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I am concerned that our Admin Fund budget appears to be running a deficit for the current financial year. Is this allowed by Strata Law and I am right to feel concerned?
I guess we must be using Sinking Fund money to cover the loss and will we have to repay it at some later time?
Thank you.
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Section 71 of the strata Act allows a sinking fund to lend money to the admin fiund provided it is repaid in three months. This is a recognition that every organisation can have cash-flow problems from time to time and basically allows the money to be lent for the duration of one levies collection cycle.
That's one reason OCs have to keep on top of levies payments – the sinking fund is not a well you can go to too often.
The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
Our admin fund has gone into deficit for the last 2 years. The first time wasn’t so bad because the deficit reflected uncollected levies and there was no loss of equity but the second year saw many thousands wiped from the equity of the SP* due to some significant overspending.
There is no genuine separation between our admin fund and sinking fund; it is all just money in the bank. There was no short term transfer of money from one fund to the other to cover the overspending that led to the deficit and it is unlikely the treasurer was even aware of growing deficit.
The deficit only became “public” knowledge, 8 or so weeks, after the annual audit. The AGM then inappropriately amended a motion to transfer the deficit amount from the sinking fund to the admin fund. This was not some short term transfer to pay bills – the bills had already been paid. The purpose of the provisions in the Act are to allow an SP to pay money, that a fund does not have, from the other fund and then recover it via a special levy. In our case nothing was recovered and nothing will get recovered.
I would go on but the details are irrelevant; the moral to the story is CTTT** did not care about the poor financial management of my SP when some of the issues were highlighted in a s162*** application.
I am aware of what the Act says in relation to financial management and my SP has no regard for any of it and there is no recourse until things get very dire. Even after my SP lost a significant amount of money through poor planning and hopeless compliance to the Act, CTTT were happy to leave the management in the hands of the inept ones who “manage” the SP.
If you have concerns about your SPs financial situation then you need to pull off a coup and move forward from there. Remember there are no strata police unless things are getting very dire.
[For the uninitiated …
* SP = Strata Plan – meaning the building or the complex.
** CTTT = Consumer Trader and Tenancy Tribunal … the strata 'court' where you go (after you've had no joy at Fair Trading)
***S162 – Section 162 is the part of the strata Act that allows the CTTT to appoint a strata manager to take over all the functions of the owners corporation and executive committee. – JT]Hi All,
Could I suggest that if this is occurring and you are concerned by it, get involved and sort it out. A simple start is getting elected as the treasurer. As the treasurer you should be able to get monthly financial reporting from your strata manager (or real time accounting on any given day). Ask for a copy of the budget and chart of accounts. Request that all invoices (either contractual works, eg, cleaning, gardening, electricity, water etc, or the invoices for repairs/maintenance, those irregular accounts). Once you have these you can than code the invoices as you require. Your strata manager should be happy enough to allow this to occur.
The big issue I see is the payment of repair invoices out of the admin fund… Which if you look at the strictest interpretation of the act, is not how it was intended…
Strata accounting is typically (or should be) some of the simplest accounting!
My understanding is that the sinking fund is there precisely for that purpose – to maintain and repair common property. Strange as it may seem, there are some SPs where the sinking fund is held on to tightly as some sort of disaster relief emergency measure which doesn't make any sense at all, considerinmg you are probably also paying insurance premiums.
In fact, I know buildings where the sinking fund has been used to upgrade the building way beyond basic repairs. Is that wrong? Perhaps, in a strict interpretation of the Act. Is it bad? I'd say not, unless the work was frivolous and the money spent was needed elsewhere.
Sounds like your EC office bearers would benefit from some of the strata management courses which, I think, most if not all of this website's sponsors provide in some form.
Meanwhile, the money 'missing' from the admin fund to legitimately pay for repairs could be a considered a loan to the sinking fund which it can now repay. Creative accountancy is a wonderful thing.
The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
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