Internal Audit

Milton Keynes Council

www.milton-keynes.gov.uk/internal-audit MOVING IN MOVING OUT

Internal Audit – Final Report MKC INTERNAL AUDIT SERVICE MOVING IN MOVING OUT (EMPTY HOMES)

EXECUTIVE SUMMARY

AUDIT AREA

An audit of Moving In Moving Out (Empty Homes) has been carried out in accordance with the annual audit plan.

AUDIT OPINION

Satisfactory - Controls are considered adequate with some areas of weakness that are not major risk areas. In addition the process may not be demonstrating Best Value for Money.

AUDIT REPORT – E137/11 1 MAY 2011

MKC INTERNAL AUDIT SERVICE MOVING IN MOVING OUT (EMPTY HOMES)

1 AUDIT CONCLUSIONS

1.1 The empty homes process is generally operated very well. Staff, particularly management have a high level of focus and there is a passion to remove waste from the system at every opportunity using a continuous improvement approach. On the whole it is considered that the way that different parts of the Council, Mouchel, MITIE and Wheldons work together is to be commended. 1.2 The process as it appears today is far leaner than observed in previous audits reflecting the willingness to continually try different approaches to secure improvement. However there are some further smaller opportunities to squeeze out more waste and a more strategic rather than operational view point may assist with this. 1.3 A frustration which appears to be experienced by all contributors is the disturbance to the smooth flow created by the necessity to undertake asbestos surveys. The Council’s Asbestos Management Plan requires that every empty home must have an asbestos survey completed to comply with legislation. 1.4 The frustration is further compounded in that there is no dedicated asbestos contractor for the Council and there is therefore limited control over the timing and receipt of surveys. This delays the eventual re-letting of properties and costs the Council more. 1.5 Currently therefore the situation is in a state flux with a new asbestos survey contract to be negotiated and additional resource to be allocated to enable surveys to be keyed into an asbestos database (Keystone). It is acknowledged therefore that the empty homes landscape will have a different feel to it over the course of the next six months. 1.6 There are some findings which have suggested that there is a lack of control over the costs (particularly labour) for individual jobs and there is potentially some inefficiency inbuilt into the labour element of the contract with MITIE. Therefore greater oversight of this element is required by the Council/Mouchel. 1.7 The audit also concludes that a great deal of resource is allocated to refurbishing empty homes as a result of tenant neglect/damage. Arguably this aspect is more attuned to the management of tenancies than the empty homes process however there was sufficient evidence from sampling to indicate that this is a major area where costs could be reduced if a degree of focus is brought to bear or, in the event that this is unsuccessful, an attempt is made to charge the costs back to the tenant. It is acknowledged that this finding is already recognised by the Housing service which is currently restructuring to enable a greater focus to be brought to bear on reducing costs. Nevertheless this point along with 1.6 above means that best value for money may not be achieved at the present time and significant savings could be achieved.

AUDIT REPORT – E137/11 2 MAY 2011

MKC INTERNAL AUDIT SERVICE MOVING IN MOVING OUT (EMPTY HOMES)

2 THE FUTURE

2.1 All recommendations are in the Management Action Plan (Page 13). Detailed findings from the audit are reported within the Main Report in Section 5. 2.2 Implement a control to ensure that surveyors have an opportunity to compare labour used on individual jobs to the original works specification brief. 2.3 Engage all officers and partners who contribute to the empty homes process to review how tenancies can be managed more effectively with the aim of empowering and supporting tenants to treat their properties more responsibly. 2.4 Refresh and implement the recharges policy.

AUDIT REPORT – E137/11 3 MAY 2011

MKC INTERNAL AUDIT SERVICE MOVING IN MOVING OUT (EMPTY HOMES)

MAIN REPORT

3 BACKGROUND INFORMATION

3.1 The rented housing sector within Milton Keynes comprises properties provided by private landlords, registered providers (RPs) and housing provided by the Council. This report’s primary focus is on properties provided by the Council although it is acknowledged that Housing officers do offer appropriate properties from the RP pool under a choice based system to individuals in need. 3.2 The Council’s current housing stock is approximately 11,500 properties with tenants holding either an introductory tenancy (first year of occupation) or a secure tenancy as evidence of their right to occupy council property. Secure tenancies allow the tenant to undertake minor alterations/amendments subject to council approval. 3.3 The maintenance of council properties is undertaken by Building Services which is part of Mouchel Business Services (Mouchel). Routine repairs and refurbishments (including empty homes) are undertaken by MITIE Property Services (UK) Ltd (MITIE) with Wheldon Contracts and Services Ltd (Wheldons) being responsible for work on any gas heating systems. The contracts between the Council and these two companies are managed by Mouchel. 3.4 Approximately 950 to 1,100 properties a year become empty as a result of either tenants or, on occasions, the Council ending the tenancy agreements. The aim of the empty homes process is to enable these properties to be re-let as quickly as possible by undertaking health and safety, gas and electric checks, making good any defects in the property and ensuring that they conform to a minimum lettable standard. As part of this process housing officers, surveyors and contractors visit the outgoing tenant as soon as a notice to quit has been given in order to assess the state of the property and authorise repairs. 3.5 In addition it is current policy that every empty home must have an asbestos survey undertaken on it. This is to populate the Council’s asbestos database and to comply with the Health and Safety at Work Regulations, the Defective Premises Act 1974 and the Control of Asbestos Regulations 2006. 3.6 Whilst properties are in an un-let state the Council is losing both rental and council tax income plus there is an additional cost in respect of having to accommodate some homeless individuals and families in more expensive bed and breakfast accommodation. In addition prospective tenants probably have a poorer experience of finding a home.

AUDIT REPORT – E137/11 4 MAY 2011

MKC INTERNAL AUDIT SERVICE MOVING IN MOVING OUT (EMPTY HOMES)

3.7 As the Council’s Minimum Lettable Standard requires health and safety checks in respect of electricity and gas every empty home will therefore incur some expenditure. In practice however, either as a result of degradation over time or tenant neglect most properties require substantially greater expenditure to repair and clean them prior to re-letting. In the current year approximately £2.4M of expenditure will be incurred in respect of repairs and refurbishment work undertaken by MITIE i.e. an average of approximately £2.55K per property. As a result of the way their management information is provided it is not possible to obtain a reliable figure in respect of gas repairs and refurbishments on empty homes undertaken by Wheldons without a more detailed interrogation of their finance system, however the overall costs are estimated to be approximately £240K p.a. (£252 per property).

4 AUDIT AREAS AND AUDIT SCORE

a) There is an effective process which minimises the period between tenancies. (Process)

b) Refurbishments are appropriate. (Refurbishments)

c) Expenditure is controlled and the standard of work is monitored. (Expenditure)

d) Risks are identified and managed (Risk Management)

Key: 1 = Poor, 3 = Good

AUDIT REPORT – E137/11 5 MAY 2011

MKC INTERNAL AUDIT SERVICE MOVING IN MOVING OUT (EMPTY HOMES)

5 DETAILED FINDINGS

5.1 Process

Basis of Audit Work Discussions were held with representatives of all parts of the Council, Mouchel and MITIE who were involved in the empty homes process. From this the process was mapped. Thirty randomly selected properties were sampled and key milestones reviewed. In addition the opportunity was taken to accompany and observe housing officers and surveyors on their visits to departing tenants prior to the end of the tenancy (pre term inspection). Following completion of refurbishment work surveyors and MITIE supervisors were also accompanied to view the completed work (post inspection).

What was found to be done well.

• There is a joined up process with all parties clear of their own responsibilities and the contribution that they make. All officers had a good knowledge of the ‘’common goal’’ and there is a continuous improvement ethos with everyone demonstrating a keenness to drive waste out of the process. • Officers demonstrated politeness and empathy when dealing with tenants particularly those who were more vulnerable. In addition the lettings team were conscientious in their efforts to ensure that new tenants were offered properties which were right for them, taking account of both their needs and the neighbourhood into which they were potentially being placed. • Generally speaking the process works well. In particular: o Visibility on Northgate was occurring the same day that the tenant gave notice to quit. This enabled the surveyors and the property lettings team to commence their own part of the process immediately notice was given by an outgoing tenant. o Pre term inspections were held on the majority of properties and the only occasions they did not occur was when out-going tenants refused to cooperate. On average an inspection is held within 8 days of receipt of a tenants notice to quit. o Overall the quality of MITIE’s work was of a good standard and the difference between what was received by the Council at the end of a tenancy and what was handed over at the commencement of a new tenancy was very marked. o MITIE are effective at completing the repairs on time. From the sample of properties reviewed an average of 1.27 days was taken from receipt of the asbestos survey to commencement of work on site and 4 days to ‘’turn the property around’’ (they advise their own management information reports 4.5 days).

AUDIT REPORT – E137/11 6 MAY 2011

MKC INTERNAL AUDIT SERVICE MOVING IN MOVING OUT (EMPTY HOMES)

o There is a good control to ensure that properties receive appropriate focus. There is a weekly meeting held between relevant officers with attendance of all managers directly responsible for the empty homes process. o There is a process in place to manage either the disposal or return to lettings of some properties which have been empty for exceptionally long periods of time as a result of severe structural problems. o There is a good control to ensure that asbestos surveys are reviewed before the commencement of work on site.

What needs to be improved.

• Removing properties which have severe structural problems and illegally occupied properties the average time taken for a property to be re-let once it becomes empty has increased this year from an average of 22.96 days in Q1 to 33.04 days in Q3. The principal cause of this is the requirement within the Council’s Asbestos Management Plan to undertake surveys on all empty homes. However it is acknowledged that the average time taken from commissioning of an asbestos survey to its eventual receipt is approximately 18 working days, therefore the increase is not as bad as it might have been. Further investigation has revealed:

o There is a delay of approximately 6.79 days from when the property becomes empty to when a survey is undertaken. Whilst some of this may well be explained by the way the asbestos surveyors schedule their work loads to enable multiple surveys to be undertaken on a single day there is nevertheless an opportunity to reduce the wasted time at this pinch point. o Currently asbestos surveys are arranged through MITIE. There is no meaningful service level agreement (SLA) in place and Mouchel/MITIE are not in a strong position with regard to controlling when a survey will be completed. It is worth bearing in mind that until a survey has been received and approved work cannot commence on the property. On a positive side it is noted that a new contract for undertaking asbestos surveys is currently being tendered for. This contract will incorporate stringent performance SLAs. The target start date for the commencement of the contract has slipped from April 2011 to August 2011 during the course of this audit.

AUDIT REPORT – E137/11 7 MAY 2011

MKC INTERNAL AUDIT SERVICE MOVING IN MOVING OUT (EMPTY HOMES)

o It is also worth noting that a simple benchmarking exercise was undertaken with two other local authorities both of whom had shorter periods for properties becoming empty to being re-let. However both authorities stated that they felt that the impact of asbestos surveys had diminished because they had already surveyed the majority of their properties. o The default asbestos survey for an empty home is known as a Management Survey. This effectively is to scrape samples from interior walls and surfaces with subsequent analysis in a specialist laboratory. Where more intrusive work is required e.g. replacement of a kitchen work surface a more detailed Management and Localised Demolition Survey is required. This survey is intrusive and remedial work is required to make good the damage to the property. o Even if a Management Survey has been undertaken, if further intrusive work is required at a future date then the Management and Localised Demolition Survey will still be required. This situation should be contrasted to routine Responsive Repairs process where a survey is not undertaken unless intrusive work is required. o Both types of surveys will be used to populate the Council’s asbestos database and whilst on the face of it the Management Survey does not add as much value as the more intrusive survey it is recognised that the overriding imperative is to ensure that the asbestos database is populated as quickly as possible. Once a critical mass of data has been obtained it will be extrapolated to predict which properties are likely to have asbestos (cloned). o It is estimated that approximately 2400 surveys have been completed which represents approximately 21% of the total housing stock. At the present time of writing there is no resource in place to transfer this data onto Keystone, an activity which has fallen behind on the Council’s Asbestos Management Action Plan. This means that the data cannot be cloned. As a consequence the only course of action is to continue undertaking asbestos surveys until reliable cloned data becomes available. It is acknowledged however that following a Partnership change request Mouchel is now recruiting the additional administration resource required.

AUDIT REPORT – E137/11 8 MAY 2011

MKC INTERNAL AUDIT SERVICE MOVING IN MOVING OUT (EMPTY HOMES)

Evaluation

This audit acknowledges that we are presently in a period of flux before the procurement of a new asbestos contract and the bedding down of the additional administration resource. Arguably therefore a far more settled picture will present itself over the next 6 months. That said as the start date of the asbestos contract has been put back twice during the course of this audit (from April to August) and the development of the asbestos database has fallen behind the Asbestos Management plan timeline it is appropriate that these aspects receive high focus. Please see Management Action Plan (Page 13) • Generally speaking as detailed earlier in ‘’What was Found To Be Done Well’’ the overall process works well. However some delays in the creation of a tenancy were found. These were attributed to a variety of reasons, specifically: o The Northgate database does not provide sufficient detail to ascertain when properties are first offered to tenants as it only records an offer of the property when it is accepted by the prospective tenant. Notwithstanding this on 10 out of 30 occasions there appeared to be a delay in making an offer to the new tenant. This directly led to 2 occasions when the tenancy creation was delayed. o In addition when an offer has been verbally accepted by the new tenant it is not recorded and hence this part of the process cannot be managed. It is acknowledged however that when there are temporary gluts of a particular type of property the Council’s choice based offer system can mean that some less desirable properties will ‘’stick.’’ The property team are alive to this and have been creative in offering some properties to individuals further down the priority list in the knowledge that there are still sufficient properties left for the priority cases. o Two tenancies out of thirty tested were delayed by a week as a result of a delay in sign up by housing officers. o There were 2 occasions out of the 30 tenancies tested when delays in the commissioning of an asbestos survey caused a delay in the creation of a tenancy. Evaluation This audit acknowledges that the empty homes process is complicated with many officers and operatives across the Council, Mouchel, MITIE and Wheldons having an input. Any delay/error on the part of these individuals can have a knock on effect to other parts of the process. Whilst the weekly meetings appear to add value and focus on individual properties they are very much operational. There is therefore merit in measuring the various stages of the empty homes process to identify and understand where blockages are occurring and delays are occurring. Please see Management Action Plan (Page 13).

AUDIT REPORT – E137/11 9 MAY 2011

MKC INTERNAL AUDIT SERVICE MOVING IN MOVING OUT (EMPTY HOMES)

5.2 Refurbishments

What was found to be done well. • There is a good control exercised by Mouchel surveyors for the authorisation of work to be completed by MITIE. In addition, following completion of a refurbishment a joint post inspection with a MITIE supervisor was always undertaken to ensure that work was up to a satisfactory standard. • Tenant satisfaction surveys and focus meetings are routinely conducted. The majority of tenants are satisfied with the service they received.

What needs to be improved.

• One element of the redesigned process was that wherever possible the prospective incoming tenant would be invited to the pre term inspection, the theory being that there would be a better chance of negotiating what works can be done after he/she have assumed occupancy of the property. This audit found that this process occurred in only 2 out of 30 occasions. Arguably the delay in making/accepting an offer as discussed earlier would be a contributing factor as the tenant had not actually been found before the pre term inspection meeting. This aspect needs revisiting to try and improve attendance. Please see Management Action Plan (Page 13)

5.3 Expenditure

What was found to be done well.

• From the sample of properties there were very few instances noted when the tenant requested a second visit to make good faulty work. This was helped by a sound post completion inspection regime where any snagging issues are identified. • Expenditure is monitored at a high level to the contract and spot tested. • There is a new process and good control over the issuing of B & Q gift cards for new tenants in order that they can decorate the property to their own taste.

AUDIT REPORT – E137/11 10 MAY 2011

MKC INTERNAL AUDIT SERVICE MOVING IN MOVING OUT (EMPTY HOMES)

What needs to be improved

• Mouchel undertakes a random audit of expenditure which is a check that material and labour was correctly charged to a property. There is however no substantive check that labour and materials allocated to a job is prime facie correct when compared to the amount of work authorised by Mouchel. For example, from the sample of properties reviewed it is estimated that labour accounts for approximately 75% of overall costs. Twenty three properties were reviewed with the Mouchel surveyors who authorised the work. The labour allocated was checked to the works specification brief and MITIE’s own works file (in case there was additional work not on the works brief). Of these, in 14 out of the 23 properties the surveyor felt that either the labour was over allocated or was unable to understand the basis of the allocation. Therefore as total empty homes costs for MITIE are approximately £2.4M for the year a small labour inefficiency of just 10% would equate to labour being over allocated of £180K.

Evaluation Labour accounts for the majority of costs in respect of empty homes expenditure. There could well be opportunities for efficiency savings. Whilst it is acknowledged that this is a partnership arrangement with MITIE nevertheless the weight of the surveyors’ opinions cannot be discounted and an enhanced control should be considered to compare actual labour costs with those anticipated when the surveyors first authorised the repair and refurbishment work. Please see Management Action Plan (Page 13)

• The estimated cost for the removal of rubbish by MITIE from empty homes is approximately £280K p a. including MITIE’s administration and profit element. In addition a great deal of the overall costs for empty homes relates to general cleaning and making good either intentional damage/neglect and/or damage caused by poorly performed DIY. • From the sample of 30 properties reviewed no attempt was made to recoup these costs. This was supported during the accompanied visits when it was noted that officers either do not inform the tenant or were not sufficiently clear in stating the need for a property to be returned to the Council in as good a condition as it was first let to the tenant.

AUDIT REPORT – E137/11 11 MAY 2011

MKC INTERNAL AUDIT SERVICE MOVING IN MOVING OUT (EMPTY HOMES)

• Twenty nine properties were sampled including the top 18 by expenditure incurred. Of these, 17 related to elderly residents or those in need of support and it was noted that some of these tenancies were very long term. Of the remainder, 8 were considered to be a combination of wilful neglect or deliberate damage. There was no discernible reason for the remaining 4. A review of the tenancy histories of the 8 showed potential warning flags such as history of complaints to/from neighbours, numerous repairs and rent arrears.

Evaluation

Whilst the primary purpose of social housing is to provide accommodation to those in housing need in areas where they choose to live this audit does question if Best Value is currently being achieved in the light of the above comments. The Council does have a clear vision of what standard a property will be in when it is let out but it is less articulate around expectations of how that property should be returned to the Council at the end of the tenancy. The Council needs to consider if the current costs of empty properties are an acceptable cost for the provision of social housing or if by responding to indicators and taking a stronger approach and supporting tenants more during the tenancy this cost can be reduced substantially.

In addition there may be a more cost effective means of removing rubbish possibly by the utilisation of the Council’s existing waste management service. Please see Management Action Plan (Page 13)

5.3 Risk Management

What was found to be done well. There is a risk assessment of properties which have been empty for long periods of time. Risks are considered from both a Mouchel and Council viewpoint. There is as yet no formal risk assessment on GRACE however there is regular dialogue with the Council’s Risk and Business Continuity team.

AUDIT REPORT – E137/11 12 MAY 2011

MKC INTERNAL AUDIT SERVICE MOVING IN MOVING OUT (EMPTY HOMES)

MANAGEMENT ACTION PLAN

The Agreed Actions are categorised on the following basis: Essential - Implementation is required to address a risk that fundamentally undermines the control or objective of that system. Important - Implementation is required to address a risk that seriously undermines the control or objective of that system. Standard - Implementation is required to address a risk that undermines the control or objective of that system.

Ref Findings Risk/ Implication Agreed Actions Management Manager Comments Responsible & Target Date 1 Expenditure Essential Whilst there was a 100% post inspection • Limited control over the When works orders have been Agreed. Building Services check of properties to ascertain the quality of largest cost for refurbishing lodged as financially complete Manager the repairs there was no check of the labour empty homes. Labour may instigate a comparison review by 31/08/2011 and materials which was allocated to a well have been over the surveyors of the amount of property. From an analysis of 23 properties, allocated and the Council is labour attributed to a job compared labour accounted for approximately 75% of not receiving Best Value for against the original voids brief. the overall costs attributed to the jobs. A Money. subsequent joint review with the surveyors who authorised the works revealed that in their opinion 14 of the properties had labour • Given the large percentage overstated to varying degrees. of labour cost attributable to the jobs a relatively small labour over allocation of 10% would mean a labour inefficiency of approximately £180K p.a.

AUDIT REPORT – E137/11 13 MAY 2011

MKC INTERNAL AUDIT SERVICE MOVING IN MOVING OUT (EMPTY HOMES)

Ref Findings Risk/ Implication Agreed Actions Management Manager Comments Responsible & Target Date 2 Expenditure Essential • The current cost of collecting rubbish • Unnecessary expenditure is • Take a more proactive Agreed. Head of Tenancy left behind by departing tenants is incurred and tenants are not stance in the management and Estate approximately £280K p.a. In addition held accountable for the of tenancies throughout the Management Market testing to this audit identified that a large damage they cause to life of the tenancy 31/08/2011 proportion of the empty homes costs council property. be carried out to determine whether was to clean properties and to make good minor repairs such as infilling • Refresh and reintroduce costs can be holes made by the outgoing tenant. • Estimated expenditure is the Recharges policy. reduced. This expenditure is not charged back MITIE £2.4M, Wheldons to the tenant. £225K plus asbestos surveys £118K Significant empty • Investigate alternate means The Recharges homes refurbishment/ of rubbish clearance. policy has been reviewed and will • The recharges policy for malicious repair/cleaning costs are damage and/or rubbish collection is incurred. Some of this may now be rolled out

currently under review with the well have been unnecessary to all staff. intention to implement a more robust cost as the tenancies could approach in appropriate be managed more Work will be circumstances. proactively. undertaken to identify households where • 29 properties were sampled including tenancy audits will the top 18 by expenditure incurred. be carried out. Of these, 17 related to elderly residents or those in need of support. Of the remainder, 8 were considered The focus for front to be a combination of wilful neglect line officers will be or deliberate damage. A review of the on prevention by tenancy histories showed potential identifying where warning flags such as history of misuse, neglect complaints to/from neighbours, and damage are numerous repairs and rent arrears. likely to occur.

AUDIT REPORT – E137/11 14 MAY 2011

MKC INTERNAL AUDIT SERVICE MOVING IN MOVING OUT (EMPTY HOMES)

Ref Findings Risk/ Implication Agreed Actions Management Manager Comments Responsible & Target Date 3 Process Important Asbestos surveys were taking an additional The annual estimated opportunity Ensure that a contract with an Agreed. Building Services 18 days from commissioning to receipt. The cost of asbestos surveys (based asbestos surveyor is tendered Manager Council has limited control over when surveys upon an estimated 950 empty appropriately and implemented with 30/09/2011 are going to be undertaken and when they properties) is approximately; an agreement to undertake surveys are going to be received. There is as yet no £149K loss of rent. within a specified timescale. contract/meaningful SLA for Asbestos surveys. £39K loss of council tax revenue. In addition bed and breakfast costs for this year are expected to increase by an estimated £300K from 09/10 partly as a result of asbestos delay and partly as a result of reduced housing supply.

4 Process Standard The average time taken to re-let a property Parts of the Empty Homes process For all key activities e.g. time to Agreed. Building Services from it being empty has increased from an may not be operating at optimum offer, time to accept and void date Manager average of 22.96 days in Q1 2010/11 to efficiency. to asbestos survey completed etc 31/08/2011 33.04 days in Q3. The principal cause of this record onto Northgate and monitor was the necessity to complete asbestos by way of Business Objects surveys on all empty properties. On a number Reports. of occasions properties were not being turned around quickly enough because not all of the contributors performed at the optimal level.

NB Any cost implications arising from implementation of the actions by Mouchel must be agreed in advance with the appropriate Client Officer and the Partnership Delivery Manager

AUDIT REPORT – E137/11 15 MAY 2011

E137/11 - MOVING IN MOVING OUT

Final Report

Distribution List: Operations Manager, Housing, Community Wellbeing Partnering Manager, Community Wellbeing Lettings Manager, Housing, Community Wellbeing Head Tenancy and Estate Management, Tenancy Services Building Services Manager, Mouchel Project Manager, Mouchel Leadership Team Head of Repairs, Mouchel

CC Corporate Director, Community Wellbeing Corporate Director, Resources Assistant Director, Finance Service Delivery Manager, Mouchel, Property and Transport Audit Manager (Audit Commission)

Lynda Baker – Head of Internal Audit Michael Haywood - Auditor

www.milton-keynes.gov.uk/internal-audit

Milton Keynes Council T 01908 252753 Civic Offices F 01908 252238 Available in audio, large 1Saxon Gate East E [email protected] print, Braille and other Central Milton Keynes W www.milton-keynes.gov.uk/internal languages MK9 3EJ audit Tel 01908 252753