ITEM 4 Audit Strategy Memorandum - … The Gateshead ... — Planning — Control evaluation ... etc.) and auditing (Audit Committee responsibility for audit and auditor oversight;

Audit StrategyMemorandum

The Gateshead Housing Company LimitedYear ending 31 March 2017

To be presented to the Audit Committee on 3 May 2017

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Document Classification: KPMG Confidential

© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

ContentsPage

Introduction and audit approach 2

Executive Summary 3

Key audit judgements and areas of focus 4

Audit risks and how they are addressed 5

Materiality 7

Audit timeline 8

Responsibility in relation to fraud 9

Audit management 10

Appendices:

1. Mandated Communications with the Audit Committee

2. Auditor independence

3. Quality control procedures

4. Sector update

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The contacts at KPMG in connection with this report are:

Nick Plumb

Audit Partner

Tel: 0191 401 [email protected]

Daniel Gibson

Audit Manager

Tel: 0191 401 [email protected]

Basis on which information is providedTo a certain extent the content of this memorandum comprises general information that has been provided by, or is based on discussions with, management and the Board of The Gateshead Housing Company. The information in this document has not been verified except to the extent required for the purpose of our audit.This document is provided on the basis that it is for your information only, that it will not be quoted or referred to without our prior written consent, and that we accept no responsibility to any third party in relation to it.

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We undertake our work on your financial statements in four key stages:

— Planning

— Control evaluation

— Substantive procedures

— Completion

Introduction and audit approach2016/17 Audit Strategy

This document has been prepared for presentation to the Gateshead Housing Company (‘the Company’) Audit Committee.

It sets out our proposed approach to the audit of the financial statements of the Company for the year ending 31 March 2017.

In particular, this paper:

■ Describes our overall strategy and scoping;■ Our approach to materiality; and■ Identifies the significant risks and areas of focus to be addressed by

our audit.

We have also included details of the timeline of our audit, key members of our audit team and our proposed audit fee.

In addition, this document addresses the provisions of International Standard on Auditing (UK and Ireland) (‘ISA’) 260 – ‘Communication of audit matters with those charged with governance’ (see Appendix 1 for a summary of mandated communications with the Audit Committee.

The document has been prepared in the context of an environment in which there is considerable focus on governance, and in particular, in relation to accounting and reporting (full and fair disclosure, appropriateness of accounting policies, etc.) and auditing (Audit Committee responsibility for audit and auditor oversight; auditor’s independence, etc.).

In this context we welcome input to our strategy (and its subsequent approval) by the Audit Committee.

PURPOSE OF THIS REPORT

THE PURPOSE OF OUR AUDIT

The main purpose of our audit, which is carried out in accordance with International Standards on Auditing (ISAs) issued by the Auditing Practices Board, is to issue a report which expresses our opinion on whether the financial statements:

■ give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of affairs of the Company as at 31 March 2017 and of the income and expenditure of the Company for the year then ended;

■ comply with the requirements of the Companies Act 2006.

OUR RESPONSIBILITIES AS AUDITOR

In relation to the statutory audit we will provide an independent audit opinion in accordance with ISA (UK and Ireland) on the Company’s financial statements for the year ending 31 March 2017. Our procedures are not designed to detect or disclose errors or irregularities which are not material in relation to the Company’s financial statements.

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Executive summary of our strategy2016/17 Audit Strategy

AUDIT RISKS

The key areas of our focus will be around the following areas:

• Valuation of pension scheme liabilities;

• Revenue recognition, including fraud risk; and

• Risk of management override of controls

We will scrutinise any unusual accounting transactions which materiallyimpact the financial statements and, to the extent relevant, will considerthe impact of the new business model for 2017/18.

Pages 4 - 6

MATERIALITY

We have used revenue as the benchmark for setting revenue.

Materiality has been set at £750,000, which is equivalent to 2% of 2016/17forecast turnover.

We will report all individual errors in excess of £37,500.

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!

The timeline and approach is outlined in this document on page 7.

Our interim audit took place in March 2017, with the final auditcommencing in June 2017.

TIMELINE, APPROACH AND DELIVERABLES

INDEPENDENCEIn accordance with ISA 260 ‘Communication of audit matters with thosecharged with governance’ and the APB Ethical Standards, we are required tocommunicate to you all relationships between KPMG and the Company thatmay be reasonably thought to have bearing on our independence both:

■ At the planning stage; and

■ Whenever significant judgements are made about threats to objectivityand independence and the appropriateness of safeguards put in place.

KPMG conforms to the highest governance standards at all times and wewill ensure that any additional services do not impair our independence aspart of agreeing any engagement to ensure transparency in our relationship.

Page 13 contains our confirmation of independence and other mattersrelevant to our independence.

Total fees charged by us for the period ended 31 March 2016 werecommunicated in our Audit Highlights memo issued in July 2016. Total feesfor 2017 will be presented in our Audit Highlights memo issued oncompletion of our 2017 audit.

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We have set out opposite and on the following pages the key audit judgements and focus areas, and our audit approach to each of these.

We discuss our approach to these items on the following slides.

Key audit judgments and areas of focusAudit Overview

No.Significant audit risks that ISAs require us to raise in all cases

1 Risk of management override of controls1

Less

Mor

eLe

ss

MoreLikelihood of something going wrong

Sig

nific

ance

of

pote

ntia

l fin

anci

al s

tate

men

t im

pact

2

3

No. Identified audit risks

2 Valuation of pension liabilities

3 Revenue recognition, including fraud risk

4 2017 Changes at the Housing Company

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Audit risks and how they are addressedAudit Overview

Audit risk What is the risk? How is the risk addressed through our audit?

Valuation of Pension liabilities

The valuation of Local Government Pension Schemes relies on a number of assumptions, most notably around the actuarial assumptions.

FRS102 requires the valuations to be prepared following the requirements of IAS 19, the international standard for pensions. The different actuarial firms involved in valuing pension liabilities in the sector adopt a range of assumptions. From recent experience we have found that the discount rate and inflation assumptions can be problematic and have in some instances led to an overly prudent valuation figure.

It is therefore critical that the assumptions reflect the profile of the Company’s employees, and are based on the most recent actuarial valuation. It is also important that assumptions are derived on a consistent basis year to year.

For pension valuations prepared following the approach under IAS 19 we will

■ Circulate a questionnaire to the actuaries to confirm their qualifications andthe basis for their calculations.

■ As part of our audit, we will need to agree the data provided to the actuaryback to the systems and reports from which it was derived, and test theaccuracy of this data.

■ Review the actuarial valuation and consider the disclosure implications.

■ Compare the assumptions made by your actuaries with benchmarks, whichare collated by our KPMG actuaries, and to the assumptions used for theprior year for consistency.

■ Agree the assets held in any client specific schemes at the year end to thirdparty confirmations.

Fraud risk from revenue recognition

Professional standards require us to make a rebuttable presumption that the fraud risk from revenue recognition is a significant risk.

In the context of the Housing Company’s audit we do not consider this to be a significant risk of fraud as there are limited incentives and opportunities to manipulate the way income is recognised as revenue is governed by the management agreement with the council.

Although we have rebutted the presumed risk of fraud on income, our audit team will remain alert to indications of fraud during the course of the audit, and will respond accordingly.

We will test income through agreement to the contract with the council and will appropriate scrutinise the Company’s recognition of other income in the financial statements.

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Significant risk What is the risk? How is the risk addressed through our audit?

Risk of management override of controls

Professional standards require us to communicate the fraud risk from management override of controls as significant because management is typically in a unique position to perpetrate fraud because of its ability to manipulate accounting records and prepare fraudulent financial statements by overriding controls that otherwise appear to be operating effectively.

We have not identified any specific additional risks of management override relating to this audit.

Our audit methodology incorporates the risk of management override as a default significant risk.

In line with our methodology, we will carry out appropriate controls testing and substantive procedures, including over journal entries, accounting estimates and significant transactions that are outside the component's normal course of business, or are otherwise unusual.

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Management have made us aware of the significant changes at the Housing Company which took place at the beginning of April 2017.

This slide sets out the impact on our 2016/17 audit approach.

We anticipate that these changes will significantly impact our audit strategy and approach for the 2017/18 audit and we will continue to update our understanding of the changes in operations of the Housing Company during the course of our audit.

Overview

Management have made us aware of the significantchanges at the Housing Company which took place at thebeginning of April 2017.

We anticipate that these changes will significantly impactour audit strategy and approach for the 2017/18 audit andwe will continue to update our understanding of thechanges in operations of the Housing Company during thecourse of our audit.

We understand that the changes include:

Cessation of the Mears management contract as at 31 March 2017

Transfer of development contracts to the HousingCompany

TUPE of c.250 Mears employees and c.150 councilconstruction employees to the Housing Company

Increased funding for the Housing Company agreed tocover the capital programme as well as maintenanceand repairs

Restructuring of support functions including expandedcorporate services and use of the council’s financeexpertise.

Expansion of the board of directors to include furtherroles in order to effectively oversee expandedoperations.

2017 Changes at the Housing Company ( )Audit Overview

2016/17 Audit approachAs part of our 2016/17 audit we will include the followingprocedures in our audit approach:

Understand the terms of the finalisation of the contractwith Mears and assess whether there are any amountsreceivable or payable outstanding under the terms ofthe contract which might require recognition in the2017 financial statements.

Obtain an understanding of the funding agreed for 2017and beyond, when funds will be received and anyterms on which funding is contingent.

Understand the basis on which 2017 forecasts havebeen compiled and appropriately test these as part ofour assessment of going concern. This will includemaking an assessment of whether agreed funding hasbeen accurately captured and whether forecastexpenditure is reasonable – in terms of both timing andamount.

Assess whether any amounts provided in respect ofvoluntary redundancies are complete and appropriateand meet the accounting requirements for recognition.

During our audit we will also update and further ourunderstanding of the changes in order to inform our2017/18 audit scope and approach.

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We have considered the appropriate level at which to report audit differences for discussion with the Audit Committee.

This is a matter of professional judgement and includes consideration of three aspects: materiality by value, nature and context.

Our materiality level, set at £750,000 represents the level at which we think misstatements will reasonably influence users of The Gateshead Housing Company’s financial statements.

Our audit work is planned to detect errors that are material to the accounts as a whole.

Materiality and reporting of audit differencesAudit Overview

Materiality

We consider quantitative and qualitative factors in setting materiality and in designing our audit procedures.

Materiality has been calculated based on forecast turnover for 2016/17.

Materiality has been set at £750,000 which is 2% of forecast turnover (2015/16: 2% of turnover). This will be revisited at the year end audit to ensure it remains appropriate.

We design our procedures to detect errors at a lower level of precision, i.e. £562,500, and we have some flexibility to adjust this level downwards for items which are judgemental.

We will report identified errors greater than £37,500 to the Audit Committee.

Reporting to the Audit Committee

To comply with auditing standards, if applicable, the following three types of audit differences will be presented to the Audit Committee:

— adjusted audit differences

— unadjusted audit differences; and

— disclosure differences (adjusted and unadjusted)

20170

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10

15

20

30

2016

Source : forecast (2017)

£37,500

£562,500 75%

5%

Overall materiality

Procedures designed to detect individual errors

Individual errors reported to Audit and Risk Assurance Committee where identified£750,000

Company revenue

£37.5m

25 £750,000

£35.4m

35

40

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Overview

Our approach to the audit is based on understanding and assessing the Company’s structures and processes for decision-making, accountability, control and behaviours and weaknesses and identifying those risks that can affect the financial statements. We then carry out audit procedures to address any identified risks and weaknesses. We assess where the greatest risk of misstatement exists and how effective internal controls are at mitigating these risks.

Planned audit timetableAudit Overview

When

Audit planningMarch

Interim AuditMarch

Audit StrategyApril

Year end auditJune

DebriefJuly

ReportingJune

Audit approach

Understand the business.

Core business processes.

Substantive and analytical procedures on reported figures.

Internal and external debrief.

Test systems and control.

Assessment of residual risk.

Identify business risks.

Identify significant transactions.

Assess impact on statutory accounts.

Assess impact on statutory accounts.

Benefit to the Company

Business risk focus.

Issues monitored and cleared throughout the

year.

Ongoing liaison with Internal Audit.

What we do

Planning meeting and agree detailed logistics.

Audit strategy presented to the Audit

Committee.

Interim issues reporting to management.

Detailed audit work and clearance meeting with

management.

Presentation of highlights memo.

Audit report.

Continuous two way

communication.

Industry specific focus.

Robust assurance on operation of controls.

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We are required to consider fraud and the impact that this has on our audit approach. We will update our risk assessment throughout the audit process and adapt our approach accordingly.

Responsibility in relation to fraudAudit Overview

■ Review of accounting policies.

■ Results of analytical procedures.

■ Procedures to identify fraud riskfactors.

■ Discussion amongstengagement personnel.

■ Enquiries of management, AuditCommittee, and others.

■ Evaluate broad programmes andcontrols that prevent, deter, anddetect fraud.

KPMG’s identificationof fraud risk factors

■ Accounting policy assessment.

■ Evaluate design of mitigatingcontrols.

■ Test effectiveness of controls.

■ Address management overrideof controls.

■ Perform substantive auditprocedures.

■ Evaluate all audit evidence.

■ Communicate to AuditCommittee and management.

KPMG’s response to identified fraudrisk factors

■ Whilst we consider the risk offraud to be low around theCompany, we will monitor thefollowing areas throughout theyear and adapt our auditapproach accordingly.

– Revenue recognition

– Purchasing income

– Management controloverride

– Manipulation of results toachieve targets andexpectations of stakeholders

– Assessment of the impact ofidentified fraud.

KPMG’s identifiedfraud risk factors

■ Adopt sound accountingpolicies.

■ With oversight from thosecharged with governance,establish and maintain internalcontrol, including controls toprevent, deter and detect fraud.

■ Establish propertone/culture/ethics.

■ Require periodic confirmation byemployees of theirresponsibilities.

■ Take appropriate action inresponse to actual, suspected oralleged fraud.

■ Disclose to Audit Committeeand auditors:

– any significant deficiencies ininternal controls.

– any fraud involving thosewith a significant role ininternal controls.

Management

responsibilities

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In our view the most important thing is that the team consists of the right people.

Your team has the relevant housing sector experience, commitment, knowledge, time and personality to work with you in a proactive and positive way.

Your audit teamSelecting the right team with relevant expertise and experience is crucial to a successful working partnership. Our audit team has the required skills and experience and combines:

■ extensive experience in the housing sector and the localmarketplace;

■ a genuine commitment to quality and continuity of service;and

■ a desire to respond quickly and proactively to requests forinformation and advice.

The key members of the audit team are: Nick Plumb will continue to lead our audit service to the Company. He will be responsible for ensuring that we provide the highest quality of audit and that your needs and expectations are met. He will be the key point of contact for the Audit Committee. Nick will be responsible for signing the Audit Opinion. He will oversee the delivery of the audit and provide technical support, particularly around risk areas, including the valuations of pension liabilities. Daniel Gibson will be responsible for the overall management of the audit with a particular focus on the key risk areas and communication with the Audit Committee and management. He will be responsible for directing and reviewing the fieldwork, supervising the audit team on a day-to-day basis and raising key issues on the audit with management as they arise.Contact details are provided on page 1.

Audit managementAudit Overview

Audit FeeOur proposed audit fee for 2016/17 is £18,000 exclusive of VAT and outlays (2015/16 £17,500).

Basis of fee informationThese fees have been agreed on the basis that: The Company’s audit evidence files are completed to an

appropriate standard (we will liaise with management separately on this);

There are no significant changes in the Company’s activitieswhich impact on our audit work for 2016/17. In particular no significant judgements will arise in 2016/17 in respect of the changes to the business model effective from April 2017.

The Company will also receive the following services, which are included in this fee: Membership of the KPMG sponsored Audit Committee

Institute; Invitations to attend our housing seminars; The provision of informal advice; and Briefing documents on technical, tax and governance issues.

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Appendices

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During the course of our audit we plan to issue a number of reports which complement the year-round process of formal and informal communication which takes place between KPMG and senior management.

As always, our reports aim to be balanced, clear and concise with issues appropriately prioritised.

At the same time, our communication is also open, both with management and within KPMG, and ensures that the knowledge we have gained from the audit is captured from our teams and consolidated into valuable reporting.

Mandatory communicationsAppendix 1

Matters to be communicated Method of communication

■ Relationships that may bear on the firm’s Independence and the integrity andobjectivity of the audit engagement partner and audit staff (ISA 260 and CombinedCode)

This paper – page 13.

■ The general approach and overall scope of the audit, including levels of materiality,fraud risks, business risks and audit responses and engagement letter (ISA 260)

This paper and engagement letter

■ Disagreement with management about matters that, individually or in aggregate, couldbe significant to the entity’s financial statements or the auditor’s report (ISA 260)

Year end Audit Committee memorandum

■ The potential effect on the financial statements of any material risks and exposures,such as pending litigation, that are required to be disclosed in the financial statements(ISA 260)


■ Audit adjustments, whether or not recorded by the entity that have, or could have, amaterial effect on the entity’s financial statements (ISA 260)


■ The selection of, or changes in, significant accounting policies and practices that have,or could have, a material effect on the entity’s financial statements (ISA 260)


■ The auditor’s view on valuations and related disclosures (ISA 260) Year end Audit Committee memorandum

■ Material uncertainties related to events and conditions that may cast significant doubton the entity’s ability to continue as a going concern (ISA 260)


■ Expected modifications to the auditor’s report (ISA 260) Year end Audit Committee memorandum

■ Other matters warranting attention by those charged with governance, such aseffectiveness of internal controls relevant to financial reporting, material weaknessesin internal control, questions regarding management integrity, and fraud involvingmanagement (ISA 260 and ISA 240)


■ Any other information included in the annual report and accounts that appearsmaterially misstated based on the auditor’s knowledge (ISA 720A). To be reported byexception, or that there is nothing to report (ISA 700).


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Auditor IndependenceAppendix 2

Assessment of our objectivity and independence as auditor of The Gateshead Housing Company (the Company)

Professional ethical standards require us to communicate to you as part of planning all significant facts and matters, including those related to the provision of non-audit services and the safeguards put in place that, in our professional judgement, may reasonably be thought to bear on KPMG LLP’s independence and the objectivity of Partner and the audit team. This letter is intended to comply with this requirement although we will communicate any significant judgements made about threats to objectivity and independence and the appropriateness of safeguards put in place.

This letter is intended to comply with this requirement and facilitate a subsequent discussion with you on audit independence and addresses:

• General procedures to safeguard independence and objectivity;

• Breaches of applicable ethical standards;

• Independence and objectivity considerations relating to the provision of non-auditservices; and

• Independence and objectivity considerations relating to other matters.

General procedures to safeguard independence and objectivity

KPMG LLP is committed to being and being seen to be independent. As part of our ethics and independence policies, all KPMG LLP partners and staff annually confirm their compliance with our ethics and independence policies and procedures including in particular that they have no prohibited shareholdings. Our ethics and independence policies and procedures are fully consistent with the requirements of the APB Ethical Standards. As a result we have underlying safeguards in place to maintain independence through:

• Instilling professional values

• Communications

• Internal accountability

• Risk management

• Independent reviews.

We are satisfied that our general procedures support our independence and objectivity.

Independence and objectivity considerations relating to the provision of non-audit services

Permissible non-audit services that auditors may perform for their audit clients are enshrined in the APB’s Ethical Standard 5.

The principal threats to an auditor’s objectivity and independence are:

■ self interest

■ self review

■ acting as management

■ acting as advocate

■ familiarity

■ intimidation

As a result we operate a proprietary global system (Sentinel) to ensure that all requests from The Gateshead Housing Company via local KPMG offices, for KPMG to provide non-audit services are considered in the context of company policy and our professions ethical standards. Where necessary, further information is sought and specific approvals obtained from the Audit Committee.

In relation to all services provided, consideration is given to any threats to our objectivity and independence. In relation to non audit services which may impact on the financial statements, we apply appropriate safeguards. These include separation of personnel from the audit team and ensuring no decisions or accounting judgements were made by KPMG LLP on behalf of management. In particular, in relation to tax compliance, we do not provide tax accounting schedules.

In summary, in the light of the above safeguards, our assessment is that the above matters have been properly addressed in accordance with APB Ethical Standards and do not threaten our objectivity or independence.

Summary of fees

We have considered the fees charged by us to the Company and its affiliates for professional services provided by us during the reporting period. £1,800 has been billed by KPMG to the Company for non audit services in the period being tax advisory services in relation to the expansion of the Company’s activities. This is not considered to impair our independence as auditor as the fee is not significant to the firm or in relation to audit fee and the work was carried out by a separate team.

Total fees charged by us for the period ended 31 March 2016 were communicated in our Audit Highlights memo issued in July 2016. Total fees for 2017 will be presented in our Audit Highlights memo issued on completion of our 2017 audit.

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Audit Quality is integral to our business and is the responsibility of every partner and employee.

KPMG has developed a global Audit Quality Framework to ensure our people concentrate on the skills and behaviours that are needed to deliver an appropriate and independent opinion.

Every KPMG firm across the world uses this framework to describe, focus on and enhance audit quality for the benefit of our clients.

All member firms are committed to following common standards in the provision of services, and maintaining the highest standards of independence and integrity.

Our training, our processes and our systems and controls are all designed to achieve objective independent advice and opinions on which shareholders can rely.

The framework ensures we meet the requirements of UK law, professional standards issued by the UK Auditing Practices Board and IFAC rules.

It provides us with reasonable assurance of compliance with the UK Companies Acts and professional standards, firm policies and PCAOB and SEC rules where relevant.

We are the only firm to rollout an Audit Quality Framework across our entire global network.

Tone at the top

Associationwith the

right clients

Clearstandardsand robustaudit tools

Commitment to technical

excellence and quality service delivery

Performance of effective andefficient audits

Commitment to continuous

improvement

Our values are at the heart of our Global Code of Conduct, which defines the standards of ethical conduct we require of people in KPMG's member firms worldwide.

■ We lead by example

■ We work together

■ We respect the individual

■ We seek the facts and provide insight

■ We are open and honest in our communications

■ We are committed to our communities

■ Above all, we act with integrity.

KPMG audit quality frameworkAppendix 3

Tone at the top sits at the core of our Audit Quality Framework and ensures the right behaviours permeate across our entire organisation.

■ Irrespective of management’s documented strategy and policies, it is the force that drives individual professionals.

■ The ‘unseen hand’ that directs activities regardless of management’s proximity to the action.

■ A commitment to the quality of care clients receive.

In the UK we have set up an Audit Quality Forum to continuously review, monitor and enhance audit quality throughout the practice.

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Sector updateAppendix 4

Sector update

Housing White Paper 2017

On the 7 February the Government published its housing white paper setting out it’s vision for improving housing across the UK. The key messages are:

• Standardised mechanism for setting housing delivery targets for councils’ local plans;

• New guidelines to encourage compulsory purchase of undeveloped land;

• A new rent standard for the social housing sector post-2020;

• Dropping of the 20% threshold for Starter Homes and the 200,000 Starter Homes by 2020 target; and

• Councils to include Right to Buy in homes built through new council companies

• Relaxing the planning process and increasing funding for planning departments to speed up development.

Inquiry into housing for older people

The Communities and Local Government Committee has launched an inquiry into housing for older people.

The inquiry will look at whether there is enough housing in England for older people and if it is suitable for their needs. It comes at a time when councils are facing huge pressure on adult social care budgets. A study by Legal and General and the Centre for Economic and Business Research published in 2015 claimed that if all of the 3.3 million over-55s who are looking to downsize could find suitable homes, this would unlock 18% of the country’s property market.

The committee is seeking evidence which must be submitted by 24 March.

It will look at how adequate older people’s housing currently is, planning policy, whether more housing designed for older people could help address England’s wider housing needs and whether a national strategy for older people’s housing is needed.

NHF release annual Home Truths reports

A new report by the National Housing Federation (NHF) has revealed that the average worker would need to earn over £65,000 a year just to afford a mortgage.

The NHF’s East of England Home Truths 2016/2017 report states that the average house price in the region is over £288,000 – which is currently above the national average – but will continue to rise, therefore making it unaffordable to many who want to rent or buy a home. With the average wage now set at £28,000, workers would need to earn another £37,000 a year just to get a mortgage on an average home in the East of England.

Home Truths is the Federation’s annual snapshot of the housing market in England. It is published as nine separate regional reports and provides local data on affordability, unemployment rates and the shortfall in housing supply.

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Sector update

National survey of tenant engagement

A national survey is looking to build up a profile of the organisations and individuals making a significant contribution to tenants and community engagement. The survey has been launched by engagement experts TPAS, a national membership organisation, that aims to bring housing and communities together to find solutions to improve services, save money and bring lasting change to communities.

This survey will be used in future years to map the changing face of tenant and community engagement.

It will be used to

• generate a national picture of how landlords are engaging with residents.

• understand how embedded the ethos of engagement is across landlord organisations today. And how this affects landlord’s performance.

• challenge how the engagement approach could evolve and change for the better.

• know how much resource it takes to deliver engagements

A report from this survey will be published by TPAS in March 2017. Contributors will receive a copy as soon as it published.

NHF Research report looking at how sheltered and extra care housing benefits individuals and communities, and saves money

A report has been commissioned by the National Housing Federation looking at the value derived from sheltered housing and extra care housing to the individual, to the community and, as a preventative service, to the taxpayer.

Based on interviews, discussions and desktop research, the report covers:

• why housing is important as we age;

• demand for housing for older people;

• who is housed in sheltered housing;

• outcomes for individuals;

• benefits for the community;

• economic benefits for individuals; and

• benefits for the taxpayer.

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Sector update

Affordable homes programme grant funding

The economic outlook report which accompanied the Budget announcement included information that the Government has revised its timetable for grants under the Affordable Homes Programme. This will see £200m paid out in grants in 2019/20 rather than 2020/21.

It is expected that RP’s will further borrow against this grant, increasing industry investment in 2019/20 by £500m.

The revised timetable is in part a contribution to the Government’s ambition to reduce its borrowings in 2020/2021 by £800m year on year.

UK Housing Review

The 25th annual edition of the UK housing review has been released and some of the highlights are as listed below;

• Immigration from the EU – The number of households is expected to grow by 77,000 per year directly from migration. At present, only 4% of social housing properties go to EU nationals.

• Housing projections – Household numbers will grow by 227,000 annually to 2024. Net migration will account for approximately one third of this. Over the last three years, net additions to the housing stock have been just below 15,000. This is above the 2014 projections of 13,800.

• Affordable Homes Programme – the governments has a target of ‘delivering 275,000 affordable homes between 2015-2020’, suggesting an output of 55,000 per year. At present, there has been 30,000 completions but fewer than 40,000 following 18 months of the scheme. If they are to reach their target, the speed at which this is done must increase.

• Social Lettings – In each of the four nations, social lettings are now lower than they were 10 years ago. In absolute terms, there are 26,000 fewer social lettings in England, than there was in 2005/2006.

Delay of Homes and Communities Agency fee introduction

The Homes and Communities Agency (HCA) initially proposed fees for all Registered Providers of £5 per home owned, with an introduction date of April 2017. Since the initial consultation, this fee was lowered to £4.72 per home.

Following feedback from the initial consultation, the regulator will cap the 2017/18 fees for providers to 50% of the annual fee. Where the provider has over 1,000 units, they will be required to pay an initial £2,500 registration fee, along with the annual fee.

The HCA has also capped the rise in total income raised from fees until 2020, providing a clear outline of the fees to be charged.

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Sector update

Changes to current consents regime

The Homes and Communities Agency is introducing measures of deregulation from 6th April 2017 which include;

• Removal of the constitutional consents regime. Non-profit registered providers will no longer need to seek the regulator’s consent before changing their objects,amending their governing document to make provision about the distribution of assets to members, becoming or ceasing to be a subsidiary or associate of anotherbody, or restructuring (eg converting from a company to a registered society or vice versa; amalgamating; or transferring engagements).

• Removal of the disposals consent regime. Registered providers will no longer need to seek the regulator’s consent to sell social housing or charge it for security.

• The introduction of notification requirements. The HPA 2016 introduces:

• requirements for all private registered providers to notify the regulator of disposals of social housing dwellings, and for some providers to notify the regulatorof disposals of other land; and

• requirements for non-profit providers to notify the regulator about: changes to governing documents; company changes of name or registered addresses;certain restructures; dissolutions of registered societies; and company arrangements and reconstructions.

• The requirement for a decision on the registration of a new body arising from certain restructures. In some circumstances, the HPA 2016 imposes on the regulatora specific statutory duty to make a registration decision about the body that results from a restructure.

• Changes in requirements about the Disposal Proceeds Fund (DPF). After 6 April 2017 registered providers will not have to pay new proceeds from relevantdisposals into a DPF; but existing DPF funds must be managed and spent in accordance with current requirements for a further period.

• Amendment of the power to appoint board members and managers. Where there has been a breach of any legal requirements, the regulator will have the power tomake board member and manager appointments

Changes to the Land Registry regulations relating to social housing providers in England

From 6th April 2017, private registered providers of social housing will no longer need to comply with some restrictions in the register when a disposal is lodged for registration.

It was also announced that from the same date that when a private registered provider – such as a housing association – applies to be registered, they will no longer be required to certify their status.

These changes will come into force on the above date when the Housing and Planning Act 2016 amends the Housing and Regeneration Act 2008.

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Sector update

Additional guidance published by HCA on deregulation

The HCA has published additional guidance surrounding restructures, notification of disposals, and registering and de-registering as a provider of social housing page. Full details can be found at: https://www.gov.uk/government/publications/restructures-and-constitutional-changes

https://www.gov.uk/government/publications/notifications-about-disposals .

https://www.gov.uk/guidance/register-and-de-register-as-a-provider-of-social-housing

Privacy – A shifting market

Privacy law is changing and housing associations need to be ready. New rules being introduced in May 2018 involve a number of complex requirements that all organisations, including housing associations, will need to follow.

These rules will come into force through the adoption of the EU General Data Protection Regulation (GDPR). This will become part of UK law regardless of Brexit, as has been confirmed by both the UK government and the Information Commissioner. Even if the GDPR is subsequently repealed, it will almost certainly be replaced with nearly identical legislation. Housing associations need to prepare for the changes now.

Further information about the changes and how KPMG can assist can be found at https://home.kpmg.com/uk/en/home/insights/2017/03/privacy-a-shifting-landscape.html?ed2f26df2d9c416fbddddd2330a778c6=jpssjwka-jgwcscvd

Reimagining Housing

Successive governments have tried to keep the UK’s housing stock affordable, either by boosting supply or by subsidising purchases –but prices continue to rise.

KPMG's Reimagine housing report looks at different approaches to managing markets which could meet people’s needs for accommodation create investment opportunities, all whilst reducing the economic, social and fiscal problems that flow from Britain’s current approach to housing.

KPMG ACI Event

We will welcome guest speaker Jonathan Walters, Deputy Director of Performance and Strategy at HCA, who will provide regulatory insight, alongside KPMG speakers on topical matters relevant to audit committee members.

Tuesday 25th April at KPMG, Number Twenty, Grosvenor Street, London W1K 4QJRegistration: 9.30 a.m.Seminar begins: 10.00 a.m.Buffet lunch: 12.00 p.m.

Please contact [email protected] to book.

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https://www.gov.uk/government/publications/restructures-and-constitutional-changes

https://www.gov.uk/guidance/register-and-de-register-as-a-provider-of-social-housing

https://home.kpmg.com/uk/en/home/insights/2017/03/privacy-a-shifting-landscape.html?ed2f26df2d9c416fbddddd2330a778c6=jpssjwka-jgwcscvd

mailto:[email protected]


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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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Documents

ITEM 4 Audit Strategy Memorandum - … The Gateshead ... — Planning — Control evaluation ... etc.) and auditing (Audit Committee responsibility for audit and auditor oversight;