Financial “Mismanagement” in Stratified Development

Stratified developments are managed primarily through contribution to common fund by purchasers or parcel owners. It is important to understand that the Maintenance and Sinking Funds are used to manage, maintain and improve the development.

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Money Goes Missing

Very often we hear about stories of fraudulent practices that results in depletion of common fund. From our involvement as committee for over a decade, we have witnessed many unscrupulous methods used by property management staff or even committee members who corroborate with dishonest property managers.

Steps to Ensure Money Does Not Go Missing

  1. Appoint committee members who uphold integrity and are able to contribute.
  2. Eliminate or reduce dealings with cash. This includes collection, petty cash, vendor payment and etc.
  3. Ensure property manager has strong controls and SOP to ensure every process has proper check & balance.
  4. Having qualified accountants in the management team demonstrates the commitment of the property manager to ensure proper financial controls are in place.

Maintenance Fund in Surplus

On another end of the spectrum, there are committees who on the pretext of saving money appoint the cheapest and bare minimum work force in their development. Over time, deterioration takes effect due to lack of maintenance. Property value drops and tenants move out.

One of the reasons the Strata Management Act requires tabling of budget during every AGM is to ascertain sufficiency of maintenance fund. Maintenance fund should not have high surpluses as it is budgeted for the recurring expenditure of the development.

Submit a motion for the reduction of maintenance charge during the AGM if your development has a big surplus in maintenance fund.

Financial Planning & Analysis

Financial planning & analysis is the art of identifying opportunities to solve underlying operational inefficiencies. For instance, an investment of RM100K for the upgrading of access control and visitor management system which eliminates the need for security at lobby areas resulted in annual savings of RM158K. This savings is crucial in balancing the budget and thus, maintenance charge need not be increased.

Conclusion

Is it better to continue with status quo and increase maintenance charges due to inflation and leakages or appoint professional licensed property managers who are capable of out of the box solutions to reduce ballooning costs?

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