ARLA has this morning defended itself against criticisms of it by a letting agent in the wake of the collapse of Charterhouse Professional Property Services with debts of £750,000. ARLA managing director Ian Potter (see his full statement below) said that the organisation had no reason to be suspicious, and that it acted as soon as it was made aware of problems.
Charterhouse was an ARLA member, but Ajay Jagota, of KIS Lettings in the north-east, says that as a watchdog, ARLA failed to bark.
Jagota, whose firm charges landlords a 5% management fee and which displays no logos on its website, said he believes the affair leaves ARLA with questions to answer.
He said: “Politicians and so-called experts have long been suggesting more regulation is the answer to every single issue facing the private rented sector. Well, on this occasion regulation emphatically did not work.”
He said: “It seems to me to be highly unlikely that no one noticed a thing, or that no one picked up the phone to ARLA to query the situation until the best part of £1m was at stake.
“ARLA must come clean about what they knew and when, how any audits of this firm missed its surely apparent shortcomings and weaknesses, and launch an immediate investigation into how this was allowed to happen.
“Why did their checks and balances fail so miserably on this occasion?
“Why were none of their much-vaunted sanctions and disciplinary measures ever imposed on this individual apart from the revoking of his membership a month after his business collapsed – a step I do not believe will have brought much comfort or consolation to the landlords who put their trust in an ARLA-regulated firm which has left them thousands of pounds out of pocket.
“ARLA are clearly doing valuable work attempting to get Charterhouse’s creditors their money back and I am completely supportive of any attempts to maintain and improve professional standards and build public trust in the rental sector, but frankly, what use is a watchdog which won’t bark as landlords are left £750,000 out of pocket?”
This morning, Ian Potter said: “The agent concerned was up to date with their accountants report and the figures contained in the last report were shown as being in balance. Until we became aware of the failure of the business there had been no reason for any investigation or disciplinary action. The eventual collapse of the business occurred quickly and we acted as soon as we were aware of the full depth of the problem.
“We are receiving claims from landlords and tenants for compensation under our Client Money Protection Scheme and all claims for compensation will be investigated fully and dealt with as appropriate. We do actively work with members where we are aware of issues and it’s only thanks to their membership that this financial protection is in place should the worst happen.”
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Comments
It is a simple fact that it takes a very specialist knowledge to be able to audit a client cash account. There are over 40 commercial systems designed to account for rent accounts, none of which works to a set procedure or standard and none of which have been properly tested to comply with any of the professional body CCA rules.
It is no-one's job to check systems for compliance and no-one's job to question systems that claim to be compliant.
At best the Auditors, even on a full audit, can only hope to ensure that the physical bank account balances with the theoretical set.
Ajay Jagota is wrong to blame ARLA for not being on top of what went on at Charterhouse. ARLA , the accountants and even the principals at Charterhouse might not have been aware of what was going on until only days before the pack of cards came tumbling down.
At some point RICS and ARLA have to assess if the 40 or so rental systems are actually fit for purpose and whether the training on those systems is up to scratch.
Where ARLA can be fairly criticised is making the assumption that their own system of regulating is robust. When the only Agents Accounting for Rent were professional firms employing trained book keepers to keep traditional double entry manual ledgers, Auditors could audit ledgers and GAAP procedures they understood. The auditing process is now out of step with the technology available to Agents and it is therefore not possible to get a meaningful audit or any early warning of problems. (But no-one wants to read that or hear it said)
Firstly I can tell you that ARLA will be knocking on the door of the accountants to see if they were auditing them as per ARLA's Rules - all accountants will have a copy of this requirement from ARLA.
If it turns out they were not then you expect some remedial action against the accountancy firm from ARLA.
ARLA relies heavily on the accountants report since the rules state specifically what the accountant should be looking for, and they are warned that if they do not follow ARLA's Rules then they leave themselves open to prosecution.
Watch this space.........................
Ray Evans:
'P.S. On thing. At least they seem to be at last starting to get back to what ARLA used to be – the ‘gold standard’ for pure letting agents.'
Hardly - any NAEA member who pays the fee can now opt to be a joint member of NAEA/ARLA - we can do the same for NAEA - but it's hardly a swap is it :-)
IO said "Perhaps those criticising the current system, which I agree is not perfect, could suggest the mechanics for a system that would pick up problems as soon as they have started occurring."
I am not making comment about the current system but have already designed a system that does just that and more. There is a reluctance to accept and implement such a system.
Tighter regulation from regulators has Agents who are unable to meet stringent codes of practice looking for alternative, soft, regulators or no regulator at all. With redress and CMP now available to anyone ARLA will have to balance coming down hard those who bend or break the rules with the risk of reducing membership numbers.
@industryinsider
No, I'm not saying our accountant has never looked at our accounts. I'm saying ARLA hasn't sought to check the reports that are sent in are valid, for at least the last 4 years.
Our accountants send a report every year but only this year have ARLA requested a full audit which, as I said, we passed without issue.
The point is that unless they run checks every year this sort of collapse is bound to happen; we could have falsified accounts quite easily and had over £4 million pounds away by now and ARLA would have been none the wiser until the complaints started coming in.
ARLA do a good job as far as I'm concerned but waste money and effort in trying to sell overpriced courses when they should be concentrating on making sure that their members are as as pure as they'd like them to be and then perhaps this sort of debacle could be avoided or at least headed off before people start to lose money..
@Ray
100% correct as usual Ray - problem is costs would be unbearable without a massive increase in member fees
I fully agree with SteveFromLeicester, what has the below got anything to do with this story??
Jagota, whose firm charges landlords a 5% management fee and which displays no logos on its website
This is the same old story about ARLA.
They blow the trumpet for the benefits of membership, for agents as well as the public, but spend most of their time selling 'add-ons'. I retired a couple of years ago but whilst a member (since inception) my client’s accounts were checked by chartered accountants twice a year and sent to ARLA as required. In my view ARLA should get a grip. One thing would be to visit and randomly check each so called 'licensed firm' once a year in addition to the accountants report - more often if there is just the slightest discrepancy.
As so called ‘protectors’ of the public there is a lot to be desired.
P.S. On thing. At least they seem to be at last starting to get back to what ARLA used to be – the ‘gold standard’ for pure letting agents.
@ACE
I only post on matters where hopefully I have some experience and knowledge in the hope of providing some informative comment that might help informed debate.
Best thing I can do in this failure case is flag up what the obvious answer is that would prevent any loss of anyone's deposit monies - but not rent of course.
Anyone care to guess what that answer might be? As a clue ask why this cannot happen in Scotland
The member firm is the person responsible to submit an accountants report. ARLA only carry out random spot checks. Are you saying that the accountant who has submitted on behalf of your company has never looked at your clients account?
I share IO's irritation at LAT giving another plug to KIS Lettings.
Printing an agents opinion is fine, but what editorial justification was there for stating that the agent charges 5% fee? How was this in any way relevant to the agent's comments about the collapse of another agent?
ARLA don't carry out annual audits; I've been with this company 4 years now and this year was the first audit I've seen them carry out since i joined the company.
We passed but its easy to see why some companies can get in the mess they do
Test
NALS has come in for criticism for the same thing in recent years. Given the sums of money lost, it does seem reasonable that something could have been spotted sooner, unless the money was taken recently and in one chunk. A flaw in CMP cover is that accounts are signed off by a third party accountant, which clearly is open to fraud. The interesting thing for me will be to see if ARLA's CMP pays out.
IO you are on here day in day out giving your opinion on all matters.
It is a bit rich you criticising LAT for allowing another agent to have a bash at ARLA.
I know absolutely nothing about this case, but if you are suggesting that this company built up £3/4 million of debt in less than 12 months since their last inspection they must have had a massive turnover and something must have gone drastically wrong.
Perhaps the losses were building when the last inspection took place and perhaps ARLA did not ask the right questions.
If nothing else ARLA must look very carefully at what has happened here, and perhaps tighten their procedures
I'm hearing that ex-employees have already set up business and are touting ex-clients, claiming they knew nothing about the financial situation...?
Ros
Why oh why does LAT persist in simply giving publicity to KIS klettings who seem to think themselves qualified to act as some sort of commentator on all matters lettings?
In terms of this watchgog comment which understandably always comes out the only way you could ever be aware and level if not ahead of the game is with monthly external reconciliation.
Otherwise when the annual look at the books comes round from ARLA it is looking back at the past 12 months taking latest position and one half way through the year.
Perhaps those criticising the current system, which I agree is not perfect, could suggest the mechanics for a system that would pick up problems as soon as they have started occuring.
They don't exist in most other industries and come out until long after the event (witness bank poor lending and casino banking and risk taking for short term gain) so how can lettings be any different?
Presumably Charterhouse had CMP so Landlords & Tenants will get their money back eventually. However tradesmen will no doubt lose out as they always seem to do. It does seem strange that ARLA did not notice problems with the Company before it collapsed with such a level of debt. Maybe ARLA should be more pro-active by offering Members some form of financial advice service when they get into difficulties to mitigate the chances of such failures happening.