Suffolk Housing Society has been downgraded to a non-compliant G3 amid concerns over its financial reporting, internal auditing processes and stress testing.
The Regulator of Social Housing (RSH) downgraded Suffolk from a G1 while reducing its viability from V1 to V2 after an in depth assessment.
The RSH flagged areas of serious regulatory concern at the provider – which owns and manages 2,900 units across East Anglia – and “significant weaknesses” in its governance arrangements, including internal controls assurance.
The regulator said in a judgement that it “lacks assurance that Suffolk’s board is managing its affairs with an appropriate degree of skill, diligence, effectiveness, prudence and foresight.
“Suffolk’s board failed to demonstrate an effective approach to reporting, quantification and management of key risks,” it added.
The RSH said the board has not managed the risks associated with constrained financial capacity within Suffolk’s plan, and the potential impact of any deterioration in operating environment.
It said “the timeliness and quality of reporting has not enabled this to happen and there has been a lack of robust information considered by the board”.
It added: “There is inconsistency in how the financial impact of risks crystallising is modelled within the plan and tested against covenants.
“Stress testing is inadequate with mitigation strategies and actions not fully developed and a lack of clarity about the expected financial impact of potential mitigations.”
The regulatory judgement said the board operated for a significant period without an effective internal audit function, although it has since appointed auditors.
It said there is “evidence that this has not had sufficient board level ownership and oversight”.
There is also insufficient evidence that the audit and risk committee has an effective relationship with the board, and that significant issues “have not been effectively escalated and progress on the implementation of agreed actions arising from completed internal audits has not been consistently monitored”.
On viability, the regulator added: “Based on the projections in its latest business plan, performance of the core social housing business is forecast to weaken, with low margins and low levels of covenant headroom demonstrating it can deal with less downside risk than most providers.”
Proposed cost reductions and relatively low assumptions regarding the cost of major repairs “further reduce the provider’s overall capacity to withstand downside risks”.
Overall, the RSH said the Suffolk board has responded positively and acknowledged the regulator’s concerns
A statement from the provider said: “We are disappointed with this news, but are already taking action to address these issues and will continue to work closely with the RSH over the coming months to make further improvements.
“It is important to stress that the RSH’s judgement is no reflection on the safety or quality of the services which we provide, which continue to receive consistently positive feedback from our tenants.”