Sindisiwe Ngxongo, the National Department of Human Settlements’ Acting Director General: Chief Operational Officer confirmed that the meeting was an attempt to address the reputational issues that have arisen and restore confidence in the Community Schemes Ombud Service (“the CSOS”). She confirmed the precautionary suspension of the CSOS’ CEO and CFO arising from an investment of R80 Million with VBS Bank, which is now under curatorship. The investment was in contravention of Treasury Regulations. The CSOS seeks to reassure the community schemes that these issues are being properly dealt with. She confirmed that the Minister has invoked section 27(3) of the Community Schemes Ombud Service Act (“the CSOSA”) by initiating an independent investigation. The report is due to be published by late November this year.
Khwezi Ngwenya, Acting Chief Director of Legal Services at the National Department of Human Settlements confirmed that the Minister has initiated a forensic investigation both into the CSOS finances and into its compliance with the provisions of the CSOS Act.
Ndivhuo Rabuli who is both the CSOS’ Executive Governance, Compliance and Enforcement officer and the Acting Chief Ombud, while the appointed CEO is suspended, confirmed that the theme of the CSOS roadshow was Phakama / “Rise Up”. The CSOS has received an adverse report from the Auditor General but she wanted to make sure stakeholders know that despite its challenges, the CSOS is continuing to deliver services. When the VBS Bank curator delivers a final report and a liquidation and distribution account the CSOS will find out what amount, if any, it can recover from its investment in that bank. In the meantime, the CSOS’ 2017/18 Annual Report, including the adverse audit report, is available for download from the CSOS website. It includes the finding that the CSOS does not have adequate systems of internal control for the recording of levy payments and other transactions, that there was no proper reconciliation of income received and that there was irregular expenditure.
The Acting Chief Ombud explained that many payments are received without the appropriate reference number, that some community schemes do not send a payment schedule to levypayments.org.za, as required and these payments could not be allocated, but that as part of a turnaround strategy there would be new systems introduced in the 2019/20 financial year. There will be improved controls in a new automated process that can update details electronically and issue a receipt when payments are received. She emphasised that the CSOS is not in financial distress. There will be a new online case management system and the CSOS is hiring additional adjudicators.
The Acting Chief Ombud confirmed that the CSOS is arranging, in conjunction with the Advisory Council which is to be appointed, to have both the Sectional Titles Schemes Management Act and the CSOSA amended in the near future and that new regulations will be introduced for Home Owners’ Associations (“HOAs”), particularly in regard to the CSOS reviewing any amendment of their governance documents. The intention is to put HOAs on a similar footing to sectional title schemes in this regard. She concluded with an appeal to those present to pay their CSOS levies, because it is the legally correct thing to do under the CSOS Act.
The Provincial Ombud then allowed a series of questions from the floor:
Q: It was suggested that retirement schemes should pay levies at a lower rate than other types of community scheme as their levies included the costs of healthcare and because these stakeholders are older people.
A: The Acting Chief Ombud confirmed she was aware of these issues but levies for retirement schemes could not be reduced, however the standard levy exemption applied, as set out in a Practice Directive.
Q: It was pointed out that Practice Directive 2 was incomplete, lacking an “Annex B”.
A: The Acting Chief Ombud confirmed that this would be fixed.
Q: There was a request for a facility for online viewing of contributions paid and case listings.
A: The Acting Chief Ombud confirmed that an online system is being planned for CSOS levy queries and that adjudication orders are being put on the CSOS website.
Q: It was queried whether the suspended CSOS office’s were still being paid their salaries.
A: The Acting Chief Ombud confirmed that they are. They will only be dismissed if they are found guilty, and until then they will receive full pay.
Q: The point was made that if the CSOS can lose R80 Million, not be recovering levies from a significant percentage of community schemes due to non-registration and still not be in financial difficulties, the CSOS levies must be more than are required and they should be reduced.
A: Taurean Holmes, a non-executive director of the CSOS and the chairman of its Audit, Risk and Ethics Committee confirmed that the CSOS needed money to open regional offices. There will be at least one office in each province and in some provinces such as Gauteng there may be a need for two or three offices to ensure full accessibility. CSOS needs to capacitate itself with additional expensive infrastructure, human resources and online systems and the process of bringing the CSOS to full capacity will probably take two to three years. Only after the CSOS is fully capacitated will it consider adjusting its levies.
Q: It was suggested that the CSOS could save time and money by looking at the systems developed for the Commission for Conciliation, Mediation and Arbitration (“the CCMA”) and the Rental Housing Tribunal.
A: The Acting Chief Ombud confirmed that CSOS had done so, but that there were intellectual property and cost issues that prevented the use of these systems.
Q: It was suggested that the South African Revenue Service (“SARS”) has a very good system for tracking payments and collecting revenue.
A: The Acting Chief Ombud confirmed that CSOS is in discussions with SARS.
Q: There were a number of complaints about a lack of response from CSOS, for example that despite regular repeated efforts it had proved impossible to register a community scheme with CSOS and that emails and correspondence were not answered.
A: The Acting Chief Ombud queried whether the correct channels had been used, confirmed that the CSOS did not have sufficient capacity in terms of human resources and offered to have the details of the unregistered scheme taken after the meeting.
Q: A query was raised as to the date from which a late-registered scheme would have to start paying levies.
A: No answer was provided.
Q: There were a number of complaints about the CSOS’ failure to issue receipts or any acknowledgment for levy payments received.
A: No answer was provided.
Q: CSOS was asked what it had done about training and education.
A: The Acting Chief Ombud confirmed that the CSOS had plans to train owners, trustees and managing agents. The CSOS intends to partner with universities to offer an accredited certificate course for managing agents.
Q: The CSOS was asked whether it was still possible to nominate persons for appointment to the Advisory Council.
A: The Acting Chief Ombud confirmed that this issue should be taken up directly with the National Department of Human Settlements.
Q: It was suggested that the CSOS should use managing agents who have systems to collect scheme levies to also collect the CSOS levies.
A: No answer was provided.
Q: It was suggested that the CSOS must have a proper revenue procurement system that issues receipts for levies paid and can produce reports.
A: The Acting Chief Ombud confirmed that systems with automated responses were being investigated.
Q: It was reported that the clerks of court did not know how to make adjudication orders into court orders.
A: The Acting Chief Ombud confirmed that the magistrates and judges had been advised and engaged on this issue, but that she would follow up. The Provincial Ombud said that those stakeholders in her jurisdiction were welcome to come to her office or call her with problems in this regard.
Q: The CSOS was asked whether its internal audit team had detected or investigated the irregular investment.
A: Taurean Holmes confirmed that the problem had been picked up early, but that it had been decided that it should be referred to the Auditor General for review.
Q: The CSOS was asked when the outcome of the investigation could be expected;
A: It was confirmed that the report is expected at the end of November and that the Minister will then review it, make the necessary decisions and that the CSOS will urgently communicate the findings to stakeholders.
If you have any queries in this regard, please contact us at Paddocks at email@example.com or call us on 021 686 3950.
Prof. Graham Paddock is South Africa’s Sectional Title Guru. Prof. Paddock advises and drafts legislation for the Government. His advice is valued by all stakeholder groups in the industry.
This article is published under the Creative Commons Attribution license.