Professional Housing Management Practices in Hong Kong

CHAPTER 6. Financial Management

Financial Management 123 CHAPTER 6 Financial Management WONG Kit Loong Introduction The performance of a Housing Manager is measured, more often than not, by the effectiveness of and effort put into budget preparation, financial control, and cash flow management. Business plan and action plans are inevitably reflected and translated into financial terms in the budget. Progress of work and achievements are easily monitored by financial statements/reports, and overall performance results are summarized in the year-end “profit and loss account” and the consolidated balance sheet. These all imply, in essence, the importance of financial management in monitoring the effectiveness and efficiency of the way that the management operations are carried out. This chapter focuses on the financial management aspect of housing management. The discussion covers five major areas in financial management: • legal framework; • financial accounting fundamentals; • budget preparation; • financial analysis and control, and cash management; and • credit control. Legal framework First and foremost, a professional housing manager must act within the legal parameters. They include provisions in the Building Management Ordinance, Deeds of Mutual Covenant, Small Claims Tribunal Ordinance, as well as the accounting principles and standards set out in the “Statements of Standard Accounting Practice” (SSAP), “Hong Kong Generally Accepted Accounting Principles” (GAAP), and the guidelines issued by the Hong Kong Society of Accountants to its members. 124 Wong Kit Loong Building Management Ordinance (BMO) The Building Management Ordinance provides the legal framework for building management work, and is mandatory whenever the spending of funds and contributions from owners is concerned (Hong Kong Special Administrative Region Government, 1999).These include budget preparation (determination of management fee to be contributed), procurement procedures, account keeping and control, authority for major expenses, and establishment of funds for major repairs and contingency. The effect of the BMO on these aspects of financial management work shall be examined as follows: (a) Financial statements and accounting records (b) Establishment and maintenance of funds (c) Budgeting FINANCIAL STATEMENTS AND ACCOUNTING RECORDS Duties and Power of the Owners’ Corporation Section 18 of the BMO stipulates the powers of the incorporated owners, which in many respects relate to their authority in the use of management fees for matters relating to the management of the estate concerned. The BMO empowers, specifically, the incorporated owners to retain and remunerate accountants for the purposes of auditing the corporation’s books of accounts and preparing the annual income and expenditure accounts and balance sheets. It also provides that the incorporated owners may employ housing managers to discharge such duties on their behalf. Accounts of the Owners’ Corporation Section 27 and the Sixth Schedule further elaborate on the responsibility of the management committee in the maintenance of proper account records and penalties in the event of contravention of subsection (1), which requires the management committee to maintain proper books or records of account and other financial records, and to prepare an income and expenditure account and a balance sheet every twelve months. The account shall be laid before the owners’ corporation at its annual general meeting. The Section also stipulates that if the building contains fifty flats or more, the income and expenditure account and balance sheet shall be audited by an accountant. An accountant shall mean a certified public accountant within the meaning of the Professional Accountants Ordinance (CAP. 50). As mentioned above, the owners’ corporation or the housing manager is required to be accountable for their work in the control of income and expenditure and report such to other owners on a regular basis. These duties Financial Management 125 will require accounting knowledge and expertise that would not be readily available, in most cases, to members of the owners’ corporation elected amongst the owners themselves. It has therefore become common practice and it is most advisable for incorporated owners to engage professional housing managers to discharge all such duties on their behalf. ESTABLISHMENT AND MAINTENANCE OF FUNDS The need to establish various funds for different purposes are apparent with the complicated nature of building management and maintenance work. All building facilities are vulnerable to damages whether by accident, vandalism or other reasons beyond reasonable preventive measures. Suspension of building services for long periods cannot be tolerated in the current standard. Therefore, special funds, in addition to the general funds catering for the normal day-to-day expenses, have to be set aside to handle such emergency situations. An essential responsibility of the managers or the owners’ corporation is...