The Board of the Association have the responsibility to ensure good financial controls are in place to safeguard against theft, fraud and abuse.
Financial controls are a critical part of any financial system. They ensure that the resources of the Housing Association are being correctly and effectively used and that activities are correctly and accurately reported. Poor controls can lead to the risk that resources are used inefficiently or are subject to theft, fraud or abuse.
Overview
It is the responsibility of the Board of the Association to ensure that good financial controls are in place. It is the responsibility of management to ensure that the controls are operating effectively. Poor controls can lead to the risk that resources are used inefficiently or are subject to theft, fraud or abuse.
When establishing what controls are necessary, the Association should consider:
- the nature and extent of risks they face;
- the likelihood that the risks will occur;
- the extent and type of risk which would be acceptable to bear;
- the ability to reduce the incidence and impact of risks that do occur; and
- the cost of implementing a control compared to the benefit that would be obtained by implementing it.
Controls protect both the Association and its staff. These controls should:
- be embedded in the operations and culture of the Association;
- be able to evolve if the type of risks the Association faces are changing; and
- include procedures which enable immediate reporting to the relevant area of management should a problem occur.
Even when a good system of financial controls is in place and is fully utilised, it can only provide reasonable, and not absolute, assurance against material misstatement of accounts, loss or misuse of resources and non-compliance with laws or regulations.
There are several areas where Associations should consider putting controls in place. The type and extent of controls will vary from one Association to another depending on their individual requirements. The Associations should consider taking professional advice when deciding on relevant controls. A brief description of some controls which should be considered is given below. This list is not exhaustive. It is the responsibility of the Board to ensure that adequate appropriate controls are in place. Further guidance on controls and a useful free financial controls checklist is available from the Charity Commission.
Segregation of duties
It is important, wherever possible, to separate those responsibilities or duties which if combined would enable one person to record and process a complete transaction. This reduces the scope for errors and omissions and for deliberate manipulation or abuse.
Qualification of staff and advisors
Staff should be properly trained, qualified and competent for the tasks that they are required to perform. This reduces the scope for errors. It is also important that regular contact should be maintained with professional advisers. Procedures should be established to ensure that general or specific independent advice received is brought to the attention of management and the Board.
Budgetary Controls
- Revenue Budgets - Annual budgets with realistic estimates of income and expenditure should be prepared. By comparing actual results to those budgeted, the Association can quickly highlight areas of the business which may need attention. Comparisons also aid preparation of future budgets by identifying possible flaws in previous assumptions used.
- Capital Budgets – Financial viability of new schemes should be assessed before a project is approved by the Association.
Bank and Cash Controls
Controls are required to ensure that all monies received are recorded, safeguarded against loss or theft and banked. In relation to payments, controls should ensure that all payments are correctly authorised, made to the correct payees and recorded. Bank reconciliations and other cash controls will highlight issues relating to cash balances including errors, loss, theft or other misstatement.
All money due to the Association should be recorded, pursued and properly accounted for.
Expenditure and Purchasing Controls
All Associations should have procedures for the authorisation of expenditure. Controls can ensure that only those goods required are ordered, that purchases are at the best prices and all transactions are recorded. They can also ensure that goods received are undamaged, have all been received and that the price invoiced matches the original orders. The provision of external goods and services procured on an ongoing basis should be tendered for on a regular basis ensuring best value for money.
Further information is available in the Department's Procurement Guide
Investment Appraisal
To inform Board decisions on capital/ revenue schemes, Associations should carry out an investment appraisal before committing to any capital or revenue investment, to ensure that their funds will be spent in the most efficient way and provide the greatest benefit possible. Further information is available in the Scheme Approval guide
Payroll and Personnel Controls
Controls are required to ensure that salary and expense payments are properly authorised and statutory payments such as PAYE are accurate, paid in the required timescales and compliant with legislation. Controls over recruitment and personnel are also necessary to protect the Association from the possibility of errors or ‘ghost’ employees.
Controls over Assets
This covers all items as defined in the Housing SORP and associated accounting standards including property, vehicles and office equipment. Controls, such as Asset Registers, are required to confirm the existence and value of assets and ensure their safe keeping.
Treasury Management
Treasury Management involves the optimum management of cash flows, banking, money-market and capital-market transactions and the control of risk associated with these activities. It covers an organisation’s use of working capital and scheme financing, borrowing, investment and hedging instruments and techniques. Effective controls are vital in this area and guidance can be obtained from CIPFA.
Associations are reminded of the requirement for Department consent when their properties are used to secure private funding.
For more information:
Internal Audit
Housing Associations must use Internal Audits to appraise and evaluate compliance with their policies and procedures. This can give an indication of the reliability of their financial reporting, the security of assets and compliance with statutory requirements etc. The Internal Auditors can then provide the Board with recommendations for improvements to their systems.
Insurance
It is important that Associations have all relevant insurances in place which are appropriate to the risks of each Association.