Corporate Governance and Trust Account Management at Estate Agencies

How do I know that my estate agent does not use my rental or body corporate funds for other properties or private use? There is nothing as bad as to one day suddenly find out that your managing agents are closing their doors and everybody's money is gone!?  Please use the following information to ask the right questions when it comes to choosing an agency to manage your property.
The legal requirement for someone to be able to act as an estate agency is to hold a valid Fidelity Fund Certificate, which is only issued annually if an agency is registered with the Estate Agency Affairs Board (EAAB), fees paid to date, all agents are registered and their training and Continuous Professional Development (CPD) points are up to date and if within four months of financial year end, a favourable audit report was submitted to the council, both the Trust Account as well as the books of the business itself. The Trust Account is a section 32 account, where all monies received from clients are kept separate from the agency's own funds. Funds are held in the agency's interest-bearing trust account or client's interest-bearing savings account. Obligations of owners etc. are paid from the Trust Account, on instruction of the owner and funds may not be used for any other purpose.
During an annual audit, the following aspects are looked at:
-    Compliance with Section 32 of the Estate Agency Affairs act, 1976.
-    Whether the Trust Account is liquid in other words is there at all times enough money in the bank to pay clients' deposits, credit balances, creditors and savings.
-    Is interest on Trust Moneys paid to the EAAB or to the client when refunding deposits, where it is stipulated in the contract?
-    Is sufficient financial records kept by the agency?
-    That the financial statements of the business itself is not materially misrepresented and that the company is solvent.
-    That the business comply with all FICA requirements and reporting.
-    Is the necessary PI cover (professional indemnity) in place?
If the above is not in place, the agency is acting illegally and you as client are at serious risk to fall short. The EAAB and the Financial Intelligence Centre (FIC) have the right to perform on an ad-hoc basis inspections to determine whether the requirements were met. Controls which an agency must typically have in place to ensure that the above requirements are met, include the following:
All payments received from clients are allocated to the correct accounts daily. Payments made at the cashier banked daily and bank reconciliations are up to date. Records of all money coming in and paid is maintained and stored in accordance with FICA requirements for 5 years.
No payments will be made if there are no funds in the building's own account or proof of banking details are not provided (stamped bank statement or cancelled cheque). Clients do not always understand that the banking details on an e-mail or even an invoice cannot simply be accepted as correct. This is to protect the interests of both the client and agency. Clients' interests are at heart, that is why internal audits are done on a regular/on-going basis. Regular contact with external auditors ensure that an agency is always kept abreast of change and the law.
All cash transactions above R24 999 must be reported to FIC within 2 days, as estate agents are required to register with FIC as an accountable institution.
Aspects which can really make the above a challenge include, among other things, when clients use the wrong references for payments and the payment must be allocated to the correct account, or clients who do not pay on time and therefore creditors are not paid on time.
A non-negotiable asset for an agency to help manage these challenges is to invest in the latest and superior technology, hardware and software.
In addition you will want to know that the agency has the necessary qualifications and human resources to pursue all aspects of property management. These include NQF4, NQF5, Financial Management, secretarial, quality inspections and repairs, contractors who do good work, bookkeepers and good administration. It is as a result of all this that individuals and small agencies cannot always apply effective management.
Other legislation which play a role with estate agency are for example:

1    Basic Conditions of Employment Act, 1997

2     Broad-Based Black Economic Empowerment Act, 2003

3     Companies Act, 2008

4     Compensation for Occupational Injuries and Diseases Act, 1993

5     Competition Act, 1998

6     Constitution of South Africa Act, 1996

7     Consumer Protection Act, 2008

8     Deeds Registries Act, 1937

9     Electronic Communications and Transactions Act, 2002

10 Employment Equity Act, 1998

11 Estate Agency Affairs Act, 1976

12  Financial Services Board Act, 1990

13 Financial Intelligence Centre Act, 2001

14 Formalities in respect of Leases of Land Act, 1969

15 Income Tax Act, 1962

16 Insolvency Act, 1936

17 Labour Relations Act, 1995

18  National Credit Act, 2005

19 Occupational Health and Safety Act, 1993

20 Promotion of Access of Information Act, 2000

21  Rental Housing Act, 1999

22  Sectional Titles Act, 1986

23  Sectional Titles Schemes Management Act, 2011

24 Skills Development Act, 1999

25  South African Revenue Services Act, 1997

26  Short Term Insurance Act, 1998

27  Skills Development Levies Act, 1999

28  Skill Development Act, 1998

29  Unemployment Contributions Act, 2002

22 Unemployment Insurance Act, 2001

23 Value Added Tax Act, 1991
National Real Estate not only offers its qualified knowledge and experience in the field of labour relations, but also ensure that all legislation and regulations, as required to be implemented, are executed and maintained in every area.  National Real Estate has a skilled team of more than 120 staff in the office and more than 400 general employees on our pay system. The salaries, bonuses, unemployment insurance fund, leave, disciplinary processes and on-going staff development and welfare are managed from the Human Resources Office, headed by Nelize du Plessis. The effective management and training of our staff assures our many clients of excellent service.
As a result of the above, the directors of National Real Estate decided in 2013 to appoint a chartered accountant, Roelof Dednam, to assist the Trust Manager with the responsibility to ensure that National Real Estate complies with all requirements and functions effectively.  NRE also spends more than one million Rand annually on hardware and software to ensure that most requirements are applied automatically and that day to day management of properties are done optimally and effectively. NRE has received favourable audit reports in recent years and the EAAB and FIC's inspections in 2015 found everything in order.
Can your estate agent, just like NRE, testify that they comply with all the above requirements?  Ask the question!

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