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Compliance Audit

The following sections give a general overview of Compliance Audit, full details are provided in the relevant sections of the Capital Funding Guide.

What is Compliance Audit?

The Compliance Audit (CA) framework applies to organisations receiving grant under the National Affordable Housing Programme and the Affordable Homes Programme to ensure that the HCA’s policies, funding conditions and procedures are followed.

The assurances the Compliance Audit framework provides are part of the Agency’s affordable housing funding framework and are reviewed by the Agency’s internal auditors and by the National Audit Office.

How often can I expect an audit?

Compliance Audit takes place annually. Independent auditors appointed by lead partners check a sample of schemes for each partner or partnership who has signed up to either a partnership, framework delivery agreement (FDA) or short form agreement (SFA). The total number of scheme audits carried out varies. In 2011 just over a 1,000 schemes were audited across 133 partnerships, an average of eight schemes per partnership. The audit year is from 1 April to 31 March. Schemes completed during the preceding year are eligible for audit.

Further guidance on timescales and the appointment of independent auditors, including a standardised form of appointment, are contained within the sections of the Affordable Housing Capital Funding Guide (below).

Partners with a specialist programme can expect a Compliance Audit visit at least every other year. These audits are carried out by HCA Design Managers not independent auditors.

For the Agency’s procedural requirements and documents to use, see:

What is the procedure for Compliance Audit?

A lead partner engages an independent auditor and then contacts the HCA lead auditor in their operating area to confirm audit dates. The lead auditor provides the scheme selection two to four weeks before the audit commences.

During the audit, the independent auditor checks each scheme for compliance using HCA checklists. The auditor reviews scheme information contained on file and HCA’s Information Management System (IMS). The independent auditor drafts a standardised report, setting out any deficiencies against published HCA policy and procedures. Standardised Terms of Engagement for independent auditors, a template for the Independent Auditors Report (IAR) and a summary of the checklists (for different scheme types and programme years) with links to each version are available to download from the Compliance Audit resources page.

Compliance audit reports and grading/RAG rating

From the date of receipt of the independent auditor’s report, which must also be sent to the HCA lead auditor, lead partners have 10 working days to submit an initial response to the findings setting out the reasons for any deficiencies identified and the corrective measures being undertaken. The HCA lead auditor considers the results of the auditor’s factual assessment and forms an opinion about whether the HCA is assured that public funds have been used for the intended purposes and not paid in advance of need.

The HCA lead auditor then writes the HCA final audit report, recording the number of breaches identified (see below) and the reasons for them and awards an overall red, amber or green grade. A red grade means serious failure to meet requirements, amber, fails to meet requirements and green meets requirements

To minimise the risk of breaches, partners should liaise with the HCA lead auditor regularly and specifically on receipt of the independent auditor’s report highlighting deficiencies.

A list of procedural breach severity measures is provided below for clarity. 

Breaches management function

The breaches recording regime was introduced in 2010.

Procedural Breach Severity Measures

The list of severity measures provides some specific examples of breach types across four main headings as shown in the table and its purpose is to provide an indication of the severity of the breach. Each breach is allocated a severity measure e.g. high, medium or low.

The list of breaches and relevant severity measures are provided to help promote consistency but the table is not intended to be exhaustive. The HCA reserves the right to adjust or update this list as necessary.  The HCA lead auditor will consider each scenario on a case by case basis and will use their judgment in awarding the overall grade. The HCA lead auditor may take into account, for example, the cumulative impact of many low severity breaches in awarding the overall grade.

Sanctions/reclaiming grant

Under funding conditions,  Framework Delivery Agreements and Short Form Agreements the HCA has the power to reclaim grant (in part or in whole) or apply interest when certain breaches are identified.

This may happen in circumstances where grant has been claimed in advance of need or where the scheme has not been built to the standards or to meet the provision outlined in the provider’s bid/firm offer.

High severity breaches can lead to grant reclaim and may involve other steps such as further specialist audit work. Medium severity breaches may lead to reclaim depending on the exact circumstances. Repeated breaches and failure to show improvements over consecutive audits will be picked up at quarterly contract reviews.

Compliance Audit annual timeline

Step

Action

Time of year

1

Eligible partners and 10% minima of every scheme type selected for audit.

April – June

2

  • HCA lead auditor shares approximate number of schemes to be audited with the lead partner
  • Lead partner appoints and agrees audit dates with independent auditor
  • Lead partner informs the HCA lead auditor of audit visit dates and name of appointed independent auditor

June

3

Scheme sample report issued to partner listing schemes’ details & visit dates 2 to 4 weeks before the first audit visit is due.   

July onward

4

  • HCA and lead partner issued with Independent Auditor Report (IAR) at the same time
  • Lead partner has 10 working days (from receipt of IAR) to respond to HCA lead auditor formally in writing addressing the independent auditor’s report findings

By November
(or as requested by operating area)

5

HCA lead auditors write the audit reports.

 January - February
(earlier when possible)

6 Moderation Process February - March

7

HCA lead auditor issues advance copy of audit report to lead partners’ Development Director and Chief Executive.

April

8

HCA lead auditor issues the audit report to lead partner five days after submission of advance copy - (Development Director, Chief Executive and Board Chair).

April


Quality audits (QA) (previously quality assurance and impact visits)

Quality audit visits are completed by HCA lead auditors to monitor partner performance in terms of quality and resident satisfaction, measure the impact of previous investment decisions and to inform future investment strategy.

The key objectives of QA are:

  • To ensure compliance with the relevant design and quality standards agreed at grant allocation.
  • To provide assurance that the intended investment outputs have been delivered and to gauge the extent to which design and sustainability policy objectives have positively impacted upon residents.
  • To provide individual scheme based data and resident feedback that can be analysed and aggregated to compose a national report that identifies trends that might inform future bidding competitions.
  • To encourage partners to act on the results and to influence improvements in future developments.

QA written findings are reported to each partner as part of the annual partner compliance audit report and through quarterly review meetings. HCA publishes a national annual summary report based on evidence collated from quality audits, last year’s report Quality Counts is available to download.

Quarterly contract review meetings

As part of the Affordable Homes Programme contract management arrangements, all partners are required to attend quarterly and annual contract review meetings with the HCA. Quarterly contract reviews provide a forum to discuss steps being taken to improve compliance with FDA and CFG requirements. Annual review meetings provide the opportunity for a look back at the previous year and agreed FDA commitments.

Waivers and variations guidance

Waivers

A waiver is required when a scheme does not meet the minimum requirements under the HCA’s 2007 Design & Quality Standards.

A waiver will only be considered and granted in the most exceptional circumstances. The suitability of the resulting homes for the intended user group will be a prime consideration in whether a waiver will be recommended for acceptance.

Waivers should be processed at firm (scheme approval) stage, or requested by partners as soon as non-compliance with the minimum standards is identified.

Variations

A change or drop in standards between firm (scheme approval) stage and completion is a variation, not a waiver, as long as minimum standards are met. Any variation should be discussed with area design managers before approval then dealt with as part of normal investment processing on IMS.

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