RPs maximise return on assets and how decisions are made on the use of resources to maximise delivery of an RP’s objectives.

The HCA will also specifically seek assurances on unit costs, including why your unit costs are higher or lower than those of other RPs, and that RPs and boards are challenging themselves to make the best possible use of their resources to deliver their social purpose and objectives. Where such assurances are deemed insufficient, the GCA will reflect this in published governance grades.

The HCA expects effective boards to have clear strategies to control costs and ensure that services are delivered efficiently. It is aware that many RPs intend to continue investing in new homes, partly financed through sales, but also that RPs forecast a reduction in the cost of managing and maintaining existing properties and wants to understand what drives costs and savings without risking the delivery of objectives, core services to tenants and long term sustainability.

A core indicator of good governance

The VfM self-assessments are reviewed as part of the HCA’s annual stability check and are considered as integral to the IDAs. The resulting importance of VfM is self-evident; the HCA considers it to be a core indicator of good governance.

It is important that the self-assessments are correct and transparent, that decision making processes are in place to ensure VfM can be achieved and the RP’s objectives are being met. The VfM standard has specific expectations that assessments shall:

Set out the absolute and comparative costs of delivering specific services
Evidence of the VfM gains made, and those that will be made in future
Enable stakeholders to understand the return on assets, measured against the RP’s objectives

Get regulatory support from Croftons

Croftons’ specialist Governance and Regulatory team can support RPs in a number of related areas, including:

  • Compliant VfM statements
  • Assets and liabilities registers
  • Governance reviews and decision making processes
  • Board reviews

Contact Jo Savage, Croftons’ Head of Governance and Regulatory, to discuss how we could support your organisation and maintain continued regulatory compliance. Click here to contact Jo.

 


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