Agenda item 3a
SWAN GROUP
AUDIT & RISK COMITTEE
MINUTES OF THE MEETING HELD ON 23 JUNE 2015 @ 2 PM
Present:
Members:
Peter Baynham (Chair); Rashid Khilji; Alan Palmer and Doug
McCann
Officers:
Jamie Smith (Deputy Chief Executive); James King (Financial
Controller); Jan Collier (Committee Secretary).
Also in
attendance:
Paul Naylor – Grant Thornton
Jayson Lawson – Grant Thornton
37/14/15
APOLOGIES FOR ABSENCE
No apologies received – all Members present.
38/14/15
DECLARATIONS OF INTEREST
Rashid Khilji declared an interest as Non-Executive Director of Paradigm Housing
Group and as Chair of their Audit Committee.
Peter Baynham declared an interest as Non-Executive Director of Victory
Housing Trust and as a member of the Audit Committee for Victory Housing
Association. He also declared an interest as Non-Executive Director of Radian
Group.
39/14/15
APPROVAL OF MINUTES AND MATTERS ARISING
MINUTES OF THE AUDIT & RISK COMMITTEE HELD ON 28 APRIL 2015
AGREED:
That the minutes of the Audit & Risk Committee meeting
held on 28 April 2015 be signed as a correct record.
MATTERS ARISING/ACTION SHEET
Alan Palmer referred to minute number 31/14/15 – Risk Management Update –
deep dive review – Treasury – paragraph 1 and said that the bond should have
been shown with a value of £250m and a coupon rate of 3.625%. Rashid Khilji
declared an interest with regard to the bond issue, as it will eventually be
registered with the UK Listing Authority which is a department within the
Financial Conduct Authority of which he is an employee, although he confirmed
that he had no direct involvement in that area.
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The Chair referred to the action sheet and the first item of which related to a risk
workshop. He said that there was a brief introduction at the recent Board
Awayday but following discussion with the Chair of the Board still felt there
needed to be another risk management workshop including all Board/Committee
Members and he would speak to Jamie Smith about this outside the meeting.
Jamie Smith said that he was carrying out risk management training for Resident
Committee Members who sit on the Operations Committee and suggested
carrying out a wider risk management workshop after they had received the
basic training.
Committee effectiveness – Jamie Smith said that an assessment of committee
effectiveness had been carried out as part of the recent Committee appraisal
process, and the training carried out earlier today was part of that. The
Committee effectiveness will be picked up again in the next round of appraisals,
as well as a review of the Terms of Reference. The Chair said that he would
circulate an email to Members regarding how the Committee operates and one
suggestion was to include the risk item earlier on the agenda.
Alan Palmer referred to the advice received from Devonshires regarding the
responsibilities of Directors for Swan Housing Capital; Jamie Smith said that this
had been presented to the Swan Board at their meeting on 21 May 2015, where
it had been reviewed and noted. Rashid Khilji noted some anomalies within the
document which Jamie Smith would feed back to Devonshires.
40/14/15
WORKPLAN FOR THE COMMITTEE
RECEIVED the Workplan for the Audit & Risk Committee for 2014/15.
NOTED:
1.
The contents of the workplan;
2.
Jamie Smith said that he was in the process of organising some generic
Development risk training and the workplan would be updated with this,
and any deep dive sessions, when dates had been set.
41/14/15
INTERNAL AUDIT RECOMMENDATION TRACKER
RECEIVED the Internal Audit Recommendation Tracker from Jamie Smith.
NOTED:
1.
The contents of the report;
2.
One action was in progress, relating to Development, and it was noted that
all other actions were completed within the timescales, or not yet due.
42/14/15
ANNUAL REVIEW OF THE INTERNAL CONTROLS ASSURANCE
RECEIVED a report from Jamie Smith summarising the assurance the Audit &
Risk Committee and the Boards can take from the Group’s internal control
systems when approving the financial statements.
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NOTED:
1.
The Committee noted the contents of the report and that the various
sources of assurance were presented in the form of an ‘assurance map’ in
appendix 1 to the report;
2.
Jamie Smith confirmed that there had been no material changes, apart
from a slightly better report from Baker Tilly regarding Swan’s internal
controls and an update to the section regarding the governance rating;
3.
The Chair referred to paragraph 3.2 where it states that the Chair of the
Audit & Risk Committee would not be the Group Chair or Vice-Chair. This
would be amended accordingly.
43/14/15
FINANCIAL STATEMENTS 2014/15
RECEIVED a report from James King summarising the Group entities for which
financial statements have been prepared by Swan’s Finance team and audited by
Grant Thornton.
NOTED:
1.
The Group reported a turnover of £82.0m, a deficit before tax of £(15.1)m
which includes £(24.9)m of exceptional loan capital restructuring costs
associated with the bond issue and net assets of £315.0m;
2.
The valuation had increased this year by £70m because of the change in
discount rates and forecast house price inflation;
3.
Alan Palmer said that he had some detailed points which he would share
with James King after the meeting, but said that he felt disappointed that
the wording was too similar to that of last year. He also noted that the
accounts frequently referred to the Corporate Strategy instead of describing
an issue, which would make the statement more meaningful;
4.
Doug McCann noted that the accounts referred to the Audit & Risk
Committee as having three Board Members and one Independent Member
which was incorrect; James King said that this would be amended
accordingly;
5.
Doug McCann asked about Hera’s loss showing in the Group accounts and
what was being done about it. Jamie Smith said that this was picked up in
the front pages of the accounts and confirmed that the operations
committee and the board were responsible for reviewing strategy in this
area;
6.
Alan Palmer referred to the customer satisfaction results which were red
and amber and felt that there should be an explanatory comment and a
statement to show what was being done about it. Jamie Smith said that
the detailed Value for Money Statement sits next to the accounts. The
Chair said that the question was whether more explanation was needed
especially when the result were not as they should be, which would
mitigate the need for having other documents sitting outside of the
accounts;
7.
Alan Palmer asked whether comparisons had been made with other Housing
Associations’ Value for Money Statements. Jamie Smith said that the
Housing Quality Network (HQN) advised on Swan’s Value for Money
Statement last year regarding the approach taken and the Regulator was
also satisfied with it.
Paul Naylor felt that Swan’s Value for Money
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Statement read well and it can be followed better than others that he had
seen over the past few months.
AGREED:
1. To take appropriate assurances from the internal controls
assurance statement and Grant Thornton’s audit findings report
when recommending to the Board that it approves the financial
statements;
2. To delegate authority to the Deputy Chief Executive to make nonmaterial amendments to the financial statements between now and
the Board meeting. The Deputy Chief Executive will inform the
Committee of any material adjustments (note none are anticipated)
and seek approval outside the Committee cycle.
44/14/15
AUDIT FINDINGS
RECEIVED the Audit Findings report from Paul Naylor and Jayson Lawson.
NOTED:
1.
The contents of the report;
2.
Paul Naylor reminded the Committee of the report presented in February
2015 which identified what the key audit risks were. There had also been
discussion around the focus of Grant Thornton’s work; the audit findings
report goes back to every risk discussed and whether anything had been
found;
3.
Paul Naylor informed the Committee that the audit process had been very
good this year, even better than last year, and this was reflected in the
audit findings. The accounts had been prepared in time and information
had been readily available, barring the valuations from Savills;
4.
The status of the audit was explained and Paul Naylor confirmed that there
were currently no matters of which they are aware which would require
modification of their audit opinion, subject to some outstanding matters
which were detailed on page 5 of their report. The Committee were also
advised that the accounts had undergone a technical review and although
some points were raised, there was nothing that would alter the figures in
the accounts. Because of the bond there was a little more work to be
carried out around disclosure and sensitivities associated with the financial
instruments.
5.
Jayson Lawson went through the audit findings from page 6 of the report;
6.
Improper revenue recognition – the policies had been reviewed and all
revenue streams had been tested and no issues were found. Doug McCann
noted the developments that had completed by 31 March 2015. Jayson
Lawson confirmed that all units had completed and recorded appropriately
by 31 March 2015 timescale;
7.
Housing properties – valuation gross – the capitalised repairs had been
reviewed and £1m had not been allocated to individual properties but
spread across all qualifying properties.
Although the total level of
capitalised costs was correct, by allocating all cost to ‘structure’ they are
depreciated over 125 years. Alan Palmer asked approximately how much
of the £1m related to components; Jamie Smith said that this was a piece
of work that needed to be done to get the balance right and work would be
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8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
carried out this year to find a sensible solution, it was however, noted that
the impact on the accounts this year was not material;
The discount rates used by Savills had been benchmarked but were found
not to be significantly different to other Housing Associations. It was noted
that there was no management response in the report because assurances
were still being sought from Savills until just before the meeting and Jayson
Lawson confirmed that it would be updated before they sign the accounts;
Housing properties – valuation net – there was nothing new from the prior
year. Previously Cambridge Road scheme had been impaired but Swan
now had a scheme in place that works for the business. Other schemes
where there is negative NPVs were offset by surpluses on future phases
therefore overall there was no impairment;
Paul Naylor referred to points 13 and 14 within the report and exceptional
costs. He said that there was a very large number going through the
Income and Expenditure account and would be ‘picked out’ of the interest
payable line. Paul Naylor said that Grant Thornton’s technical team said
that they were keen, where there are exceptional items, that the figure
should be ‘boxed’ showing the total amount payable;
The £2.2m costs incurred in relation to the new bond issue was discussed
and Paul Naylor confirmed that Grant Thornton’s technical team confirmed
that it was acceptable not to spread the costs over a period of more than
one year;
Within the bond there was a separate vehicle (Swan Housing Capital).
Accounts had not been prepared for this company this year as it was able
to extend its first accounting period to 31 March 2016, which avoids any
issues that may have been encountered under FRS26. The Committee
asked that this is reported to Board and recommended that no accounts are
filed for the accounting period to 31 March 2015;
There were no misstatements;
The Chair asked about the restated set of accounts for FRS 102 and it was
confirmed that this would be carried out in November 2015. Paul Naylor
confirmed that Grant Thornton would review them, including a review by
the technical team and this will be completed in good time;
Doug McCann referred to the £600k for the lateral mains issue. Jamie
Smith confirmed that a settlement agreement was with the lawyers and
should be paid in the next week;
The Chair referred to the amounts owed to Newham Council, page 23 of the
report, and James King explained the history behind this payment and how
it was being dealt with;
Doug McCann noted that there was no mention of the pensions shortfall
risk. Jamie Smith said that there was a plan in place to deal with under
FRS102. James King said that the amount is included within the accounts
and Paul Naylor confirmed that it was not a risk from an audit point of view
45/14/15
FRS 102 UPDATE
NOTED:
the discussions held earlier on the agenda.
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46/14/15
RISK MANAGEMENT UPDATE
RECEIVED a report from Jamie Smith providing Members with an update of the
key risks facing the business.
NOTED:
1.
The contents of the report;
2.
There were 18 risks scored as red compared with 18 at the last meeting.
Jamie Smith confirmed that these risks were being actively managed to
ensure that they were being mitigated;
3.
One of the development risks (386) had been downgraded to amber as
Swan had the land now;
4.
There was a new risk regarding Blackwall Reach as Swan were still trying to
negotiate the legal position around the land transfer;
5.
A new red risk would be presented at the next meeting regarding market
sensitive information;
6.
Jamie Smith informed the Committee that there was some concern around
Repton Court scheme as there were 15 units that may miss the completion
cut-off date; the GLA had been informed and it was expected that they
would be amenable to a further extension of the date.
47/14/15
INTERNAL AUDIT REPORTS
NOTED:
that there were no internal audits to present at this meeting.
48/14/15
REVIEW OF FRAUD REGISTER
RECEIVED AND NOTED.
Jamie Smith referred to an attempted fraud which was included within the
register and which had been picked up via Swan’s internal processes.
49/14/15
ANY OTHER BUSINESS
The Committee discussed the deep dive reviews they would like presented, as
follows:
1.
2.
3.
4.
IT (tied in with the internal audit report)
Development (after they had received their training)
Value for Money (in particular assurance regarding the numbers reported)
Welfare Reform (carried out later in the year in advance of the roll out of
Universal Credit)
50/14/15
CLOSED
SESSION: MEETING
MANAGEMENT PRESENT
WITH
Officers left the meeting at 3.55 pm
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THE
AUDITORS
WITHOUT
51/14/15
DATE AND TIME OF NEXT MEETING
The next meeting of the Swan HA, Swan New Homes, Swan Commercial
Services, Vivo Support and Hera Management Services Audit and Risk
Committee will take place on 1 September 2015 at 2.00 pm at Tramway House,
Stratford.
The Chair closed the meeting at 4.10 pm.
……………………………………………Chair
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