Best practices for annual budget preparation

TVDM Consultants – Zerlinda van der Merwe (Co-Founder | Director)

In our consulting practice, and during my time as a managing agent, I saw that although many members of community schemes do not understand much more than the basics of financial accounting and budgeting, they do their best to raise queries relating to items that just do not seem right, and seek transparency, and more participation than only the consideration of the audited financial statements and approval of the administrative and reserve fund budgets at the annual general meeting. 

To this end, we advise trustee clients to involve their members by means of a financial committee, an informal budget meeting, inviting members to the trustees’ budget meeting, inviting queries from members prior to the AGM, sharing monthly financial management packs, and making the financial records of the scheme available to all members. 

Interestingly, the prescribed AGM agenda under the Sectional Titles Schemes Management Act, no longer provides for the business item of approval, WITH OR WITHOUT AMENDMENT, of the budget. This does not mean, the budget prepared and tabled by the trustees must be accepted as is. The members may still propose, or rather direct, the trustees to undertake amendments, but saying “go back and make the levy increase less” is not a good enough instruction. Some thought must be put into a proposal, bearing in mind that the trustees and the managing agent, if there is one, more than likely spent quite some time on the preparation of the proposed budget. 

Setting sensible and comprehensive restrictions on the incoming trustees regarding budget expenditure is also important, and most often overlooked, perhaps because it is right at the end of the agenda, and everyone wants the meeting to come to an end! The trustees should not be hampered by extreme restrictions, but should also be compelled to stay within the parameters set by the members as part of the budget approval process. 

Next time you receive the AGM pack, do spend some time going through the AFS and proposed budget, raise questions before the AGM, and think of practically achievable directives and restrictions to propose. 

Visit the TVDM Consultants website for specialist community scheme resources.

TVDM Consultants

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