The Gateshead Housing Company Value for Money and ... The Gateshead Housing Company Value for Money...

1

The Gateshead Housing Company Value for Money and Audit Committee

Wednesday 1 July 2009 at 10am

Board Room 1, The Gateshead Housing Company, Keelman House, Fifth Avenue Business Park, Fifth Avenue, Team Valley

Trading Estate, Gateshead NE11 0XA

Agenda

Item Business

1. Apologies for Absence ITEMS FOR DECISION

2. Minutes (Pages 3-6) To approve as a correct record the minutes of the last meeting of the

committee held on 22 April 2009 3. Matters Arising

4. Draft Directors Report and Financial Statements – Year Ended 31 March 2009 (Pages 7-33)

Report of Director Finance 5. Draft KPMG Management Report – Year Ended 31 March 2009

(Pages 34-49) Report of Director of Finance 6. Tendering for Internal Audit Services (Pages 50-54) Report of Director of Finance

Contact: Stuart Gibson Tel: (0191) 433 5308 Date: 24 June 2009

2

Item Business

7. Delivery of VFM within Decent Homes Programme (Pages 55-59) Joint Report of Acting Director of Property and Technical Services

and Director of Finance ITEMS FOR INFORMATION

8. Purchase of a Customer Relationship Management System

(Pages 60-62) Report of Director of Finance 9. Analysis of Insurance Claims (Pages 63-67) Report of Director of Finance 10. Management Accounts – May 2009 (Pages 68-77) Report of Director of Finance 11. Items for Future Agendas 12. Date and Time of Next Meeting

The next meeting of the committee will be held on Wednesday 21 October 2009 at 10am in Board Room 1, Keelman House, Fifth Avenue Business Park, Fifth Avenue, Team Valley Trading Estate, Gateshead

13. Exclusion of the Press and Public The committee may wish to consider excluding the press and public

from the meeting during consideration of the remaining items in accordance with categories 4 and 5 of the company’s Access to Information Rules.

ITEM 2

VALUE FOR MONEY AND AUDIT COMMITTEE

22 April 2009

PRESENT: Directors Sara Woolley (Chair) Richard Armitage Allan Curry Stan Dawson Jim Willis Advisers Jon Mallen-Beadle Director of Finance Sarah Thompson Finance Manager Paul Bradley Audit Manager, Gateshead Council Internal Audit Phil Hope KPMG Stuart Gibson Company Administrator 1 MINUTES

The minutes of the last meeting of this committee held on 25 February 2009 were approved as a correct record and signed by the Chair.

2 MATTERS ARISING – INSURANCE

A report will be submitted to the next meeting of the committee on the outcome of the detailed analysis requested at the last meeting.

3 EXTERNAL AUDIT STRATEGY AND PLANNING MEMORANDUM

KPMG, the company’s external auditors, have produced their external audit strategy and planning memorandum for the financial year ended 31 March 2009. As part of the plan, KPMG have already reviewed the company’s risk profile to identify the potential impact on our financial statements. The cost of the work is fully provided for in the 2008/09 budget. RESOLVED – That External Audit Strategy and Planning Memorandum be

approved. (This issue was dealt with under powers delegated to the committee and appears for information only).

3

4 OPERATIONAL RISKS REGISTER – SIX-MONTHLY UPDATE

The committee agreed, at its meeting on 2 May 2008, its first operational risk register. The committee also agreed that the register should be reviewed and considered six monthly by the committee. The committee received the Governance Internal Audit Report and Action Plan at its meeting on 25 February 2009. The Audit identified that risk management requires involvement from all employees and needs to be embedded into the company’s culture. The audit concluded that the Risk Co-ordinator’s role should include liaising with the risk owner to ensure controls are in place so that each risk is mitigated to an acceptable level. This should also include formal confirmation that the controls are operating reliably. The risk management process and the risk register should also be linked to the company’s vision, values and objectives. An updated operational risk register was submitted. An additional column has been added to the register linking each risk to at least one of the company values. The company’s objectives for the next three years will be identified in the Business Plan 2009-12 which will be presented to the Board on 12 May 2009. A further additional column will be added to the risk register linking each risk to at least one of these and will be identified in the next six-monthly update. All Risk Owners have confirmed that their risks are operating reliably. However, the following outstanding actions have been identified: - • BES4: Not meeting the requirements of the CRE Code of Practice – The

company keeps a CRE evidence file and plans to get this verified externally this year and develop an action plan to address any issues.

• PT18: Failure to develop Asset Management Strategy – To complete

implementation of the Keystone Asset Management. • BES19: Increase in complaints numbers – Mitigation to Northgate being

implemented this year to address increase. Increase is anticipated and not seen as a risk but as an opportunity.

RESOLVED – (i) That the updated operational risk register be approved.

(ii) That the outstanding issues be noted. (iii) That it be ascertained whether the company’s Lone

Working Policy has regard to the Corporate Manslaughter and Corporate Homicide Act 2007and this be reflected in the risk on violence to staff (HM12).

(iv) That it be noted in future reports that the Chief

Executive has overall responsibility for all the operational risks.

4

5 MANAGEMENT ACCOUNTS – FOURTH QUARTER 2008/09

The Management Accounts for the fourth quarter were submitted. They include the income and expenditure in relation to both revenue and repairs up to the end of March 2009. RESOLVED – (i) That the information be noted, subject to a recalculation

of the variance column within the repairs budget.

(ii) That a report be submitted to the next meeting of Human Resources Committee on the company’s policy for dealing with agency cover requests.

6 INTERNAL AUDIT PLAN 2009/10 TIMETABLE

The 2009/10 Internal Audit Plan was approved at the meeting of this committee held on 25 February 2009. As requested, a timetable highlighting when internal audit reports will be presented to the committee was submitted. RESOLVED – That the timetable be noted.

7 VALUE FOR MONEY UPDATE

The committee received an update on the value for money (VFM) activities being carried out by the company. VFM reviews are carried out in line with the programme plan which is included within the VFM strategy. The company has developed a toolkit for undertaking the VFM reviews which provides a step-by-step approach. Each report is presented to the VFM Service Improvement Group who scrutinise the results and provide challenge to those areas which do not represent value for money. Currently the VFM review of the Rent and Income Team has been finalised and the VFM review of repairs is overdue. During the Audit Commission Inspection, it was noted that a number of tenants’ properties had bulky waste in their gardens. A response needs to be made to the Audit Commission on the procedures that the company will put in place to rectify these issues in the future. Therefore, a review has been undertaken by Housing Management in relation to the bulky waste procedures in place with the Council’s Local Environmental Services (LES). It was found that previously when a tenant failed to clear bulky waste from their garden the company would ask LES to provide a quote for clearing and attempt to recharge the tenant. These costs were variable and coded to the fly-tipping and rubbish collection cost code which is charged to repairs and maintenance environmental works budget. Housing Management have now negotiated with LES a set fee for this area of work of £25. This should lead to some significant savings to the cost spent on this area of work in previous years. The Programme Plan attached to the VFM Strategy is used as a live document to track the VFM reviews to be undertaken, as well as any other

5

work required in relation to VFM, such as the training programme. The Programme Plan will be reviewed for appropriateness at the next VFM Service Improvement Group to ensure that next year’s reviews are timely. RESOLVED – That the information be noted.

8 DATE AND TIME OF NEXT MEETING

RESOLVED – That next meeting of the committee be held on Wednesday 1

July 2009 at 10am in Board Room 1, Keelman House, Fifth Avenue Business Park, Fifth Avenue, Team Valley Trading Estate, Gateshead.

9 EXCLUSION OF THE PRESS AND PUBLIC

RESOLVED – That the press and public be excluded from the meeting during consideration of the remaining business in accordance with the indicated categories of the company’ Access to Information Rules.

6

ITEM 4

Report to the Value for Money and Audit Committee

1 July 2009

Title:

Draft Directors’ Report and Financial Statements – 2008/9

Report of: Director of Finance

Purpose of Report

1. To seek approval of the report and financial statements for the year ended 31

March 2009.

Background 2. The report and financial statements for 2008/09 will be presented to the

company’s Annual General Meeting, which will be held before the meeting of the Board on 2 September 2009.

3. The fourth quarter management report presenting the provisional outturn of

expenditure against budget was considered by the committee at its meeting on 22 April 2009.

4. These accounts and the associated management report will be reported to the

Board on 8 July 2009.

Statement of Accounts 5. A report with financial statements as agreed with the auditors, KPMG is attached

at the Appendix to this report. These are subject to the final KPMG Partner review.

6. The financial result for the period was a deficit of £45,000 (2008: £135,000

deficit). 7. The company achieved a pre-tax and interest deficit in the year of just £19,000

prior to interest receivable of £44,000 and pension scheme finance costs of £70,000 (2008: interest receivable of £17,000; finance income of £100,000).

8. The balance sheet has been reduced due to the deficit and the actuarial losses in

the pension scheme, resulting in closing revenue reserves excluding net pension provisions of £682,000 (2008: £767,000). The directors and management continue to implement efficiency savings ahead of targets and as a result believe the company is in a strong financial position to deliver its strategic and operational goals.

7

9. In line with last year’s accounts, it has been necessary under FRS 17 (a financial reporting standard) to adjust the accounts for the pension fund liability attributable to the company’s employees. The net pension liability was £7.7m as at 31 March 2009 (£1.3m at 31 March 2008) as calculated by the Pension Fund’s actuary.

10. KPMG produced a management report following the audit they have carried out.

The management report is included as a separate report. Link to values

11. This report is in line with the following values of the company :-

• Being honest, accountable and transparent – delivering excellent services with integrity.

• Being motivated trained, and committed across the company - delivering efficient and effective services.

Impact on tenants 12. Whilst this report does not impact on tenants directly, appropriate financial

monitoring and control will ensure efficiencies are maximised and redirected to services that directly impact on tenants

Risk Management Implications

13. The external audit carried out by KPMG is one element of the controls in place to

ensure that the strategic risk within the business plan (Insufficient available financial resources) is effectively controlled.

Financial Implications

14. The financial implications are contained within the report and Appendix.

Equality and Diversity Implications 15. There are no equality or diversity implications arising from this report.

Value for Money implications

16. There are no value for money implications arising from this report.

Consultation carried out 17. None directly for this report.

Recommendations

18. The committee is recommended to:

8

(i) approve the report and financial statements for the year ended 31 March 2009;

(ii) agree that any minor amendments to be made as a result of final KPMG partner review be delegated to the Director of Finance, following consultation with the Chair of the Committee.

Contact: Sarah Thompson, Finance Manager Tel No: (0191) 433 5350

9

The Gateshead Housing Company Limited

Directors’ report and financial statements

Registered number 04944719 Draft – 31 March 2009

Appendix

10

The Gateshead Housing Company Limited Directors’ report and financial statements Draft – 31 March 2009

Contents Board and advisors 1 Report of the Board 2 Statement of Board’s responsibilities in respect of the Board Report and the financial statements 7 Independent auditors’ report to the members of The Gateshead Housing Company Limited 8 Income and Expenditure Account 10 Statement of Total Recognised Surpluses and Deficits 10 Balance Sheet 11 Cash Flow Statement 12 Notes 13

Appendix

11


1

Board and advisors Council Directors Angela Armstrong John Walter Hamilton Peter Mole Kathryn Ferdinand Paul Foy (appointed 23 June 2008) Joseph Aloysius Hattam (resigned 13 June 2008) Tenant Directors Stanley Dawson Malcolm McKie (resigned 30 September 2008) James Willis William Patterson (appointed 27 August 2008) Dr Joachim Moussounda Mouanda (appointed 27 August 2008) Independent Directors Barbara Elaine Dennis (Chair) Valerie Ann Hodge Sara Woolley Richard Armitage Allan Curry Secretary and Registered Office Jon Mallen-Beadle (Company secretary) Keelman House Fifth Avenue Business Park Fifth Avenue, Team Valley Trading Estate Gateshead, NE11 0XA Auditors KPMG LLP Quayside House 110 Quayside Newcastle upon Tyne, NE1 3DX Internal Auditors Gateshead Council Civic Centre Regent Centre Gateshead, NE8 1HH Bankers Co-operative Bank plc 53-57 Blandford Square Newcastle upon Tyne, NE99 1AN

Appendix

12


2

Report of the Board

The Board present their Board report and financial statements for the year ended 31 March 2009.

Principal activities

The principal activity of the Company is the day to day management, maintenance and improvement of the housing stock of Gateshead Council.

Result for the year

The financial result for the period was a deficit of £45,000 (2008: £135,000 deficit)

The Company achieved a pre-tax and interest deficit in the year of just £19,000 prior to interest receivable of £44,000 and pension scheme finance costs of £70,000 (2008: pre-tax and interest deficit £251,000, interest receivable of £17,000; finance income of £100,000).

The balance sheet has been reduced due to the deficit and the actuarial losses in the pension scheme, resulting in closing revenue reserves excluding net pension provisions of £682,000 (2008: £767,000). The directors and management continue to implement efficiency savings ahead of targets and as a result believe the Company is in a strong financial position to deliver its strategic and operational goals.

Review of business

Clearly the main achievement in 2008/9 was the inspection assessment that the company is providing an excellent three star service with excellent prospects for improvement.

Underpinning service delivery is a strong commitment to customer care. Offices have been rationalised and modernised, offering excellent and accessible local facilities for callers. Information is clearly presented and widely available. Customers can now ring the Company up to 8pm each weekday and until noon on Saturdays with 24 hour telephone access for emergencies and other online services.

A good understanding of the needs of our customers enables most services to be adapted to meet individual needs. A website and additional support has been introduced specifically for young people. Customers are closely involved in the way services are developed and are very satisfied. Rent collection rates are above average and historically the best they have been in Gateshead.

Home improvement work is well managed, customer focused and high quality. Significant Council investment over and above the decent homes programme improves the sustainability of stock. Empty properties are repaired to a high standard and the time taken to re-let them is reducing. A choice-based lettings service provides local people with clear information and choice to bid for vacant properties.

Estates are generally well maintained and common areas are secure and welcoming. The Company and other agencies together effectively manage anti-social behaviour (ASB) and there is a strong focus on sustaining tenancies.

The company has a good understanding of its costs and has measures in place to drive out efficiencies, significantly outperforming its targets year on year.

However there are a number of challenges facing the Company. Customers have had difficulty in contacting the Repairs Reporting Centre by telephone and recent improvements are not yet proven over time. Bulky furniture and waste left in some gardens is a blemish on otherwise high environmental standards. Not all sheltered housing schemes and communal areas fully meet DDA requirements.

Appendix

13


3

Report of the Board (continued)

Review of business (continued)

Collection of arrears owed by former tenants remains low. These areas will be addressed as part of our service improvement proposals for 2009/10.

We have established a positive track record of improving performance and customer satisfaction. Through developing staff and managerial resources, working effectively in partnership with others and a willingness to learn, capacity to support planned improvements is strong.

Impact on Tenants

Progress against the actions in 2008/9 was impressive, importantly though our customers benefitted directly from these actions including:

• More repairs done on time

• More appointments made and kept

• The expansion of the gardening scheme, which now helps over 700 vulnerable tenants

• Over 10,000 properties are now decent

• Access to housing services until 8.00 pm Monday – Friday and 12.00 midday Saturday

• Introduction of more online services including the ability to report anti-social behaviour online.

Policy and practice and payment of creditors

As a controlled Company of a local authority, the Company adheres to Best Value Performance Indicator 8, which requires the payment of undisputed creditor invoices within 30 days of receipt of the invoice. Where disputes arise we attempt to resolve them promptly and amicably to ensure delays in payment are kept to a minimum.

Political and charitable contributions

The company made no political or charitable donations or incurred any political expenditure during the current or preceding year.

Future Developments

Working closely with the Council we provided evidence to the Council’s investigation into options for increasing social housing in the Borough. Financial modelling of a number of potential sites has identified how new build could be adequately funded and further developments will be identified and progressed during 2009/10.

Negotiations with the Council on a new management agreement have concluded and a new five year management agreement started in January 2009.

The Board and Executive Officers

Under guidance for the setting up of Arms Length Management Organisations, issued by the Office of the Deputy Prime Minister (“ODPM”), the Company’s Board of non-executive directors has equal representation of Tenant, Council and Independent members. Council Directors are appointed and removed directly by the Council, whilst tenant Directors are appointed through interview by tenants and leaseholders living in Gateshead. Independent Directors are selected by the Board. Tenant and Independent Directors are subject to rotational retirement rules contained in the Company’s Articles of Association.

Appendix

14


4

Report of the Board (continued) The Board and Executive Officers (continued)

The operational day to day running of the Company is delegated to paid Strategic Employees by the Board, through the Company’s Scheme of Delegation and in the first instance, to the Company’s Chief Executive. None of the Corporate Management Team are Board members. Corporate Governance

The Company signs up to the principles of the Combined Code in so far as they are applicable to an organisation of its size and structure. As well as having robust codes of conduct for Board members, the Company has a clear Risk Strategy in place which underlies its key decisions.

In addition to the main Board, the Company has a number of formal Board Committees. These are:

• Diversity and Access

• Performance

• Human Resources

• Value for Money and Audit

The committees have clear terms of reference detailing their functions, together with decisions that should be referred to the Board for approval and those that have been delegated. All the Company’s corporate governance arrangements are set out in a Governance Handbook issued to all Board members. The Company continues to review its governance arrangements annually to ensure that the needs of the organisation are being met effectively. Statement of Board on Internal Controls

The Board acknowledge their ultimate responsibility for ensuring that the Company has in place a system of controls that is appropriate to the various business environments in which it operates. These controls are designed to give reasonable assurance with respect to:

• the reliability of financial information used within the Company or for publication;

• the maintenance of proper accounting records; and

• the safeguarding of assets against unauthorised use or disposal.

It is the Board’s responsibility to establish and maintain systems of internal control. Such systems can only provide reasonable and not absolute assurance against material financial misstatement or loss. Key elements include ensuring that:

• formal policies and procedures are in place, including the documentation of key systems and rules relating to the delegation of authority, which allow the monitoring of controls and restrict the unauthorised use of the Company’s assets;

• experienced and suitably qualified staff take responsibility for important business functions. Annual appraisal procedures have been established to maintain standards of performance;

• forecasts and budgets are prepared which allow the Board and managers to monitor the key business risks and financial objectives and progress towards financial plans set for the year and the medium term; regular management accounts are prepared promptly, providing relevant, reliable and up-to-date financial and other information and significant variances from budgets are investigated as appropriate;

• all significant new initiatives, major commitments and investment projects are subject to formal authorisation procedures by the Board following scrutiny by the relevant Board committees;

• the Board reviews reports for management, from internal auditors, from the external auditors and from its own Value for Money and Audit Committee to provide reasonable assurance that control procedures are in place and are being followed. This includes a general review of the major risks facing the Company; and

• formal procedures have been established for instituting appropriate action to correct weaknesses identified from the above reports.

Appendix

15


5


Fair employment policies for disabled persons

The Company, as part of its Equal Opportunities Policy:

• welcomes job applications from people with disabilities

• does not discriminate unlawfully when it decides who to employ

• advertises widely to ensure it receives as many applications as possible, especially from disadvantaged groups

• reviews and monitors its recruitment and selection procedures to ensure it does not discriminate against people with disabilities

• encourages all employees to reach their full potential

• wherever possible, provides a workplace that is accessible to people with disabilities

• where possible, retains in suitable employment those employees who become disabled

• when required, ensures additional provision in the form of access, or transport costs, is available for people with disabilities to enable them to fully participate in interviews and training.

Employee involvement

The Company:

• shares ideas and information with its employees

• maintains a genuine exchange of views between managers and employees or their representatives

• negotiates with employees or their representatives on any proposed changes to terms and conditions of employment

• has an Employee forum, with representation from representatives of the workforce, to ensure that employees are informed about the company’s economic situation and are informed and consulted about decisions likely to lead to substantial changes in work organisation

• The Employee Forum also

• deals with consultation issues such as terms and conditions, employment policies and other employment issues specific to employees

• develops the Company’s employment policies.

An appraisal process is used for all employees, linked to individual employees’ needs and performance against agreed objectives and targets, comprising two meetings each year for individuals and their line manager to appraise and review performance, to help employees to;

• get feedback on how they are doing and recognition for their achievements

• understand what is expected of them

• understand how what they do fits in with what the company is trying to achieve

• talk about the issues facing them over the next 12 months

• agree what training and development they need to do their job well.

Appendix

16


6


Disclosure of information to auditors

The Board Members who held office at the date of approval of this Board report confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s auditors are unaware; and each Board Member has taken all the steps that he or she ought to have taken as a Board Member to make himself or herself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.

Auditors

Pursuant to 487 of the Companies Act 2006, the auditors are deemed to be reappointed and KPMG LLP will therefore continue in office. The Report of the Board was approved on 9 July 2009 and signed on its behalf by:

B Dennis J Mallen-Beadle Chair Company Secretary

Appendix

17


7

Statement of Board’s responsibilities in respect of the Board Report and the financial statements The Board Members are responsible for preparing the Board Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Board to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).

The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, the Board are required to:

• select suitable accounting policies and then apply them consistently;

• make judgments and estimates that are reasonable and prudent;

• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Board are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

The Board are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Appendix

18


8

ABCD KPMG LLP Quayside House

110 Quayside

Newcastle upon Tyne

NE1 3DX

United Kingdom

Independent auditors’ report to the members of The Gateshead Housing Company Limited We have audited the financial statements of The Gateshead Housing Company Limited for the year ended 31 March 2009 which comprise the Income and Expenditure Account, the Balance Sheet, the Cash Flow Statement, the Statement of Total Recognised Surpluses and Deficits and the related notes. These financial statements have been prepared under the accounting policies set out therein.

This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Board and auditors

The Board Members’ responsibilities for preparing the financial statements in accordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice) are set out in the Statement of Boards’ Responsibilities on page 7.

Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Board Members’ Report is consistent with the financial statements.

In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed.

We read the Board Members’ Report and consider the implications for our report if we become aware of any apparent misstatements within it.

Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Board Members in the preparation of the financial statements, and of whether the accounting policies are appropriate to the company’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

Appendix

19


9

Independent auditors’ report to the members of The Gateshead Housing Company Limited (continued)

Opinion

In our opinion:

• the financial statements give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of the company’s affairs as at 31 March 2009 and of its deficit for the year then ended;

• the financial statements have been properly prepared in accordance with the Companies Act 1985; and

• the information given in the Board Report is consistent with the financial statements.

KPMG LLP 2009 Chartered Accountants Registered Auditor

Appendix

20


10

Income and Expenditure Account for the year ended 31 March 2009

Note 2009 2008 £000 £000 Turnover 2 35,069 33,848 Operating costs 2 (35,088) (34,099)

Operating deficit 2-5 (19) (251) Interest receivable and similar income 6 44 17 Other finance income 7 (70) 100

Deficit on ordinary activities before taxation (45) (134) Taxation on deficit from ordinary activities 8 - (1)

Deficit for the financial year 14 (45) (135)

All amounts relate to continuing activities.

Statement of Total Recognised Surpluses and Deficits for the year ended 31 March 2009

2009 2008 £000 £000 Deficit for the financial year (45) (135) Actuarial (loss)/gain recognised in the pension scheme (6,450) 2,040 Deferred tax arising on (losses)/gains in the pension scheme (2) (4)

Total recognised (deficit)/gain relating to the period (6,497) 1,901

Appendix

21


11

Balance Sheet as at 31 March 2009 Note 2009 2008 £000 £000 £000 £000 Fixed assets Tangible assets 9 872 882 Current assets Debtors 10 1,146 350 Cash at bank and in hand 5,596 14,223

6,742 14,573 Creditors: amounts falling due within one year

11 (6,568)

(14,220)

Net current assets 174 353 Provisions for liabilities 12 (364) (468)

Total assets less current liabilities 682 767

Creditors: amounts falling due after more than one year

Net pension liability 17 7,720 1,308 Capital and reserves Revenue reserves excluding net pension costs

682

767

Net pension liability (7,720) (1,308)

Revenue reserve including pension liability

14

(7,038)

(541)

Total long term liabilities, capital and reserves

682

767

These financial statements were approved by the Board on 2009 and were signed on its behalf by:

B Dennis Chair

Appendix

22


12

Cash Flow Statement for the year ended 31 March 2009 Note 2009 2008 £000 £000 Net cash (outflow)/inflow from operating activities

18a

(8,346)

5,089

Returns on investments and servicing of finance Interest received 44 17 Other finance income - 100 Other finance costs (70)

(8,372) 5,206 Capital expenditure and financial investment Purchase of tangible fixed assets (255) (920) Taxation - -

(Decrease)/increase in cash 18b (8,627) 4,286

Appendix

23


13

Notes (forming part of the financial statements)

1 Accounting policies

The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial statements.

The amendment to FRS 17 ‘Retirement benefits’ has been adopted in these financial statements for the first time and the disclosures it requires have been presented for both the current and comparative period. The amendment to FRS 17 also requires that quoted securities are valued at their bid-price rather than their mid-market value. The comparative numbers have not been restated on the basis that the effect of this change was not material.

Basis of preparation

The financial statements have been prepared in accordance with applicable accounting standards, and under historical cost accounting rules.

The company’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Report of the Board on pages 2 to 6.

The company has cash at bank and in hand of £5,596,000 at the end of the year, with no external debt. The company’s primary customer is Gateshead Council with whom there is a management agreement in place for the company to provide services until 31 December 2013. As a consequence the Directors believe that the company is well placed to manage its business risks successfully despite the current uncertain economic outlook.

After making enquiries, the directors have a reasonable expectation that the company have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing these financial statements.

Fixed assets and depreciation

Depreciation is provided to write off the cost less the estimated residual value of tangible fixed assets by equal instalments over their useful economic lives as follows:

Leasehold improvements - life of lease Fixtures and fittings - 2-4 years IT - 4 years

Operating leases

Operating lease rentals are charged to the income and expenditure account on a straight line basis over the period of the lease.

Retirement benefits

The Company participates in the Tyne and Wear Pension Fund. The scheme is a final salary Local Government Pension Scheme and retirement benefits to employees of the Company are funded by contributions from all participating employers and employees in the scheme. The assets of the scheme are held separately from those of the Company.

Pension scheme assets are measured using market values. For quoted securities the current bid price is taken as market value. Pension scheme liabilities are measured using a projected unit method and discounted at the current rate of return on a high quality corporate bond of equivalent term and currency to the liability.

The pension scheme surplus (to the extent that it is recoverable) or deficit is recognised in full. The movement in the scheme surplus/deficit is split between operating charges, finance items and, in the statement of total recognised gains and losses, actuarial gains and losses.

Appendix

24


14

Notes (continued)

1 Accounting policies (continued)

Taxation

The charge for taxation is based on the result for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes.

Deferred tax is recognised, without discounting, in respect of all timing differences between the treatment of certain items for taxation and accounting purposes which have arisen but not reversed by the balance sheet date, except as otherwise required by FRS 19.

Turnover

Turnover represents primarily management fees received from Gateshead Council for the management and maintenance of Gateshead Council’s housing stock and is stated net of value added tax.

Income is recognised on an accruals basis.

The Company acts as agent on behalf of Gateshead Council in respect of capital work and as such only includes the commission receivable within turnover.

Cash at bank and in hand

Cash at bank represents the Company’s share of bank balances managed on its behalf by Gateshead Council.

2 Analysis of turnover, operating costs and operating deficit

2009 2008 £000 £000

Turnover Management fee 31,171 30,077 External funding 175 166 Capital fees 3,164 3,546 Other 559 59

35,069 33,848

Operating costs Management of housing stock 14,480 13,093 Repairs and maintenance of housing stock 17,444 17,460 Revenue expenditure supporting capital programme 3,164 3,546

35,088 34,099

Operating deficit (19) (251)

Appendix

25


15

Notes (continued)

3 Notes to the income and expenditure account

2009 2008 £000 £000

Deficit on ordinary activities before taxation is stated after charging: Depreciation on tangible fixed assets – owned 212 164 Hire of other assets – operating leases 305 282

Auditors’ remuneration: Audit of these financial statements 15 15

4 Remuneration of directors

The directors agreed at the September 2008 Board Meeting that they should be remunerated for being a Board Member. Payments started in October 2008. In the previous year the directors did not receive payment or benefits in kind for their roles, although they are able to reclaim their expenses incurred in attending meetings. The aggregate amount of emoluments and expenses paid to Board Members was £11,423 (2008: £993).

5 Staff numbers and costs

The average number of persons employed by the Company during the year, expressed as equivalent full time employees was:

Number of employees 2009 2008

Housing management 231 205 Administrative and clerical 150 136

381 341

The aggregate payroll costs of these persons were as follows: 2009 2008 £000 £000 Wages and salaries 9,256 7,453 Social security costs 681 532 Other pension costs 1,189 1,771

11,126 9,756

6 Interest receivable and similar income 2009 2008 £000 £000

Bank interest 44 17

Appendix

26


16

Notes (continued)

7 Other finance income

2009 2008 £000 £000

Expected return on pension scheme assets 1,350 1,160 Interest on pension scheme liabilities (1,420) (1,060)

(70) 100

8 Taxation

In January 2007 HMRC agreed that the Company is able to take advantage of the beneficial tax treatment described in HMRC’s guidance.

Analysis of charge in period

2009 2008 £000 £000

UK corporation tax Current tax on income for the period - 2

Total current tax - 2 Deferred tax - (1)

Tax on deficit on ordinary activities - 1

Factors affecting the tax charge for the current period

The current tax charge for the period is lower than the standard rate of corporation tax in the UK 21% (2008: 19%). The differences are explained below:

2009 2008 £000 £000

Current tax reconciliation Deficit on ordinary activities before tax (45) (134)

Current tax at 21% (2008: 19%) (9) (27) Effects of: Non allowable losses 9 - Expenses not deductible for tax purposes - 33 Non taxable income - (4)

Total current tax charge (see above) - 2

Appendix

27


17

Notes (continued)

9 Tangible fixed assets

Leasehold

improvements Fixtures

and fittings

IT

Assets in course of

construction

Total £000 £000 £000 £000 £000 Cost At beginning of year 566 70 409 53 1,098 Additions 17 - 238 - 255 Disposals - - - (53) (53)

At end of year 583 70 647 - 1,300

Depreciation At beginning of year 38 49 129 - 216 Charge for year 39 11 162 - 212

At end of year 77 60 291 - 428

Net book value At 31 March 2009 506 10 356 - 872

At 31 March 2008 528 21 280 53 882

10 Debtors

2009 2008 £000 £000

Amounts owed by parent undertaking 416 81 Trade debtors 360 2 Prepayments and accrued income 370 267

1,146 350

All debtor balances are due within one year.

Deferred tax assets of £34,000 (2008: £nil), arising on the pension scheme deficit have not been recognised due to uncertainty surrounding their future recoverability against taxable profits.

11 Creditors: amounts falling due within one year

2009 2008 £000 £000

Amounts owed to parent undertaking 1,913 2,836 Trade creditors 712 5,504 Other taxation and social security 1,887 2,472 Accruals and deferred income 2,056 3,408

6,568 14,220

Appendix

28


18

Notes (continued)

12 Provisions for liabilities

Insurance provision

£000 At beginning of year 468 Utilised during year (138) Charge to income and expenditure account – additional amounts provided 34

At end of year 364

Provisions relate to amounts held to cover insurance claims, which fall below the current excess limit on the company’s insurance policy.

13 Share capital

The Company does not have any share capital as it is limited by guarantee of £1 per member. Membership at 31 March 2009 was 1 (2008: 1).

14 Revenue reserves

Revenue reserves

£000

Balance at 1 April 2008 (541) Deficit from income and expenditure (45) Actuarial loss recognised in the pension scheme (6,450) Deferred tax movement in respect of pension scheme deficit (2)

Balance at 31 March 2009 (7,038)

15 Contingent liabilities

The Gateshead Housing Company do not consider they have any contingent liabilities outstanding at the year end. All accruals and provisions have been shown in the accounts.

16 Commitments

Annual commitments under non-cancellable operating leases are as follows: 2009 2008 Land and

buildings Land and buildings

£000 £000 Operating leases which expire: After five years 305 305

Appendix

29


19

Notes (continued)

17 Pensions

The Company participates in the Tyne and Wear Pension Fund, a Local Government Pension Scheme (‘LGPS’), which is a funded defined benefit scheme based on members final pensionable pay. The latest full actuarial valuation was carried out by Hewitt Bacon and Woodrow Limited at 31 March 2007 and was updated for FRS 17 purposes to 31 March 2008 and 31 March 2009 by a qualified independent actuary.

The information disclosed below is in respect of the whole of the plans for which the Company is either the sponsoring employer or has been allocated a share of cost under an agreed group policy throughout the periods shown.

2009 2008 £000 £000

Present value of funded defined benefit obligations (24,400) (20,270)Fair value of plan assets 16,680 18,960

Deficit (7,720) (1,310)Related deferred tax asset - 2

Net liability (7,720) (1,308)

Movements in present value of defined benefit obligation 2009 2008 £000 £000

At 1 April 20,270 19,180 Current service cost 1,100 1,380 Past service cost - 330 Interest cost 1,420 1,060 Actuarial (losses)/gains 1,440 (1,860)Contributions by members 520 400 Benefits paid (350) (220)

At 31 March 24,400 20,270

Movements in fair value of plan assets 2009 2008 £000 £000

At 1 April 18,960 16,260 Expected return on plan assets 1,350 1,160 Actuarial (losses)/gains (5,010) 180 Contributions by employer 1,210 1,180 Contributions by members 520 400 Benefits paid (350) (220)

16,680 18,960

Appendix

30


20

Notes (continued)

17 Pension schemes (continued)

Expense recognised in the profit and loss account 2009 2008 £000 £000

Current service cost 1,100 1,380 Past service cost - 330 Interest on defined benefit pension plan obligation 1,420 1,060 Expected return on defined benefit pension plan assets (1,350) (1,160)

Total 1,170 1,610

The expense is recognised in the following line items in the profit and loss account: 2009 2008 £000 £000

Operating costs 1,100 1,710 Other finance income 70 (100)

1,170 1,610

The total amount recognised in the statement of total recognised gains and losses in respect of actuarial gains and losses is £6,450,000 loss (2008: £2,040,000 gain).

Cumulative actuarial gains/losses reported in the statement of total recognised gains and losses for accounting periods ending from 31 March 2005 are £5,472,000 loss (2008: £980,000 gain).

The fair value of the plan assets and the return on those assets were as follows: 2009 2008 Fair value Fair value £000 £000

Equities 11,025 12,060 Government bonds 1,701 2,071 Corporate bonds 1,735 1,690 Property 1,401 2,003 Other 818 1,136

16,680 18,960

Expected return on assets 1,350 1,160 Actuarial (loss)/gain on assets (5,010) 180

Actual return on plan assets (3,660) 1,340

Gateshead Housing Company employs a block building approach in determining the rate of return on fund assets. Historical markets are standard and assets with higher volatility assumed to generate higher returns consistent with widely accepted capital market principles. The assumed rate of return on each class of asset is set out within this note. The overall expected rate of return on assets is then derived by aggregating the expected return for each asset class over the actual asset allocation for the fund at 31 March 2009.

Appendix

31


21

Notes (continued)

17 Pension schemes (continued)

Principal actuarial assumptions (expressed as weighted averages) at the year end were as follows: 2009 2008 % %

Discount rate 6.5 6.8Rate of increase in pensions in payment 3.6 3.7Rate of revenue to deferred pensions 3.6 3.7Future salary increases 5.1 5.2Inflation increase 3.6 3.7

The assumptions relating to longevity underlying the pension liabilities at the balance sheet date are based on standard actuarial mortality tables and include an allowance for future improvements in longevity. The assumptions are equivalent to expecting a 65-year old to live for a number of years as follows:

• Current pensioner aged 65: 19.9 years (male), 22.8 years (female).

• Future retiree upon reaching 65: 22.1 years (male), 25.0 years (female).

History of plans

The history of the plans for the current and prior periods is as follows:

Balance sheet 2009 2008 2007 2006 2005 £000 £000 £000 £000 £000

Present value of scheme liabilities (24,400) (20,270) (19,180) (17,180) (13,720)Fair value of scheme assets 16,680 18,960 16,200 14,070 10,120

(Deficit)/surplus (7,720) (1,310) (2,980) (3,110) (3,600)

Experience adjustments 2009 2008 2007 2006 2005 £000 £000 £000 £000 £000

Experience adjustments on scheme liabilities

(20)

(1,860)

-

-

610

Experience adjustments on scheme assets

(5,010)

180

(90)

1,940

320

(5,030) (1,680) (90) 1,940 930

The Company expects to contribute approximately £1,270,000 to its defined benefit plans in the next financial year

Appendix

32


22

Notes (continued)

18 Notes to the cash flow statement

a) Reconciliation of operating surplus to net cash inflow from operating activities 2009 2008 £000 £000

Operating deficit (19) (251)Depreciation 212 164 Loss on disposal of fixed assets 53 - Decrease/(increase) in debtors (796) 807 Increase/(decrease) in creditors and provisions (7,692) 4,194 Increase in provisions (104) 175

Net cash inflow/(outflow) from operating activities (8,346) 5,089

b) Reconciliation of net cash inflow to movement in net debt £000 £000 (Decrease)/increase in cash in the year (8,627) 4,286 Net funds at start of year 14,223 9,937

Net funds at end of year 5,596 14,223

c) Analysis of changes in net debt At start

of year

Cash flows At end of

year £000 £000 £000 Cash at bank and in hand 14,223 (8,627) 5,596

19 Related party transactions

The Company’s main source of income is management fees and charges from Gateshead Council, its ultimate parent undertaking. Income from Gateshead Council amounted to £34,741,000 (2008: 30,077,000) in the period. The amount outstanding at the year end was £416,000 (2008: £81,000).

The company purchases goods and services from Gateshead Council as part of its operating activities. No profit is made on these transactions. The balance outstanding at the year end, and due to be paid over to Gateshead Council was £1,193,000 (2008: £2,836,000).

20 Ultimate parent undertaking

The Company is a subsidiary undertaking of Gateshead Council. The consolidated accounts of the group are available to the public and may be obtained from Gateshead Council, Civic Centre, Regent Street, Gateshead, NE8 1HH.

Appendix

33

ITEM 5


1 July 2009

Title:

Draft KPMG Management Report – Year Ended 31 March 2009


Purpose of Report

1. To seek approval to the external auditor’s draft management report on the

financial statements for the year ended 31 March 2009.

Background 2. The company’s external auditors KPMG carried out an audit of the report and

financial statements for 2008/9 during June 2009. 3. A draft report presenting their findings is attached at the Appendix to this report. 4. A report with the financial statements as agreed with the auditors, KPMG, is

included as a separate item on the agenda for this meeting.

Management Report 5. KPMG produced a draft management report following the audit they have carried

out. These are subject to the final KPMG Partner review. 6. There were no significant issues raised in the report and all of the

recommendations have been responded to by the company. Management Representation Letter

7. As part of the audit, KPMG require the letter attached within their management

report to be signed by the Chair and the Company Secretary on behalf of the Board.

Link to values



34

• Being motivated trained, and committed across the company - delivering efficient and effective services.

Impact on tenants 9. Whilst this report does not impact on tenants directly, appropriate financial

monitoring and control will ensure efficiencies are maximised and redirected to services that directly impact on tenants.


10. The external audit carried out by KPMG is one element of the controls in place to

ensure that the strategic risk within the business plan (Insufficient available financial resources) is effectively controlled.


11. The financial implications are contained within the report and appendices.

Equality and Diversity Implications 12. There are no equality or diversity implications arising from this report.


13. There are no value for money implications arising from this report.

Consultation carried out 14. None directly for this report.

Recommendation 15. It is recommended that the committee: -

(i) approve the management report for the year ended 31 March 2009; (ii) agree that any minor amendments to be made to the draft report be

delegated to the Director of Finance, following consultation with the Chair of the Committee;

(iii) recommend to the Board that they authorise the Chair and the Company Secretary to sign the management representation letter on behalf of the Board.


35

The Gateshead Housing Company Limited

DRAFT - FINAL AUDIT REPORT

Year ended 31 March 2009

INFRASTRUCTURE & GOVERNMENT

AUDIT

Appendix

36

© 2009 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted.

KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.

1

32) Executive Summary

4

5

3) Audit Issues

Performance improvement observations – Current year observations

Performance improvement observations – Prior year observations

Appendices

i. Draft management representation letter

ii. Statement of unadjusted audit differences

21) Introduction

Page

Content

The contacts at KPMG

in connection with this

report are:

Mick Thompson

Partner

Tel: 0191 401 3765

[email protected]

Phil Hope

Manager

Tel: 0191 401 3744

[email protected]

David Mitchell

Assistant Manager

Tel: 0191 401 3734

[email protected]

The report is intended solely for internal purposes by the management and Audit Committee of The Gateshead Housing Company Limited and should not be used by or distributed to others without our

prior written consent. To the fullest extent permitted by law, KPMG LLP does not assume any responsibility and will not accept any liability in respect of this Report to any party other than the

Beneficiaries.

Appendix

37



2

Section one

Introduction

Purpose of this document

• This report sets out certain matters that came to our attention during the course of the audit of the financial statements of The

Gateshead Housing Company Limited for the year ended 31 March 2009.

• One of the purposes of this document is to record features of the year's activities, the way they are treated in the accounts and

comments thereon provided to audit staff by the company's employees. The contents of the document should not be taken as reflecting the views of KPMG except where explicitly stated as being so.

Basis of information

The information within this document is based on:

� the statutory audits of The Gateshead Housing Company Limited;

� information provided by management and staff at numerous levels; and

� publicly available information.

Performance Improvement Observations

• One of our objectives is to use our knowledge of the company gained during our audit work to make useful comments and

suggestions for you to consider. However, you will appreciate that our audit work is designed to enable us to form an audit opinion on the annual financial statements of the company and it should not be relied upon to disclose all irregularities that may

exist nor to disclose errors that are not material in relation to those financial statements.

• Our report is designed to include useful recommendations that may help improve performance and avoid weaknesses that

could lead to material loss or misstatement. It is your obligation to take the actions necessary to remedy those weaknesses andshould you fail to do so we shall not be held responsible if loss or misstatement occurs as a result.

• This report is provided on the basis that it is for the information of the Board and Management of The Gateshead Housing

Company Limited only; that is will not be quoted or referred to, in whole or in part, without our prior written consent; and that we accept no responsibility to any third party in relation to it.

Appendix

38



3

Section Two

Executive Summary

Status of audit work• Our audit fieldwork is almost complete, subject to the following outstanding items:

• Receipt of Morrison’s creditor confirmation and reconciliation (if appropriate) to underlying accounting

records; • Signed management agreement with Gateshead Council;

• Gateshead Council intercompany debtor and creditor confirmations

• Cash confirmation from Audit Commission and associated bank reconciliation;• Sundry accruals supporting documentation

• Corporation Tax review – split of income and expenses between streams.

• Final draft statutory accounts are ready for Board review and approval.

Key Issues

• Historically the insurance provision included within the statutory accounts has reflected 100% of the potential insurance

excess. Although prudent, this has not taken in to account that several claims are not successful. Now that the company has several years of historical data available, management have decided to add a success factor in to the provision

included in the accounts. As a result 75% of the total excess has been provided for in the accounts. Again, a prudency

factor has been included in the provision recognised as the actual success factor is less than 75%.

• Under FRS 17 the pension deficit has increased to £7,720,000 at 31 March 2009 due to the changes in assumptions at 31 March 2009. Directors need to continue to monitor and agree a course of action to fund this deficit. The company has

adopted amended FRS 17 during the year which requires the pension assets to be valued at bid price rather than mid-

price. The adjustment to the year ended 31 March 2008 is a reduction in the pension assets value by £60,000. This has been deemed not to be material, and is included in the current year actuarial gains/losses rather than re-stating the prior

year financial statements.

• The Company received invoices for a total of £859,000 from Morrison’s at the year end of which £576,000 has been paid. The remaining £283,000 is in dispute. These are currently not included within creditors as management have no intention

of paying them and have discussed this with Morrison’s. It is awaited to see whether these amounts are included on the

creditor confirmation when received from Morrison’s.

• Previously the interest received has been split over the various income streams to determine the proportion that is taxable and that which is non-taxable. This treatment is currently being investigated by the KPMG tax team. If all of the interest

receivable is deemed to be taxable, which is the alternative treatment, the maximum liability would be circa £10k in respect

of the current year.

Other matters

ISA 260 requires us to communicate “audit matters of governance interest that arise from the audit of the financial statements”to you which includes;

• material weaknesses in internal control identified during the audit;• matters specifically required by other auditing standards to be communicated to those charged with governance (e.g.

issues relating to fraud, compliance with laws and regulations, subsequent events etc); and• other audit matters of governance interest

There are no other matters that which we wish to draw to your attention.

ISA 240

ISA 240 is the International Auditing Standard relating to The Auditor’s Responsibility to Consider Fraud in an Audit of Financial Statements. We have considered fraud during our planning, interim and final audit procedures. We have also held meetings

with Senior Management to allow relevant information to be communicated.

Internal audit

In accordance with ISA 610 “Considering the work of Internal Audit” we have considered work carried out by the internal

auditors during the year, but have not placed any reliance on this.

Summary• The above items need consideration by the Audit Committee and documentation by the Board in approving the 2009

financial statements.

Appendix

39



Section Three

Current Year Performance Improvement Observations

Agreed – this has been actioned by the Company.

This control should be enforced to

ensure that the Council do not post journals directly in to the accounts of

the Company. A journals report should

be run on a periodic basis to ensure this control continues to happen.

Journals Posting

Historically journals have been posted by

the Council and the Company may not have been aware of all of the journals being

posted

There is the risk that journals get posted

that have not been properly checked and authorised. The system is open to fraud

and potential misstatement.

It has been noted that during the current

year procedures have been put in place to

prevent such activities taking place.

Invoices are send to the department

to be signed to ensure that the

goods/services have been received before these are paid. Therefore,

additional controls are not considered necessary.

A more formal procedure or recording

deliveries should be introduced.

Ideally, formal delivery notes should always be forwarded to finance and

agreed to the purchase order and invoice to complete the three way

match.

If this is impractical, for example if the

supplier provides no such documentation, a fax or email

confirmation of delivery should be documented and filed with the

purchase order and invoice so that a audit trail can be followed to ascertain

which individual receipted the items.

It should be noted that the sample

chosen during the audit provided no evidence to suggest that invoices had

been paid where the relevant good or service had not been received.

Purchase controls

It was identified that three way matching

between purchase order, to delivery

confirmation, and to invoice is not being formally documented. Invoices are being

agreed to purchase orders, with only evidence of a small minority being agreed

to delivery documentation.

We were informed that delivery

confirmation is sometimes received by means of a telephone call or an email from

the receiving individual.

Due to the lack of evidence of delivery of the goods or services, there is a risk that

the Company may pay for goods or services that have not been received, or

that fraudulent activity occurs which diverts

deliveries away from the Company.

Agreed – the Company are working to make the reports more user friendly.

Although the reports can be obtained from the Council, the format of these

reports is not user friendly, with too much information being included.

It is understood that IT are currently

looking into making such reports more user friendly.

Lack of usable supporting payroll

documentation

The payroll function is outsourced to

Gateshead Council, and the company receives reports which are generally not

user friendly. One such example is a report detailing changes to standing data. As

these reports are not user friendly standing data may be incorrectly changed, which

may not be identified by the company.

Agreed – these will be reviewed and signed by the Finance Manager.

All control account reconciliations should be reviewed by a person more

senior than the preparer within the

finance department. This review should be evidenced by a signature.

Control Account Reconciliations – lack of review

Due to long term sickness of a member of

the finance team, one individual performs

all of the control account reconciliations which are not subsequently reviewed.

This lack of formal review means any errors

in the reconciliations may not be identified.

This lack of segregation of duties increases the risk of fraud and the control may not be

operating as intended.

Management commentRecommendation Observation and risk

4

Appendix

40



5

Section Three

Prior Year Performance Improvement Observations

Noted.A planning meeting was held

between the Company and the Council, resulting in most data

being obtained from the Council in a far more timely manner than

the previous year.

However, at present we are still

awaiting for the Council to provide the bank reconciliation as they do

not want to provide it until their

audit has been completed.

The timing of future

audits, availability of information, and how this

information is accessed needs to be agreed by all

parties prior to the commencement of future

audits.

It was agreed in 2008

that a senior

representative from the Council would attend the

relevant part of the planning meeting in

future years.

Information from

Gateshead Council

In 2008 we experienced

difficulty in obtaining some evidence required for our

audit work from the

Council in a timely manner.

Noted.The Company and Council are to start investigating these

recommendations going forward.

The bank account that the company currently

operates is solely for Visa transactions.

Management should look at opening a fully

functional bank account

to reduce their dependency on the

Council and to improve their independence and

control.

This could further benefit

the company as they would have more control

over the interest

receivable balance.

Bank account

In line with previous years, we noted that the primary

bank account is shared by the Council and the

Company.

A new bank accounts was

opened with Co-op during

2008. This continues to be used for minimal

transactions.

At present no confirmation

has been received from the Council and the Audit

Commission, and as such this is a reconciling item on

the balance sheet of the

Company.

Management commentRecommendation Observation and risk Current position at 31 March 2009

As part of our interim review we reviewed progress made in following up prior year recommendations. Those

improvements still ongoing have been documented below:

Appendix

41



Appendices

Appendix One – DRAFT Management Representation Letter

Quayside House,

110 Quayside,

Newcastle Upon Tyne,

NE1 3DX

(Date of approval of the financial statements)

Dear Sirs

This representation letter is provided in connection with your audit of the financial statements of The Gateshead Housing

Company Limited (“the Company”), for the purpose of expressing an opinion as to whether these financial statements give a

true and fair view of the financial position of The Gateshead Housing Company Limited and of its financial performance in

accordance with UK Generally Accepted Accounting Practice. These financial statements comprise the Balance Sheet as at 31

March 2009 and the Income and Expenditure account, Statement of Total Recognised Surpluses and Deficits and Cash Flow

Statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

We acknowledge as directors our responsibilities under the Companies Act 1985 for preparing financial statements which give

a true and fair view of the Company.

We also acknowledge as directors our responsibilities under the Companies Act 1985 for making accurate representations to

you and for ensuring that there is no relevant audit information that you are unaware of.

The Board approves the financial statements.

The Board understands that auditing standards require you to obtain representations from directors on matters that are material

to your opinion. The Board understands that omissions or misstatements of items are material if they could, individually or

collectively, influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on

the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or

a combination of both, could be the determining factor.

The Board has made appropriate inquiries of directors and officers of the Company with the relevant knowledge and

experience. Accordingly, the Board confirms, to the best of its knowledge and belief, the following representations:

1. The financial statements referred to above, which have been prepared on a going concern basis, give a true and fair view

in accordance with UK Generally Accepted Accounting Practice.

2. All the accounting records have been made available to you for the purpose of your audit, and the full effect of all the

transactions undertaken by the company have been properly reflected and recorded in the accounting records in accordance with agreements, including side agreements, amendments and oral agreements. All other records and

related information, including minutes of all management, Board and shareholders meetings and, when applicable, summaries of actions of meetings held after period end for which minutes have not yet been prepared, have been made

available to you.

3. In particular the Board confirms that:

� They are satisfied with the completeness, existence and accuracy of the cash balance, the number which has been

provided by Gateshead Council.

4. The Board is not aware of any known actual or possible non-compliance with laws and regulations that could have a material effect on the ability of the Company to conduct its business and therefore on the results and financial position to

be disclosed in the financial statements for the year ended 31 March 2009.

5. The Board:

(a) understands that the term “fraud” includes misstatements resulting from fraudulent financial reporting and misstatements resulting from misappropriation of assets. Misstatements resulting from fraudulent financial reporting involve intentional

misstatements including omissions of amounts or disclosures in the financial statements to deceive financial statement users. Misstatements resulting from misappropriation of assets involve the theft of an entity’s assets, often accompanied

by false or misleading records or documents in order to conceal the fact that the assets are missing or have been

pledged without proper authorisation.

(b) acknowledges responsibility for the design and implementation of internal control to prevent and detect fraud and error.

Appendix

42



Appendices


(c) has disclosed to you its knowledge of fraud or suspected fraud affecting the Company involving:

� management and those charged with governance;

� employees who have significant roles in internal control; or

� others where the fraud could have a material effect on the financial statements.

(d) has disclosed to you its knowledge of any allegations of fraud, or suspected fraud, affecting the financial statements

communicated by employees, former employees, analysts, regulators or others.

(e) has disclosed to you the results of its assessment of the risk that the financial statements may be materially misstated as a result of fraud.

6. The Board believes the effects of unadjusted audit differences summarised in the accompanying schedule are

immaterial, both individually and in the aggregate, to the financial statements taken as a whole.

7. The Board confirms the completeness of the information provided to you regarding the identification of related parties and regarding transactions with such parties that are material to the financial statements. The identity of, and balances and

transactions with, related parties have been properly recorded and when appropriate, adequately disclosed in the notes

to the financial statements. The Board is not aware of any other such matters required to be disclosed in the financial statements, whether under FRS 8 Related party disclosures or other requirements. Included in Appendix A to this letter

are the definitions of both a related party and a related party transaction as the Board understands them and as defined in FRS 8.

8. Presentation and disclosure of the fair value measurements of material assets, liabilities and components of equity are in

accordance with UK Generally Accepted Accounting Practice. The amounts disclosed represent the Board’s best estimate of fair value of assets and liabilities required to be disclosed by these standards. The measurement methods

and significant assumptions used in determining fair value have been applied on a consistent basis, are reasonable and

such assumptions appropriately reflect the Board’s intent and ability to carry out specific courses of action on behalf of the Company where relevant to the fair value measurements or disclosures.

9. The Board has recorded or disclosed, as appropriate, all liabilities, both actual and contingent, and has disclosed in the

financial statements all guarantees given to third parties.

10. The estimated financial effect of pending or threatened litigation and claims against the Company has been properly recorded and/or disclosed in the financial statements. Except as disclosed in the notes to the financial statements, the

Board is not aware of any additional claims that have been or are expected to be received.

11. Except as disclosed in the financial statements or notes thereto there are no:

(a) other gain or loss contingencies or other liabilities that are required to be recognised or disclosed in the financial

statements, including liabilities or contingencies arising from environmental matters resulting from illegal or possibly illegal acts, or possible violations of human rights legislation; or

(b) other environmental matters that may have a material impact on the financial statements.

12. The Board confirms that:

• The financial statements disclose all of the key risk factors, assumptions made and uncertainties surrounding the

company’s ability to continue as a going concern as required to provide a true and fair view.

• Any uncertainties disclosed are not considered to be material and therefore do not cast significant doubt on the ability of the Company to continue as a going concern.

13. On the basis of the process established by the Board and having made appropriate enquiries, the Board is satisfied that

the actuarial assumptions underlying the valuation of pension scheme liabilities are consistent with its knowledge of the business. The Board further confirms that:

(a) all significant retirement benefits, including any arrangements that are statutory, contractual or implicit in the employer's

actions; arise in the UK and the Republic of Ireland or overseas; are funded or unfunded; and are approved or

unapproved, have been identified and properly accounted for; and

(b) all settlements and curtailments have been identified and properly accounted for.

The schemes set out in the attached schedule have been accounted for in the financial statements. There are no other schemes of any significance.

This letter was tabled and agreed at the meeting of the Board of Directors on (date of approval of financial statements)

Yours truly,

[Chairman]

[Secretary]

Appendix

43



Appendices


(c) has disclosed to you its knowledge of fraud or suspected fraud affecting the Company involving:

� management and those charged with governance;

� employees who have significant roles in internal control; or

� others where the fraud could have a material effect on the financial statements.

(d) has disclosed to you its knowledge of any allegations of fraud, or suspected fraud, affecting the financial statements

communicated by employees, former employees, analysts, regulators or others.

(e) has disclosed to you the results of its assessment of the risk that the financial statements may be materially misstated as a result of fraud.

6. The Board believes the effects of unadjusted audit differences summarised in the accompanying schedule are

immaterial, both individually and in the aggregate, to the financial statements taken as a whole.

7. The Board confirms the completeness of the information provided to you regarding the identification of related parties and regarding transactions with such parties that are material to the financial statements. The identity of, and balances and

transactions with, related parties have been properly recorded and when appropriate, adequately disclosed in the notes

to the financial statements. The Board is not aware of any other such matters required to be disclosed in the financial statements, whether under FRS 8 Related party disclosures or other requirements. Included in Appendix A to this letter

are the definitions of both a related party and a related party transaction as the Board understands them and as defined in FRS 8.

8. Presentation and disclosure of the fair value measurements of material assets, liabilities and components of equity are in

accordance with UK Generally Accepted Accounting Practice. The amounts disclosed represent the Board’s best estimate of fair value of assets and liabilities required to be disclosed by these standards. The measurement methods

and significant assumptions used in determining fair value have been applied on a consistent basis, are reasonable and

such assumptions appropriately reflect the Board’s intent and ability to carry out specific courses of action on behalf of the Company where relevant to the fair value measurements or disclosures.

9. The Board has recorded or disclosed, as appropriate, all liabilities, both actual and contingent, and has disclosed in the

financial statements all guarantees given to third parties.

10. The estimated financial effect of pending or threatened litigation and claims against the Company has been properly recorded and/or disclosed in the financial statements. Except as disclosed in the notes to the financial statements, the

Board is not aware of any additional claims that have been or are expected to be received.

11. Except as disclosed in the financial statements or notes thereto there are no:

(a) other gain or loss contingencies or other liabilities that are required to be recognised or disclosed in the financial

statements, including liabilities or contingencies arising from environmental matters resulting from illegal or possibly illegal acts, or possible violations of human rights legislation; or

(b) other environmental matters that may have a material impact on the financial statements.

12. The Board confirms that:

• The financial statements disclose all of the key risk factors, assumptions made and uncertainties surrounding the

company’s ability to continue as a going concern as required to provide a true and fair view.

• Any uncertainties disclosed are not considered to be material and therefore do not cast significant doubt on the ability of the Company to continue as a going concern.

13. On the basis of the process established by the Board and having made appropriate enquiries, the Board is satisfied that

the actuarial assumptions underlying the valuation of pension scheme liabilities are consistent with its knowledge of the business. The Board further confirms that:

(a) all significant retirement benefits, including any arrangements that are statutory, contractual or implicit in the employer's

actions; arise in the UK and the Republic of Ireland or overseas; are funded or unfunded; and are approved or

unapproved, have been identified and properly accounted for; and

(b) all settlements and curtailments have been identified and properly accounted for.

The schemes set out in the attached schedule have been accounted for in the financial statements. There are no other schemes of any significance.

This letter was tabled and agreed at the meeting of the Board of Directors on (date of approval of financial statements)

Yours truly,

[Chairman]

[Secretary]

Appendix

44



Appendices


Appendix A to the Management Representation Letter of The Gateshead Housing Company Limited

Definitions

A. Two or more parties are related parties when at any time during the financial period:

(i) One party has either direct or indirect control of the other party; or

(ii) the parties are subject to common control from the same source; or

(iii) one party has influence over the financial and operating policies of the other party to an extent that that other party

might be inhibited from pursuing at all times its own separate interests; or

(iv) the parties, in entering a transaction, are subject to influence from the same source to such an extent that one of the parties to the transaction has subordinated its own separate interests.

B. For the avoidance of doubt, the following are related parties of the reporting entity:

(i) its ultimate and intermediate parent undertakings, subsidiary undertakings, and fellow subsidiary undertakings;

(ii) its associates and joint ventures;

(iii) the investor or venturer in respect of which the reporting entity is an associate or a joint venture;

(iv)directors[1] of the reporting entity and the directors of its ultimate and intermediate parent undertakings; and

(v) pension funds for the benefit of employees of the reporting entity or of any entity that is a related party of the reporting

entity.

C. The following are presumed to be related parties of the reporting entity unless it can be demonstrated that neither party has

influenced the financial and operating policies of the other in such a way as to inhibit the pursuit of separate interests:

(i) the key management of the reporting entity and the key management of its parent undertaking or undertakings;

(ii) a person owning or able to exercise control over 20 per cent or more of the voting rights of the reporting entity, whether directly or through nominees;

(iii) each person acting in concert in such a way as to be able to exercise control or influence over the reporting entity;

and

(iv) an entity managing or managed by the reporting entity under a management contract.

D. Additionally, because of their relationship with certain parties that are, or are presumed to be, related parties of the reporting

entity, the following are also presumed to be related parties of the reporting entity:

(i) members of the close family of any individual falling under parties mentioned above in A to C; and

(ii) partnerships, companies, trusts or other entities in which any individual or member of the close family in a to C above

has a controlling interest.

[1] Directors include shadow directors, which are defined in companies legislation as persons in accordance with whose

directions or instructions the directors of the company are accustomed to act.

Appendix

45



Appendices


Appendix B to the Management Representation Letter of The Gateshead Housing Company Limited

The scheme accounted for in the financial statements is:

• Tyne and Wear Pension Fund: The Gateshead Housing Company Limited

Appendix

46



Appendices

Appendix Two- Summary of Unadjusted Audit Differences

We are required by ISA 260 (UK and Ireland) Communication of Audit Matters to Those Charged with Governance to communicate all uncorrected misstatements, other than those that we believe are clearly trivial, to the Audit Committee. We are

also required to report all material adjustments that management has corrected but that we believe should be communicated to the Audit Committee to assist it in fulfilling its governance responsibilities.

This appendix sets out the audit differences that we identified following the completion of our audit for the year ended 31 March 2009.

Uncorrected audit differences

Detailed below are the audit differences we identified which we assessed as not material and therefore have not been adjusted

in the accounts:

39

39

Insurance proceeds

Reclassification of insurance proceeds

within in the income and expenditure account.

Dr Turnover – other income

Cr Operating costs

Morrison’s disputed invoices

Outstanding awaiting further clarification

from Management

Credit

£’000s

Debit

£’000s

Credit

£’000s

Debit

£’000s

Income and expenditure

account Balance sheet

Appendix

47



Appendix

48



kpmg.co.uk

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 upon such information without appropriate professional advice after a thorough examination of the particular situation.

© 2009 KPMG LLP Plc, is a UK limited liability partnership is a member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in the United Kingdom. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.

Printed in the United Kingdom.

KPMG and the the KPMG logo are registered trade marks of KPMG International, a Swiss cooperative.

Designed and produced by KPMG LLP (UK)’s Design Services

Printed on recycled stock

Appendix

49

ITEM 6


1 July 2009

Title:

Tendering for Internal Audit Services


Purpose of Report

1. To approve the proposed methodology for the re-tendering of the company’s

statutory internal audit.

Summary 2. The current contract for the provision of internal audit expires on 31 March 2010.

It is therefore necessary to go out to tender for the provision of these services for a period of three years.

3. This report proposes the following process to be followed: -

Audit Selection Panel

To facilitate the selection of a new Internal Auditor, it is recommended that a panel of three directors be appointed to complete the tender procedures as outlined below.

Invitations to tender

A pool of suitable candidates to be invited to tender is suggested to include the current provider (Gateshead Council), the “Big 4” accountancy firms (KPMG, Deloitte Touche, PricewaterhouseCoopers and Ernst & Young) plus a selection of local firms.

This will ensure that the panel has a wide variety of options to consider.

Tender Requirements

• A detailed method statement outlining the approach adopted by your firm in providing an internal audit service, outline sample reports and the approach to ranking findings and recommendations

• An outline audit plan showing in which year each audit might take place together with the number of days allocated to each audit and showing what approach is taken to assessing risk.

50

• Details of your firms internal audit expertise and broad profile of client groups/sectors.

• The personnel who would be involved with particular reference to the partner/senior manager background

• The office from which the audit would be managed

• Your fixed price fee for the first year and how it will be up-rated for the full term. This to include a full detailing of the person days and activity periods you consider appropriate and the experience, qualifications and grades of staff to be used

Timetable

Invitation letters to those invited to tender will be sent out on Monday 31 August with a deadline date for replies by Friday 18 September. A copy of the invitation letter is shown in the Appendix to this report.

Shortlisting

The replies will be evaluated and scored by the panel and a shortlist of 3-4 will be called to interview / make a presentation to the panel during week commencing 5 October 2009.

Selection

The successful tender will then be proposed to the committee at its 21 October meeting as the company’s internal auditors for the financial years ending 31 March 2011, 2012 and 2013.

Link to values

4. This report links to the following corporate values: -

1. Being motivated, trained, and committed across the company – delivering efficient and effective services.

• Being positive and responsive – constantly striving to achieve excellence.

Impact on tenants 5. No impact directly from this report.


6. Tendering of services is one of the controls in place to minimise the strategic risk

(Failure to sustain service improvements). In addition, the successful tender will need to ensure that the company’s risk management processes are robust.

51


7. The cost of the internal audit work is fully provided for in the company’s annual budget.

Equality and Diversity Implications

8. There are no equality and diversity implications associated with this report.


9. The company’s internal audit requirements are subject to a full tender process

and the successful applicant will be awarded a three year contract.

Consultation carried out

10. The final decision to appoint will be made by the panel of Directors.

Recommendations

11. The committee is asked to approve the methodology to re-tender the company’s internal audit service.

Contact: Jon Mallen-Beadle, Director of Finance Tel No: (0191) 433 5306

52

Appendix Name Address Dear Sir, INVITATION TO QUOTE FOR INTERNAL AUDIT SERVICES The Gateshead Housing Company is seeking to appoint Internal Auditors and I am writing to invite your company to submit a tender proposal to provide an internal audit service for three years commencing 1 April 2010. For your information, I enclose copies of the Company’s annual accounts for 2008/09 and our latest Business Plan. May I also draw your attention to our audit commission inspection report in February 2009. A copy of this report can be found at the audit commission’s website. Proposals Your proposal should include

• A detailed method statement outlining the approach adopted by your firm in providing an internal audit service, outline sample reports and the approach to ranking findings and recommendations.

• An outline audit plan showing in which year each audit might take place together with the number of days allocated to each audit and showing what approach is taken to assessing risk.

• Details of your firms internal audit expertise and broad profile of client groups/sectors.

• Clarification of how your firm would approach Information Technology audits.

• The personnel who would be involved with particular reference to the partner/senior manager background.

• The office from which the audit would be managed.

• Your fixed price fee for the first year and how it will be up-rated for the full term. This to include a full detailing of the person days and activity periods you consider appropriate and the experience, qualifications and grades of staff to be used.

53

• a detailed daily rate (by staff category) for additional services

• a listing of additional services you can offer which you consider may be relevant Submission Details Several companies are being invited to express an interest in the appointment and the submissions will be reduced to a shortlist of 3-4 companies who will be invited to make presentations to a panel of Board members and selected officers of the Company. Appointment will be following presentations, which are anticipated to be held during week commencing 5 October 2009 and will be ratified by the Committee on 21 October. The involved partner and assignment manager must be present. Three copies of your Proposal and one unbound copy should be submitted in an envelope marked “Confidential Internal Audit Proposal” to the above address by Friday 18 September. Contacts for queries and information are: - Jon Mallen-Beadle Director of Finance [email protected] 0191 433 5306 Sarah Thompson Finance Manager [email protected] 0191 433 5350 Yours faithfully, The Gateshead Housing Company

54

ITEM 7


1 July 2009

Title:

Delivery of VFM within the Decent Homes Programme

Joint Report of: Acting Director of Property and Technical Services and Director of Finance

Purpose of Report 1. To provide the committee with an update on the work being carried out to drive

efficiencies out of the Decent Homes programme and to approve the initial financial appraisal.

Background

2. The Board approved the company’s updated VFM Strategy in May 2008, a key

element of which was a detailed review of the current Decent Homes programme to identify and deliver VFM savings.

3. At its meeting on 25 February 2009, the committee received an update on

progress being made by Value Based Solutions (“VBS”) and agreed an approval process for the approval of their financial appraisals.

Forecast outturn of the capital programme prior to VBS work

4. The overall cost to complete the Decent Homes programme from 1 April 2008 to the end of the Decent Homes progress was forecast to be £117.1 million prior to the work carried out by VBS.

5. Following the work carried out by VBS, we have managed to make an overall net

saving of £12.3 million (10.5%). This has led to a revised forecast position of only needing to spend £104.8 million in the period 1 April 2008 to the end of the Decent Homes programme (see Appendix 1 to this report).

6. These savings have been achieved in the following areas: -

Replacement Elements £9.0 million net savings have been achieved by reviewing the materials we are using (without reducing the quality) and retendering the supply of these elements We have entered into sole supply agreements maximising economies of scale for the following elements: -

55

• Kitchens

• Bathrooms

• Boilers. We have also entered into duel supply arrangements for the following elements: -

• External Doors

• Windows. Our partners have also reviewed how they deliver these elements and have identified efficiencies which have contributed to this saving. Overheads and Profit £0.5 million has been saved (net) in profit to the partners by reducing the value of the work as these were calculated on a percentage value basis. Preliminaries £2.6 million has been saved (net) on the preliminaries paid to our partners by rationalising how the schemes are delivered, each management stream now delivering up to 10 properties per week rather than the previous five. This can be achieved as the scope of work carried out in each property is reducing.

Renegotiation of the fee payable to VBS

7. The original contract agreement stated that the fees payable to VBS were as follows: -

90% of the forecast savings for the life of the Decent Homes Programme will be paid upon approval of the financial appraisal with the balance being held as retention until the completion of the programme.

8. This clause has now been renegotiated to be more favourable to the company as follows: -

Fees payable to VBS will be based upon a combination of forecast and actual savings, paid in two instalments each financial year. As per the original contract, all fees are levied at 25% of the savings. The two payments to be made each year are as follows: - The first payment is based upon 85% of the forecast savings for the following financial year. The forecast savings will be agreed between VBS and TGHC, and will be based upon the formal quarterly forecast produced (third quarter) by the end of January for the following financial year. This forecast will be completed and agreed by both parties by the 15th of March of each financial year and the respective fees will be payable on the 1st April of the new financial year. The second payment which is payable when the actual costs for the year are agreed with the partners, relates to the schemes actual valuations/final accounts as at the 31st March of each year.

56

This second payment will be an adjustment for the difference between the actual savings and the forecast savings (of which 85% are paid on account as the first payment) achieved for the previous financial year.

9. This report therefore also seeks approval to make the initial 85% payment for

2008/09 (£492,031) and the initial payment for 2009/10 (£1,844,903) in line with the revision to the contract.

Reinvestment of savings

10. The outcome of this significant project is that we will be able to invest a further

£8.0 million into home improvements over the next three years. 11. A further report later in the year will be presented to highlight areas that we

expect to spend these monies on following detailed consultations with tenants, councillors and the Council.

Link to values


• Being motivated, trained, and committed across the Company – delivering efficient and effective services.


Impact on tenants

13. The savings that are proposed will be utilised to enhance the existing

programme.


14. This work will ensure that VFM in delivery of the decent homes programme is maximised, hence ensuring the associated strategy risk (Failure to achieve delivery of decent homes) is correctly managed.


15. Any savings made will be redirected to enhance the existing improvement

programme. Equality and Diversity Implications



17. This work links into the VFM strategy and will ensure that we can demonstrate

VFM within the decent homes programme.


18. No direct consultation has been carried out in the preparation of this report. 57

Recommendation

19. The committee is asked to

• approve the initial financial appraisal and forecast savings;

• approve payment of the first 85% fee for the financial years ending 2008/09 and 2009/10 payable to VBS.

Contact: Paul Proud, Acting Director of Property & Technical Tel No: (0191) 433 5302 Jon Mallen-Beadle, Director of Finance Tel No: (0191) 433 5306

58

ITEM 8


1 July 2009

Title:

Purchase of a Customer Relationship Management System


Purpose of Report

1. This report informs the committee of the decision taken under delegated powers

to approve the purchase of a Customer Relationship Management (“CRM”) System that integrates with the Northgate suite of programmes under delegated powers.

Background

2. A joint Value for Money & Audit and Diversity & Access Committee met on 13

October 2008 and agreed (then ratified by the Board on 13 November 2008) a CRM Programme.

3. The vision for this programme approved was as follows: -

“We will have one consistent view of each and every one of our customers no matter what the channel of contact.”

“The customer will have one consistent view of us no matter what channel of contact they choose.”

Summary

4. The requirements of the Customer First project comprise a service centre to

resolve and channel customer enquiries, a mobile working solution for Housing Management staff and a workflow module to manage business processes.

5. Workflow has the potential to become the primary business tool across the

business, utilised in both front office and back office. Doing so would allow the implementation of quantified business efficiencies directly highlighting a return on investment for the project and freeing resources to better serve our customers.

6. This report recommends to support Customer First and to address this

requirement is the implementation of the Northgate Front Office CRM, CallTouch Telephony Integration and Electronic Document Management Information@Work.

60

7. This solution will delivers business benefits as follows: -

• Reducing processing and transactional costs;

• Modernising systems and service delivery to meet the increasing expectations of customers;

• Empowering staff to increase the quality and range of services they offer.

8. The introduction of Front Office will enable us to re-work our business processes to transfer services from back office to front line delivery. By satisfying a high volume of enquiries at the first point of contact, we will reduce processing and transactional costs and deliver a more efficient service to its customers.

9. Front Office will also provide us with an opportunity to transfer some of our face-

to-face services to less expensive channels such as telephony and the internet. 10. With Front Office our tenants can choose whether to make contact by phone,

post, email or in person and will always receive the same high quality service. Staff dealing with these interactions will have instant access to information on our core procedures. They will be presented with key facts about the customer being served to enable them to answer any questions on existing issues and to complete new transactions at the first point of contact.

11. Front Office will place all relevant information at the fingertips of the customer

services and other frontline staff, providing our staff in the front line with information and knowledge of our tenants, thereby enhancing the customer experience.

Link to values


• Being motivated, trained, and committed across the company – delivering efficient and effective services.

• Being positive and responsive – constantly striving to achieve excellence.

Impact on tenants 13. The implementation of this system will enable our tenants to choose whether to

make contact by phone, post, email or in person and will ensure that they always receive the same high quality service.


14. The implementation of this system is a key part of the ICT Strategy. This will

ensure the strategic risk highlighted in the business plan (Failure to implement a successful ICT strategy) is effectively controlled.

15. An amendment to our current Northgate contract would be made through a

change agreement in line with the terms of the original contract.

61


16. The capital cost of this project will be £233,268, which will be depreciated over four years at a cost of £58,317 per annum. Budget provision has been made for this cost.

17. In addition, there are further costs of £70,647 relating to implementation and

training that will be met from the company’s Contingency set aside in the 2009/10 budget – these are one off non-recurring costs.

18. Finally, the cost of developing the business processes of £50,986 will be met

from the ICT development budget – these are one off non-recurring costs. 19. As highlighted in the table below, we have managed to negotiate a 17% saving

which equates to £71,100.

Original Budget

Actual - based on negotiated

discount Savings

Capital Cost 280,000 233,268 46,732

Implementation & Training

84,800 70,647 14,153

Developing the business processes

61,200 50,986 10,214

426,000 354,900 71,100

Equality and Diversity Implications



21. Front Office CRM will be fully integrated with the company’s existing housing

Management system and an in-house support team will be set up from existing resources to take over the development of future system and workflow upgrades post delivery of this project.


22. Consultation has taken place with all members of the committee under delegated

powers to approve this report prior to this meeting due to the urgency of securing the discount mentioned above.

Recommendations

23. The committee is recommended to note the decision taken under delegated

powers following consultation with members of the committee to approve the purchase of the Customer Relationship Management System.

Contact: Jon Mallen-Beadle, Director of Finance Tel No: (0191) 433 5306

62

ITEM 9


1 July 2009

Title:

Analysis of Insurance Claims


Purpose of Report

1. To provide an update of the insurance claims which have been settled and paid

by the company over the past five years to determine whether any themes are identifiable.

Background

2. The committee requested, at its meeting on 26 February 2009, that Officers be

requested to carry out the following detailed analysis and report back to the committee: -

• The types of insurance claims being received.

• The number of successful/unsuccessful claims.

• The number of insurance claims being dealt with by partners.

• Alternative insurance companies and whether they could provide better value for money.

• The feasibility of providing the service in-house.

• Whether a flag could be put on a tenant’s file and any Data Protection issues associated with this.

Summary

3. The insurance claims which have been received by the company since 2004

have been analysed in detail and are included in Appendix 1 to this report. 4. Following a review of the types of insurance claims received and the types of

insurance claims paid, it is found that the majority of claims received are for trips/slips/falls (34%) and for leaks (30%) and these are also the majority of the claims which are paid of 32% and 37% respectively.

5. In relation to the request of the committee as detailed in the background, the

following information has been obtained: -

63

Types of Insurance Claims 6. As noted, the main types of insurance claims are trips/slips/falls and leaks.

Claims for damp and defective repairs each relate to approximately 10% of all claims made. The analysis in Appendix 1 shows all of the types of insurance claims split between those received and those paid.

Successful/Unsuccessful

7. An analysis of the successful and unsuccessful claims is shown within Appendix

2 to this report. This has been analysed by type of claim. It can be found that of the 274 closed claims, 73% of claims are unsuccessful and only 27% of claims have been successful. Therefore, of the 69 claims still open it can be estimated that 50 would be unsuccessful and 19 would be successful.

8. The amounts of payments for the successful claims can be broken down as

follows: -

Insurance claims dealt with by partners 9. Currently records are not kept in relation to the insurance claims being logged

with partners. However, if the insurance service was brought in-house this would be an improvement that we would make.

Alternative insurance companies and whether they could provide better value for money/The feasibility of providing the service in-house

10. These items have been considered as one item – the insurance was tendered

through OJEU for the 1 January 2007 policy year renewal and was for a period of three years with an additional two year extended option. We are currently into year 2 of this contract and therefore, have one further year before this can be retendered.

11. However, in terms of administration of insurance, it is detailed in the Financial

Services SLA report (a separate item on the agenda for this meeting) that the service should be brought in-house to manage with effect from 1 April 2010.

Flag on a tenants file

12. It has been discussed with ICT the feasibility of putting a flag onto a tenant’s

Northgate account detailing any insurance claims made. It has been agreed that a flag could be put on file; however, this should be to just state that an insurance claim has been made and should not state the reason and outcome of the insurance claim as this may cause data protection issues. However, the benefit of this flag should be agreed first.

Year of Claim Payment 2004 £85,102.00

2005 £23,535.22

2006 £85,313.51

2007 £54,504.29

2008 £8,521.99

64

Link to values 13. This report is in line with the following value of the company :-

• Being honest accountable and transparent – delivering excellent services with integrity.

Impact on tenants

14. There is no impact on tenants arising from this report.

Risk Management Implications 15. There are no risk management implications arising from this report.

Financial Implications 16. There are no financial implications arising from this report. However, savings

could potentially be made from bringing the insurance service in-house.

Equality and Diversity Implications 17. There are no equality and diversity implications arising from this report.


18. There are no value for money implications arising from this report. However, if

the insurance service is brought in-house this will create savings which can be reinvested in front line services.


19. No consultation has been carried out in relation to this report.

Recommendation 20. The committee is asked to note the report.


65

Types of Claims

All Claims 2004

2004 Open

2004 Paid

All Claims 2005

2005 Open

2005 Paid

All Claims 2006

2006 Open

2006 Paid

All Claims 2007

2007 Open

2007 Paid

All Claims 2008

2008 Open

2008 Paid

Total Claims % Total Paid %

Slip/Trip/Fall 30 7 18 2 1 24 8 8 26 9 7 19 15 0 117 34.11 23 31.51Leak 10 4 22 1 2 23 2 6 23 3 8 24 10 7 102 29.74 27 36.99Damage during works 7 1 0 0 2 3 1 5 3 0 17 4.96 2 2.74Defective Repair 4 1 1 15 1 3 11 0 2 2 0 32 9.33 4 5.48Damp 6 8 1 9 1 4 6 2 2 7 7 0 36 10.50 7 9.59Removal of items incorrectly 4 4 2 1 1 1 0 0 0 10 2.92 3 4.11Storm Damage 0 5 0 3 1 3 1 2 11 3.21 3 4.11Other 4 1 5 1 1 5 0 3 2 1 0 0 18 5.25 4 5.48

Total 65 1 14 77 5 10 75 11 18 65 14 22 61 38 9 343 100 73 100

Appendix 1

66

Successful/Unsuccessful Claims

Types of

Claims

All Claims

2004

2004

Open

2004

Unsuccessful

2004

Successful

All Claims

2005

2005

Open

2005

Unsuccessful

2005

Successful

All Claims

2006

2006

Open

2006

Unsuccessful

2006

Successful

All Claims

2007

2007

Open

2007

Unsuccessful

2007

Successful

All

Claims

2008

2008

Open

2008

Unsuccessful

2008

Successful

Slip/Trip/Fall 30 23 7 18 2 15 1 24 8 8 8 26 9 10 7 19 15 4 0

Leak 10 6 4 22 1 19 2 23 2 15 6 23 3 12 8 24 10 7 7

Damage

during works 7 6 1 0 0 0 2 2 3 2 1 5 3 2 0

Defective

Repair 4 1 2 1 15 1 11 3 11 11 0 0 2 2 0 0

Damp 6 6 8 7 1 9 1 4 4 6 2 2 2 7 7 0 0

Removal of

items

incorrectly 4 4 4 2 2 1 1 1 0 1 0 0 0 0

Storm

Damage 0 0 5 5 0 0 3 2 1 3 1 0 2

Other 4 3 1 5 1 3 1 5 5 0 3 1 2 1 0 1 0

Total 65 1 50 14 77 5 62 10 75 11 46 18 65 14 29 22 61 38 14 9

Total Claims Closed

Total

Successful %

Total

Unsucessful % Open %

Slip/Trip/Fall 117 83 23 31.51 60 29.85 34 49

Leak 102 86 27 36.99 59 29.35 16 23

Damage

during works 17 14 2 2.74 12 5.97 3 4

Defective

Repair 32 28 4 5.48 24 11.94 4 6

Damp 36 26 7 9.59 19 9.45 10 14

Removal of

items

incorrectly 10 10 3 4.11 7 3.48 0 0

Storm

Damage 11 10 3 4.11 7 3.48 1 1

Other 18 17 4 5.48 13 6.47 1 1

Total 343 274 73 100 201 100 69 100

27% 73% 20%

Appendix 2

67

ITEM 10

Report to Value for Money and Audit Committee

1 July 2009

Title:

Management Accounts – May 2009


Purpose of Report

1. To provide the committee with an update on the management accounts to

end May 2009.

Background 2. The Board determined at its meeting on 15 January 2009 that quarterly

finance reports should be taken to the Value for Money and Audit Committee to be scrutinised in more detail.

3. The Accounts Team produces monthly management accounts which detail

the actual charges for the month, the year to date charges and the budget year to date. This shows the variance and the forecasted budget. This report has been included in the Appendix to this report.

4. The Board agreed a budget for 2009/10 at its meeting on 12 March 2009.

Management Accounts

5. The Management Accounts to the end of May 2009 are included within the Appendix to this report. The Management Accounts include the income and expenditure in relation to both revenue and repairs up to the end of May 2009.

6. Although the Board has previously determined that this committee should

scrutinise in more detail finance reports on a quarterly basis, given the timing of this meeting it has only been possible to produce the management accounts to the end of May 2009. The management accounts for the first and second quarters will be presented to the next meeting of this committee in October 2009. Link to values


68


• Being motivated trained, and committed across the company – delivering efficient and effective services.

Impact on tenants

7. Whilst this report does not impact on tenants directly, appropriate financial monitoring and control will ensure efficiencies are maximised and redirected to services that directly impact on tenants. Risk Management Implications

8. Regular and accurate monitoring will ensure that the strategic risk within the business plan (Insufficient available financial resources) is effectively controlled.

Financial Implications 9. The financial implications are contained within the report and appendices. Equality and Diversity Implications 10. There are no equality or diversity implications arising from this report. Value for Money implications 11. Regular financial monitoring and control will ensure efficiencies are maximised and

then utilised in the most appropriate manner. Consultation carried out 12. None directly for this report. Recommendation 13. The committee is asked to note the report.


69

Appendix

The Gateshead Housing Company Management Accounts – May 2009

Revenue and Repairs Executive Summary

1. The management accounts for the first two months are included below:

YTD Actual £’000

YTD Budget £’000

YTD Variance

£’000

Annual Budget £’000

Management Fee

Income 2,977 2,977 0 17,860

Employee Costs 1,999 2,011 12 12,063

Overhead Costs 927 966 39 5,797

Surplus/(Deficit) 51 0 51 0

Repairs Fee

Repairs Management Fee 3,939 2,943 996 17,659

Capitalisation 751 833 (82) 5,000

Repairs Costs 4,690 3,776 (914) 22,659

Surplus/(Deficit) 0 0 0 0 2. The first 2 months of the year show an underspend of £51,000. This is a positive

start to the financial year and shows that the Company continues to maintain good financial management.

3. Income for the first 2 months is in line with expectations and is expected to come

in on target. 4. Salary costs are largely on target. Savings have been made on some vacant

posts which are currently waiting to be filled. 5. Overhead costs are underspent at this time; however, this is due mainly to the

timing of these management accounts with budgets generally expecting to be underspent in the first couple of months.

6. We continue to generate efficiencies and savings where possible to reinvest in

our services and we continue to follow prudential financial management. 7. Repairs are currently over budget for the year to date on spend, which is

matched by increased income to date. However, this is due mainly to painting costs where spend appears to have been higher than anticipated in the early months.

70

Income

YTD Actual £’000

YTD Budget £’000

YTD Variance

£’000


INCOME

Management Fee 2,392 2,392 0 14,352

Officer Costs Actual 510 510 0 3,058

External Funding 17 17 0 100

Performance Fee 58 58 0 350

Total Income 2,977 2,977 0 17,860 8. Income is on budget for the year. We currently expect income to come in on

budget and will be monitoring this closely during the year. Staff Costs 9. Staff Costs are broken down as follows:

YTD Actual £’000

YTD Budget £’000

YTD Variance

£’000


Employee Costs

Housing Management 512 514 2 3,085

Business Support 119 127 8 759

Property & Technical Services 474 475 1 2,849

Finance & ICT 302 301 (1) 1,805

HQ Sub Total 1,407 1,416 10 8,498

Area Costs 592 594 2 3,565

Total Employee Costs 1,999 2,011 12 12,063 10. Staff costs show a small underspend to date. This is due mainly to a number of

vacant posts which have yet to be filled. 11. As detailed below, to date we have spent £17,000 on agency staff. However,

this has not been detrimental to the year to date figures, due to the number of vacant posts being held.

12. This situation continues to be monitored closely and work is ongoing to

determine a more sustainable course of action including maintaining pools of staff.

71

Agency Staff Costs

YTD Actual

£’000 YTD Budget

£’000 YTD

Variance £’000


Contract Staff 17 - (17) - Overhead Costs

YTD Actual £’000

YTD Budget £’000

YTD Variance

£’000


Overhead Costs

HQ Total 719 756 37 4,536

Area Costs 208 210 2 1,261

Total Overhead Costs 927 966 39 5,797 13. Overhead costs are underspent at this time; however, this is due mainly to the

timing of these management accounts with budgets generally expecting to be underspent in the first couple of months. An analysis of overhead spend against budget for the last 3 years is included within Appendix 1.

14. Overhead costs are expected to come in on budget for the year and budget

holders are now more accountable for their budgets enabling them to review their spend in more detail.

72

Repairs Summary

15. An analysis of the repairs costs is provided below. Currently the repairs costs are expected to come in on target.

16. For the first two months of the current year, the average cost per job for

responsive repairs is £79.18 – however; this is likely to be low as repairs pick up later in the financial year.

17. An analysis of the repairs costs shows that the main overspends are in relation

to cyclical repairs and painting costs. These are areas where the costs have been higher at the start of the programme – this will be monitored closely to ensure that costs come in on budget.

Budget £000's

YTD Budget £000's

YTD Actual £000's

Variance £000's

REPAIRS Fixed Costs (Contractors' Preliminaries) 3,200 533 556 -23 Responsive 11,050 1,842 1,893 -51 Relets 5,000 833 1,192 -359 Cyclical Repairs 500 83 103 -20 Water Hygiene Testing 150 25 17 8 Painting 1,000 167 795 -628 Prior to Painting 139 23 0 23 Gas Servicing 1,025 171 83 88 Electrical Circuit Testing 50 8 12 -4 Solid Fuel Testing 10 2 7 -5 Lift Maintenance 135 23 1 22 Security 150 25 20 5 Environmental Works 200 33 4 29 Energy Performance Certificates 50 8 7 1 22,659 3,776 4,690 -914 Repair Management Fee Income 17,659 2,943 3,939 -996 Capitalisation 5,000 833 751 82 Income Total 22,659 3,776 4,690 -914 REPAIRS TOTAL - - - -

18. An analysis of the type of responsive repairs year to date is included in

Appendix 2 and a comparison of responsive repairs costs and number of jobs in 2009/10 to prior years is included within Appendix 3.

73

Detailed Management Accounts

YTD Actual £’000

YTD Budget £’000

YTD Variance

£’000


INCOME

Management Fee 2,392 2,392 0 14,352

Officer Costs Actual 510 510 0 3,058

External Funding 17 17 0 100

Performance Fee 58 58 0 350

Total Income 2,977 2,977 0 17,860

Employee Costs

Housing Management 512 514 2 3,085

Business Support 119 127 8 759

Property & Technical Services 474 475 1 2,849

Finance & ICT 302 301 (1) 1,805

HQ Sub Total 1,407 1,416 10 8,498

Area Costs 592 594 2 3,565

Total Employee Costs 1,999 2,011 12 12,063

Overhead Costs

HQ Total 719 756 37 4,536

Area Costs 208 210 2 1,261

Total Overhead Costs 927 966 39 5,797

Management Surplus/(Deficit) 51 0 51 0

74

Appendix 1

TGHC Overheads Budget 2009/10

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

April May June July August September October November December January February March

Month

Am

ount

(£00

0)

HQ Overheads Actual HQ Overheads Budget Area Overheads ActualArea Overheads Budget Total Overheads Actual Total Overheads Budget

75

Appendix 2

Morrisons invoiced Repairs by trade for the period April 2009 - May 2009

Brickwork4%

Joinery20%

Plastering3%

Roofing7%

Dayworks6%

Subcontractors2%

Others0%

Plumbing & mechanical

services44%

Electrician11%

Glazing3%

Trade 2008/09 (2 months) 2009/10 (YTD)

Electrician 60,235 85,194 Brickwork 32,850 27,293 Glazing 14,609 21,634 Joinery 203,519 151,153 Plumbing & mechanical services 216,513 349,007 Plastering 39,888 25,846 Roofing 71,021 52,137 Subcontractors 68,250 14,384 Dayworks 43,116 43,038 Others 2,059 2,111 TOTAL 752,060 771,796

76

Appendix3

Comparison of Responsive Repairs to Previous Years

0

2

4

6

8

10

12

14

April May June July August September October November December January February MarchMonth

Am

ount

(£m

)

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

No

of J

obs

No of jobs 2005/06 No of jobs 2006/07 No of jobs 2007/08 No of jobs 2008/09 No of jobs 2009/10Amount 2005/06 Amount 2006/07 Amount 2007/08 Amount 2008/09 Amount 2009/10

77

The Gateshead Housing Company Value for Money and ... The Gateshead Housing Company Value for Money...

Documents

Transcript of The Gateshead Housing Company Value for Money and ... The Gateshead Housing Company Value for Money...