Managing your estate from System and Control Perspective

Perculiarity of MCST enviroment -

1. MA contract is renewal yearly
2. Treasurer in office is short term
3. Treasurer may not understand how MA managing their accounts in terms of system used and operation control
4. MA high turnover of staffs
5. Audit fee is low to perform a good job

Efficient and proven accounting system -

MC has it peculiarity in operation. One specific requirement is to generate recurring interest monthly for arrear of payment after 30 days, and some estate has even applied two tier of interest charge for overdue accounts after specific period, which made it even more complicated to maintain its software.

System also must be able to churn out all Interest Charge Journal showing specifically the late payment invoices and number of days charged.

An efficient system would save a lot of manpower in maintaining the accounts systematically and remotely.

Competent and responsible accounting staffs -

Data entry staff does not have to be qualified but familiar with the MC accounting function. However, competent supervisor is required to oversee the work done by entry staff is accordance to expectations. Recurring billings, late payment interest charge, month end adjustment on expired expenses; depreciation and FD interest income, read minutes and coordinate with management staffs to ensure events or matters affected the accounting transactions resolved by the management council and in AGM & EOGM are taken into accounts.

A good internal control system is required to ensure that cash transactions are duly taken in, internal audit may be required to carry spot check of petty cash and ensure record is properly maintained.

Monthly or periodically analytical review of transactions to detect expenses posting errors is required, the common error is the wrong posting of expenditure between MF & SF account.

When taking over project -

Do a financial review of account in details rather than standard audit. Transfer of balances must be reconciled with the accounts taken over, report to Management Council what course of action shall take for those accounts are ‘in suspense’. Such as all kind of refundable deposits are keeping the accounts for years, conduct stock take of all fixed assets to reconcile with items shown in accounts etc …… This exercise will ensure that the MC accounts will be cleaned up not withstanding the change of MA.

For commercial projects that generated car park and other income, review the tax assessed vs tax computations to ensure that tax is charged correctly. I propose MA to take up this proposal to protect their interest. MA can be sued if they do not exercise their professional care.

As auditors in the past 25 years, I have observed most of the MCs have overlooked this area and underestimate the complexity of this aspect. The result is paying excessive tax based on the gross income rather than the net chargeable income; overlook some of the deductible expenses not claim. Generally, not all auditors are familiar with tax in MC environment and even those have the knowledge, if they are not engaged to perform tax review and services in additional to their audit engagement, they will not be providing the extra service.

I have seen wrong tax computation made by auditors resulted the MCST has underprovided huge amount of tax in the last 6 years. Once the taxman is ‘awaken’, additional tax assessments will be revised and MC is required to pay within 30 days.

Common Errors in the accounts -

1. Long un-presented cheque not write off
2. c/f balance does not tallied with b/f in new accounting year
3. Payment vouchers not authorised
4. GST not accountable for
5. GST Form 5 reported amount not tallied with the GL account
6. Waiver of interest without approval
7. Wrong classification of expenses accounts
8. SP ledger total not tallied with GL
9. Legal claim not reflected in the account
10. Non-existence fixed assets not written off
11. No fixed assets register is maintained and no yearly inspection is conducted
12. Lack of tax information
13. Long outstanding accruals not written off
14. Maintenance contribution failed to revise according to resolution passed in AGM

Accounting data control -

Accounting data is perpetual and most important record of any organisation, notwithstanding the change of MA, the system should be in place and should not be changed when MA is changed. I suggest all the accredited MAs should work together to design a good software system and enter into a contract to allow data to be transferred amongst the MA when the project changes hand.

MAs or its association can join hand to develop a more comprehensive internet based system not only to provide basic accounting information, also full maintenance history and allow members to log on to check their account balance remotely. If this is achievable, it would save cost and give a lot of convenience for SP to pay their due on time. We are in the 21st century and the trend is moving towards paperless and transactions are more and more done electronically, we should take the challenge to do it now.

Accounting Services bureau -

Accounting firms can join hand to run an accounting service bureau to serve the MAs and MCs, competent CPAs to run the show would be a better choice and fair to SP. MAs are good in managing the estate, should spend more time in upgrading the value of the estate and serve the interest of the SP rather than accounting.

Plight of Auditor -

1. Fee too low to perform a good job.
2. MC should specific scope of audit in additional to the standards one
3. Lack of communication between the Management Council and auditors
4. MA given too short time to perform an audit
5. MA failed to provide enough schedules and information for the audit

Taxation -

Failure to make sufficient provision resulted MC does not have enough reserve to pay back log tax liability

MC fail to pay tax consultancy fee resulted tax planning is not done, excessive tax is paid

Auditional Audit Coverage-

Summary of a good control system-

1. An efficient internet-based software to maintain the accounts
2. Assign competent data entry staff to record the entry
3. Assign competent supervisor to perform QC check and co-ordinate with the operation staff for changes that affecting accounts
4. Engage competent external CPA who has the requisite skills to perform procedure and system audit and review tax issues
5. Send accounting staffs for course customised to suite their needs.

Updated January 2006