Keep an eye on your community scheme’s financial management

We often encounter community schemes that find themselves in financial difficulty. The financial woes are often the result of not having a trustee/director who is financially trained or savvy. Boards of companies, big and small, usually have a designated person whose responsibility is to have oversight of the finance of that entity. Generally referred to as the Financial Director.

While community schemes may not believe that they are akin to companies, the basic principle holds – where there is money involved, there should be at least one scheme executive responsible for the financial oversight of that community scheme. The responsibility of that scheme executive is to oversee the managing agent who is responsible for the financial management of that community scheme.

The financial management of a sectional title scheme is regulated by Prescribed Management Rules (PMR) 21 – 28, which can be found in Annexure 1 of the Sectional Titles Schemes Management Act (“STSMA”) Regulations.

This includes amongst others:

• the establishment of a fair, reasonable budget for the expenditure of the current financial year
• the establishment of each unit owner’s participation quota (PQ share) of the amount budgeted for to be covered by their legislative contribution (commonly known as a levy)
• interest charges on arrear levies, the collection and follow up of these levies
• investment of monies in the reserve fund
• management of the administrative and reserve funds
• ensuring that the required insurances are in place
• the control of the disbursements for expenditure required to keep the common property in good shape, preserving the value of every unit owner’s property investment
• issuing of audited financial statements
• keeping of proper financial records, budgets, reports and audits

This type of oversight and control will lead to confidence amongst the unit owners in your community scheme. It will do away with the angst of cash shortfalls needed for community scheme expenditure due to some unit owners not contributing to the shared expenses of the community scheme. Quick action against defaulting unit owners, in line with a credit control policy, will make everyone sleep easy at night. The paying owners will not need to fork out extra to fund a delinquent owner and the need for a special levy to cover a defaulting owner’s contribution will not be required.

Every community scheme should have at least one scheme executive focused on finance. Not only is this good governance, but it will protect the levy-paying owners against someone else’s delinquency.