Housing Association Guide Part 1 - Capital Grant SystemContents
1.01Capital Grant System – the method of funding housing for rent by Associations was changed by the Housing (NI) Order 1992, which came into operation on 16 September 1992. The system ‘mirrors’ similar arrangements introduced in England and Wales from 1 April 1989 under the Housing Act 1988. This change has enabled Associations to raise private finance on a significantly larger scale than in the past, and so augment the funds available from Government sources for social housing provision.
“The prime objective of the Legislation is to optimise the provision of private finance (PF) in social housing provision thereby increasing the output of social housing for a given amount of Housing Association Grant (HAG) input.”
1.02Current Financial Arrangements - introduced in the Housing (NI) Order 1992 to encourage Associations to make use of private finance rather than, public loan finance for developing social housing. Additionally, the Capital Grant System provides incentives for Associations to find economical development solutions and to control costs. Schemes developed within this regime are not subject to the Rent Surplus Fund (RSF) requirements (previously the Grant Redemption Fund (GRF)), nor are they eligible for Revenue Deficit Grant (RDG).
1.03Capital Grant System Procedures - are detailed in this Housing Association Guide and include:
Part 1 of the Guide – (deals with the Capital Grant System generally);
Part 2 of the Guide – (deals with the Procedures for accessing Mixed and Public Funding);
Part 3 of the Guide - (deals with the Design Requirements for social housing provision);
Part 4 of the Guide - (deals with the Procurement Requirements for social housing provision);
Part 5 of the Guide - (deals with Supported Housing);
Part 6 of the Guide – (deals with Minor Works, ie major repairs, miscellaneous works, adaptations and maintenance works).
1.04Main Objectives - of the Capital Grant System and Associations are:
To ensure that social housing provision continues to meet priority needs and within the resources available to the Northern Ireland Housing Executive (NIHE);
- To increase the volume of social housing provided from available public sector resources by complementing public funding with the use of private finance;
- To ensure that housing provided meets acceptable standards and reasonable costs (taking account of the location and type of accommodation to be provided) while keeping rents within the reach of the lower paid;
- To provide incentives for cost control in the development of social housing schemes by limiting grant input and thereby requiring Associations to take responsibility for development risks fully or in part; and
- To simplify procedures where possible and increase Association control over the development process in recognition of the increased risks.
In meeting the above objectives, Grants to Associations are paid by the NIHE (DPG) in accordance with The Housing Association Grant for Eligible Housing Activities General (Northern Ireland) Determination 1992.
1.05The Housing Association Grant for Eligible Housing Activities General (Northern Ireland) Determination 1992 - states the Department (now DSD) may approve and subsequently pay grant in accordance with the terms of the Determination in respect of Association schemes which are eligible housing activities having regard to:
Housing needs to be met and their priority within the resources available to the Department;
- Value for money and effectiveness of the investment taking account of the location and type of accommodation to be provided; and
- The economy, efficiency and effectiveness of the Association concerned
(For details on the Determination, see Appendix: 1 to Part 1).
“The grant funding and procedural systems combine the above objectives into an operational framework for the provision of social housing units for persons in need.”
[NB: Please note that Para’s 1.04 and 1.05 will be subject to amendment following the introduction of a new 2007 General Determination. (See Appendix: 1 to Part 1 for further details on this).]
2.01The Funding Framework – in which the DSD formulates and the NIHE Development Programme Group (DPG) operates the arrangements for applying for, calculation, paying and recovery of Housing Association Grant (HAG) to Associations is ‘governed’ by the General Determination (see Appendix: 1 to Part 1).
2.02Use of Private Finance – A major objective of the funding framework is to maximise the use of private finance (PF) in conjunction with HAG in order to produce more social housing provision and to see as much of the Social Housing Development Programme promoted with mixed funding as is practicable. Associations developing schemes with mixed funding are free to select the type of long term private finance they consider most appropriate, whether low start, conventional repayment mortgage or other. It should, however, be noted that the DSD’s grant rates are set on the basis of low start finance being the ‘norm’ for private loans.
2.03Mixed and Public Funding – The cost control mechanisms and procedural framework are basically the same for both mixed and public funding - the Grant and Cost Control Frameworks are described at Para 3.00. Part 2 of the Guide deals with the procedures for accessing Mixed and Public Funding.
2.04Assessing Financial Viability - (see Appendix: 2 to Part 1) – this describes the financial viability and other criteria that the DSD will use when Associations apply for access to public funding. In the event of an Association failing to comply with these financial viability conditions or if there is any cause for serious concern about an Association’s performance the DSD reserves the right to suspend or refuse funding and to withhold approval to an association to dispose or mortgage a property under Article 13 of the Housing (NI) Order 1992.
[Note: the DSD will regularly review an Association’s capacity to use private finance. This review will take account of available reserves, of property equity and of financial and management expertise in establishing the scale of private borrowing to which the Association can commit itself, without undue risk to existing public investment. The process is described in detail at Appendix: 2 to Part 1.]
2.05Public Funding of the Private Finance Element of Schemes - (see Appendix: 3 to Part 1) – small or new Associations and those with few assets or property equity may have little scope for raising private finance. Also certain types of development, whilst having high priority in terms of housing need, may not attract private investment. In such exceptional circumstances – i.e. where private finance is not available - public loan finance can be considered by the DSD.
However, at present the DSD is satisfied that existing Associations, and the Northern Ireland Housing Executive, meet the range of housing needs which have been identified within Northern Ireland. Before registering any new Association, the DSD would need to be convinced that there is a further housing need which is not yet covered or cannot be covered by current providers. Further more, should the DSD be satisfied on this point, any new Association would have to have the necessary financial strength to achieve registration in its own right. If it doesn’t the DSD may recommend that it work as the subsidiary or partner of an existing Association until it has adequate free reserves and property equity.
“Irrespective of the type of funding used by an Association the procedural system to be adopted will basically be the same.”
2.06Privately Financed Schemes – (See Appendix: 5 to Part 1) – The DSD has a duty to supervise and monitor the affairs of Associations. This includes all activities, and not just those involving publicly funded schemes. Associations should be aware that irrespective of the funding source the DSD will expect Associations to operate the best practice principles and procedures set out in the Guide in all of their development activities. Article 13 of the Housing (NI) Order 1992, requires all Associations to obtain the DSD’s consent before disposing or mortgaging any land. Without this consent the transaction is void. Article 13 consent is a discretionary power and is not an automatic process. The DSD will need adequate time to scrutinise any application made by an Association.
2.07Associations’ Rules – (See Appendix: 6 to Part 1) - An Association seeking loan finance (borrowing) for their projects from the private sector may find that the Association’s own rules does not define the borrowing limit adequately, or else restricts or prohibits what is proposed. In order to facilitate such borrowing the DSD has drawn up a model form of rule amendment, which Associations’ may adopt for this purpose.
3.00 Grant and cost control framework
3.01The system - has two main components:
- Total Cost Indicators (TCI); and
- Grant Rates.
These work together to provide a means of securing value for money and for determining the amount of grant appropriate to a scheme. The TCI represents the average cost of developing a given type of scheme in a given locality. The scheme receives a grant payment equal to the eligible costs multiplied by the grant rate. There is, however, a need to ensure that the TCI and Grant Rates are responsive to variations in costs for similar dwellings and to take account of the location and the cost of additional standards/requirements – e.g., single storey. The TCI and Grant Rates are reviewed and published annually by the DSD.
3.02Overview of TCI, Grant Rates & Rent Benchmarks for 2006/07 – (see Appendix: 7 to Part 1) - are detailed in this appendix to the Guide. As well as explaining the background to how the TCI and Grant Rates are derived and to be operated, this Appendix includes Rent Benchmarks to assist Associations in deciding what rents should be charged for new tenancies.
3.03Total Cost Indicators (TCIs) - (See Appendix: 8 to Part 1) - are average costs, which allow for the development of housing schemes to acceptable standards. The TCI tables take account of a variety of scheme type cost factors and reflect the total cost of provision, including acquisition and an allowance for on-costs such as professional fees, association development staff costs and other overhead costs. The TCI tables are set in advance on a yearly basis and provide an important measure of value for money in considering the cost of development proposals. The way in which the system is applied to scheme costs is explained in Appendix: 7 to Part 1.
3.04Special Percentage Adjustments (SPAs) - are adjustments to TCI and can be set at the DSD’s discretion to reflect abnormally high cost locations and so make the index more sensitive to exceptional local circumstances (Note: further details on SPAs are included in Appendix: 7 to Part 1).
3.05Grant Rates - (see Appendix: 9 to Part 1) - DSD establishes the normal percentage grant that will be provided for schemes. Different rates apply to different (District Council) locations and types of provision (e.g., new build, rehabilitation) in order to reflect the cost of provision; the likely income achievable from affordable rents; management costs; major repair provision; maintenance costs and voids. The Standard Rates of Grant can be modified to take account of the various cost factors identified in the TCI system for particular scheme types. In this way housing categories and cost groups that are, by their nature, more (or less) costly to produce, attract suitably modified grant rates. This ensures that rent levels for similar accommodation are not unduly affected by the inherent cost of providing the type of housing required for particular tenant groups.
3.06Public Subsidy – (see Annex R of Appendix 3 to Part 2) - The housing element grant rate percentage for a particular scheme will normally represent the maximum total amount of grant, which a scheme may receive from public sector sources. HAG can, however, be combined with other forms of public subsidy - provided the combined amount from any public sector source, other than Grant or support towards non-housing costs - does not exceed the total amount determined by the grant rate. This is known as a Public Subsidy deduction.
3.07Procedural Framework - is designed to reduce bureaucracy in the scheme approval process. This is achieved by the use of ‘certifications’ by Associations, rather than detailed scrutiny by NIHE (DPG). This offers Associations' greater control over the development process in recognition of the increased risks presented in the fixed grant regime. With this transfer of control comes a greater necessity for Associations to maintain and regularly review the effectiveness of a system of internal control for ensuring that the public funds are:
- Properly safeguarded;
- Used economically, efficiently and effectively; and
- Used in accordance with the rules etc that govern their use.
4.00 Determination of Rents[NB: This Section will be reconstructed following a Review of Rents exercise, currently being undertaken by the University of Glasgow.]
4.01Background – Historically under the Housing (Northern Ireland) Order 1976 (consolidated by the Housing (Northern Ireland) Order 1981) and the system of support and control, which it introduced for Associations, the DSD funded the capital costs of housing projects on the basis of loans and residual HAG. In other words the DSD met through HAG the difference between the cost of an Association project and the loan, which the rental income less allowable deductions would sustain. This rental income was fixed by the policy of determining Associations rents in line with those charged by the Northern Ireland Housing Executive (NIHE)for similar property. This method of funding required the HAG to be flexible and residual.
4.02Rent Setting - Under the Capital Grant System introduced in 1992, HAG is fixed in advance by the NIHE. Associations must therefore have some flexibility in setting rents to enable them to meet the balance of the scheme costs (through loan charges) and the cost of management and maintenance including the requirement to make prudent provision for future repairs. Article 8(1) of the Housing (Northern Ireland) Order 1992 gives Associations this flexibility in that they may fix the rents to be charged for tenancies granted on or after 16 September 1992. However, under Article 8(2) of that Order the rents to be charged for tenancies granted before 16 September 1992 will continue to be determined by the DSD at the same level as that which the NIHE would charge for similar accommodation. A copy of the Registered Housing Association Rents (Northern Ireland) Determination 1992 is attached at Annex A.
4.03New Rents - Under the Capital Grant System new rents should be set at a level to ensure that a project is financially viable. In fixing rents Associations should take account of a range of factors, including the client groups and their ability to pay without hardship. Associations should also have regard for the size, amenities, location and condition of the accommodation. If the projected rent exceeds the Rent Benchmark as published (see Para 4.04 below) the NIHE (DPG) reserves the right to refuse approval for the scheme.
“Rents set should not discriminate between those who are eligible for housing benefit and those who are not and should be within the reach of people in low paid employment.”
4.04Rent Benchmarks – To assist Associations in deciding what rents should be charged for new tenancies, the DSD publishes Rent Benchmarks with the TCI and Grant Rates each year. Rent Benchmarks are considered to be fair and reasonable rents (See Appendix: 7 to Part 1).
4.05NIHE Rents - are calculated by multiplying the number of points allocated to each property by the current rent point value. The number of points for each property has been assessed by the NIHE.
The DSD issues the rent point value on an annual basis.
5.00 Governance of Associations5.01Background – due to the level of HAG funding that an Association receives from the NIHE (DPG), a high standard of Corporate Governance is expected from the Association in all of its activities including the control of HAG and its finances. Cadbury* defines Corporate Governance as “the system by which companies are directed and controlled.” Effective governance is vital for effective Association performance. Good practice guidance on governance emphasises the important role of the board in considering the nature and extent of risks facing the organisation and the levels of risks that are acceptable, the effectiveness of risk management and the organisations ability to respond to changes in it’s business and external environment. Poor governance can help destroy the reputation of a business and the personal reputations of board members and management. Guidance on effective Governance is provided at Appendix: 10 to Part 1, Annex A.
* The Cadbury Report (1998)
5.02Guidance on Public Interest Disclosure - all Associations should have policies and procedures about confidential reporting - also known as "whistleblowing". This term is used to describe someone who becomes aware of a serious problem in an organisation and raises the matter so it may be investigated and if necessary corrected. NIAO guidance on Public Interest Disclosure is provided at Appendix: 10 to Part 1, Annex B.
5.03The report of the Committee in Standards in Public Life (the Nolan Committee) - stressed the positive role that whistleblowing can play, and the need for procedures and practices, which allow people with serious concerns to come forward at an early stage. Following the Nolan Committee's Recommendations, the National Housing Federation produced a Model Statement in Confidential Reporting. A copy of the Model Statement can be obtained from the NHF.
[Note: Associations should note that the Model Statement requires amendment to reflect their individual circumstances and the different regulatory arrangements that apply in Northern Ireland. Associations’ confidential reporting policies and procedures will be subject to scrutiny during the inspection of the Association.]
5.04Payments and Benefits – Article 31 of the Housing (NI) Order 1992 prevents committee members, officers and employees of a Association from receiving any benefits or payments from an association other than expenses or sums due under contracts of employment. Guidance notes on Article 31 are attached at Appendix: 10 to Part 1, Annex C. Article 31 is reproduced and attached at Appendix: 10 to Part 1, Annex D; Article 31 (6) of the Housing (Northern Ireland) Order 1992 Determination 1994 is reproduced and attached at Appendix: 10 to Part 1, Annex E; Article 31 of the Housing (Northern Ireland) Order 1992 Determination 1995 is reproduced and attached at Appendix: 10 to Part 1, Annex F and Article 30 of the Housing (Northern Ireland) Order 1992 Specification 1995 is reproduced and attached at Annex G.
6.00 Propriety and Regularity6.01Government has a responsibility - to show that it puts in place appropriate controls to ensure that the principles of regularity, propriety and value for money are met. Appropriate risk assessment provides a useful tool to determine the capacity of organisations to manage resources effectively.
6.02HM Treasury defines Regularity as - the requirement for all items of expenditure and receipts to be dealt with in accordance with the legislation authorising them – Regularity is about compliance with appropriate authorities.
6.03Propriety can be defined as - Fitness; Aptness; or Correctness of behaviours or morals. The Nolan Committee defined it as encompassing not only financial rectitude, but a sense of the values and behaviour appropriate to the public sector. Appendix: 11 to Part 1, Annex A provides details of characteristics that identify ‘proper behaviour’.
6.04Fraud - Associations need to have effective systems of controls to address the risk of fraud including the development of a fraud response policy backed up by appropriate training and development of members and staff. Associations should take note that references to “Board Responsibility” are descriptions of the accountability of all members and steps should be taken to ensure that:
- Board members are aware of the descriptions of the accountability; and
- Arrangements are in place to draw them to the attention of new members when appointed.
Associations are also required to report to the DSD all cases of suspected and actual frauds involving an Association. Details of measures against fraud and theft are included at Appendix: 11 to Part 1, Annex B. Guidance on Managing the Risk of Fraud is included at Appendix: 11 to Part 1, Annex C. A copy of the Department for Social Development’s Statement of Departmental Fraud Policy is included at Appendix: 11 to Part 1, Annex D.
6.05Fraud Investigation: Best Practice Issues – Appendix: 11 to Part 1, Annex E provides some guidance on the procedures to follow and the checks to be performed in pursuing a fraud investigation in the area of purchasing and the payment of invoices. Although this does not purport to be comprehensive guidance on control procedures and fraud investigations it does however provide the opportunity for Associations to learn from the experience of others and by adopting some of the procedures and techniques, Associations’ financial control, internal audit and investigation procedures will be enhanced.
6.06Public Accountability and Paramilitary Organisations - Staff and board members of Associations are reminded of the need for continued vigilance to ensure that funds provided by Government for housing purposes are not used to further the aims or to extend the influence of paramilitary organisations or other criminal groupings. This means that Government funds shall not be used to support groups which have sufficiently close links with paramilitary organisations as to give rise to a grave risk that to give support to them would have the effect of improving the standing and furthering the aims of a paramilitary organisation or other criminal grouping. Where such conditions prevail the NIHE (DPG) shall be entitled to withhold payment of grant or other public funds.
7.01Annual Accounts - Under Article 19 of the Housing (NI) Order 1992:
- The Department may by order lay down accounting requirements for Associations with a view to ensuring that the accounts of every Association are prepared in the requisite form and give a true and fair view of the state of affairs of the association, so far as its housing activities are concerned, and of the disposition of funds and assets which are, or at any time have been, in its hands in connection with those activities.
[Note: Associations should prepare accounts in Companies Order format, as required under the Registered Housing Associations (Accounting Requirements) Order (NI) 1993];
- The accounts of every Association must comply with those requirements; and the auditor's report shall state (in addition to any other matters which it is required to state) whether in the auditor's opinion they do so comply;
- Every Association shall furnish to the DSD a copy of its accounts and auditor's report within 6 months of the end of the period to which they relate; and
- An Association shall be subject to section 38(1) of the Act of 1969 (obligation to appoint auditors) without regard to the volume of its receipts and payments, the number of its members or the value of its assets; and such an association is in no case to be treated as an exempt society under that section.
Details of the DSD enforcement of Article 19 of the Housing (NI) Order 1992 are included at Appendix: 12 to Part 1, Annex A. The Revised Statement of Recommended Practice (SORP) Accounting by Registered Housing Associations is referred to at Appendix: 12 to Part 1, Annex B.
[Note: The Statement of Recommended Practice Update 2005 was issued and should be applied to all accounting periods beginning on or after 1 January 2005.]
7.02Financial Services and Markets Act 2000 - Associations should make themselves aware of the possible implications of the Financial Services Act (FSA) including the Regulated Activities. Mortgage mediation activity is defined as advising on, arranging or making arrangements with a view to regulated mortgages. The Financial Services Authority’s Guide to the Handbook for Small Mortgage and Insurance Intermediaries can be accessed at: http://www.fsa.gov.uk/mgi/guide.html
7.03Regulated Activities - anyone giving investment advice or arranging deals in investments as part of discussions with potential purchasers, (e.g., in connection with shared ownership or statutory sales) about mortgages and associated products such as endowment policies must be authorised or exempt under the FSA. In general this will mean ensuring that Association staff do not discuss, direct or recommend particular lenders or particular products for potential purchasers.
7.04The Financial Services Act - may cover investment business carried out by a parent Association on behalf of a subsidiary or by an Association on behalf of another Association. In many cases, the activity may be excluded. However, this may not always be so and all Associations with subsidiaries and a centralised treasury function and Associations which manage investments for another association for a fee must take legal advice about the application of the FSA. However, due to the complexities of the FSA the DSD must emphasise that the points above are only examples and it is the sole responsibility of Associations to seek legal advice about their particular circumstances and how the Act might affect them.
7.05Treasury Management - By 31 March 2004 the private finance committed to Associations building programme over the years was £228m, equivalent to the cost provision of some 4,000 'family' dwellings. Levels of private finance are projected to increase substantially for the foreseeable future. Consequently effective treasury management will necessarily assume ever-greater significance. For many Associations the management of financial obligations associated with their debt portfolios will be the most significant element of treasury management. Nonetheless, the policies set out at Appendix: 12 to Part 1, Appendix C, are equally relevant for Associations whose main treasury activities focus on cash management and investment of surpluses.
7.07Procedural Measures for Cash Handling and Security - This advice emphasises the importance of proper procedures in relation to Cash Handling and Security. The DSD strongly recommends that all Associations put the following into practice if not already in place:
- Cash Amounts - As a general rule cash amounts should be kept to a minimum in offices. A system should be in place in each office to ensure cash is regularly removed from counter and till points to a suitable location during opening hours. Cash amounts held overnight should be kept to a minimum. There should be a properly planned system (with variable times) of removing cash from offices to banks;
- Cash counting and reconciliation procedures - should take place well away from public areas. Where this is not possible due to office layout, etc, then these procedures should not take place while the office is open to the public;
- Keys - Safe keys should be kept in a secure place out of hours. The key holder(s) should retain keys to the building. Safe keys and office keys must always be kept separately;
- Training - Adequate training must be provided for staff in relation to Intruder Alarm Systems, CCTV Systems and the above Cash Handling Procedures; and
- Associations are requested to note - that a bond or surety is required for each officer or other person handling money. In this context ‘other person’ includes honorary officers and committee members and associations should ensure that appropriate cover is obtained. Associations are asked to supply details and costs of the Fidelity Guarantee that they have obtained when submitting the annual audited accounts, or to advise the Department of how the matter stands.
1.Para 4.02 above outlines the DSD’s policy on the control of rents for tenancies granted before 16 September 1992.
2.A copy of the Determination which was made to give effect to this policy is attached. The Registered Housing Association Rents (Northern Ireland) Determination 1992 was made with the consent of the Department of Finance and Personnel and after consultation with the Northern Ireland Federation of Housing Associations.
[Note to Associations: By virtue of Articles 6 and 11 of the Departments (Transfer and Assignment of Functions) Order (Northern Ireland) 1999 the functions of DOE (NI) under the Order together with all property rights and liabilities of DOE (NI) connected with such functions became functions, property rights and liabilities of the DSD
Registered Housing Association Rents (Northern Ireland) Determination 1992
1.The Department of the Environment for Northern Ireland in exercise of the powers conferred on it by Article 8 of the Housing (Northern Ireland) Order 1992 with the consent of the Department of Finance and Personnel hereby determines:
a.The rent to be charged under a tenancy, other than a tenancy granted by way of an equity-sharing lease, granted by a registered housing association before 16 September 1992;
b.The rent to be charged under a tenancy granted by a registered housing association by way of an equity-sharing lease, whenever granted.
Citation and Commencement
2.This Determination may be cited as the Registered Housing Association Rents (Northern Ireland) Determination 1992.
3.This Determination has effect from 16 September 1992.
Interpretation
4.In this Determination
“The 1981 Order” means the Housing (Northern Ireland) Order 1981;
“The 1992 Order” means the Housing (Northern Ireland) Order 1992;
“Department” means the Department of the Environment for Northern Ireland;
“Equity-sharing lease” has the meaning given by Article 31(6)(a) of the 1981 Order;
“HAG” means grant payable under Article 33 of the 1992 Order or grant paid under Article 137 of the 1981 Order or under any enactment replaced by that Article;
“Hostel” has the meaning given by Article 2(1) of the 1981 Order;
“Housing activities” has the meaning given by Article 3 of the 1992 Order;
“Limited HAG” means HAG paid in respect of housing activities which is limited to a percentage of costs determined when approval is given by the Department;
“Private finance” means an association's own funds or monies lent or donated to an association by a person other than the Department;
“Registered housing association” means a housing association as defined in Article 3 of the 1992 Order which is registered by the Department under Article 16 of that Order;
“Shared housing” means residential accommodation other than in separate and self-contained premises which is approved as such by the Department.
5.The rent to be charged for accommodation under a tenancy, other than a tenancy granted by way of an equity-sharing lease or a tenancy listed as an exception in paragraph 7, granted by a registered housing association before 16 September 1992, shall be the same as that which would be charged by the Northern Ireland Housing Executive for the accommodation under a scheme made under Article 17 of the 1981 Order (scheme to determine rent to be charged by the Executive).
6.The rent to be charged for accommodation under a tenancy granted by a registered housing association by way of an equity-sharing lease, whenever granted, shall be the same as that which would be charged by the Northern Ireland Housing Executive for the accommodation under a scheme made under Article 17 of the 1981 Order (scheme to determine rent to be charged by the Executive) taking into account the equity owned by the leaseholder and his responsibility for maintenance of the property.
7.The exceptions referred to in paragraph 5 are tenancies of:
a. Hostels or shared housing;
b. Accommodation managed on behalf of a registered housing association by another voluntary body; and
c. Accommodation funded with limited HAG or entirely with private finance.
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