Financial Reporting - Internal

This section outlines the internal financial reporting requirements within Registered Housing Associations (Associations).

Reporting as a method of control

Associations are independent bodies responsible for their own performance and management; however they must have appropriate financial and other management controls applied to safeguard public funds.

The management and the Board of Associations rely on financial reports to understand the financial position of the Association and to assist them in the decision making process.

Internal Reports

Examples of the type of Internal Reports that should be prepared and used by management and the Board include:

Management Accounts

These should ideally be prepared monthly by a developing Association, but a minimum frequency of quarterly for all Associations. Management Accounts should contain as a minimum a Statement of Financial Position, a Statement of Comprehensive Income, a narrative overview of performance (e.g. explanations for variances from budgets) and a cash flow. They should without fail be presented to the Board (or a sub committee of the Board) for examination. Ideally individual departments (budget holders) should also be made aware of their financial performance against budget.

Budgets

Budgets must be prepared annually by each Association and should cover a minimum period of one year. Assumptions used should be adequately detailed to ensure the Board are fully informed and assist them in their challenge function. Budgets should be prepared and agreed by the Board in advance of the financial year to which they relate. Long term budgets should be prepared to support the long term strategic direction and asset management strategy of the Association.

Budgets should be a realistic estimate of income and expenditure and maintenance budgets should be based on an up to date stock condition survey. Budgets should be compared against actuals for Management Accounts purposes. For best practice, Associations should utilise zero based budgeting across income and expenditure lines to ensure allocation of resources based on needs and benefits, rather than history. This can also help identify potential cost savings and result in more accurate forecasting. The split during the year should reflect the expected timing of items (i.e., it should not be the annual total divided by twelve, unless equal monthly income or expenditure is expected).

Associations should consider re-forecasting their budgets on a quarterly or six monthly basis if significant changes are required.

Cash Flow Projections

All Associations should prepare monthly cash flow projections for a minimum period of one year, on a rolling basis. Cash flow balances should reconcile to bank statements and the management accounts. Associations should also have a long term cash flow to support long term strategic plans.

Key Performance Indicator (KPI) Reports

Reports are required to monitor the performance of the Association on key areas impacting financial performance such as Voids, Arrears and Payments. Arrears should be calculated and reported in line with the guidance in the Housing Management Section of the Guide.

Internal Audit Reports

Reports appraise the performance of the Associations’ existing policies and procedures and where necessary recommend improvements to the Board or appropriate sub-committee. The internal audit programme should be directed and ratified by the Board or Committee. All internal audits should be conducted in compliance with IIA internal audit standards.

New Scheme Commitments

The Board must be made aware of all new scheme commitments entered into by the Association. This should include details of the scheme, the number of units and the total value for each of the following categories:

• new schemes identified at risk;
• schemes contractually committed at risk;
• scheme submissions submitted to NIHE (DPG);
• scheme approvals received.

The following information should also be provided:

• impact on cash flow
• borrowing capacity

Banking Covenants

All Associations should track their Banking Covenants to ensure that they are not breached or likely to be breached. This should be demonstrated to their Finance Committee and Board.

All of the above reports should be presented to the Board to ensure that they are fully aware of the financial position of the Association and to assist them in the decision making process.