[200William-EC] Fwd: Risk Management

[Diana Dennison]

---------- Forwarded message ----------
From: Stratasphere by STM <news at stratatitle.com.au>
Date: 16 May 2013 18:00
Subject: Risk Management
To: didee at zip.com.au


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  Edition 6 - 2013      Risk Management

    *Part 6 of 12: Effective Governance for Executive Bodies of Strata
Communities*

Risk management is the process of managing an organisations potential
exposure to liabilities or loss. Risk management reduces and manages risk,
compliance (our next topic) seeks to eliminate or prevent risk.

In the context of a strata community, some risks are obvious. This list
starts with the less obvious but equally important.

*1.Fraud* – in most states and territories there is no requirement to be
licensed to be a strata manager and to handle in some cases millions of
dollars in administrative and maintenance fund fees. Without licensing, the
risk of fraud or embezzlement is high. Strata communities should take care
to entrust their funds to a reputable Strata Manager/Body Corporate
Manager and one that is insured not only for professional negligence but
also fraud.

*2.Investment risks –* where is the strata communities savings invested?
This is the most topical of risks facing strata communities today. Not all
banks are equal anymore and a strata community must select its investment
accounts wisely, not just based on the best interest rate available.

*3.**Breach of statutory duty to repair and maintain common property* –
this is the most under rated risk. Strata communities are under strict
statutory duties to repair and maintain common property. The legislation
does not say that common property should be fixed when it suits or when the
strata community can afford it – the law is absolute, if it’s broken, then
it has to be fixed. Fines and imprisonment can flow to individuals who fail
to observe this duty. Directors and officers insurance may be available to
mitigate this risk.

*4.**Reputational risk* – most prudent purchasers will conduct a search of
the records of a strata community before making a purchase. This is the way
to find out if the community is riddled with troublemakers and is an
unhappy governing body. This is every bit as important as a pest
inspection. More important really because a pest controller can rid your
building of pests but a strata manager can’t rid your building of a
trouble-maker.

It is important to remember that everything written is available for
inspection by the purchasing public. Be careful what is written and manage
trouble-makers well so they do not inflame minor disputes and dominate your
strata community.

*5.Property damage and destruction* - this form of risk is well understood
and insurance is commonplace. However, the question is whether the
insurance held is enough. Replacement valuations should be taken out every
three years for large and small buildings. Some legislation only makes this
compulsory for large buildings, which defies logic. In the case of total or
partial destruction the risk of personal loss is the same no matter if you
live in a high rise or a duplex.

Each year between valuations the insured sum should be increased. Don’t
fall into the trap of doing this based on the prevailing consumer price
index movements. The consumer price index measures the increase in the cost
of goods not building materials. In some parts of Australia last year the
price of building materials rose 17% yet hardly any strata communities
would have used this as the basis for the increase in their insured sum.

*6.Public liability risk* – this covers the strata community for slips and
trips. The minimum amount of insurance is set by law and this makes
assessing this risk and doing something about it easy. This is the risk
that everyone focuses on when thinking risk management in a strata
community, yet it is the easiest to cover. More attention needs to be given
to the other risks set out above which may not be covered by insurance.

*Next week: Legal Compliance*


       Kind regards,

*Roderick Smith*
General Manager Strata Operations             *Stratasphere - Creating
strong committees and harmonious communities***       Strata Title
Management offers Stratasphere to clients to assist in educating them on
their roles and responsibilities. The content within this publication is of
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