Property owners, management companies and managing agents are often responsible for collecting service charges from leaseholders to cover the costs of maintaining and managing a building.

As service charge funds belong to the leaseholders and must be managed separately from business funds, there is often a requirement for independent reporting on how those monies have been used. A service charge accounts audit provides transparency and reassurance to all parties involved.

What Are Service Charge Accounts?

Service charges are amounts collected from leaseholders to cover shared costs relating to a property, such as:

  • Building maintenance and repairs.
  • Cleaning and communal services.
  • Insurance costs.
  • Grounds maintenance.
  • Utilities for communal areas.
  • Property management fees.

The service charge accounts summarise the income collected and expenditure incurred during the accounting period.

What Is a Service Charge Accounts Audit?

A service charge accounts audit is an independent examination of the service charge accounts and supporting records.

The purpose is to provide assurance that:

  • Service charge income and expenditure have been properly accounted for.
  • Funds have been applied in accordance with the lease terms.
  • Financial records are accurate and complete.
  • Leaseholders receive transparent reporting regarding the management of their funds.

The precise nature of the engagement will depend on the lease requirements and any applicable regulatory guidance.

Who May Need a Service Charge Audit?

Service charge audits are commonly required for:

  • Residential management companies.
  • Right-to-manage companies.
  • Property management companies.
  • Freehold companies responsible for communal areas.
  • Mixed-use developments.

The requirement will often be specified within the lease agreements governing the property.

What Does the Audit Involve?

While requirements vary between developments, a typical review may include:

  • Examination of service charge income received.
  • Testing expenditure to supporting invoices and contracts.
  • Review of bank account reconciliations.
  • Verification of year-end balances.
  • Consideration of lease provisions relating to service charge expenditure.
  • Assessment of accounting records and supporting documentation.

The auditor will then issue a report in accordance with the scope of the engagement.

How Cube Partners Can Help

Our audit team works with property management companies and residential management companies to provide independent service charge account reporting. We understand the importance of balancing regulatory requirements with practical commercial considerations and aim to deliver a smooth and efficient process.

By providing clear communication throughout the engagement, we help ensure stakeholders receive the information they need with confidence.