Thinking Inside the Box

A Paddocks Sectional Title Lifestyle Blog

The Theft of Funds from Sectional Title Schemes: Managing Agency Malfeasance

 

theft of body corporate moneyBy Prof. Paddock

According to a recent Personal Finance report, the Estate Agency Affairs Board is dealing with another theft by a managing agent, this being the most recent in an ongoing series of similar thefts of substantial sums of money. The legal officer for the EAAB confirmed that the Cape Town-based managing agent involved has agreed to repay R400 000,00 to one body corporate and that another theft is being investigated.

 

The prospect of the managing agent repaying the stolen money sounds very positive, but it does not address the scheme’s current cash flow needs. In addition, any owner who sells his or her unit before the full amount is repaid will not recoup the loss.

 

The fact that the EAAB operates a Fidelity Fund against which schemes can claim when managing agents steal their savings is also some comfort. However, such a claim can only be progressed once the persons who stole the savings have been sequestrated, so it can take 4 to 7 years to finalise the claim and receive the compensation. This is cold comfort to owners facing the choice of paying special levies or borrowing funds at very high interest rates.

 

On the one hand, there have been regular reports of managing agents stealing scheme funds ever since the late 1970s. So it is reasonable to expect that owners and trustees should be aware of this risk and should take steps to protect their property, for example by ensuring that any person who has access to scheme funds is covered by a fidelity insurance policy. On the other hand, owners in sectional title schemes are constantly looking at ways of reducing their expenditure to keep their levies as low as possible. This means that most schemes do not arrange for fidelity insurance; in practice most schemes have no cover against theft by trustees and only the EAAB’s “last resort” cover for theft by the managing agent or his or her employees.

 

Schemes that employ managing agents can reduce the risk of theft of their funds very considerably by insisting that their money be kept in a separate account and regularly checking the balance in that bank account. With Internet banking and modern software systems, there is no reason that trustees should not be able to check the status of the body corporate account at any time.

 

When a managing agent uses a “bucket account” system (in which each scheme’s funds are mixed with those of other schemes) it is impossible for trustees to exercise direct control. They are always dependent on the managing agent’s reports and information as to the state of their finances. Many managing agency thefts have gone undetected for long periods, often starting with small “borrowings” that increase over time and are covered by the application of one scheme’s reserve funds to other’s immediate expenses.

 

Trustees need to understand the inherent risks involved in allowing their scheme’s money to be mixed with other money and if they choose not to insist that the money be kept in a separate account they should, to avoid charges of negligence, take active steps to reduce that risk. They must watch the funds very carefully on a continuing basis and should also insure against the risk of theft.

 

Do you have any views on this or experience with managing agency fraud? Share with us by commenting below.

 

Image source: http://therealdeal.com/issues_articles/cracking-down-on-misconduct-by-managing-agents/

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22 comments on “The Theft of Funds from Sectional Title Schemes: Managing Agency Malfeasance

  1. Ronelle
    February 1, 2017

    I refused to pay levy because the Body Corporate stole money.

    They were recently caught out and have been removed.

    Do I have to pay the arrear levies to the new managing agent?

    • Paddocks
      February 9, 2017

      Dear Ronelle,

      Thank you for your comment. We are more than happy to help, however we do not give free opinions / advice. Please email us on consulting@paddocks.co.za with regards to your matter, and we can provide you with a no-obligation quote, so that we can assist you.

      Kind regards,
      Paddocks

  2. Lizette Engelbrecht
    August 16, 2016

    Goeiemiddag.
    Ons vermoed bedrog by n deeltitel kompleks in Kempton Park. Die komplex is “ge hijack” deur die voorsitter en die se familie. Die voorsitter besit n eiendom maar familie is huurders.
    Die kompleks is besig om agteruit te gaan omdat daar nooit fondse beskikbaar is nie. Indien tenders uitgesit word vir algemene verfwerk word dit vir die familielede gegee om te doen. Al was die ander kwotasies goedkoper. Wat staan ons te doen as mede eienaars.

    • Paddocks
      August 22, 2016

      Dear Lizette,

      Thank you for your comment. Please email us on consulting@paddocks.co.za with regards to your matter, and we can provide you with a no-obligation quote, so that we can assist you.

      Kind regards,
      Paddocks

  3. Dumile
    June 7, 2016

    I would like to ask a question in my flat in Durban CDB I was owing three months levies which was about R2 800 and matter was then refer by BC to lawyers and the oustanding amount accumulated to R 7 200 for just two months after this matter was refer to lawyers.

    I then made a personal loan and pay R3000 and tried to make arragement and the BC told me that they dont do arrangements I have to settle the outstanding amount in full as this was already added up to my levy account.
    I was also told that I’m no longer allowed any vistor in my unit because the house rule registered with deeds office states that any owner who is in arear with their levies they not allowed to have visitor till they have settle in full all outastnding levies however my levies are now mainly legal costs.

    My question is that does this constitue corruption and fraud because according to the Sectional Title Act S37(1) levies cannot include fines and legal costs.

    • Paddocks
      June 9, 2016

      Hi Dumile,

      In terms of Prescribed Management Rule 31(5) of Annexure 8 of the Regulations to the Sectional Titles Act 95 of 1986, the trustees are entitled to recover levies that are in arrears and other charges, including legal fees incurred in the recovery of levies. In the case of fines, the scheme’s registered rules, must provide for the fining procedure before these fines can be raised on the levy account.

      Regards,
      Paddocks

    • Sandy Van Litsenborgh
      February 21, 2017

      You need to pay your levies the body corporate is not at fault they can hand over the account for collection and you could lose your home. They cannot stop you from having visitors but you need to do your bit.

  4. Mantele
    February 10, 2016

    Hi!We are currently having problems with our managing agency.Bills are not being paid and the money in our account does not increase.Our financials have not been done since 2014,we tried calling their head office which is Cape Town and we are in Johannesburg with no luck in resolving the issue.They have claimed that they have paid and we ask for proof of payments they fail to to give it to us.How can we deal with this matter?I am wondering if this is not the same Cape Town based management agency that the above article is referring to.

    • Paddocks
      February 11, 2016

      Hi Mantele,

      Thanks for your comment. This matter would require further investigation and therefore is a consulting matter. Contact us on consulting@paddocks.co.za or 0216863950 for an obligation-free quote.

      Kind regards,
      Paddocks

  5. Margaret Juszkiewicz
    May 14, 2015

    What I could not verify was: Are Trustees held liable if the managing agent defrauds them? Can anyone shed light on clause 12 of the Sectional Title At 95 of 1986:
    12 Indemnity
    (1) (a) Subject to the provisions of sub-rule (2), every trustee, agent or other officer or servant of the body corporate shall be indemnified by the body corporate against all costs, losses, expenses and claims which he may incur or become liable to by reason of any act done by him in the discharge of his duties, unless such costs, losses, expenses or claims are caused by the mala fide or grossly negligent act or omission of such person.
    (b)It shall be the duty of the trustees to pay such indemnity out of the funds of the body corporate.
    (2) The indemnity referred to in sub-rule (1) shall not apply in favour of any managing agent appointed in terms of rule 46.

    • paddocks
      June 8, 2015

      Hi Margaret, thanks for your question. We answer one question a day on our Facebook page for free. Please Like our Page on FB and re-post your question on our wall. One of our consultants should answer you within a few days. Thank you!

    • Johan Van Den Berg
      June 9, 2015

      Our Managing Agent refused to give us an indemnity as levies are paid via Payprop. I insist to receive bankstatements and invoices each month and suggest that an owner of a complex with some financial banck groud do the same as legal costs are high and many complexes do not have the money to fight a long legal battle

  6. Leighshe Hodson
    November 11, 2014

    Karen, what you have described is unforgivable! The managing agent works for you, the owners. It’s your investment not his! How can he not allow access to bank statements? That’s just so wrong. We provide our Trustees with financial reports every month as well as bank statements and boy is it a tedious job to get all these reports out for each and every building but whilst we may drop some balls in other departments and there may be the odd misallocation – i.e. a receipt allocated to the incorrect owner or an expense so Repairs and Maintenance instead of Security, or whatever – the Trustees are able to see and verify every single transaction on the bank statement. It also helps that each body corporate has it’s own account and we don’t utilize one central trust account.
    Managing agents need to realize that it’s not their money they’re playing with and they don’t hold the lock and key to that money. However as you so rightly say, it’s a disaster when the Trustees are in the managing agent’s pocket. Then just everyone is in cahoots.
    Sadly even when they do name and shame, we still all viewed with suspicion and painted with the same tar brush. Trust is broken for the industry in general and naming and shaming does not make it any easier for the rest of us who are just trying to make an honest living in what I can only describe as a thankless and unforgiving industry.

  7. Johan Van Den Berg
    September 5, 2014

    I fully agree that owners must play a bigger role in the financial side of their managing agent`s bookkeeping. Owners are forced to pay levies via PAYPROP and on scrutiny of the bank statements one can not pinpoint who paid what amount for levies as the total payments month to month differs. As I scrutinises monthly the bank statements and payments made I requested the managing agent for an indemnity if funds disappear or PAYPROP looses funds but it was refused point blank.Any comments.

    • Karen Miles.
      September 9, 2014

      Dear Johan, unfortunaletly it is very hard to get rid of a MA, especially if the trustees are in his pocket. Even though our MA is not registered with any authority,has no fidelity fund certificate, has transacted over his limit, made unauthorised payments, he will not let us see original bank statements,it took me 2yrs to get them from STD Bank. No levy breakdowns, no quotes for maintenance,no utilities accounts are we allowed to see. I have tried going around our BC but he has sent them all letters about me as a “corporate terrorist”. The mind boggles.

      regards,

      Karen.

      • Sandy Van Litsenborgh
        February 21, 2017

        You need to involve the rest of the complex and get rid of MARCH if all else fails make a complaint to ombudsman

    • Louw Liebenberg
      November 12, 2014

      Dear Johan,

      You are actually quite fortunate that your managing agent uses PayProp. PayProp is a safe, audited trust account platform that allows managing agents and estate agents to transparently process trust funds. The statements generated by PayProp are drawn directly from banking records – so managing agents and estate agents are not able to manipulate statement amounts, as PayProp issues them via its direct integration with the bank.

      Regarding the safety of PayProp – we are registered with the Estate Agency Affairs Board and have held valid FFC’s for the past 10 years – and have just received our 2015 FFC too. Over and above the cover afforded by the Fidelity Fund, we also hold professional indemnity insurance to be 100% safe.

      If you have any questions regarding your statement or want more information on what we do and how it works, please feel free to contact me on either 082 775 3405 or on louw@payprop.co.za.

      Kind Regards,

      Louw Liebenberg
      CEO: PayProp

  8. Ian D. Samson
    September 3, 2014

    Been there, Quintin Brown took R32,507 plus FNB Savings Account funds of indeterminate amount, and we heard it will take up to seven years under normal circumstances to get one cent repaid, and with Lawrence Moepi’s assassination (MHDSRIP) the process has been thwarted all the more. This government that squanders R211-bn from 2007 to date as verified by StatsSA, we will never see our petty cash.

  9. Karen Miles.
    September 3, 2014

    Unfortunately, in my case as past chairlady and the person who opened our BC own account with STD Bank Sandton, the bank has allowed the MA to transact over his limit that we set when we opened the account, make unapproved payments, while the MA denied us access to our own account. Has allowed false new resolutions to be accepted without minutes, without meetings held to vote on such new resolutions. Let the new trustees open another account without I.D. documents or proof of residence being handed to the bank. A 2yr battle with the banks legal and crime division has been of no use. The fact that this branch is not FICA compliant also doesn’t seem to matter. Where to from here?

    regards,

    Karen.

    • Sue
      September 3, 2014

      Oh dear .. sounds like the only winners here are the lawyers who have been arguing the case.

      Change horses! Hire a ‘Pit Bull’ type lawyer who will grab the Bank by the seat of the pants with a vice grip hold, for violating client fiduciary.

      What stuns me about South Africans is; they don’t seem to understand the simple fact that your lawyer and his firm work for you – not the other way around! Yes lawyers have to stay within guide lines, but there is nothing to stop you giving instructions. A lawyer worth his salt will have no problem in sorting through the bones of do’s and don’ts.

      Too often, clients sit like stooges expecting their lawyer to have a magical wand and perform miracles. Too often lawyers waste clients time and money presenting their own beliefs and structures of law instead of immediately grasping the simple fact which is: Client doesn’t want to know the rules of your job. They just want the solution.

      In my humble opinion, lawyers need to listen, speak less, recognize the problem, be honest with your clients if you don’t have the experience or answers. Your clients will work with you while you do research on similar case study to establish what action to take. Sadly most run first on their own opinions which results in time lost, unnecessary costs, dissatisfied clients and unsolved problems.

      You mention fact that this branch is not FICA compliant .. well get your lawyer to hold the company liable for not having that particular branch FICA insured. After all, no matter the branch, the company remains responsible.

      Lastly as a client .. interview your lawyer before retaining them. Ask what their experience is .. how long they estimate it would take to resolve the matter? have they had similar cases and what successes if any they had. Most lawyers will not charge for a 30 min initial consultation. Don’t give a 2 hour history on your problem. List it in one or two sentences. If the lawyer can’t grasp it then, you’re interviewing the wrong lawyer. Don’t ask your lawyer for advice during the interview .. it’s not fair and if you do, then you should pay him for the complimentary interview. Good luck!

  10. Leighshe Hodson
    September 3, 2014

    Quite a shock this one but the worst part is that every time this happens, all managing agents are suddenly painted with the same tar brush and clients start questioning their integrity – even clients of 16 years. It’s the same interrogation and witch hunt each time and then the furor dies down for a while until the next managing agent does the same thing. Whilst I don’t blame the Trustees, it’s very disheartening and really, Trustees should insist on separate banking accounts and pay more attention to the monthly reports which are sent to them (or should be) and ask questions monthly, not at the end of the year when they look at the Annual Financial Statements and suddenly can’t remember authorizing all the maintenance expenditure which has reflected each month on the monthly reports. What a sad and corrupt industry we have been torn down to.

    • Sue
      September 3, 2014

      Great article and good reply you posted. For what it’s worth, if these criminal agents names were openly mentioned, part of the mystery would be removed and the tar brush might not be so liberally applied. I certainly hope that the employees of the managing agent are also held accountable, after all, it’s not one man running the managing agency but him and his team. All are aware of the laws. Any astute book-keeper or clerical clerk should be able to notice transaction, after all, BC has basically the same monthly expenses with but a few odd ball expenses of maintenance that can easily be spotted. Oh well.. makes one wonder what has happened to diligence and competence in the work place?

      I sure hope members moved like lightening to freeze all assets and property of managing agent.

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