Overbudget again | Strata Committees | Flat Chat Forum: Your Questions Answered
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Last year my SP sent the admin budget into deficit. The Treasurer then budgeted even less for the following year.
There was a s162 application made about many aspects of the management including the poor budgeting. In the s162 application it was stated that it appeared as if the budgeting was very poor and it was highly likely the admin fund would again go into deficit.
The admin budget then went 18k into deficit for the next year.
What do owners do when they can see it coming and nobody wants to know about it?
Budgets for the year have to be approved at each AGM. If you don’t think whoever estimated the budget has allowed enough, then you should be able to propose an amendment to the budget when this motion comes up. As long as the majority want to set the admin fund contributions to a reasonable level (to cover all expected costs), you shouldn’t have an issue. It’s not up to just one person, it’s the whole OC’s job to set / approve the budget. So you need to get the majority interested in the cause (aka deficit is bad) before your next AGM.
In the meantime, is there funds in the sinking fund to cover the deficit? I believe there’s only a certain time frame (around 4 months?) that it is allowed to cover it, before a EGM should be called to approve a permanent funds transfer (from sinking to admin assuming your sinking is currently covering it). If your sinking fund isn’t covering it for now, you may end up with a special levy situation (which most people generally don’t like) so that could be a good way of getting people interested in setting the admin budgets more realistically in the future.
Thanks random; some sound recommendations.
The situation was that the 2009/10 admin budget went $5k into deficit and then the 2010/11 AGM approved a budget that was about $15k less than the 2009/10 admin budget with the same expected expenditure. It seemed obvious the admin budget would go well into deficit again.
I just got the auditors report (large SP) and the admin budget went over $18k into deficit in 2010/11.
In a s162 application i included the auditors report for 2009/10 and showed the budget seemed ridiculously small and that a deficit seemed very likely again. Poor financial managment meant nothing to the adjudicator and did not even get a mention.
This is one of those SPs where most people have no idea, AGMs are very hostile environments, as long as there is money in the bank no one really cares what is going on financially and penny pinching at an AGM is an owners duty.
There was enough money in the sinking fund to cover debts but the idea the money was being spent from the other fund and needed replacing as required by the Act is a concept the EC would never accept. OC funds are like a general revenue coffer to the Treasurer, it is all OC money and there is no real distinction between the funds.
The OC is run by a dominant clique whose attitude towards compliance is poor, replacing the EC is not an option; the only real hope was a s162 order but that failed.
What do owners do when they can see it coming and nobody wants to know about it? I think Jimmy T may have answered that one in another topic; time to move out.
Unfortunately anyone who does a strata inspection is likely to be shown the SP has compliance issues that lead to the erosion of equity and so the whole financial issue devalues a units worth if it does not completely dissuade a buyer.
I have been in a similar situation for a number of years. The EC and the Strata Manager refuse point blank to accept that when a fund goes into deficit they must raise a special levy to reimburse the other fund that paid the bills. They claim that the next time that owners pay their levies means that the fund is 'reimbursed', and there's no need to have an EGM and a special levy. Some other owners are concerned, but mostly they don't bother to look at the issue. In 3 of the last 6 years there has been a deficit in the Admin fund.
I'm not sure if the Strata Manager reallly is that incompetent, or they just agree with The Committee for a quiet life. When an audit is required, the Strata Manager won't even show the auditor the annual financial statements – they present him with the listing of receipts and payments and he audits that. So I think they know they have something to hide. But the Committe doesn't even know the difference between a trust fund audit of receipts and expenditure, and an audit of the financial statements, so they just accept the report.
Of course, this is the same Strata Manager that couldn't correctly count the votes on a Special Resolution at the AGM until the CTTT told them they had to do it again. So there's a good chance it is simply incompetence.
Well, the law seems pretty clear on this:
71What money can be paid out of the sinking fund?
(2) … an owners corporation may disburse money by transfer from its sinking fund to its administrative fund or by meeting from its sinking fund expenditure that should have been met from its administrative fund if the owners corporation complies with subsection (3).
(3) The owners corporation must, not later than 3 months after the disbursement, make a determination under section 76 (1) of an amount sufficient to recoup the amount of the disbursement.
Doesn't seem to be much room for discussion there. But my major concern would be what kind of state your sinking fund is in, relative to your obligatory 10-year plan.
There's often a bit of give and take in moving money to and from funds but the problems arise when you discover it's been masking a fundamental shortfall to service short-term needs.
Jimmy T I agree with you that the Act is clear on how shortages in admin funds should be managed. However our strata manager simply decided to run the admin fund in deficit ( overdraft against the positive balance in the sinking fund). That meant neither the sinking fund paid the admin expense, nor did the sinking fund transfer $$$ into the admin account, thus s76 was not triggered to alert owners. It wasn’t until six months later at the AGM that the owners corporation became aware of a significant admin fund shortage (approx $1,000 per apartment). We still can’t find out when it actually went into “negative balance”.
Lawful or not, I don’t believe the Act intends for this “overdraft” to happen.
As the new treasurer , I’m being told its about to happen again. Can I say insist “no overdraft ” or whatever you want to call it, follow s71 and s76?
Jeremy, you’re right. Regardless of the movement of money, your Strata Manager has presided over un unsustainable drain on the sinking fund, which means your strata plan is not only in debt but non-compliant with the law. The SM sounds like he was trying to avoid the inevitable hike in levies (or maybe you have a former EC member who sold recently). Anyway, what you need is a budget that a) restores the Sinking Fund to it’s correct level (over two or three years) and b) puts enough money in the admin fund to run the building.
You might want to have a serious look at sacking your strata manager who has allowed/encouraged this to happen. If your sinking fund is over-supplied, you adjust the payments at the next budget – you don’t start playing “find the pea” with cups of money.
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