Empowering People Inspiring Communities (EPIC) has been downgraded to a non-compliant G3 grading after a review by the Regulator of Social Housing.

The Regulator said the board of the association “made significant business decisions without fully understanding or considering the impact on its approved business plan and its covenant compliance.”

It also said the Board “failed to provide challenge to the executive” and “has not maintained adequate oversight of its activities, particularly in relation to its health and safety obligations.”

Calling the decision making at the organisation “ineffective”, the Regulator concluded that it “lacks assurance that EPIC’s governance arrangements are effective and that the board has been unable to demonstrate that it is managing its affairs with an appropriate degree of skill, independence, diligence, effectiveness, prudence and foresight.”

On the health and safety concerns mentioned above, the judgement says: “Based on the information supplied for the latest Quarterly Survey, the regulator identified a potential covenant breach due to EPIC’s inclusion of deferred remedial fire safety works in the current year of the business plan.

“Following the regulator’s intervention, EPIC was subsequently able to rework its business plan and reprofile its expenditure in line with an agreed strategy to avoid a covenant breach.

“However, the fact that it was the regulator, not EPIC’s board, that discovered the potential breach is an indication of significant weaknesses in EPIC’s business planning, risk management and financial reporting processes.

“The board did not fully consider the impact of including all the additional fire safety expenditure in the 2021/22 budget without a coherent strategy and as a result approved a plan that potentially breached loan covenants with minimal discussion or challenge.”

Another concern from the Regulator was around the growth of the organisation, which is set at around an additional 50 units per year. However, last year it added 170 units which the RSH says was done without considering “the impact of this decision on the business” and added that they could not find evidence of “adequate due diligence”.

EPIC also breached the Home Standard as part of this judgement, as information provided by EPIC showed that the provider knew it needed to carry out remedial fire safety works and yet still had 500 actions overdue.

There were also issues with executive turnover, which was high at the organisation, and the Regulator felt this “has placed constraints on its capacity to deal with issues as they arise”.

The Regulator added: “However, during our engagement, it has indicated its commitment to putting things right. It has appointed external advisors to provide support and help identify the causes of the presenting issues.

“EPIC has also committed to developing a comprehensive recovery plan, including strengthening its governance arrangements, improving its board reporting and addressing the health and safety issues as a priority.”

On financial viability, the judgement says that the provider continues to be compliant, but that there are some issues that need to be rectified.

It says: “The regulator’s assessment of EPIC’s compliance with the financial viability elements of the Governance and Financial Viability Standard is now that it has the financial capacity to deal with a reasonable range of adverse scenarios but needs to manage material risks to ensure continued compliance.

“Based on the information supplied following the latest Quarterly Survey, the regulator has assurance that EPIC remains compliant. However, the significant one-off expenditure relating to fire safety works impacts significantly on interest cover in 2021/22 and 2022/23.

“The revised business plan shows interest cover strengthening in 2023/24, but until then EPIC’s capacity to respond to adverse events is reduced.”