How To … account for success

These days, registered social landlords face an ever-increasing workload and a more complex business environment. Add in skills shortages and the constant pressure to reduce costs, and it is easy to understand how errors can occur.

Although there is now a wealth of practical guidance to draw upon, it is also evident from those that have recently run into difficulties that sometimes even the best-run housing association can get overloaded or fail to see the wood for the trees.

Every organisation has its own unique issues and risks to manage and there is no universal panacea for success, but deal effectively with these 10 issues and you should give your RSL a fighting chance of avoiding major catastrophe.

1: Get the right staff for the job
Ensure your association has suitably skilled and qualified staff and board members supported by an effective mechanism for performance review and development of everybody, including the chair of the board. In all but the very smallest RSLs, the finance director should be a professionally qualified chartered accountant.

2: Prepare to challenge
Board members should ensure that reports received are clear and unambiguous, provide a full explanation of the issue in hand and that they understand all aspects of the matter reported and the nature of the decision required. Constructive challenge should be encouraged and each board member should ensure that they receive training and periodic updating so they are able to fulfil their responsibilities.

3: Set the boundaries
The board should set out clear, quantified boundaries to approved activities, ensuring that these are clearly stated in corporate strategies and operational plans. These plans and strategies should be reviewed annually to ensure they remain relevant, realistic, are within the financial and operational capacity of the RSL, and that the risk exposure is acceptable. Staff should only pursue activities that are consistent with those set out in the strategy.

4: Take the long-term view
All material business decisions should always be set in the context of the long-term business plan, incorporating both an asset management plan based on up-to-date stock condition information and all current regulatory requirements. Any new proposal not already included in the approved business plan should be incorporated into the plan, and the impact assessed, before a decision to proceed is taken.

5: Diversify with care
If embarking on areas of diversification or new business, ensure appropriate skills are available and that risk exposure is tightly managed.

There should be enough information to ensure the board retains control, but reports shouldn’t be excessively detailed

In particular, the board should set clear, measurable and objective success criteria for these activities, ensuring that the outcome of initial projects is properly understood before committing to further activity.

6: Make sure the board owns the business plan
The long-term (meaning 30 years or more) business plan should be discussed at board level in some detail at least twice a year. Board members should read hard copies of the detailed financial projections, key assumptions and a range of sensitivity tests. The projections should include a comparison of forecast financial ratios with covenanted levels over the life of the plan.

7: Remember that cash is king
A rolling two-year cashflow forecast should be reviewed every quarter. It should be reconciled to the business plan and budget, and should include year-to-date comparisons with previous forecasts and reasons for all material variances.

For major cashflows, the forecast should differentiate between fixed commitments and changeable assumptions and explain all anticipated sources of finance, whether committed or yet to be negotiated loan facilities, or existing facilities where conditions precedent have not yet been met (in other words, highlighting clearly any financing risk exposure).

8: Make sure information informs
Summary management accounts and performance information should be reported to the board each quarter. These should include year-to-date spend/income figures with all material variances explained and a forecast of the full year out-turn, also with a analysis of significant variances. The long-term business plan impact should be set out where relevant.

It is important that the amount of information is enough to ensure the board retains control, but reports should not be excessively detailed. Exception reporting is a useful mechanism for focusing attention on key matters. The information pack should include:

• income and expenditure account
  
• balance sheet
  
• cashflow (historic and forecast)
  
• statement of actual/forecast loan covenant compliance
  
• key operational and financial performance indicators.

9: Hear your watchdog's bark
The board must ensure that all agreed internal and external audit actions are implemented promptly and should formally monitor progress in doing this at least every quarter. The audit committee should meet in camera with both internal and external auditors once per year. A long list of pending audit actions usually indicates problems.

10: Take advice when necessary
The board of all RSLs with a material level of gearing (more than 40%, say), or a significant absolute level of debt (above £20m, perhaps), should take expert external advice on management of the loan portfolio and a review of loan terms at least once every year.