It's a sad truism that where there is money, there's always the possibility of corruption, so all sectional title bodies corporate should apply financial safeguards to protect their members' interests.

Jo Pelser, MD of the leading residential developer Sable Homes, notes that millions of rands worth of levies are already being paid each year by the owners of the estimated 550 000 sectional title (ST) units existing in SA.

"And the latest bank statistics indicate that more than 30 percent of all the new homes being built and sold now are ST units, so there is an increasing amount of consumer money at stake each month. It's only prudent to ensure that this is adequately protected from any possibility of mismanagement or misappropriation."

As a baseline for achieving this degree of control, Pelser suggests, the trustees of bodies corporate must do their homework on their appointed property managers and install the necessary financial checks and balances to protect members' interests.

"It's obviously important in general terms for trustees to understand how to work and interact with property managers. But this is particularly true when it comes to defining the financial parameters of that relationship and protecting members' interests in respect of control of budgets, levies and other expenditures."

Firstly, trustees must make sure that their property manager, and the management company itself, has a solid track record. It is also important to ensure that the company has adequate fidelity fund insurance that would cover the body corporate in the event of embezzlement, fraud or misappropriation of funds by any of its employees.

"Secondly, they should not assume that an initial clean bill of financial health can be taken for granted going forward. They should periodically check on those credentials.

"Third, trustees need to keep control of the body corporate funds. Basically, all accounts should be in the sole name of the body corporate, and there should be a limit on the amount the property manager can pay on the body corporate's behalf without the co-signature of at least one trustee."

There are routine amounts that have to be paid regularly by a property manager on behalf of the body corporate — bills for municipal services, insurance and security services, for example — and the restriction may create a slight burden on both the property manager and the trustee who has to sign cheques, but it's a strong safeguard.

"As for reserve accounts," says Pelser "only trustees should be authorised to sign cheques or transfer funds held in these accounts, and two signatures should be required."

A second opinion

It is also vital that the body corporate and not the property manager hires the accounting firm that will provide a full annual audit of the books.

"And lastly, the trustees must insist that the property manager provides the body corporate with a monthly financial status report, including copies of actual bank statements. They should review this material carefully every month within five days from receipt, bearing in mind that every trustee has a fiduciary relationship to all the unit owners."

Bodies corporate, he emphasises, do have the power to safeguard members' interests — and they should use it.