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6 Financial red flags trustees should never ignore
Being a trustee within a community scheme means you are managing other people’s money, and that can be daunting, especially if you’re new to the role. Every Rand collected, spent, saved, or delayed affects the scheme’s ability to function and directly impacts every owner. Since trustees carry a fiduciary duty to act in the best interests of the scheme, compliance and sound financial oversight are non-negotiable.
Financial governance is one of the most important responsibilities trustees carry. When things slip, the numbers always talk first, and trustees need to recognise warning signs early enough to take corrective action.
Here are some key areas of concern for trustees
Levies are the lifeblood of any scheme. Owners are legally required to pay their levies to ensure the scheme can meet its financial obligations and remain compliant. When levy arrears increase, cashflow decreases, which affects everything from security and insurance to basic maintenance.
Many owners buy into schemes specifically for amenities like security, a pool, gardens, or other lifestyle benefits. Those costs do not go away simply because levies are not paid. Without a consistent income:
- Cashflow collapses
- Essential services stop
- The scheme becomes financially unstable
Once arrears exceed 20–25% of annual levy income, the scheme is already in dangerous territory. This is one of the clearest, earliest indicators of future cashflow failure.
A shrinking reserve fund almost always signals:
- Levies have been set too low and there is a shortfall of income being received.
- Maintenance is being delayed.
Both scenarios end in the same way: raising a special levy that the owners would likely be against.
The statement of changes in funds (equity/reserves) shows this movement clearly, but many trustees skip it. Don’t. A stagnant or declining reserve is a sign that the scheme is using future money to survive in the present.
In simple terms: the scheme owes more in the next 12 months than it currently has available.
This is almost always due to poor budgeting or the absence of financial oversight. The moment trustees notice liquidity concerns, an urgent meeting must be held. This is not something that can wait for the next AGM or quarterly meeting as immediate action is required.
A scheme can look “profitable” on paper but still be running out of money. The income statement can be misleading if trustees rely on it solely. The cash flow statement is the real health indicator.
Trustees should ask themselves, “is cash increasing or decreasing month to month?”. The answer will determine the urgency.
If the scheme’s bank balance is shrinking despite an apparent surplus, the scheme is in trouble. Cashflow determines whether the scheme can pay for essentials such as security, insurance, municipal accounts, and repairs.
Once trustees begin transferring money from the reserve fund to cover day-to-day expenses, a financial crisis is already unfolding.
This decision slowly depletes the scheme’s emergency capital and undermines its ability to manage unforeseen costs. When this becomes routine rather than exceptional, trustees must review:
- The levy model
- The administrative budget
- The scheme’s collection strategy
Repeated reserve transfers mean the admin budget is too low or collections are failing.
Special levies should be rare and reserved for emergencies or unexpected costs. When they become frequent, it usually means:
- Annual budgets have been set incorrectly
- Maintenance planning is inadequate
- Financial oversight is weak
Continuous special levies also place owners under financial pressure, which may lead to forced sales, higher arrears, or declining property values. In severe cases, the required work cannot be carried out because owners simply cannot afford to contribute.
The key takeaway for trustees
Correct budgeting and financial oversight is key to ensuring a community scheme finds itself in a sound financial position with sufficient cash-flow in order to meet both its short and long term financial obligations and commitments.
Financial red flags rarely arrive with alarms. They appear slowly, quietly, and politely in the monthly financials.
Your job is to see them early.
Being a trustee is unpaid but highly demanding. You don’t need to be a chartered accountant to succeed, but you must be able to read the numbers, ask the right questions, and act when problems arise. As a trustee, it is your responsibility to protect the investment entrusted to you so your community can thrive for many years to come.
