The CFG and HCA Compliance Audit – Be Compliant not Complacent !

Yes it’s that time of year – Compliance Audit, and I’m being inundated with phone calls. If you have received a letter from the HCA about attending a training event with your auditor, then you have been selected for a Compliance Audit. As many of you know I worked for the HCA and helped develop many of the HCA processes. In my article I hope to address common queries that I get on Compliance Audit.

What Is Compliance Audit?

If you are using HCA grant money for any type of development the chances are you will be Compliance Audited.It applies to the Affordable Housing programme. It gives assurance to the HCA that public money is being used for what it is intended to be used for. It also gives assurance to the HCA that what the “Provider” (Housing Association, Local Authority, Developer) has delivered what they said they would deliver.

What do they mean by “Compliance Audit”?

HCA Compliance Audit, is not like your normal financial audit. It is a “Technical Audit“. It looks at “milestones” in the development process to see if you have met them and not put the schemes or HCA grant at risk. For example did you get Building Regulations prior to start on site? Was it correctly done? Have you a JCT contract in place? Was it signed by all parties prior to start on site?

The checks are all available on HCA Checklists.

HCA Checklists

When Does it Happen?

It commences around July time. If you got a letter from the HCA then it’s happening now! The process has begun and you have been invited to attend a training event on the new Compliance Audit Process. You better get your skates on!

I Got a Letter from the HCA – What Do I Do?

Firstly, don’t panic, but don’t ignore it either. You have been asked to attend a HCA training event on Compliance Audit with your nominated auditor. So find a suitably qualified auditor. The points to note on appointing an auditor are:

1) The auditor must be a Chartered Surveyor or Chartered Accountant. You cannot appoint anyone else. Anyone else cannot sign into the Compliance Audit system.

2) They must be Independent. You can’t appoint anyone who works in your consortium or organisation.

3) He/She must sign up to the “Standardised Terms of Engagement

My Tip – Remember the HCA Compliance Audit is a very specialised form of audit so in appointing an auditor I would suggest the following question to ask:

1) Does the auditor have sufficient knowledge of the Affordable Housing and Construction/Development process?

2) Does the auditor have the correct Professional Indemnity Insurance to allow them to carry out the specific type of audit.

3) Is the auditor knowledgeable of the Capital Funding Guide?

4) Is the audit familiar with and know how to use IMS ?

OK, I’ve Appointed an Auditor. What Happens Next?

After attending the training event with your auditor, you will receive the indicative scheme sample of the number of schemes that will be audited. The auditor with give you a price on this basis, and let you know when he/she can begin.

You inform the HCA Design Manager of when your auditor can begin and 4 weeks prior to this date the actual sample of schemes that will be audited with be sent to you.

The auditor carries out the audit and submits the unfettered findings on the HCA’s new CA reporting system. This must be done within 6 weeks of starting the audit.

Things to look out for.

1) Make sure you have a development file. – Have a development file that follows the Compliance Audit checklist.

2) Check your milestones – make sure you haven’t claimed grant in advance of need.

3) If you are unsure of anything either contact me or your local Design Manager at the HCA.

Possible Consequences of Non-Compliance

If you fall foul of the HCA Compliance Audit process and incur breaches the consequences could be severe. Your organisation could be seen as development risk. Some of the consequences are listed below:

1) Grant is claimed back with interest – the HCA will not only take back grant but charge you interest on the money.

2) You get a red overall audit – this is bad news. You can’t get money from the HCA and you are stopped from developing.

3) You continuously get Amber grades – this could set off alarm bells at HCA Regulation and they may want to investigate.

Beware of the Shadow Audit!

If you are one of those organisations that get no breaches year on year, this may make the HCA trigger a Shadow Audit. Basically this is an audit on your auditor and your processes to ensure that the auditor is doing what they said they should be doing.

Compliance Audit Is Not Unnecessary Bureaucracy

If you are not familiar with Housing, Construction or the social housing development process then you should not be taking money from the HCA. It’s very simple.

The Compliance Audit process is also a check on competence. There is nothing in the Compliance Audit process that isn’t industry standard.

My Own Thoughts

Hephaestus Associates Services MapI’ve been involved in affordable housing, development and construction for over 25 years, 15 of which have been with Compliance Audit at the HCA, and I have seen some excellent organisations fail at this process because of complacency. It is a real shame. I want to see excellence in affordable housing development and the best providers to thrive.

One of the reasons Hephaestus Associates was set up was to help “Providers” who struggle with this element of the HCA’s processes, so they can get on with the development process.

Many “Providers” complain that “Compliance Audit” is meaningless bureaucracy. The thing to remember is, the HCA is trying to identify where “risk” is to public funds and as tax payers, this is in all our interests. If you can assure the HCA that you are not a risk, then the Compliance Audit process is not as daunting as it may first seem.

For Further Information contact

Randip – Director at Hephaestus Associates and leads on Compliance Audit.

Randip is also a Fellow of the Royal Institution of Chartered Surveyors, and Chair/Assessor for Housing and Development Pathway.

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