How to budget report on the reserve fund for sectional title schemes

On 7 October 2016, the new Sectional Titles Schemes Management Act of 2011 came into force, changing things drastically. As a result of this legislation, bodies corporate are now compelled to make provision for reserve funds on an ongoing basis. In terms of the new Act, bodies corporate should make provision for long term maintenance requirements of the scheme by means of a 10-year maintenance plan.

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Two budgets are now required

The administrative (original) budget is still required to make provision for the day-to-day maintenance activities.

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The reserve budget is the second, additional budget that is now required in terms of the new Act to make provision for a 10-year maintenance plan.

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A further requirement of the new Act is to calculate the reserve amount required. This calculation is determined by way of three methods:

• If the body corporate reserve fund at the end of the financial year is less than 25%of the levy income generated during that year, the body corporate must provide for a reserve amount equal to 15% of the levy income for the new financial year.
• If the body corporate reserve fund at the end of the financial year is equal to or morethan the levy income generated during that year, the body corporate is not obliged to make provision for a reserve amount in the new budget.
• If the body corporate reserve fund at the end of the financial year is more than 25% but less than 100% of the levy income in that year, the body corporate must make provision for a reserve amount equal to the repairs and maintenance items provided for in the new budget.

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Challenges faced by managing agents

Most accounting systems does not enable the Managing Agents to easily budget and report on both the administrative and reserve fund. This lack of functionality of most accounting systems has added a significant burden on Managing Agents. Managing Agents are now spending additional time each month to extract information into editable formats to produce the additional reports that is required by law.

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A further burden to the Managing Agent is the additional auditing requirements. Although it is the Auditors responsibility to ensure compliance to these additional regulations, they turn to the Managing Agents to produce these documentation and resolution in the desired formats.

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The trustees pose the next challenge in many cases. How should reporting on the administrative and reserve fund be structured to empower the trustees to make informed and prudent decisions.

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IPMS empowers the managing agent

Intelligent Property Management Software (IPMS) is the most advanced end-to-end property management solution specifically designed for the management of sectional title & HOA communities. With a custom built financial solution as a backbone, that is fully integrated with all the key workflows of sectional title & HOA management, Managing Agents are now empowered to effectively manage their communities with one solution.

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IPMS has already considered the changes of the STMA of 2011 and has the necessary functionality to keep full and accurate accounting records that clearly indicates the details of all transactions and balances of both the administrative and reserve funds.

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With IPMS auditors can now also conduct online audits. Managing agents simply provide their auditors with a login to their portal and link them to the communities that they should audit. Virtually all the required information is at their fingertips in the desired format, cutting down on those undesired audit queries fielded by the Managing Agent.

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The comprehensive and simplified monthly reporting structure for trustees enables them to better understand and manage these additional responsibilities that they are ultimately responsible for.