ACT: Q&A Owners Corporation bank accounts, audits and spending

This article is about executive committee spending.

Table of Contents:

• QUESTION: Why does a longstanding term deposit appear as a debit in the administration account?
• QUESTION: Are audit of the owners corporation financial statements a legal requirement in the ACT? Our treasurer and strata manager are at odds with what elements are considered to reach the $250,000 threshold.
• QUESTION: If the Executive Committee is unable to justify expenditure can the Owners Corporation request reimbursement from the Committee members to the appropriate fund?

Question: Why does a longstanding term deposit appear as a debit in the administration account?

At the AGM, we elected a new executive committee. They’ve discovered financial discrepancies. The amount of a term deposit was withdrawn from our administration account, which left the account in deficit.

The term deposit has been in place for several years, and we cannot see why it would appear as a debit entry in the administration account. Our new strata manager is also unable to explain why the term deposit appears there.

Can we request a face-to-face meeting with the strata accountant to clarify these anomalies?

Answer:A term deposit represents the investment of unused funds.

A term deposit represents the investment of unused funds. It should come from the fund that has a surplus.

If the admin fund is in deficit, as you say, that term deposit investment should be allocated to (come from) the capital works fund (CWF).

However, a term deposit does not affect either fund’s balance (equity).

Allocating it to admin does not decrease the admin fund balance (equity) into, say, a deficit position.

As you may see on a balance sheet, there are separate totals for the admin and CWF (equity) represented by assets and liabilities.

The term deposit is an asset. When it is created, ‘admin cash at bank’ asset decreases and ‘admin term deposit’ asset increases (from nil). Equity is unaffected.

Whilst I agree your term deposit should move from admin to the CWF, that won’t repair your admin fund deficit, which I think you were hoping it would.

The admin deficit could be repaired by:

• a transfer from CWF to admin, approved at a General Meeting. This is income to admin and an expense to CWF and therefore DOES affect equity. But often this means CWF levies need a catch up eventually.
• increased levies.
• expenditure cuts (hard to do).

Matthew Faulkner
Matthew Faulkner Accountancy PTY LTD
E: matt@mattfaulkner.accountants
P: 0438 116 374

This post appears in Strata News #755.

Question: Are audit of the owners corporation financial statements a legal requirement in the ACT? Our treasurer and strata manager are at odds with what elements are considered to reach the $250,000 threshold.

We are a complex of 17 units. Are audits of the owners corporation financial statements legally required in the ACT? Our treasurer and strata manager are at odds with what elements are considered to reach the $250,000 threshold.

The strata manager advised that our total assets (sinking and admin fund) plus the proposed owner levies for the coming year are the basis for assessing if we reach the $250,000 threshold. Our treasurer believes it is the proposed budget only (and not other assets already held and not proposed to be spent).

The audit was commissioned without consulting the committee, and now there is disagreement on paying the costs. Any advice or guidance you can provide would be greatly appreciated.

Answer: An audit is to be arranged before an AGM if there are more than 100 lots in the building OR the annual budget of the plan is more than $250,000.

For compulsory unit title audits in the ACT, the Unit Titles (Management) Act 2011 [A2011-41] is almost identical to NSW strata legislation.

Schedule 2, Section 2.1(1)(g) states an audit is to be arranged before an AGM if there is either more than 100 lots in the building OR the annual budget of the plan is more than $250,000.

Section 2.1A explains how to work out the annual budget for audit purposes. Paraphrasing it is an estimate of all fund contributions plus “any other amounts held by the owners corporation for the purposes of managing the units plan at the beginning of the financial year…”

As per NSW legislation, the latter has been defined as cash held at the beginning of the year.

So, as per NSW, the calculation is cash held at the beginning of the year + all types of contributions raised during the year greater than $250,000.

Matthew Faulkner
Matthew Faulkner Accountancy PTY LTD
E: matt@mattfaulkner.accountants
P: 0438 116 374

This post appears in Strata News #682.

Question: If the Executive Committee is unable to justify expenditure can the Owners Corporation request reimbursement from the Committee members to the appropriate fund?

What options are available to the Owners Corporation in seeking reimbursement from the Executive Committee?

If the Executive Committee is unable to justify expenditure on any given cost can the Owners Corporation simply request reimbursement from the Committee members to the appropriate fund?

Answer: The EC is elected to act in the best interests of the Owners Corporation.

The Executive Committee is elected to act in the best interests of the Owners Corporation in exercising the member’s functions as an executive member.

If the Owners do not like the decisions of the Executive Committee, then they elect a new Executive Committee at their next meeting or call a General Meeting. This is very much like local, state and federal elections.

The Executive Committee should contain spending to the amounts approved in the budget, however, without knowing the background it is difficult to comment further.

A party to a dispute relating to an owners corporation for a units plan may bring an application to the Australian Capital Territory Civil & Administrative Tribunal (ACAT). if the application relates to the dispute and one of the parties is:

• a unit owner or occupier;
• the owners corporation manager or former manager;
• a service contractor;
• an executive committee member.

There are certain applications that cannot be brought to the ACAT or can only be brought by certain parties. Check here for a list of dispute that can be taken to ACAT.

Jan Browne
Bridge Strata
E: jan@bridgestrata.com.au
P: 02 6109 7700

This post appears in Strata News #246.

Have a question about executive committee spending or something to add to the article? Leave a comment below.

Read Next:

• ACT: Q&A Bylaws to ban smoking in apartments
• NSW: Annual Strata Audits and Financial Statements Webinar + Q&A | LookUpStrata + OCN

This article is not intended to be personal advice and you should not rely on it as a substitute for any form of advice.

Visit Strata Committee Concerns OR Australian Capital Territory Strata Legislation

After a free PDF of this article? Log into your existing LookUpStrata Account to download the printable file. Not a member? Simple – join for free on our Registration page.