Report on the Northern Ireland Housing Executive: Management of Response Maintenance Contracts

NIHE_management_maintenance.pdf (5.47 mb)

Executive Summary

The Northern Ireland Housing Executive (the Housing Executive) has played a pivotal role in the provision of social housing over the past 40 years, often in difficult and challenging circumstances. It continues to spend substantial sums each year improving and maintaining its stock of 90,000 houses. Annual expenditure on response maintenance, which covers day-to-day repairs, minor adaptations and immediate repairs, is in the region of £50 million.

The Committee acknowledges that most Housing Executive staff involved in response maintenance are diligent and hard working. However, the Committee found that the management and oversight of this service has been abjectly poor. As a result these dedicated staff have been let down by the actions of a small number of their colleagues and management, particularly at a senior level. Despite serious problems with the management of response maintenance contracts being evident to the Housing Executive’s senior management for many years, nothing was done to address them.

Oversight by both the Board of the Housing Executive and the Department for Social Development (the Department) was also inadequate. As a result significant failings within the organisation were not identified and therefore left unchallenged.

Since 2010, the Department has initiated a number of reviews within the Housing Executive. The Committee welcomes the Department’s recent actions to improve its oversight in light of the findings emerging from these reviews. However, the Department’s hands-off approach, which was evident in its failure to exercise proper oversight and challenge, contributed to the historical problems within the Housing Executive.

In July 2011, the Housing Executive terminated its response maintenance contracts with the Red Sky company. This followed allegations of overcharging and subsequent investigations into the company’s performance. The Red Sky case is a stark illustration of how the failure to address weaknesses in the management of contracts can lead to a loss of taxpayers’ money and a poor service for tenants. The Housing Executive had been aware of problems with this contractor for many years but failed to address them.

In the Committee’s view, a culmination of basic failures in governance and management exposed the Housing Executive to a very significant risk of fraud, impropriety and poor value for money over many years in relation to its response maintenance expenditure.

The Committee is also very concerned that the weaknesses and failings in the management of response maintenance contracts extend into other areas of Housing Executive activity, such as planned maintenance and land deals. Many, though not all, of these activities fell within the remit of the Housing Executive’s Housing and Regeneration Division. In the Committee’s opinion, this Division had been out of control for many years.

The Committee welcomes the Department’s and the Housing Executive’s commitment to introduce the substantial changes needed to improve governance, accountability, contract management and value for money. However, in the Committee’s view it is unacceptable that those who carry the lion’s share of responsibility for what went wrong have been allowed to retire, transfer or move on without being held to account.

In its evidence to the Committee, the Housing Executive commented that there was no room for complacency. The Committee considers that the Housing Executive has nothing to be complacent about; action is required to tackle the systemic weaknesses in governance and contract management that have been exposed.

Although proposals to restructure the Housing Executive have been announced, this should not be seen as an opportunity to slow down or suspend the essential programme of change that is under way. Irrespective of what permutation unfolds, the serious issues which have been identified need to be sorted out before the reforms take place. For example, it is vital that the organisational culture within the Housing Executive is transformed to prevent a recurrence of these problems in the intervening period. Cultural change can take time but, in this case, the need for change is urgent. This will present a significant challenge for the Chief Executive and management at every level within the Housing Executive. However it is paramount that this is done if public confidence in the Housing Executive is to be restored and the organisation is to regain its credibility.

The Committee expects to see the necessary changes implemented quickly. The Department clearly has an important role to play in ensuring that this happens.

The Committee also looks to the Department of Finance and Personnel (DFP) to ensure that the lessons from this report, alongside those identified by the Comptroller and Auditor General and through the DSD reviews, are promulgated to, and acted upon, by Boards, Audit Committees and senior managers across the public sector.

Summary of Recommendations

The Housing Executive let new contracts for response maintenance in August 2012. In the Committee’s opinion it is vitally important that both the Department and Housing Executive use the bedding-in period for these new contracts to critically evaluate how they are working in practice. The Committee recommends that emerging lessons are shared with the Housing Executive’s Board and the wider public sector through the Central Procurement Directorate within the Department of Finance and Personnel and the Northern Ireland Procurement Board.

The Committee recommends that detailed information on the results and timeliness of inspections is reported to the Housing Executive Board and Audit Committee who must also assure themselves that payments are being made promptly to all contractors.

This is not a recommendation that the Committee should have to make. However, given what has taken place the Committee is compelled to recommend that senior management within the Housing Executive, together with the Board, recognises and upholds the Corporate Assurance Unit’s independence from the operational divisions, and ensures that it continues to be protected and that its work is not undermined.

In light of what has transpired within the Housing Executive, the Committee recommends that the Central Procurement Directorate’s review of the accreditation process for Centres of Procurement Expertise should also address the need to improve the level of contract management skills within the public sector in Northern Ireland.

The Committee recommends that the Housing Executive and the Department undertake the necessary investigations across the Housing Executive’s business areas to establish the full extent of the contract management problems and the potential exposure in financial terms; and ensure that weaknesses are identified and eradicated. This must be completed as a matter of urgency. The Committee was pleased to receive the Comptroller and Auditor General’s assurance that he will report on the progress of these investigations as part of his audit of Housing Executive’s 2012-13 accounts.

The Committee recommends that senior management in the Housing Executive must send out a clear message to staff that the organisation is not a cold place for whistleblowers and demonstrate that concerns raised will be taken seriously and properly investigated.

The Committee recommends that the Housing Executive should be alert to former employees taking up employment with a firm or contractor providing services to the Housing Executive, and should ensure that there are no conflicts of interest or inappropriate working relationships involving former employees and current Housing Executive employees.

The Committee reiterates that it is the responsibility of a sponsor department to regularly review its processes for gaining assurance on sponsored bodies’ management of risks to ensure that effective controls are in place. The Committee recommends that departmental Governance Statements provide confirmation that this has been done.

The Committee recommends that the Department publicly reports on the outcome of its review of the progress being made to implement the recommendations from its governance review as soon as it is completed. The Committee also expects the Department to continue to monitor progress and report annually on this.

The Committee recommends that the Department of Finance and Personnel ensures that the lessons from this report and those identified by the Comptroller and Auditor General and through the DSD reviews, are promulgated to, and acted upon, by Arm’s-Length Bodies, Boards, Audit Committees and senior managers across the public sector.

Introduction

The Public Accounts Committee (the Committee) met on 12 September 2012 to consider the Comptroller and Auditor General’s report on ‘NIHE Management of Response Maintenance Contracts’. The witnesses were:

Mr Will Haire, Permanent Secretary, Department for Social Development (the Department);

Dr John McPeake, Chief Executive, Northern Ireland Housing Executive (NIHE);

Mr Jim Wilkinson, Director of Housing, DSD;

Mr Gerry Flynn, Director, NIHE;

Mr Kieran Donnelly, Comptroller and Auditor General (C&AG); and

Ms Fiona Hamill, Treasury Officer of Accounts, Department of Finance and Personnel (DFP).

The Department provided the Committee with further information on 24 September 2012, 2 October 2012, 30 November 2012, 9 January 2013 and 22 January 2013.

This report is about the management of response maintenance contracts and governance of the Housing Executive. The report raises very serious concerns about the capability and competence of management within the Housing Executive over a number of years, particularly at a senior level. It also highlights significant and serious breakdowns in corporate governance and accountability within and of, arguably, Northern Ireland’s major non-departmental public body.

The serious problems that have come to light reveal the need for fundamental changes in the culture and practices within the Housing Executive. They also demonstrate the need for more effective board and departmental oversight. These shortcomings must be put right quickly if the services provided by the Housing Executive are to be delivered with due regard to propriety and value for money.

The Committee acknowledges that work has begun to address these failings. However, there is clearly a great deal of work to be done to implement all the changes that are needed. The Committee expects both the Department and the Housing Executive to report regularly on the outcomes of this work and demonstrate that the major improvements which are needed are in place and are working.

In taking evidence, the Committee focused on three main areas:

• managing response maintenance contracts;
• whistleblowing, investigations of breaches of discipline and reporting suspected fraud; and
• corporate governance and accountability.

Managing response maintenance contracts

Contract management within the Housing Executive needs to be taken seriously and must become more robust and professional

The Committee found that there had been serious weaknesses in contract management within the Housing Executive over many years and that these had been evident to senior management. However, this same management regime failed to take the necessary and timely action required to deal with them. For example:

• contracts were inappropriate, out of date and not fit for purpose;
• recommendations from the Comptroller and Auditor General aimed at addressing shortcomings in contract performance were ignored;
• management placed too much emphasis on a partnership approach and not enough on scrutinising the work done by contractors;
• senior management failed to equip staff with the right skills and knowledge to effectively manage response maintenance contracts;
• as a result, with a few notable exceptions, many District Maintenance teams were not delivering the required standard of service and were failing to challenge the poor performance of contractors;
• there were also serious flaws in how jobs were selected for inspection; how inspections were carried out; the timeliness of these inspections and how the results were recorded and reported;
• there were widespread and systemic weaknesses in the setting and use of Key Performance Indicators to evaluate contractor performance;
• it is very likely that performance data was being manipulated^[1];
• reports were actively withheld from, or not reported fully, to the Board or Audit Committee;
• although the Housing Executive terminated its contracts with Red Sky in July 2011, it had numerous opportunities to do so prior to this but failed to take these;
• it also failed to issue a strong rebuttal to Red Sky in response to the company’s clear attempt to have a Housing Executive employee moved from their post;
• despite a clear warning from the PSNI in 2006 about the inadequacies and weaknesses of its systems, the Housing Executive did nothing; this undermined its ability to effectively manage its contracts and guard against and tackle fraud; and
• there is a very real concern that the weaknesses and failings identified in response maintenance are systemic and extend into other areas of Housing Executive activity, such as planned maintenance, kitchen replacement, heating schemes and land deals.

The Committee is astounded by the Department’s admission that the contracts being used by the Housing Executive were inappropriate and out of date and that opportunities to strengthen them were missed as far back as 2007 when they were being retendered. The Committee is alarmed that senior management, both within the Housing Executive and Department, ignored recommendations from the Comptroller and Auditor General in 2004^[2] which were aimed at addressing shortcomings in contract performance.

In 2010, the Department initiated a review of the response maintenance contracts operated by the Housing Executive. This review found that the Housing Executive was behind the game in relation to best practice and that the contracts it was operating were not fit for purpose. It is astonishing that it took an external review by the Department to bring these matters to the attention of the Housing Executive and force it to update its contracts and contract management arrangements.

The partnership-type contracts for response maintenance services were introduced by the Housing Executive almost 10 years earlier, in 2001. However, no-one in the organisation saw the need to review and update them. This raises serious concerns about the capability and competence of management within the Housing Executive over this period. Belatedly, the Housing Executive has accepted that its management of these contracts put too much emphasis on partnership and not enough on scrutinising the work done by contractors.

The Committee’s findings of weak contract management relate primarily to response maintenance. However, the evidence presented in the Comptroller and Auditor General’s report and to the Committee by the Department and Housing Executive, raises a very real concern that these same weaknesses and failings are systemic and extend into other areas of Housing Executive activity, such as planned maintenance, kitchen replacement, heating schemes, window replacement and land deals.

The new response maintenance contracts must be critically evaluated to ensure they are working in practice

New contracts for response maintenance were let in August 2012. Both the Department and Housing Executive told the Committee that they are confident that improvements have been made, both in the structure of the contracts and the way they are managed. In particular, both highlighted that financial penalties can be applied when contractors do not perform to the standard expected and that these changes will lead to improvements in performance and value for money.

Furthermore, based on the evidence made available it is not clear to the Committee whether the 2007 and most recent response maintenance procurement exercises complied with best practice. The Housing Executive told the Committee that its Central Procurement Unit is now fit for purpose but accepts that there had been weaknesses in contract management that were damaging. Additional professional staff have been appointed to strengthen the Central Procurement Unit which now has the role of letting procurements which comply with best practice and managing contracts to ensure value for money is maximised.

While the Committee considers that public sector bodies must become more hard-nosed and business-like in their dealings with contractors, it is concerned, in this instance, about contractors’ ability to deliver a good quality response maintenance service at the prices tendered. Failure to secure contracts at sustainable prices increases the risk that contractors may attempt to cut corners or look for additional payments from the contracts; there is also a danger that contractors run into financial difficulty and in some cases go out of business.

Recommendation 1

The Housing Executive let new contracts for response maintenance in August 2012. In the Committee’s opinion it is vitally important that both the Department and Housing Executive use the bedding-in period for these new contracts to critically evaluate how they are working in practice. The Committee recommends that emerging lessons are shared with the Housing Executive’s Board and the wider public sector through the Central Procurement Directorate within the Department of Finance and Personnel and the Northern Ireland Procurement Board.

There needs to be greater clarity and understanding of what is required from each party to these contracts

The Committee acknowledges that most Housing Executive staff are diligent and hard working. However, it is clear from the evidence available that the Housing Executive needs to improve the performance of its district maintenance teams: with a few notable exceptions teams in many districts were not delivering the required standard of service and were failing to challenge the poor performance of contractors. The Housing Executive has accepted that, on occasions, its staff had not done what they were supposed to have done.

District maintenance teams inspect a sample of work carried out by contractors. This is an important control in ensuring that work is being done to the required standard and that payments are only made for work actually carried out. However, it is evident that there were serious flaws in how jobs were selected for inspection; how inspections were carried out; the timeliness of these inspections; and how the results were recorded and reported.

The Committee is appalled at senior management’s failure to equip staff with the right skills and knowledge to effectively manage response maintenance contracts. Extensive and effective training throughout the organisation and with contractors is fundamental to securing improvements. Overall there needs to be greater clarity and understanding of what is required from each party to these contracts.

The Committee welcomes the Department’s acknowledgement that contract management skills within the Housing Executive need to be improved. The Committee also welcomes the Department’s acknowledgment that this may have wider public sector implications and the steps it has taken to draw this important issue to the attention of the Central Procurement Directorate for consideration.

The Committee considers that there were widespread and systemic weaknesses in the Housing Executive’s use of Key Performance Indicators (KPIs). For example:

window replacement - the Department told the Committee that, when the new contract was put in place in January 2008, the Housing Executive had anticipated using nine KPI measurements including time and cost comparisons against the contract specification. However, the Housing Executive subsequently discovered that it was impossible to measure these two elements and has only provided performance data on the other seven KPIs. The Committee considers that the reasons given by the Housing Executive for this lack credibility;

kitchen maintenance – contractor performance is supposed to be assessed against nine KPIs, including time and cost. However, the performance data provided to the Committee omits time and cost; and

heating contracts – based on the information made available by the Housing Executive, a KPI for cost was not in place before 1 April 2011; a KPI for time which had been included prior to 1 April 2011 would appear to be no longer used.

The Committee is astonished that the Housing Executive cannot provide it with accurate and reliable information on the timeliness of the inspection process. On the basis of what has been provided the Committee is alarmed at the wide variation in District performance - in the period from April 2011 to September 2012, the percentage of inspections carried out by District maintenance teams within the 5-day target ranges from 33% to 95.5%. Delays in carrying out inspections impact directly on how quickly contractors’ invoices are approved and passed for payment. In the Committee’s view the Housing Executive, as a public body, has a duty, particularly in these tough economic times, to ensure that its systems operate efficiently and effectively so payments are processed in a timely manner.

The Committee is particularly concerned that in 2011-12, one in five jobs inspected failed compared with one in twenty jobs in 2009-2010. The Committee is sceptical of the Housing Executive’s claims that it was failing high numbers of jobs in the past but did not record the information. In the Committee’s opinion there is a strong possibility that, prior to 2010-11, management within the Housing Executive was deliberately and actively manipulating performance data^[3].

Recommendation 2

The Committee recommends that detailed information on the results and timeliness of inspections is reported to the Housing Executive Board and Audit Committee who must also assure themselves that payments are being made promptly to all contractors.

The Repairs Inspection Unit reports are an important resource and full use must be made of them to drive up the performance of both contractors and District maintenance teams

The Committee is deeply concerned that reports produced by the Repairs Inspection Unit (RIU) were actively withheld from, or not reported fully to, the Board or Audit Committee. The RIU provides an important second-tier check, carrying out annual technical and management inspections of the maintenance functions across all 35 District Offices. Its reports consistently highlighted significant variations in performance across the District office network, particularly in relation to on-site inspection. However, the Committee found that insufficient weight was given to this aspect of performance. As a result “substantial” or “satisfactory” assurance was taken from the performance of a significant number of districts even though they scored poorly (in some cases zero) for this aspect of their work. In addition, no one within the Housing Executive made the connection, never mind challenged the inconsistencies, between RIU’s assessments and Key Performance Indicator reports prepared by District offices which gave a much more favourable assessment of performance.

The Housing Executive told the Committee that a gap in its procedures had been “inadvertently” created which allowed the management of KPI data to fall between two areas. In the Committee’s view this is further evidence of the absence of joined-up thinking within the Housing Executive. These gaps should also have been obvious to senior management.

In the Committee’s view Repairs Inspection Unit reports are an important resource and full use must be made of them to drive up the performance of both contractors and district maintenance teams. The Committee welcomes assurances that the Repairs Inspection Unit now forms part of the Housing Executive’s Corporate Assurance Unit whose reports are scrutinised at Board level.

Recommendation 3

This is not a recommendation that the Committee should have to make. However, given what has taken place the Committee is compelled to recommend that senior management within the Housing Executive, together with the Board, recognises and upholds the Corporate Assurance Unit’s independence from the operational divisions, and ensures that it continues to be protected and that its work is not undermined.

In the Committee’s view staff rotation plays an important role in managing the risk of over-familiarity, impropriety and fraud in contract management. The Committee welcomes the Housing Executive’s decision to introduce new arrangements for regular rotation of key staff; it is important that the Housing Executive reports to the Board on the implementation of these arrangements and their effectiveness.

Other sources of information, including complaints, should also be used to evaluate the performance of contractors and effectiveness of the maintenance inspection process

Complaints are an important source of information on the performance of contractors and Housing Executive district maintenance teams. The Committee considers that the Housing Executive should be making greater use of this information, together with information from other sources such as Key Performance Indicators, RIU and Corporate Assurance Unit inspections and Internal Audit to help identify areas where improvements are needed. The Housing Executive also needs to provide clearer reasons for the level of tenant satisfaction which has remained around 75 per cent and set out what action it is taking to increase satisfaction levels.

The process of accreditation for Centres of Procurement Expertise must be overhauled as a matter of urgency; the review should also address the need to improve the level of contract management skills within the public sector in Northern Ireland

It is evident that the Department took some assurance from the status of the Housing Executive as a Centre of Procurement Expertise and the fact that it had gone through the accreditation process. However, the Committee has raised serious concerns about the accreditation process for Centres of Procurement Expertise on a number of occasions. This is yet another example which calls into question the credibility of that process and highlights the need for it to be overhauled. The Department of Finance and Personnel told the Committee that, following the Committee’s previous concerns, it is carrying out a review of the accreditation process which will be completed in 2014.

Recommendation 4

In light of what has transpired within the Housing Executive, the Committee recommends that the Central Procurement Directorate’s review of the accreditation process for Centres of Procurement Expertise should also address the need to improve the level of contract management skills within the public sector in Northern Ireland.

The Housing Executive was badly let down by Constructionline^[4]

Constructionline has an important role to play in providing information to assist public sector bodies assess the financial status of prospective suppliers and their capacity to deliver services. While the Housing Executive had raised a number of issues about the information that was supplied by Constructionline in relation to Red Sky, ultimately it relied on Constructionline carrying out a proper and robust evidence-based assessment of Red Sky’s financial position. In this respect it was badly let down by Constructionline who appear to have based their assessment on oral conversations with Red Sky’s auditors and unaudited management accounts.

The Committee welcomes confirmation provided by the Treasury Officer of Accounts that Constructionline will now take into account only formal written advice from company auditors when assessing the financial standing of potential suppliers. The Committee notes and welcomes that the lessons learned from this case will hopefully lead to improvements in the standard of service provided by Constructionline to the entire UK public sector.

Red Sky: senior management within the Housing Executive was only too ready to brush matters under the carpet until it was forced to face up to the seriousness of the issues through the pressure of independent, external scrutiny

In July 2011, the Housing Executive terminated its response maintenance contracts with Red Sky, following extensive investigations into the company’s performance and allegations of overcharging. Prior to this the Housing Executive had numerous opportunities to draw a line in the sand, including terminating its contracts with Red Sky. However, it failed to take these. The Committee can only conclude that senior management within the Housing Executive was only too ready to brush matters under the carpet until it was forced to face up to the seriousness of the issues through the pressure of independent, external scrutiny by this Committee and the Comptroller and Auditor General.

The Committee was astonished to be told that the Department was unaware of these serious issues despite them being evident for more than 10 years. This raises serious concerns about the Department’s oversight of the Housing Executive.

The Committee is concerned that the systems operating within the Housing Executive have contributed to its inability to tackle fraud. In 2011, the Housing Executive submitted a file to the Police Service of Northern Ireland (PSNI) to consider whether a criminal prosecution could be pursued in relation to over-charging by Red Sky. The PSNI advised that a prosecution would be difficult to sustain as there had been systematic errors within the Housing Executive.

This however, was not the first occasion that the Housing Executive had reason to refer issues relating to Red Sky to the PSNI. A previous referral in 2006 resulted in a similar response. Despite this clear warning about the inadequacies and weaknesses of its systems, the Housing Executive did nothing. In the Committee’s opinion, management’s failure to act provided sufficient grounds for disciplinary action against those responsible. Instead the Housing Executive continued to operate for another five years with systems that undermined its ability to effectively manage its contracts and guard against and tackle fraud.

The Committee is also concerned about the involvement of a former non-Executive member of the Housing Executive’s Audit Committee — who resigned from the Audit Committee prior to its March 2007 meeting and became Chairman of the Red Sky Group in April 2007 — in negotiations with Red Sky to recover sums which had been paid to the company as a result of it overcharging for work^[5]. While it is unclear as to which side he was representing at these negotiations, in the Committee’s view, his involvement was totally unethical and could and should have been avoided. It also highlights a fundamental breakdown of governance and proper accountability in that his involvement was not discussed by senior management at any stage with the Audit Committee, Board or the Department.

In the Committee’s view the perception that contractors can influence staffing decisions within a public sector body must be robustly challenged. The Committee is astonished that the Housing Executive failed to issue a strong rebuttal to Red Sky in response to its clear attempt to have a Housing Executive employee moved from their post. Their subsequent move, against their will, sent out entirely the wrong message. In the Committee’s view, the action taken undermined the Housing Executive’s position and authority. While the Committee welcomes the Housing Executive’s acknowledgment that the employee should not have been moved, this is too little, too late.

Problems in contract management are likely to extend beyond response maintenance

The Committee is concerned that the problems identified in the management of response maintenance are likely to be replicated in other areas of the Housing Executive’s business. For example, the Housing Executive told the Committee that it has evidence of substantial overpayments in a number of kitchen replacement schemes and is working to establish the value of these. The Committee is deeply concerned that these overpayments have been allowed to arise in the first instance. The resources required to subsequently investigate and recover overpayments is a drain on valuable public funds. Over-claiming and poor performance by contractors must be identified and tackled before payments are issued. Key to this is timely and effective inspection.

The Committee is also astonished at the cost of kitchen replacement schemes. Although costs appear to be reducing, the Committee is not convinced that the system for developing specifications and approving schemes has delivered value for money.

Recommendation 5

The Committee recommends that the Housing Executive and the Department undertake the necessary investigations across the Housing Executive’s business areas to establish the full extent of the contract management problems and the potential exposure in financial terms; and to ensure that weaknesses are identified and eradicated. This must be completed as a matter of urgency. The Committee was pleased to receive the Comptroller and Auditor General’s reassurance that he will report on the progress of these investigations as part of his audit of Housing Executive’s 2012-13 accounts.

Whistleblowing, investigations of breaches of discipline and reporting suspected frauds

Organisational culture, processes and procedures must be open to, and supportive of, whistleblowers and others who have concerns about wrongdoing or poor practice

The Committee is deeply concerned that the culture within the Housing Executive discourages staff from raising concerns. Discouraging whistleblowing or creating the perception that whistleblowers are not protected is unacceptable. Where employees feel unable to raise concerns about wrongdoing or poor practice, there is a serious risk that opportunities to make improvements are missed, poor performance is perpetuated and public money is wasted.

Practices, such as those adopted by the Housing Executive including the use of IT to attempt to identify an anonymous whistleblower, give the impression that staff who raise concerns in the course of their work or in a whistleblowing capacity, will not be supported or protected. Such action undermines confidence in this process and is unacceptable. The Committee welcomes the assurances from both the Housing Executive and the Department that this will not happen again.

Recommendation 6

The Committee recommends that senior management in the Housing Executive must send out a clear message to staff that the organisation is not a cold place for whistleblowers and demonstrate that concerns raised will be taken seriously and properly investigated.

Staff must be clear on what constitutes breaches of discipline and expected standards of conduct

In the Committee’s view where there are breaches of discipline and expected standards of conduct, disciplinary action must be timely, equitable, consistent and robust. The Housing Executive must demonstrate its commitment to ensuring that breaches of its code of conduct will not be accepted.

The Committee welcomes the Housing Executive’s acknowledgment that there were clear deficiencies in the training it provided to its staff. This led to the position where staff could claim that they are not adequately trained for the roles they had to undertake. This must be addressed as a matter of urgency – it should never be an option for staff to be absolved from poor or improper performance on the grounds that they were unaware of the standard of conduct that was expected of them.

The Housing Executive told the Committee that those responsible for some of the most significant failings had subsequently left the organisation without facing disciplinary action. The Committee is very concerned that the Housing Executive has been unable to take action against these staff, including senior management, who appear to have been able to act with impunity and commit serious breaches of expected standards of conduct. It is essential that the Housing Executive and the Department learn lessons and act swiftly to investigate any suspected breaches of the code of conduct and complete relevant disciplinary action in a timely manner.

The Committee acknowledges that it may not be possible to prevent former employees of the Housing Executive from later providing services to the Housing Executive.

Recommendation 7

The Committee recommends that the Housing Executive should be alert to former employees taking up employment with a firm or contractor providing services to the Housing Executive and ensure that there are no conflicts of interest or inappropriate working relationships involving former employees and current Housing Executive employees.

Reporting of suspected frauds to the Comptroller and Auditor General is a key step in the accountability chain

Reporting of suspected frauds to the Comptroller and Auditor General is a key step in the accountability chain. Failure to report suspected frauds has the potential to undermine the audit process and the effectiveness of Departmental oversight. This is unacceptable.

The Committee was told that the Department and Housing Executive have taken steps to ensure reporting requirements are complied with. The Department must monitor this closely as part of its oversight of Housing Executive.

Corporate governance and accountability

Good governance is more than documentation and paper processes; it is practical and requires a strong culture of transparency and accountability

In the Committee’s view, there has been a total breakdown in corporate governance and accountability. This has come to light through various reviews which have been undertaken since 2008 and following this Committee’s intervention on foot of concerns raised by a whistleblower. The nature and quantum of the evidence raises serious concerns about the capability and competence of management within the Housing Executive over many years, particularly at a senior level. In addition, it would appear that some members of senior management actively undermined the systems of control that had been put in place.

The Committee considers that oversight by the Department, the Board of the Housing Executive and senior management has been totally ineffective. For example:

• the Department was not alert to the problems in Housing Executive, which were evident over many years;
• although structures of governance were in place, these were not working in practice;
• the Department and Board relied on assurances from Housing Executive management about the operation of these structures without appropriate challenge or work to validate the substance of those assurances;
• information provided by senior management within the Housing Executive to the Board on important issues was inadequate;
• in some instances key information that should have gone to the Board was deliberately held back by senior management or was presented in a superficial way that glossed over problems;
• fundamental financial management information for proper and effective oversight was not readily available and it would appear that its unavailability went unchallenged by the Board; and
• the Housing Executive’s Housing and Regeneration Division had been, for many years, out of control.

This failure in corporate governance has only served to dent public confidence in a major public body. While there has been frantic activity in the past few years to address the problems, these could and should have been identified and remedied much earlier.

In its evidence to the Committee, the Housing Executive frequently commented that there was no room for complacency. The Committee considers that the Housing Executive has little to be complacent about; action is what is required to tackle the systemic weaknesses in governance and contract management that have been exposed.

Departments must regularly review their processes for gaining assurance on sponsored bodies’ management of risks to ensure that effective controls are in place and operating as intended.

There were clear failings in the Department’s oversight of the Housing Executive. The Committee is concerned that the Department was not alert to the problems in Housing Executive, which were evident over many years. The Department has a responsibility to provide an independent, external view on the Housing Executive.

The Department has accepted that there was insufficient co-ordination of the different contacts it had with the Housing Executive and that these had not been fully documented. However, in the Committee’s view its report, “Good Governance - Effective Relationships between Departments and their Arm’s-Length Bodies”^[6], makes clear that it is for the sponsor department to regularly review its processes for gaining assurance on sponsored bodies’ management of risks to ensure that effective controls are in place. On the basis of evidence provided by the Department, the Committee concludes that for many years before 2010, the Department did not do enough to adequately test the assurances it received from the Housing Executive.

Recommendation 8

The Committee reiterates that it is the responsibility of a sponsor department to regularly review its processes for gaining assurance on sponsored bodies’ management of risks to ensure that effective controls are in place. The Committee recommends that departmental Governance Statements provide confirmation that this has been done.

The Committee welcomes the Department’s introduction of new arrangements which will provide for closer scrutiny and are essential to ensuring that the Housing Executive delivers on its commitments.

It is essential that evidence provided to the Committee is accurate and complete. The Committee expects the Accounting Officer to have fully researched all matters and, where appropriate, to have discussed with his predecessor any issues that are pertinent to the Committee’s enquiries. The Committee is disappointed by the Department’s Accounting Officer’s admission that, in preparing for the Committee’s evidence session, he had not researched back beyond 2010 when he took up post. Furthermore, it is disappointing that some additional information provided by the Department at the request of the Committee, was also incomplete and not as comprehensive as it should have been.

To properly fulfil its responsibilities in holding management to account a Board must understand the business and demand that the right information is provided to it.

The Committee was told that although structures of governance were in place, these were not working in practice. Documentation and paper processes are not sufficient – good governance is practical and requires a strong culture of transparency and accountability. In the Committee’s report on governance of arm’s-length bodies, this point was made very strongly. It is evident that some departments and their arm’s-length bodies are slow to learn this lesson.

At Board and senior management level within the Housing Executive many things were not being done correctly and important issues were not being addressed. Indeed, the Housing Executive admitted that key issues were not being given due attention; information provided to the Board on important issues was inadequate and in some instances key information that should have gone to the Board was deliberately held back by senior management or was presented in a superficial way that glossed over problems. This is unacceptable and should not be allowed to happen again.The Committee expects the Housing Executive Board to hold management to account; the Board has a duty to understand the business, ask for the right information to be provided and when it is not getting this to demand it from management so it can properly fulfil its responsibilities.

The Committee is very concerned that, at the time of the Audit Office’s investigation, information was not readily available on the number and value of contracts and expenditure on response maintenance contractors. This is fundamental financial management information for proper and effective oversight and yet it would appear that its unavailability went unchallenged by the Board. While the Committee welcomes the steps being taken by NIHE to improve financial reporting and monitoring, the Committee is astonished that such weaknesses existed in a major public body.

While the Committee acknowledges that for the period covered by the report the Board and Audit Committee had the wool pulled over their eyes, this is no excuse. The Committee considers that the Housing Executive Board should have exercised a more robust challenge function but too readily accepted management’s view.

The Committee takes some assurance that the way Board business is conducted has been reviewed and a new committee structure put in place which should ensure that sufficient time is set aside to scrutinise key issues. Reporting to the Board is also to be improved. This is crucially important. However, the Department must monitor progress to ensure the Board is operating effectively.

Many of the failings uncovered by the recent reviews fell within the remit of the Housing Executive’s Housing and Regeneration Division. In the Committee’s opinion, this Division had been, for many years, out of control. For example:

• there was a catalogue of breaches of standing orders;
• there were fundamental weaknesses in the implementation of contracts;
• the Division persisted with these contracts even after it became apparent that they were flawed and outdated;
• Key Performance Indicators that were put in place to assess contractor performance were flawed, lacking in objectivity and not subject to independent validation; as a consequence poor performance was difficult to pursue against contractors; and
• independent critical reports from the Housing Executive’s Internal Audit and Repairs Inspection Unit were, in effect, revised, suppressed or ignored by the Division.

In the Committee’s opinion it is vital that the organisational culture within the Housing Executive is transformed so that these problems do not arise again. Changing culture can take time but, in this case, the need for change is urgent. This will present a significant challenge for the Chief Executive and management at every level within the Housing Executive. However, it must be done and is paramount if public confidence is to be restored.

The Department told the Committee that it will be carrying out a review in one year’s time to evaluate progress in implementing the recommendations of its governance review. The Committee expects to be kept informed of the outcome of this review as soon as it is completed.

Recommendation 9

The Committee recommends that the Department publicly reports on the outcome of its review of the progress being made to implement the recommendations from its governance review as soon as it is completed. The Committee also expects the Department to continue to monitor progress and report annually on this.

Internal Audit is a key governance and management control and can play an important role in ensuring high standards of accountability

Internal Audit is a key governance and management control and can play an important role in ensuring high standards of accountability. The Committee was shocked at the attempts by management to suppress some internal audit reports and exert pressure to have audit opinions watered down. Institutional resistance such as this is unacceptable. The Committee expects to see the culture of stifling any form of criticism turned around. A key attribute of a mature and open organisation is that where mistakes are made these are recognised and improvements made as a result.

The Committee expects the Housing Executive’s Board and Audit Committee to uphold the independence of Internal Audit and ensure that its annual programme of audits is completed. The Department must also ensure through its oversight that the Housing Executive’s Internal Audit is properly resourced and that its work complies with Government Internal Audit Standards.

The Committee considers that what has been exposed in the Housing Executive and lessons emerging from it, should act as a timely reminder to all public bodies that this could happen elsewhere, particularly where a strong culture of transparency and accountability is absent.

Recommendation 10

The Committee recommends that the Department of Finance and Personnel ensures that the lessons from this report and those identified by the Comptroller and Auditor General and through the DSD reviews, are promulgated to, and acted upon, by Arm’s-Length Bodies, Boards, Audit Committees and senior managers across the public sector.

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