The CSOS was established in terms of the Community Schemes Ombud Service Act to regulate the conduct of parties within community schemes, to ensure good governance practice in community schemes and to create an affordable alternative dispute resolution service for all community scheme members. Scheme executives and residents can all play a part in recognizing and avoiding some of the common mistakes made, that can lead to bigger annual levy increases.

The CSOS, in the Community Schemes Ombud Service Act and its regulations makes certain items mandatory for all community schemes to put in place and to do. This ensures the promotion of good governance in addition to other legislative requirements for the governing of community scheme living. It is therefore important that scheme executives acquaint themselves with all the legislative requirements for their type of community scheme.

One of these requirements is Cash flow management, which is a critical element of any well-run community schemes, for Sectional Title schemes and Homeowner Associations (HOAs) alike. The key to cash flow management is a comprehensive and accurate annual budget of anticipated income that the scheme intends to recover from members by way of the imposition of a levy, and the expenses that the scheme will have to cover throughout the year especially where these are paid monthly.

When a budget is drawn up correctly, it ensures that the income of the scheme is sufficient to cover all the projected day-to-day expenses for the year ahead. The budget should also consider one-off expenses that may arise such as the legal fees for the recovery of arrear levy debt. The income to cover the expenses are recovered by way of an administrative levy imposed on members by a scheme executive resolution. In addition, the community scheme is obliged to recover from members the statutory contributions to the Community Schemes Ombud Service (CSOS) and currently in the case of ST schemes, a reserve fund levy contribution, created in terms of a legislated 10-year maintenance, repair, and replacement plan.

These are some of the expenses that the trustees or directors need to take into consideration in addition to the usual expected day-to-day expenses when formulating a budget:

• Any outstanding unpaid debts to suppliers or service providers.
• Levy arrears and the actual monthly levy collection rate.
• Ensuring that there is sufficient income to cover all budgeted expenses.
• Legal costs that may be incurred in the recovery of arrear levy debt.

If these points are not considered, there is a risk of creditors not being paid, services being discontinued, and maintenance not being attended to promptly and consistently.

It is crucial that the levy income is set to cover the forecast of expenses, and a deficit budget should not be a consideration as it is not allowed in terms of legislation.

A common problem for many schemes is that they are waiting until the end of the financial year to compile a budget for the next financial year, and then only holding an AGM to get this new budget approved up to four months later in the case of ST schemes, or even six months later in the case of HOAs (this being the maximum time allowed in terms of legislation that an AGM may be held after the start of a new financial year)

This may result in levy increases lagging expenditure increases, which has a negative effect on cash flow, and can also result in the owners being faced with much higher levies imposed at the AGM to make up any shortfall, or even in special contributions by members having to be raised for any unexpected and unbudgeted expenses.

Information about the CSOS, and the role the CSOS plays in the management of community schemes may be found on the CSOS website – www.csos.org.za