By Stonewood Property Management

Sound financial management is absolutely critical for a body corporate to function optimally. To set a standard of good practice for the body corporate, good processes and procedures will structure the communication between the trustees and the managing agent, and will ensure that the body corporate’s funds are managed responsibly.

Let`s have a look at what is expected of the trustees and managing agents and where the possible pitfalls are.

The trustees

Managing the scheme’s finances is the responsibility of the trustees and it cannot be “outsourced” to the managing agent. At the end of the day, if anything goes wrong, the trustees will bear the ultimate responsibility for any financial decisions taken.

Although the managing agent typically attends to the day-to-day functions relating to levy collections and payment of creditors, the trustees must oversee these processes and make sure they stay updated with all payments due and made. This should include interaction when quotations for maintenance work are approved, authorisation of invoices before they are paid, and checking the scheme’s bank accounts on a monthly or weekly basis.

Some managing agents make use of management software that will require trustees to approve invoices and payments before these can be actioned. Unfortunately, without such software problems can easily arise.

It is important for trustees to make sure that their managing agents are using updated software and fail safe processes to help them perform their duties prudently.

The managing agent

A service level agreement between a body corporate and their managing agent should include duties, such as collection of levies (until handed over to attorneys for further collection), payment of creditors, and managing the bank accounts. If these agreements clearly define the responsibilities of the managing agent, it will help manage the trustees’ expectations of the managing agent as well as clarify the trustees’ responsibilities.

To ensure that managing agents deliver all the services for which they have been contracted, there should be comprehensive and compliant internal processes when dealing with a scheme’s finances. The following basic procedures should be in place:

• Quotations: Obtaining three quotes when expenses over an agreed amount.
• Approval: The majority trustees to approve quotations.
• Record-keeping: Retain all quotations and approval confirmations.
• Payments: Provide proof that maintenance work has been completed per approved quotation.
• Authorisation: Majority trustees to approve payment of invoices or retain proof of approvals.
• Banking: Trustees to authorise payments on management system before payment is released.

Problem areas

Following agreed processes and procedures is an essential part of financial management. Trustees must be involved in all processes to ensure transparency and awareness of the scheme financial affairs.

When processes are not in place or being followed, the following can happen:

• By not obtaining competitive quotes, over-priced and under-qualified contractors may be hired.
• No guarantees are obtained from contractors for their work.
• Contractors get paid without confirmation that the work has been completed in full.
• Scheme funds are transferred to contractors without trustee approval.
• Record-keeping is neglected and cannot be used to verify work or payments made.
• Managing agents are unable to provide explanations for missing funds from scheme bank accounts.

Although the above points do not constitute an exhaustive list, it will be the start of possible mismanagement by managing agents for which the trustees will ultimately be held accountable.

Summary

Trustees and managing agents work together to ensure that the financial affairs of a scheme are managed in compliance with the Sectional Title Schemes Management Act (STSMA). This requires both parties to commit to processes and procedures that holds them accountable for their respective duties within their contractual relationship.

Transparency is important for both parties. This ensures the managing agent complies with the service level agreement and that the trustees comply in terms of their fiduciary responsibility towards the other members of the scheme.

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