Annual Accounts from First Port: We disagree
We have received the annual accounts for the year ending 30 June 2015. As stated by Sarah Wareham (representing First Port) the draft accounts indicated an overall surplus of £756.90, which they propose to distribute to residents in accordance with their Transfer. The Surplus was mainly because of the saving on Grounds Maintenance, the General Maintenance was slightly lower than budgeted.
At first sight this is good news: the cheaper gardening contract, whilst having some initial teething problems, is saving the residents money. However the demands on the gardeners are increasing and this will be reflected in increased costs, e.g. As of late 2015 we are now required to maintain the hedging on both Park Lane and Harrison Road up to the pavement edge, and the extra work will carry extra cost.
A closer inspection of the draft accounts reveals a more worrying trend with regard to the Insurance Fees and Audit Fees levied. The Insurance Fees have increased in the last year by 60% and the audit fees have increased 47% (see table at the end). The committee felt that these were unreasonable increases to impose without some justification. There has been a long exchange of e-mails between John Saunders, Sarah Wareham (Property manager) and Jessica Wang (Finance Analyst at First Port). Their claims are:
We were incorrectly billed for the Insurance in 2014. They have provided copies of the invoices for 2015 and 2016, and they support this statement; we should have been billed £984 and not the £662.
On the accountancy fee, First Port stated "The accountancy fee is a fee payable to FirstPort to cover all the financial services which they provide to you. This will include preparation of year end accounts to ensure they comply to all standards and legislation requires, but also general finance monitoring throughout the year. We prepare the accounts and review them and liaise with operations and the auditors over them. There is also an audit fee which is payable directly to the auditor and not to FirstPort at all. This is for their review and audit sign off which is required."
The committee disagrees with the second bullet. The Transfer Document lists the following headings under which First Port (as agents for Holdings & Management (Solitaire)) are required to account for the estate management expenditure. You can find them in the Sixth Schedule Part II (i.e. almost at the end). We've added text in square brackets to explain some items.
1: The expenses incurred by the Comany in carrying out its obligations under Part I of this Schedule. [i.e. maintaining the Communal Areas, paying rates, and insurance] 2: The cost of employing contractors to carry out any of the Comany's obligations under this Transfer or if any repairs, redecorations renewals maintenance cultivation or cleaning are carried out by the Company itself their normal charges (including profit) in respect thereof. 3: The fees and disbursements paid to any Surveyor or Managing Agent employed by the company in respect of the management of the estate in connection with the collection of the rent charges hereby granted and in the administration and investment of the rent charges. ["The company" is Holding & Management (Solitaire) Ltd. They employ First Port as a managing agent. This covers First Port's management fees] 4: The fees and disbursements paid to any accountant solicitor or other professional person in relation to the preparation auditing or certification of any account of the costs expenses outgoings and matters referred to in this Schedule and the collection of the rent charges granted by this Transfer and the transfers of Other Properties on the Estate. [This is what the argument is about: see below] 5: All other expenses (if any) incurred by the Comany in or about the maintenance and proper and convenient management and running of the Estate and any interest paid on any money borrowed by the Company to defray any expenses incurred by it and specified in this Schedule. 6: Any Value Added Tax or tax of a similar nature payable in respect of any costs expenses outgoings or matters falling within any paragraph of this Schedule.
If you compare the second bullet above (about the accountancy fee) with item 4 in the Schedule you can see that they are trying to claim that a part of their normal management work should come under the heading of "audit". However item 4 is very specific: it only covers the fees to an "accountant, solicitor or other professional person". Item 3 is covers the preparation of year end accounts (unless they are prepared by an accountant, solicitor or other professional person apart from the managing agent), and "general finance monitoring" is clearly another description of "administration and investment of the rent charges". The only thing in First Port's list that item 4 covers is the audit fee which is payable directly to the auditor. We also note that this "general finance monitoring" failed to pick up the significant undercharging of the insurance premium in 2014.
In short this supposed increase in "audit" costs is actually a disguised increase in the management fee.
First Port insist that they provide an outstanding service but do not explain why the costs have increased. The increase in cost equates to just over £5 per household per annum, not a large amount, but the committee believe that any increase above inflation should have a reasonable explanation.
We will continue to discuss this with First Port, and will keep you posted.
