Regulatory engagement is the final regulatory framework series publication. It focuses upon our approach towards monitoring compliance and performance of a registered housing agency, and actions we take, when an agency is found to be underperforming or not complying with Performance Standards and other legislative requirements.
Our regulatory framework provides an overview of how regulation and registration works under the
Housing Act 1983 (the Act).
We now present a series of complementary publications that progress to the next level of detail. This document is part of the series.
The Housing Registrar is the administrative unit undertaking the regulatory functions of the Registrar of
Housing Agencies (Registrar).
Our regulatory objective is for agencies to be well governed, well managed and financially viable.
Regulatory engagement is the process by which we monitor agency compliance and performance and, when required, take action in the event of underperformance or failure by an agency to comply.
Our approach to regulatory engagement relies on trust, co-operation and engagement in good faith between ourselves and registered agencies. For regulation to work most effectively we believe a collaborative approach with registered agencies is needed. The stronger and more open our mutual relationship, the more likely we can act proportionately to issues that arise.
A strong regulatory framework identifies and addresses poor performance as well as supporting and promoting best practice. Regulation holds agencies accountable for the management of public and private funds; promotes probity and propriety in the use of resources; and enhances the confidence of tenants, government, private investors and the community in the registered housing sector.
Where a registered agency is not performing well, we investigate and respond to the agency’s circumstances accordingly. In some cases, even though the agency fails to meet certain indicators or targets, there may be no serious cause for concern. Actions to address underperformance and timelines are agreed with the agency and responses are monitored until concerns are resolved.
Whatever the circumstance, it is important for the agency to engage with us as productively as possible to tackle the underlying issues. In many cases, we can gain sufficient assurance of an agency’s intent to remedy underperformance through an acceptance of issues by the agency, and resultant commitment towards identifying and implementing effective solutions.
However, where an agency is unable or unwilling to improve performance, we may choose to apply the
Registrar’s intervention powers as outlined under legislation. In such instances, the overall objective is to ensure necessary changes are made to remedy the underlying difficulties.
We apply a proportionate and tailored approach to the regulation of housing agencies, based upon an assessment of the probability and impact of significant risks to which individual agencies are exposed.
This risk-based approach results in various levels of regulatory engagement with registered agencies.
Similarly, in deciding on the appropriate regulatory action to take, we give regard to the nature and impact of issues raised and the action of agencies to mitigate or resolve risks.
While agencies must comply with regulatory responsibilities and demonstrate performance against
Performance Standards, the level and extent of agency reporting and engagement will differ for smaller,

more static agencies compared to larger, growing organisations.
Further information on risk based regulation is contained in an accompanying guidance document.
Our responsibilities are to carry out values represented by principles of good regulation, as reflected in the publication,
Our regulatory framework . We do this through demonstrating:
> Transparency of process
> Objective decision making based on evidence
> Consultation first approach
> Proportionate response to issues with clear escalatory process
> Consistency in process and actions
> Response to requests for further information, such as reports, in a timely and comprehensive way.
Agency responsibilities include the following:
> Provide compliance and performance reporting as part of the normal regulatory process
> Advise us when circumstances change, eg legislative requirements (such as agency register) and financial information
> Provide open and timely communication
> Give detailed explanations for clear understanding
We also expect a registered agency, when subject to intervention actions, to notify and subsequently keep informed all key stakeholders in regard to issues and actions taken.
Powers of investigation and intervention are available to the Registrar where a registered housing agency breaches legislative requirements or fails to meet Performance Standards.
The Act specifies annual reporting and other responsibilities required of agencies to demonstrate compliance and performance. In addition to specified annual reporting, the Registrar can request reports on the operations of an agency at any time in response to specific non compliance or issues arising from regulatory engagement.
When further information or action is required to satisfy the Registrar of the agency’s compliance or performance, the following powers are available.
Inspections – can be undertaken by the Registrar to ascertain whether an agency has complied with regulatory responsibilities.
Intervention actions
Recommendations – can be made by the Registrar to the governing body of an agency for the appointment of one or more persons to the governing body.
Appointments
– some instructions by the Registrar relate specifically to the agency appointing one or

more persons to its governing body, or appointing an administrator to control and direct the agency.
Instructions – agencies can be given instructions by the Registrar to take specific action/s.
There may be circumstances where the Registrar is not satisfied all information requested from a registered agency is being provided.
Under Sections 113 and 117 of the Act, the Registrar has powers to appoint inspectors who can enter the premises of a registered agency and search for and seize any relevant documents or evidence the inspector believes, on reasonable grounds, to be connected with a failure to comply with Part VIII of the
Act or the Performance Standards.
Inspections are undertaken in extraordinary circumstances where concerns raised about a registered agency are particularly serious and significant.
Inspectors may require agencies to produce specific documents and provide certain persons to attend interviews conducted by inspectors.
The inspection process is comprehensive. Details around how an inspection is conducted; inspector duties and powers; and matters around the completion and use of investigative reports are covered in a separate guidance document.
Guidelines relating to the exercise of intervention powers by the Registrar have been established by the
Minister for Housing and gazetted in 2005, pursuant to section 130, Part VIII of the Act.
The intervention guidelines outline the broad principles of interventio n in relation to “intervention triggers” the Registrar must be satisfied of before any intervention action is undertaken.
Under legislation, the ability of the Registrar to intervene in the affairs of a registered agency is strictly limited.
The following grounds for intervention set out in subsection 130 (1) of the Act are the only permissible intervention triggers:
> A failure to meet the registration criteria or Performance Standards
> A failure to comply with a requirement or direction under any of sections 91 (updating of agency
Register), 100 (direction regarding complaints), 104 (timing provision of agency reports), 106 (annual declarations), 108 (acquisition of land) or 109 (consent to transfer interest in land)
> An adverse effect (or potential adverse effect) on an agency’s capacity to comply with registration criteria or Performance Standards, or capacity to provide affordable housing, arising from either a change to the agency’s governing instrument or business activities
> A failure to comply with a recommendation of the Registrar concerning an appointment(s) to the agency’s governing body.
Recommendations and appointments to governing bodies
Under Section 131 of the Act, the Registrar may recommend appointments to the governing body of a regi stered agency. In particular, the Registrar, after consulting with an agency’s governing body, may recommend the appointment of one or more persons, whom the Registrar considers to be appropriately qualified.
Powers to make appointments to boards are used only after careful consideration of all circumstances. In appointing a board member, the focus is upon a supportive action, designed to provide an agency with additional skills and expertise to assist in addressing concerns regarding performance.
The power to make appointments is used when it is necessary for the proper management of an agency’s affairs to have an additional board member. Appointees have the same rights and

responsibilities as other members of a registered agency’s board, and their duty is to the agency, and not to the Registrar. However, we keep in regular contact with appointees as part of our assessment of progress against identified issues.
Further information regarding appointments to governing bodies is contained in a separate guidance document.
Instructions
Section 132 of the Act provides for the Registrar to give instructions to a registered agency or governing body members of a registered agency. Instructions can relate to, amongst other things:
> The appointment of an administrator to control and direct the registered agency
> The winding up and distribution of registered agency assets.
Sub-sections 132 (8) and (9) provide that a registered agency or members of the governing body of a registered agency must comply with an instruction under this section.
Under the Act, the appointment of an administrator to a company would be what is called a voluntary administration. Generally, the reason for the appointment of an administrator to a company is to implement a practical way to admini ster the company’s business, property and affairs when the company is in ‘bad shape’.
Winding up, also referred to as liquidation, is a process for winding up of a company’s financial affairs to
‘close down’ the company. It involves distribution of proceeds of liquidation to creditors by a liquidator. A company is usually placed in liquidation either because the company cannot pay debts (ie it is insolvent), or its members want to terminate the company’s existence.
When the Registrar intervenes in circumstances of financial difficulty, the overriding intention is to protect tenant interests and preserve housing stock within the regulated housing sector. In some cases, intervention might result in transfer of agency’s assets and liabilities to another registered agency.
Before issuing an instruction, the Registrar will endeavour to consult with tenants, creditors and other stakeholders on preferred outcomes.
Further information on powers and use of instructions is contained in an accompanying guidance document.
Under the Act, penalty units may apply to a registered agency in the event of non compliance with legislative requirements. This includes, as outlined in legislation, changes of agency Register information; reports on agency operations; and meeting the requirements of an inspector. Penalty units are a criminal penalty that can only be imposed on a registered agency (or its officers) by a court after a prosecution for criminal offences under the Act.
Each compliance matter has a specific number of penalty units. As at 2008-09, one penalty unit was
$113.42. This is indexed annually, so that it is raised in line with inflation. The penalties are determined by multiplying the number of penalty units contained in the legislation by the penalty unit value, rounded to the nearest dollar.
Our regulatory engagement model differentiates between issues arising in terms of potential risk and impact for agencies and the sector as a whole, and whether they are new or reoccurrences, solitary or multiple/systemic.
The model also takes account of advice received from an agency prior to or as an issue emerges.
For most agencies, regulatory engagement is limited to the ongoing regulation process described in our
Compliance and performance publication. However in the course of engagement, non compliance or performance issues for registered agencies to address may be identified. Where these issues require

further action to be resolved, the Registrar takes additional or exceptional steps to monitor, investigate, or as a last resort, intervene in agency operations.

The normal process of ongoing regulation is outlined in Compliance and performance , the second publication in Our regulatory framework series.
The exception process, comprising monitoring, investigation or intervention, is directly linked to concerns about performance or agency non compliance. The type of intervention powers we may ultimately apply during this process is determined by agency performance and compliance assessments.
Our regulatory powers ensure Performance Standards are maintained at an effective level, so viability and reputation of the affordable rental housing sector is protected and publicly funded assets preserved for the purpose for which they are acquired.
We have developed three levels of regulatory engagement relating to the management of performance identified under this model, reflected by increasing levels of severity and seriousness of risk and impact.
> Level 1 - Monitoring and issue resolution generally involving greater level of agency reporting and our monitoring of progress
> Level 2 – Formal investigation/inspection escalating issues and formalisation of processes, actions and communication
> Level 3 - Action intervention resulting in immediate escalation and targeted intervention action
In this model, formal investigation is enacted after monitoring and issue resolution has failed.
In appendix 1, we provide examples of matters that may arise and be managed at the three levels within the model.
This level of our model includes relatively less serious issues acknowledged and most likely readily resolved by a registered agency.
Generally we expect communication with an agency on these issues to involve management staff rather than governing body members. Communication is usually less formal however, where appropriate, may be formalised within a letter to the agency management and board.
Where resolution requires a time span of three months or more, we add an objective to the agency’s current annual regulatory plan to assist us to monitor its implementation.
Unsatisfactory progress may result in a requirement for an agency to develop an implementation action plan and provide additional reporting. Ultimately, if an issue cannot be resolved, we may need to progress to the second level of our model.
This next level relates to significant issues arising from monitoring agency performance and compliance.
These issues are assessed as having greater associated risk and impact, and/or indicating wider matters of concern about an agency, such as major systemic breakdowns or inability to address reoccurring issues compromising capacity to meet Performance Standards.
The first step at this level often involves formal communication by us via a letter seeking a timely response by an agency’s Chief Executive Officer (CEO) and/or chairperson. This formal correspondence may also seek an urgent meeting with relevant agency representatives.
Where agency responses and explanations are considered satisfactory, the outcome may be agreement no further action is required. Alternatively, there may be agreement further short term action is undertaken by an age ncy, and/or changes made to an agency’s current annual regulatory plan to assist us in monitoring progress over a longer time period.
Where responses and explanations are considered unsatisfactory, an option open is the use of our

inspection powers to:
> require an agency to provide specified relevant documents and/or
> require persons involved in agency activities to provide specified documentation or meet with us to answer questions we may wish to ask about the promotion, formation, membership, control, transactions, dealings, business or property of a registered agency and/or
> enter any place (other than a residence) and search for and seize documents or anything that may be connected to an issue under investigation.
The outcomes of an inspection determine whether the matter is raised to the next level in our model.
Critically, an agency’s response when concerns are identified and capacity and willingness to address problems are key factors in determining the nature and level of intervention that follow.
Under formal investigation/inspection, we gather and analyse additional information relating to the issue at hand. This information may satisfy or partially satisfy our concerns, however it may alternatively provide justification for us to intervene. Our decision to move to this stage is generally supported by evidence of serious breaches in the conduct of agency operations. In making our decisions, we often convene an internal case conference to explore our concerns and options regarding actions.
The circumstances may also result in us reaching a judgement that we consider an agency is unwilling or unable to respond in a timely manner to required action plans or advice/recommendations received.
Case conference
A case conference is an internal meeting convened by us with other relevant parties, which may include, for example, a major funding or leasing partner, such as the Office of Housing (OoH), to assess the need for and potential impact of escalating our scrutiny of an agency’s business.
A case confere nce considers concerns in detail; the agency’s ability to independently deal with issues satisfactorily; and any key matters to be considered and addressed where possible if we conduct an inspection or use other powers of intervention.
The outcomes of a case conference are documented, and any recommendation to proceed to an inspection, or use other intervention powers, is formally presented to the Registrar for endorsement before implementation.
This third level of our model is the most intrusive in agency affairs. We treat very seriously any decision to place a registered agency under intervention. At this level we are dealing with matters critical to an agency’s ongoing reputation/credibility, immediate viability or ultimate survival, and/or ongoing registration under the Act – in some cases all of the above.
Communication is formal, and usually between the Registrar and the chairperson of the agency’s governing body. In accordance with published Intervention Guidelines, relevant consultation is undertaken before any actions occur.
The guidelines provide a comprehensive description of this process.
Where intervention occurs with an agency, the agency is closely monitored for an agreed time period.
Such monitoring often results in a more formal program of regulatory engagement, and may also involve additional reporting as required.
Examples of our use of intervention powers include: the appointment of one or more persons to the governing body of a registered agency; the appointment of an administrator to control and direct the agency; and the winding up and distribution of registered agency assets.
It is not possible to provide a list of all possible circumstances where we might use our powers of intervention. However, they are likely to include one or more of the following:

>
A lack of proper prudence, conduct or control in the administration of a registered agency’s affairs
> Any activity that puts the funds or assets of a registered agency at risk or might endanger the security or interests of tenants
> Failure to comply with our statutory powers or serious or continued non compliance with related guidance or requirements
> Persistent or wilful failure to address performance concerns to our satisfaction
> Misuse or misapplication of public, charitable, or other assets or funds
> Failure to operate within the registered agency’s constitution and code of conduct
> Provision of false information to us or to other organisations
> Disclosure of activities that could damage the reputation of the registered agency, or of agencies generally
>
Significant failure to comply with the registered agency’s own policies and procedures
> Persistent unlawful discrimination
> Continued or major breaches of legislation
> Unlawful or unacceptable dualities or conflicts of interest.
Powers of last resort
The Registrar’s powers of intervention are considered to be powers of last resort, only to be used where a registered agency’s ability or willingness to comply with Performance Standards or other legislative requirements is significantly compromised.
An agency is subject to intervention powers when serious performance concerns are identified and we consider:
> the agency is either unwilling or unable to deal with them satisfactorily and/or
> the case raises matters of wider concern and/or
> risks and potential impact involved warrant the use of our statutory powers.
When a registered agency is subject to intervention, we expect the agency to notify its key stakeholders, including funders, of the situation, and keep stakeholders informed of progress in addressing underlying concerns.
Once a decision to apply powers of intervention under the Act has been made, we inform the chair of the registered agency in writing, setting out actions being taken and reasons, implications, and our requirements for addressing concerns identified.
Intervention aims to protect the interests of tenants and the investment of public funds. There are serious repercussions associated with the application of intervention actions for a registered agency.
Once an agency is subject to intervention, the Director of Housing (DoH) is informed and may decide not to allow the agency to bid for funding until problems are resolved. Committed capital funding may be suspended if at risk or there is evidence of impropriety.
Stock transfers from another registered agency or DoH, and partnership and mergers that might result in an agency taking over management of additional properties, would similarly be unlikely to continue under such a scenario. Restrictions may be imposed on stock disposal, depending on specific circumstances.

Under intervention, the registered agency’s board may be required to agree an action plan that specifies actions necessary to address concerns raised within an agreed timescale. Actions required and outcomes expected depend on the nature of concerns, and may over time be reviewed if further circumstances come to light.
The action plan determines the level, nature and anti cipated timetable of the registered agency’s active regulatory engagement, with progress closely monitored against an agreed set of milestones.
In relation to any decisions we undertake around intervention, the registered agency’s board and senior management team is held accountable and directly responsible for problems that have arisen. As a result, we expect a response from the agency’s governance body that shows commitment to working with us in a constructive and positive way. This may include, for example, a demonstrated commitment to working with appointees, where such appointments have been made under our intervention powers.
Our fundamental aim is to resolve matters resulting in intervention actions as quickly as possible. The time this takes however depends on the nature of concerns and the agency’s response. In agreeing to an action plan, the registered agency’s board has first to recognise and accept the problems and how and why they have arisen. We require the board to be clear about actions required and set realistic timescales for delivery.
Before intervention is concluded with a registered agency, we need to be satisfied appropriate remedial action has been taken, that it has had the desired outcomes, and necessary evidence is available to support this.
The nature of remedial action and the time it takes for us to be satisfied it has been delivered effectively, depends on the issues to be addressed – but whatever these are, solutions implemented have to be long term and improvements made sustainable. For some agencies, this may translate to seeking partnership arrangements with other, stronger, registered housing agencies.
In most cases, whatever the nature of the presenting problems, we consider it necessary for registered agencies to address matters relating to governance and management.
When intervention actions are concluded, the Registrar formally advises an agency in writing, generally after meeting with an agency’s governance body and senior management team.
A decision to take an intervention action against a registered agency is made after careful consideration of all possible options. Any use of our statutory powers requires the approval of the Registrar.
It is possible however a registered agency may disagree with judgements made or conclusions reached.
A registered agency has the right to apply to the Victorian Civic Appeals Tribunal (VCAT) for a review of intervention actions implemented.
Conversely, if an agency fails to comply with an instruction given under intervention, the Registrar has a reciprocal right to apply to the Supreme Court to enforce compliance.
This appendix provides examples of circumstances or issues that may arise under specific Performance
Standards in relation to intervention actions. These examples are not meant to be all inclusive, nor reflect that on any occasion they occur within an agency, they will necessarily be classified the same

way across the regulatory engagement model.
Governance
Management of the agency
Housing management and maintenance
> Agency size and/or complexity changes without consideration of need for changes to board/sub-committee structure and/or management team structures
> Unanticipated poor levels of performance against all key performance measures for any particular Performance Standard
> Unanticipated significantly lower level of performance against key performance measures in any given year contrasting with a previous trend of satisfactory performance
> Lack of adequate implementation of board self-appraisal, development and support
> Negative feedback and/or public statements about agency made by external stakeholders - general public or DHS regions
> No evidence of continuous improvement by agency within any financial year
> Failure to meet objective/s within agency regulatory plan
> Contracts/funding agreements not renewed
> Agency does not appoint auditor via vote at Annual General Meeting
> Failure to follow incident reporting procedures to DHS and other relevant parties
> Agency advises key maintenance contractor going out of business
Governance
Management of the
> Demonstrable lack of due process in recruitment of board members and/or staff
> Conflict of interest or potential conflict of interest not being managed at board level - either preventative, or dealing with after any conflict occurs
> Board decisions taken without required quorum
> No minutes or lack of detail/misrepresentation of detail in minutes of decisions/actions taken at board or committee level
> Non achievement of major business plan objectives and targets not well explained by mitigating factors
> Relevant accounting standards not applied by agency to enable a true and fair view

agency
Risk management of agency’s financial position and operational results
> Agency not complying with adequate privacy policies to ensure tenants’ privacy maintained
> Agency not complying with all laws regulating any aspect of its business or operations
> Regulatory reporting requirements not being met, without any adequate explanation
> Failure to implement action plan/s against agency regulatory plan objective/s
Probity
Financial viability
> Privacy Commissioner action due to agency breaches in privacy
> Lack of proper adherence to code of conduct that observes confidentiality of agency’s business transactions
> Loan defaults - agency fails to make payment on time
> Financial reporting inadequate/not timely in containing relevant detail/information (eg balance sheets, cash flow, income and expenditure statements, explanations of variances) or indicates serious issues (eg cash flow insufficient, high gearing, unplanned deficit)
> Significant aspects of financial statements qualified/queried by auditors
Tenancy management > High unanticipated level of voids, evictions, rent arrears, rent writeoffs not otherwise explained/largely explained by agency business model and operations
> Agency not adhering to policies regarding delivery of housing services to tenants in a fair and equitable manner, eg cherrypicking of higher income and/or better behaved tenants
> Agency failing to consult with tenants on issues that affect their housing and ability to make informed choices
> Non compliance by agency with direction to take action to resolve/reduce likelihood of future complaints
> Relevant support services not being provided/coordinated for vulnerable, high need tenants
Housing management and maintenance
> Stock not maintained to a community standard, eg does not meet building, environmental or health standards
> Service schedule standards (eg gas, fire and other safety appliances) not in place
> Agency failing to adequately protect assets (eg insurance)
> Agency failing to respond promptly and appropriately to manage overt risk situations
> Lack of contingency planning by agency for major disasters, serious incidents or health risks (eg asbestos)

Governance > Board fails to take responsibility to rectify issues identified by us or by other regulatory bodies
> Formal allegations of corruption, theft, fraud or incompetence from a reputable source
> Demonstrated favouritism/nepotism in appointments of senior staff/board members
Probity
Financial viability
> Board members making decisions knowingly involving a clear conflict of interest
> Evidence of inappropriateness in contracting out activities
(procurement) without due process
> Short-term agency liabilities cannot be met
> Agency financing operations using capital funds
> Significant and/or breach of loan covenants
> Unanticipated major development project cost overruns, delays or non completion
Tenancy management > Evidence of unsafe/sub-standard properties
> Evidence of breach of Residential Tenancy Act 1997
> Non compliance with direction to remedy complaint with tenant or prospective tenant
Management of agency > Major OH&S breach resulting in serious injuries to staff/tenants or major accidents
> Failure to implement/major departure from business plan
Housing management and maintenance
Risk management
>
>
Failure to deliver high standard stock as per asset strategy
Major stock damage relating to agency stock, eg fire, water, major tenant damage, pests
> Inadequate planning for future asset replacement/maintenance over asset life
> Failure to manage real major risks facing the agency
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