VIC: Q&A Financial Statements, Bank Accounts and Audits

This article discusses auditing and your owners corporation.

Table of Contents:

• QUESTION: Reviewing a financial statement from our previous OC Manager, I have found several dubious charges. Is this a police matter or should we have the books audited?
• QUESTION: In Victoria, what is the Tier 5 financial reporting requirements when preparing financial statements?

Question: Reviewing a financial statement from our previous OC Manager, I have found several dubious charges. Is this a police matter or should we have the books audited?

Reviewing a financial statement from our previous OC Manager, I have found several dubious charges. I’ve checked these charges with suppliers.

The discrepancies include a charge of $1685 for Essential Services when these services were billed as $232. There are also charges of three water excesses of $2500 each when no work has been carried out or billed. There are also Owners Corporation charges for repairs in addition to agreed insurance work.

What should I do? Is this a Police matter? Should we get an audit done? If we get an audit done, what are the next steps?

Answer: I would engage an auditor and provide the auditor with your concerns. If the audit report supports your findings, then I would suggest consulting a strata solicitor would be the next step with a view to potentially taking the matter to the tribunal for remediation.

Rod Laws
TINWORTH & CO
E: RodLaws@tinworth.com
P: 02 9922 3660

This post appears in Strata News #570.

Question: In Victoria, what is the Tier 5 financial reporting requirements when preparing financial statements?

Answer: it is still recommended to meet industry best practices and offer a complete financial statement & balance sheet reconciled against the individual bank account on an accruals basis.

All references below relate to the Owners Corporations Act 2006.

There is a fair amount of unpacking required to answer this question effectively.

Two Lot or Services Only?

Firstly, as general information, a Tier 5 Owners Corporation can be in one of two forms, either:

1. A two-lot subdivision, OR
2. A “services only” subdivision where there is no common property, but there are either metered or unmetered supply or services that are shared (which can include water, gas, drainage, data etc.)

Different exemptions for different parts of the act apply depending on whether your Owners Corporation is a two-lot subdivision or services-only. For more information, you should become familiar with Part 2, S7A and S8.

Getting to the question at hand, financial reporting requirements for a Tier 5 Owners Corporation.

How funds are held

The Manager must keep Owners Corporation funds in a separate bank account S122(2)(c) held in the name of the Owners Corporation S27(2). In a nutshell: A dedicated individual bank account should be operated for Owners Corporation transactions and funds.

What records must be kept?

S33 requires the Owners Corporation to keep records of all transactions such as members fee payments and paid invoices as well as assets and liabilities such as fee arrears and unpaid contractor accounts. In a nutshell: You must have a record/paper trail for every transaction in and out of the account.

Financial Statement Requirements.

You will notice that Part 3 S34 provides precise requirements for Tiers 1, 2, 3 & 4. However, it appears to be silent concerning a specific financial report format for Tier 5. There is, however, a requirement hidden in a separate part of the act. Within Part 6 S126 it states, “The manager of an Owners Corporation must submit a report of all money held on behalf of the owner’s corporation by the manager on trust and any disbursement of that money to each annual general meeting of the Owners Corporation”. The act goes further to require “details of receipts and disbursements of money held on behalf of the Owners Corporation by the manager on trust in the relevant year… unless those details are included in the relevant financial statements prepared under section 34”. In a nutshell: Annually, the Owners Corporation must provide a report on all funds held, including all receipts & disbursements in the Managers report, unless this information is disclosed in a Financial Statement.

Despite the above seeming to provide a lower standard for Tier 5 OCs, it is still recommended to meet industry best practices and offer a complete financial statement & balance sheet reconciled against the individual bank account on an accruals basis. This reporting format has been the industry gold standard for many years as it provides transparency, accountability and a clear picture of financial performance.

Whilst this may be cumbersome for some self-managed Owners Corporations, this is one of the many justifications for engaging a professional manager who will provide professional financial reporting services for your Owners Corporation as part of their paid service.

Deryck Walker
SMTI
deryck.walker@smti.com.au

This post appears in the March 2022 edition of The VIC Strata Magazine.

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