In April 2000, three men were sentenced to prison terms for corruption in relation to the purchase of homes, between 1991 and 1995, by Focus Housing Association from a Birmingham property dealer. Sir John Bourn, head of the National Audit Office, told Parliament today that the Corporation’s routine reviews of Focus during that period did not identify the potential for fraud and corruption within the Association and that the Corporation should have taken more action in response to the allegations of impropriety it received in 1994. However, as a result of this case, the Corporation has improved its regulation of registered social landlords’ housing development activities.
The property dealer, Darshan Ram pleaded guilty at Birmingham Crown Court to making corrupt payments to two Focus employees, John Hartshorn and Keith Hinson, to ‘oil the wheels’ for the purchase of around 50 homes by Focus for £1.8 million. The National Audit Office was unable to report the findings of its examination of the Housing Corporation’s regulation of Focus Housing Association until the prosecution was concluded because some of the matters in the report were sub judice.
The National Audit Office found that:
- after the corruption was uncovered in late 1995, Focus discovered that it had paid an estimated £1.1 million more than market value for homes it bought from Ram and other property dealers between 1991 and 1995. Most was Focus’ own money, although around £200,000 was public money which Focus later repaid to the Housing Corporation;
- between 1991 and 1995 the Housing Corporation had carried out regular routine reviews of Focus but these did not identify the lax management culture and disregard of internal control within the Association which allowed the corruption and overpayments to take place;
- the Corporation received allegations of corruption by Hartshorn, in 1994, but did not take sufficient steps to investigate. Had the Corporation pursued the allegations more vigorously, more attention could have been paid to the Association’s development function, and the corruption and overpayments might have been uncovered sooner;
- when Focus reported corruption allegations to the Corporation in November 1995, the Corporation took prompt and effective action to investigate and to protect public money, including action to ensure other West Midlands associations were unaffected by similar corruption;
- as a result of the Focus case, the Corporation reviewed and redesigned its regulatory systems to obtain greater assurance that registered social landlords in receipt of significant development grants have effective systems of internal controls. Now that the court case is over the Corporation also intends to publish the lessons learned from the Focus case;
- the Corporation has put proposals to the Department to give whistleblowers protection under the Public Disclosure Act 1998, and asked the Department to consider whether registered social landlords’ external auditors could be called upon to report to the Corporation on key aspects of regulatory compliance. The Department is considering these matters as part of its current quinquennial review of the Corporation; and
- in April 1994 Focus appointed a new Chief Executive, Richard Clark, who started to deal with the lax management culture at Focus and replace some of the Association’s senior management. Following the discovery of the corruption, further changes were introduced to improve management at the organisation. By the end of 1997, the Corporation no longer considered the Association as a cause for concern.
Sir John commented:
“This case highlights the need for effective regulation of registered social landlords such as Focus. It also demonstrates the importance of the Housing Corporation’s accountability to Parliament for their use of public money. The Corporation could have done more before November 1995, but it is now important to learn lessons from the experience. I am pleased that the Corporation intends to produce further guidance for social landlords and for its own staff as a result of this case.”