It was a collapse that stunned housing. But could Ujima’s demise have been prevented?
Ujima: why didn't anyone step in?
The charismatic chief executive of Ujima Housing Association made no secret of his ambition for the thriving organisation he took control of in January 2006.
Three months after former British Airways executive Keith Kerr took up the post, he unveiled ‘Project Jerusalem’, an expansion plan of Biblical proportions. Under him Ujima would become one of the England’s five largest housing associations within five years, it proclaimed. Such a move would demand £5 billion in investment by one estimate - more than 15 per cent of the debt held by all 1,900 of the country’s housing associations. The Housing Corporation - which keeps tabs on association business plans - didn’t appear to blink.
The organisation Mr Kerr inherited had an apparently healthy balance sheet. It had reported a £6.9 million surplus in 2004/05. Ujima was also on good terms with the corporation, the regulator said in an assessment published the same month as the doomed Project Jerusalem.
His board looked tough enough to keep a tight rein on Mr Kerr’s ambitious urges.
The chair of its audit committee, Marta Phillips, is a trusted corporation troubleshooter. She had previously been picked by the regulator to join the board of another landlord, Black Roof Community Housing Association, when it hit financial difficulty.
As the director of compliance at the National Lottery Commission, which scrutinises the distribution of almost £50 billion of lottery cash, Ms Phillips had significant regulatory experience.
But despite such seemingly solid foundations, Project Jerusalem ran aground fewer than two years after its launch. The 2004/05 surplus of almost £7 million transformed into a predicted £7 million loss for 2006/07. No longer able to meet its loan repayments, at the end of last year Ujima became the first-ever association to go bust, spreading a huge blot on the corporation’s previously unblemished record of presiding over a
The insolvency sent shock waves through the housing world and the government. Questions were raised in Parliament about the corporation’s handling of Ujima’s demise.
The banks and building societies which loan money to housing associations warned the default would increase the cost of borrowing, threatening the government’s house building targets. Urgent changes were made to the Housing and Regeneration Bill to strengthen the powers of Oftenant, set to replace the corporation as regulator.
Why had it taken until October 2007 for the corporation to take decisive action against Ujima - four months after it became concerned about its financial position?
Inside Housing has uncovered strong evidence that the corporation and Ujima’s board had plenty of chances to halt Ujima’s disastrous financial collapse.
The significance of Ujima’s fall from grace and the corporation’s failure to catch it in time should not be underestimated. As the housing association regulator, it is responsible for safeguarding £28 billion of taxpayers’ and more than £30 billion of private cash sitting in associations’ bank accounts. It is also set to form the backbone of Oftenant.
Reports compiled by troubleshooters appointed by the board during Ujima’s supervision period raise serious questions about the corporation’s handling of the affair. These include one report by former Ujima chief executive Poniah Rasanesan that includes an unpublished appendix, which was removed from official papers. This states that it should have been ‘glaringly obvious’ from the outset that Ujima’s Project Jerusalem ambition to swell its size by 500 per cent in five years was ‘almost impossible’ to achieve.
‘Neither the board nor the [Housing Corporation] seem to have questioned the viability of the plan,’ it adds.
The corporation again failed to take action after it was warned about a potential conflict of interest at the association when Ujima appointed a maintenance director who was also a director of FWA West, its primary maintenance contractor. ‘The whistle was blown to the Housing Corporation in October 2006. What action, if any, did the HC or board take?’, the appendix asks.
The troubleshooter’s report also highlights a series of investigations the corporation ordered Ujima to carry out in the summer of 2006 after it received a raft of complaints. The probe’s findings, handed to the corporation in March, highlighted ‘a number of procedural, policy and internal control weaknesses’. The corporation described these as ‘not sufficiently serious to warrant statutory intervention’, in a statement to Inside Housing this year.
Efforts by Ujima’s staff to sound the alarm bell were also apparently ignored, according to the report.
Ujima’s financial controller, Anthony Albert, warned the board it was breaking its loan covenants as far back as January 2007, the appendix states. But despite Mr Albert diligently compiling monthly accounts ‘nobody showed any interest’ in them during the rest of 2007, the report states. The last accounts he presented to the board were for December 2006, it adds.
A copy of these, seen by Inside Housing, shows that Ujima was already running a deficit of £2.3 million on a turnover of £18 million. The expense of carrying out the corporation-ordered investigations had cost it close to £250,000. Ujima’s expenditure had rocketed well past its predictions. Spending on recruitment, audit and consultancy fees came in at £826,000 for the year, six times the budgeted £127,000.
Ms Phillips says she had intended to resign from the board after its 2006/07 accounts had been completed ‘due to my frustration at the lack of financial and other information’.
‘I am wholly satisfied that as a board member and chair of the audit committee that the appropriate steps were taken once we had the full information available to us,’ she adds.
The corporation finally appeared to get wind of Ujima’s precarious financial position in May 2007, according to a parliamentary briefing paper seen by Inside Housing. This was two months after the association passed a corporation ‘viability review’.
In June the regulator stripped Ujima of its ability to bid for government cash to build affordable housing, giving it a red light rating for development - the worst classification possible. The association had managed to build just 58 of its 495 planned homes. This abysmal performance, combined with the newly aroused financial concerns, did not prevent the regulator giving Ujima a clean bill of health for financial viability and governance.
Once again, the corporation’s inaction was questioned in the unpublished appendix. ‘Many of us did not understand how you could assess a significant function to be so poor and yet give them a green light for governance,’ it states.
Starved of development cash it looked like Project Jerusalem’s plan to transform Ujima would grind to a halt. Not so. In July, in characteristically bullish fashion, Mr Kerr announced a £2 million refurbishment of Ujima’s Wembley office complex by Metro Design. You can still take a virtual tour around the finished product by calling up the high-end designer’s website. Walls are replete with commissioned art works, employees pictured hard at work, their coats hanging from the backs of Hermann Miller chairs, which retail at £500 a piece.
When troubleshooters analysed the association’s accounts in November they revealed it could ill afford such largesse. The Ujima judged ‘viable’ by the corporation in June was found to be operating a budget based on ‘reckless optimism’ - overstated by £8 million, the appendix states.
Its social enterprise business, expected to rake in £3.1 million in the first six months of 2007/08, made just £300. The development department raised £60,000 over the same period against an expected income of £2 million.
A ‘land buying binge’ Ujima had embarked on, with the help of taxpayers’ cash channelled through the corporation, according to the November analysis, sounded very Project Jerusalem.
By the time of its collapse, £326 million of government money sat in Ujima’s ailing accounts’ book - all of which could have been seized by its creditors before the corporation got a look in.
The head of the corporation’s London office, Rona Nicholson, was alerted directly to the existence of the deficit-ridden December accounts in September 2007 but again, no decisive action was taken.
The corporation’s first major intervention was in late October. It placed Ujima under supervision, putting three housing professionals on to its board to help get it back on track.
The association reacted with fury. Mr Kerr branded the new board members ‘spies’ and threatened to sue the corporation. Within weeks something of a coup d’état took place. Mr Kerr and his chief finance officer, George Avwunu were suspended and Adonis Daniel, chair of more than a decade and close friend of Mr Kerr’s, was sacked.
A rapid sift of Ujima’s accounts by the troubleshooters over the next month revealed it had sailed into dire financial straits and was no longer considered a viable business. In January, the financially sound association of two years prior was swallowed up by L&Q Group in a deal brokered by the corporation itself.
So what was the corporation’s regulation department doing while Ujima nosedived into insolvency? Between 2003/04 and 2007/08 a Treasury-initiated efficiency drive had shrunk its staff roll of regulators by a third. The survivors had to safeguard a 75 per cent increase in the affordable housing budget over the same period. By March 2006, the month in which Project Jerusalem swung into action, its number of regulation posts had been slashed from 205 to 146.
Analysis of the corporation’s scrutiny of other associations also raises questions about the consistency of its regulatory approach during this period. This April the corporation withdrew a pledge to hand an association £10 million just two months after making it. Its assessment of the association, Servite Houses, published last month, shows Servite made a £5.2 million loss in the last financial year. But this was not a new revelation - the deficit was revealed in Servite’s financial statement, published last year, well before the corporation made its funding promise.
There are also dramatic differences between the corporation’s most recent assessment of Servite and one it released in February 2007. The latter describes the association’s financial position as ‘stable’.
But last month’s corporation report paints an entirely different picture. ‘Over the last year the association’s budgetary controls have not been strong enough due to the historic absence of appropriately skilled staff,’ it reads.
Corporation assessments for another association which suffered financial strife also reveal inconsistencies. St Matthews Housing received a green light for viability in November 2005 despite it posting a deficit of £545,000 in 2005/06 against a planned surplus of £279,000.
A little more than a year later the corporation rebranded this half-a-million pound loss ‘significant’ and described its viability to be ‘of serious concern’.
The corporation’s regulatory role is already under scrutiny, in an inquiry it initiated into Ujima’s demise, which is due to report this summer.
Corporation chair Peter Dixon appears to have made up his mind already. He is ‘satisfied that there had been no failure of regulation on the part of the corporation’ in relation to Ujima, Communities and Local Government department committee papers seen by Inside Housing show.
His view is not shared by Rob Wilson, the Conservative MP for Reading West, who has carried out his own investigation into the Ujima debacle. ‘[Corporation] management were asleep at best, and negligent at worst,’ he told Parliament last month.
The corporation had ‘fobbed off’ whistleblowers who tried in vain to get the corporation to act before it was too late, he told Inside Housing. People were also concerned the inquiry would end in a ‘whitewash’ he added.
As Inside Housing’s investigation shows, there were shriller warnings than whistleblower cries to awaken the corporation to Ujima’s impending insolvency - right back to the moment Project Jerusalem became public.
The missing appendix of the troubleshooter’s report concludes: ‘The regulator has some big claws and fangs but did not bare them at all until it was too late. The board’s job is to govern… oversee the executive of the [social landlord]. They seem to have shirked this at every turn. Is the current constitution and regulation of registered social landlords fit for purpose?’
That is a question the inquiry should answer - before the corporation’s backbone becomes Oftenant’s.