Financial Reporting - External

This section details the external reporting requirements for Housing Associations including legislation.

External Reporting

The three main external reports for Registered Housing Associations (Associations) are their Annual Audited Report and Accounts, the Regulatory Standards Annual Return (RSAR) and their Quarterly Returns. These are required by the Department to ensure financial viability of Associations and ensure the proper management of public funds.

Annual Report and Accounts

Legislation

Housing Associations are required to comply with a range of statutory and regulatory requirements. As a minimum this includes

The Registered Housing Associations (Accounting Requirements) Order (Northern Ireland) 1993 prescribes the format under which Housing Association Accounts should be prepared - (to be amended to reflect abolishment of rent surplus fund and SORP 2014 terminologies).

The Housing (Northern Ireland) Order 1992 Article 19 and The Housing (Northern Ireland) Order 1992 article 20 requires Housing Associations to comply with the legislation above. It enables the Department to lay down accounting requirements for Associations and requires that Associations furnish the Department with a copy of its accounts and auditor's report (management letter) within 6 months of the end of the period to which they relate. Subsidiary Accounts should also be provided within the same timescales.

Statement of Recommended Practice (SORP) 2014 Accounting by registered social housing providers sets out how Housing Associations should apply the new Financial Reporting Standard 102 (FRS 102) which has replaced the previous accounting requirements under UK GAAP. From 1st January 2015, new Financial Reporting Standard 102 (FRS 102) will replace the existing UK GAAP. The 2014 Housing SORP will be effective for financial years beginning on or after 1 January 2015. This has resulted in significant accounting changes and requires accounts to be produced in a new international-style format.

Other Requirements

In addition to the requirements as set out in the legislation, the Department also requires the following:

• The Board should conduct an annual review of the effectiveness of their system of internal control. A statement relating to this review should be included in the audited financial statements. If the Association is the parent company of a group, the statement should refer to the Board's annual review of the internal control systems of the group. The statement should include:

1. An acknowledgement by the Board that it is responsible for the Association's system of internal control and for reviewing its effectiveness;
2. An explanation that such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable, and not absolute assurance against material misstatement or loss;
3. An explanation that the process for identifying, evaluating and managing the significant risks faced by the Association is ongoing; has been in place for the year under review and up to the date of approval of the annual report and accounts; and is regularly reviewed by the Board;
4. A summary of the process the Board has adopted in reviewing the effectiveness of the Association's system of internal controls;
5. A summary of the main policies which the Board has established and which are designed to provide effective internal control; and
6. Information on the process that the Board has adopted in addressing material internal control aspects of any significant problems disclosed in the annual report and accounts. Reference to regulatory concerns should also be considered, where these have led us to intervene in the affairs of the Association.

If the Board cannot comply with any of the requirements of this paragraph it should make a statement to this effect and give an explanation for the statement.

• Notes to Accounts – Income (from Social Housing Activities and other), Operating Costs, Departmental Allowances and Surplus.
  Tables 1-3 - Turnover, operating costs and operating surplus or deficit amend the format of the current tables (Notes A to D) required under the Registered Housing Associations (Accounting Requirements) Order (Northern Ireland) 1993.
  The linked templates are for guidance only. Any additional relevant categories of income should be included in the table.

• Notes to Accounts – Creditors
  All Associations must show any prepayments of rent or services income. An example of how this must be shown is detailed in Table 6 - Creditors – amounts falling due within one year
• Notes to Accounts – Housing Stocks
  An example of how this must be shown is detailed in Table 4 – Housing Stock
• Notes to Accounts – Debtors
  An example of how this must be shown is detailed in Table 5 - Debtors
• All Associations must provide information on Gross Debtors (Technical and Non-Technical) and provision for bad debt. An example of how this must be shown is detailed in Table 5 - Debtors

Finance Guide tables

• Housing Association Guide - Finance Guide tables

Note: In respect of Turnover, operating costs and operating surplus or deficit from social housing activities (Table 2):

It should be noted that technical income includes any income received by the Association from a government agency, i.e. NIHE, Health Trusts etc. Non technical income includes all other monies received by the Association.

Regulatory Standards Annual Return

Associations are required to submit information via the Regulatory Standards Annual Return (RSAR). This information should cover a period of 12 months to 31 March in the current year. Guidance to the RSAR will be sent out with the RSAR annually.

As RSARs are completed to 31 March each year Associations should consider moving their year end date to 31 March. This will bring it into line with other reporting dates and, as the Department will be comparing information provided in all returns received, it would negate the need for Associations to provide explanations or reconciliations between RSAR figures and those in the Annual Report.

Quarterly Returns

All registered Associations are required to submit ‘Quarterly Return’ forms relating to the quarters ended 30 June, 30 September, 31 December and 31 March. Forms must be received by the Department within 6 weeks from the quarter end and it is the Association’s responsibility to comply with these deadlines rather than returns being requested by the Department. For those Associations who do not have a year end of 31 March, they should also submit a 12 month return to 31 March.

• Quarterly Return

The Department may request additional information after receipt of the returns if it is deemed necessarily.

Other Information

Associations must notify the Department of any events which put at risk the financial health of the Association, investment from the Department or other lenders. This would include information on the breach of any bank covenants.

Financial Viability

The Annual Report and signed Audited Accounts, the Regulatory Standards Annual Return (RSAR) and the Quarterly Returns along with any other relevant information are used to assess the financial viability of the Association.

There may be instances where additional information (e.g. cash flow forecasts, management accounts, information on specific items or events) is required and will therefore be requested from the Association by the Department.

Miscellaneous Areas

Financial Services Act 2012

Associations should make themselves aware of the possible implications of the Financial Services Act (FSA) including the Regulated Activities.

The FSA Guidance Note 9 provides information to social housing providers on what activities they may carry out without being subject to FSA regulation or breaching restrictions on financial promotions.

Anyone giving investment advice or arranging deals in investments as part of discussions with potential purchasers, (e.g., in connection with shared ownership or statutory sales) about mortgages and associated products such as endowment policies must be authorised or exempt under the FSA. In general this will mean ensuring that Association staff do not discuss, direct or recommend particular lenders or particular products for potential purchasers. Social housing providers can however offer advice on deposits and general insurance products subject to the conditions outlined in FSA Guidance Note 9.

The FSA may cover investment business carried out by a parent Housing Association on behalf of a subsidiary or by a Housing Association on behalf of another Association. In many cases, the activity may be excluded; however this will not always be the case. All Associations with subsidiaries and a centralised treasury function, and Associations which manage investments for another Association for a fee, must therefore take legal advice about the application of the FSA. Due to the complexities of the FSA it must be emphasised that the points above are only examples and it is the sole responsibility of the Association to seek legal advice about their particular circumstances and how the Act might affect them.

Shared Ownership

Housing Associations must be aware of their statutory obligations when discussing a shared ownership or affordable loan scheme with potential purchasers. Mortgage mediation activity is defined as advising on, arranging or making arrangements with a view to regulated mortgages.
Association staff should not discuss, direct or recommend particular lenders or particular products for potential purchasers. Anyone offering this type of advice must be authorised or exempt under the FSA.

Money Laundering and Associated Legislation

Money laundering means exchanging money or assets that were obtained criminally for money or other assets that are 'clean'. The clean money or assets don't have an obvious link with any criminal activity. Money laundering also includes money that is used to fund terrorism, however it is obtained.

It may not at first appear that the regulations apply to Housing Associations, however, if the Association ever receives sums in excess of €15,000 (or sterling equivalent) as either a single payment or related payments in cash then they could be classed as a High Value dealer and should comply with the regulations. This would mean that they should:

• register under Money Laundering Regulations
• establish and maintain policies relating to money laundering including adequate record keeping and customer due diligence
• appoint a Money Laundering Regulation Officer
• train Staff
• report Suspicious Activity

Even if the Association does not need to register under the legislation, it will retain liability for the following key offences:

• assistance in Money Laundering
• failing to report suspicious activity – as soon as there are reasonable grounds for suspicion
• tipping Off

It is therefore important that all Associations are aware of the threat of Money Laundering and put in place steps to protect against it.

Serious Organised Crime

Housing Associations must ensure they are aware of the possibility of organised crime within their organisation. Organised crime generally involves a group of people or an organisation that commits criminal activities for financial gain. Organised crime can cover a range of areas including money laundering. The Organised Crime Task Force (OCTF) was set up in 2000 to help tackle organised crime in Northern Ireland. The OCTF works in partnership with law enforcement agencies including the police, the National Crime Agency and government departments, to develop strategies and actions to address organised crime in Northern Ireland. The main areas of current crime threats and further guidance can be obtained from the OCTF website.

Any suspicions of criminal activity should be reported to PSNI. The National Crime Agency (NCA) is now fully operational in Northern Ireland. The NCA work alongside the PSNI to tackle serious and organised crime in Northern Ireland, in line with the provisions contained in the Crime and Courts Act 2013 (National Crime Agency and Proceeds of Crime) (Northern Ireland) Order 2015. Further information is available from the NCA, PSNI or OCTF website.

The Bribery Act 2010

Housing Associations must comply with the Bribery Act 2010 and ensure that there are adequate measures in place to eliminate the risk of bribery occurring within the organisation.

The act covers the offering, promising or giving of a bribe (active bribery) and the requesting, agreeing to receive or accepting of a bribe (passive bribery).

Under section 7 it is an offence, which can be committed by commercial organisations, to fail to prevent persons associated from committing bribery on their behalf. The onus remains on the organisation to prove that there are adequate procedures in place to prevent bribery.

Section 6 of the Act sets out the conditions around the offence of bribery of a foreign public official in order to obtain or retain business or an advantage to the conduct of business. It is considered a bribe if there is an intention, for a financial or other advantage, to influence an official in their role in order to secure business or a business advantage.