Adprop curatorship sends warning to check on everything

The recent announcement of Adprop Property Management being placed under curatorship and all the complexes that it managed now facing huge debt, sends a serious warning once again, says Michael Bauer, general manager of the property management company IHFM, that initial checks and ongoing checks of the vouchers and source documents (for example, each Council bill reflects the last payment made) need to be done in order to be sure that the running of the sectional title scheme is being handled properly.

It often happens that all the day to day management is handed over to the management company and the trustees assume that everything is being carried out correctly and the finances are in order, he said.

Even before the managing agent is appointed, there are certain things to look out for. The first check, said Bauer, should be to ascertain whether the company has valid Fidelity Fund Certificates from the Estate Agency Affairs Board. If they do not have these they are acting illegally and should not be appointed.

A check should also be done on whether managing agent is a member of the National Association of Managing Agents. Although membership of this body is not obligatory for managing agents, NAMA sets ethical operating principles, which all its members have to stick to - and this is an additional safeguard and "stamp of approval".

Managing agents should also be asked for references from current clients and quizzed on the size and status of the schemes they are involved in.

Then, said Bauer, the question should be asked, "How long has this company been in business?" and "What experience does it have?"

"No one wants to rule out new firms from getting a foothold in this fast-growing field, but the staff must be able to show that they have learned all that is necessary before they embark on managing your body corporate, which is after all a multi-million rand business."

"A strong recommendation in these cases is that the managing agent and his staff have completed some training courses with recognised sectional title experts. These courses have made a big difference to the ability of certain managing agents to perform properly."

Without additional training of this kind, added Bauer, there will be serious gaps in any managing agent’s knowledge of the Sectional Title Act and how it operates.

Another thing to check is whether the managing agent receives kickbacks from any of the scheme’s service providers and suppliers.

"Although this is not illegal, it is a dubious practice and if it is being done without full disclosure it is particularly serious and should possibly be a reason for not appointing the managing agent. It might be a warning sign about the managing agent’s ethical stance."

Successful and busy managing agencies, said Bauer, can easily find themselves with more clients than they can handle efficiently. The agency being investigated should be asked what spare capacity they have.

Finally, said Bauer, he would always ask if the scheme’s accounting has been outsourced.

"It is in most businesses an accepted fact that the man who examines the accounts regularly will usually be the first to pick up problems. If the accounting is handled by an outsider, it is quite possible that anomalies, discrepancies and shortfalls will take a long time to be detected and reported to the trustees."

To help clarify its financial position, said Bauer, every scheme should have its own separate bank account and no one trustee or managing agent should ever be allowed to pay expenses without the approval and signature of another.

"This," he said, "is the well-known "four eyes" principle used worldwide to control payment of expenses and minimise risk."

Bauer added that all trustees should also have online access on a 24/7 basis to the sectional title scheme’s bank account so that they can check what payments are being made whenever a question arises.

Bauer said that the ‘victims’ of Adprop’s mismanagement face a difficult few months ahead because their account and funds have been frozen, documents are confiscated, and facing huge arrears with their creditors.

As a first step those affected should be setting up another bank account in the name of the body corporate to ensure they are able to collect the monthly levies going forward so as to be able to handle short-term cash flows. As the accounting records are now in the liquidator’s office trustees must quickly find a way of getting copies of these – and appoint a new managing agent as soon as possible.

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