The Homes and Communities Agency (HCA) has published a regulatory judgement stating that the Gentoo Group now complies with the ‘Value for Money’ standard but has shown concern around other issues.
According to Housing News:
In the regulators last judgement in February 2014 Gentoo was downgraded for failure to address the requirements of the Value for Money standard in a timely and transparent way.
In yesterday’s judgement the HCA declared that Gentoo now complies the standard, however it stated:”Gentoo needs to further strengthen the controls supporting its governance arrangements to ensure continued regulatory compliance. The regulator’s view is that there are some weaknesses in Gentoo’s strategic planning, risk management and board level governance arrangements.”
The key issue identified in the last judgement was Gentoo’s commercial activities outside of social housing, with the judgement stating that Gentoo Group had to “re-focus on the core social housing business.”
The main issues this judgement identified are similar to the issues in the previous judgement.
It states: “Gentoo’s strategic planning processes have not been sufficient to identify future tax liabilities in a timely manner. The nature of these liabilities is such that they could have been anticipated and therefore we are not assured that Gentoo’s planning processes are adequately identifying and managing risk.
“Gentoo has not evidenced that it has adequately identified and quantified the extent of the cumulative risk exposures from all its business activities. As a result we have been unable to get sufficient assurance that risk management and internal control frameworks are adequate to manage a number of exposures crystallising in combination.”
“We do not have sufficient assurance that the board of Gentoo Sunderland is able to fully perform its role of protecting its social housing assets in the context of it being a subsidiary of a diverse group which is involved in a material level of commercial activity. It has not evidenced that its membership has the right level of skills or experience to influence financial and treasury decisions taken at group level involving its assets. Additionally the structural mechanisms through which it influences those decisions are not as effective as they could be.”
In its assessment of the financial viability of the company the regulator has confirmed that it’s analysis is unchanged with the financial plan consistent with the business strategy of the company which is based on reasonable assumptions.
However, the HCA has identified three possible exposures which could impact Gentoo Group’s viability:
- The first relates to a significant and increased housing sales programme. Sale receipts provide a sizeable contribution to the group’s forecast surplus over the next five years. Projections appear optimistic in light of recent performance. The group recognises that failure to achieve budgeted sales targets remains a key risk but has not considered the impact of this in combination with wider organisational risks.
- The second exposure arises from the nature and scale of losses being incurred in some of the unregistered subsidiaries. Non-social housing activity as a whole has produced a substantial net deficit.
- The third relates to a material tax liability that has arisen which is only partially provided for in 2014/15 and there is no provision in subsequent years.
John Walker CBE, Gentoo Group Chairman said: “Our approach to value for money is now back on track and the Homes and Communities Agency (HCA) has recognised us as compliant in this respect.
“At Gentoo we are committed to achieving high standards in everything we do. The latest regulatory judgement does highlight some issues that we are working on closely with the HCA to prioritise and address as soon as possible.”
Gentoo’s ratings remain unchanged:
- Properly Governed: G2
The provider meets the requirements on governance set out in the Governance and Financial Viability Standard, but needs to improve some aspects of its governance arrangements to support continued compliance. - Viable: V2
The provider meets the requirements on viability set out in the Governance and Financial Viability standard but needs to manage material financial exposures to support continued compliance.