Thinking Inside the Box

A Paddocks Sectional Title Lifestyle Blog

Why is the audit a problem in sectional title schemes?

Why is the audit a problem in sectional title schemesBy Anton Kelly

Sectional title legislation requires schemes to have their annual financial statements audited and presented to the members for their consideration at a general meeting, and it must be done within four months of the scheme’s financial year end.

Additionally, the annual general meeting (AGM) is required to be held within four months of the financial year end. So, although it is not required, it makes sense for the audited financial statements to be presented to the AGM for owners’ consideration.

The AGM is frequently late in sectional title schemes and the most common reason given is that the audit has not been completed. So why is it such a problem to get the audit done in four months? It’s a third of the year, when you think about it!

Here are some common problems that delay the audit.

The auditors could be too busy

The auditors appointed by the body corporate could simply be too busy. This is especially likely if the scheme financial year end is February, which coincides with the State financial year end and those of many businesses. This situation could be mitigated by changing the auditors, or if that is undesirable, by changing the scheme financial year end. The body corporate can make this change by ordinary resolution.

The grouping of schemes for an audit

If the scheme is managed by one of the larger managing agencies and the auditors come to the managing agency premises, the delay might be due to scheduling. If the financial statements of all the schemes in the group are not ready for audit, the audit of the other schemes in the group could be delayed.

The scheme accounting is not up to date

It could be that the scheme accounting is simply not up to date, for no particular reason. It can be difficult to set the cut off because of the inherent delay in invoicing and payment of items toward the end of the financial year.

Incomplete trustee projects

Sometimes the trustees have not completed projects they have been directed to do at the previous AGM. Naturally, they want to comply with the directive before the end of their period of office.

Municipal disputes and delays

There are frequent disputes with the local municipality regarding water and electricity charges for the financial year being audited. Municipalities must manage a very large number of account holders, and delays are inevitable.

Contractor project accounts

There can be delays in settling contractor accounts, for various reasons. The contract could be delayed and run into the new financial year or the trustees could be dissatisfied with the standard of work and refuse payment until the problems have been rectified.

Special or unanimous resolutions on the AGM agenda

Since it is difficult in many schemes to obtain a quorum for meetings, matters requiring authorisation by a special or unanimous resolution are frequently added to the AGM agenda. Examples could be the extension of a section or an amendment of a rule. Meetings at which these resolutions are to be considered require at least thirty days’ notice, which could further delay the AGM.

A final point to make is the requirement that all community schemes submit an annual return to the Community Scheme Ombud. The return must include a copy of the audited financial statements and must be submitted within four months of the scheme’s financial year end.

If you enjoyed this article, you might want to read: Annual financial statements and the audit.

 

Photo by Mpho Mojapelo on Unsplash

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5 comments on “Why is the audit a problem in sectional title schemes?

  1. Ian Badenhorst
    March 1, 2018

    Why not think out the Box: If Companies are given 6 months to present financial reports to its shareholders, why can sectional title schemes not be permitted a similar period. Trustees can still entertain levy increases as provided under the regulations as prescribed under Regulation 21 (2) (a) and or (b), a budget could be tabled at the AGM when ready to be held, and the Levy can be reviewed to match a budget should a levy adjustment of a major variance be required. If a major increase is required the Trustees have the right to a special levy being called for the deficit.

    • Paddocks
      March 23, 2018

      Hi Ian,

      Thank you for your comment. We would love to help but unfortunately do not give free advice. Here’s how we can help:
      – We offer a Free Basics of Sectional Title 1-week short course. You’ll be able to ask your course instructor any related questions. Find out more here.
      – We offer consulting via telephone for R390 for 10 minutes. Please call us on +27 21 686 3950.
      – We have Paddocks Club, an exclusive online club, to help you get answers to your questions about community schemes. Find out more here.

      Kind regards
      Paddocks

  2. Robert Gagel
    February 28, 2018

    Sectional Title complexs are required to build up a maintenance reserve of 25 %–is there a time frame of when this has be achieved?

  3. Daniel
    February 28, 2018

    What is the penalty for non-compliance? With no penalty, this rule will never be followed.

    • Paddocks
      March 23, 2018

      Hi Daniel,

      Thank you for your comment. We would love to help but unfortunately do not give free advice. Here’s how we can help:
      – We offer a Free Basics of Sectional Title 1-week short course. You’ll be able to ask your course instructor any related questions. Find out more here.
      – We offer consulting via telephone for R390 for 10 minutes. Please call us on +27 21 686 3950.
      – We have Paddocks Club, an exclusive online club, to help you get answers to your questions about community schemes. Find out more here.

      Kind regards
      Paddocks

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