Topics

Financial Management

Getting the money to operate

The Body Corporate raises the funds to pay its way by collecting money from the owners in the form of contributions.

It uses budgets to estimate its funding needs and the contribution amounts are based on these budget estimates.

The two budgets which must be prepared for the Body Corporate are the Administration Fund and the Sinking Fund.

At the Annual General Meeting owners are presented with the Body Corporate’s budgets for approval.

The elected Body Corporate Committee prepares the budgets and submits them to the annual general meeting for acceptance by owners.

The voting owners at the meeting agree to these contributions to be levied against each lot in the complex and sets the dates for payment.

Body Corporate normally uses a contracted Body Corporate Management company to run the Administration and Sinking Funds.

Administrative Fund Budget
The Administrative Fund Budget includes expenses that are incurred annually and recurring expenditure like
  • the yearly insurance premiums
  • common area electricity
  • service contracts for lifts or Fire Safety services
  • the contract for Body Corporate management companies
  • Caretaker Managers salary
  • etc,etc,etc

Basically, the Administration Fund budget is for all the day to day expenses of running the Body Corporate’s property for 12 months. The actual amounts paid in the previous 12 months is used as a guide to predict what is necessary for the next 12 months.

Contents

  1. Getting the money to operate
  2. Administrative Fund Budget
  3. Sinking Fund Budget
  4. Sinking Fund Forecast
  5. Sample Sinking Fund Forecast
  6. Special or Interim levy
  7. Contributions and Levies
  8. Recovery of Unpaid Contributions
  9. Financial Year-End
  10. Accounting records and statements
  11. Audit of the Accounts
  12. Bank account
Sinking Fund Budget

The Sinking Fund Budget is for those expenses which are infrequent, they usually are not annual items, and are of a capital nature. It is used to raise sufficient funds to pay for future upkeep or improvement to the Body Corporate’s property over a long period of time and is normally calculated by the Sinking Fund Forecast that will outline the possible expenditure needed for a 10 year period.
The Sinking Fund budget will include capital work like:

  • new carpets in the Common Area hallways
  • painting the building(normally every 10 years)
  • new intercom systems
  • pool pumps and motors
  • emergency repairs to burst pipes
  • etc,etc,etc

Basically, the Sinking Fund is a big cash reserve of funds to be used if and when emergency repairs or scheduled improvements need to be undertaken.

Sinking Fund Forecast
The Sinking Fund Budget must allow for the capital costs in the Body Corporate’s coming financial year.

When preparing the Sinking Fund budget the Body Corporate uses a Sinking Fund Forecast to calculate the estimated cash reserve needed for the following 10 years.

The Sample sinking Fund Forecast below was prepared for Mount View Apartments by Leary & Partners Pty Ltd in July 2013.

Sample Sinking Fund Forecast
Special or Interim levy
Sometimes, unexpected or abnormal costs arise which have not been provided for in the administrative or sinking fund budgets.
The Body Corporate may levy owners a special contribution to cover these costs.
The Body Corporate Committee may fix a special or interim levy on owners to provide cash flow.
The special or interim levy is based on the levy of the previous financial year and it must be deducted off the “annual contributions” when they are eventually levied.
No Transferring between Funds
BCCM Act states that the Body Corporate cannot transfer money from the Administrative Fund to the Sinking Fund or vice-versa.
Contributions and Levies
The Body Corporate must give a written notice of the amounts levied on each owner.
It must be given to the owner at least 30 days before the payment due date.
It must state
  • the total contribution amount levied on the owner
  • the current amount to be paid
  • the date for payment
  • any discount allowed
  • any penalty for late payment
  • details of any contributions or penalty amounts in arrears.
The Body Corporate may allow owners a discount of up to 20% if the contribution due and any amounts owed are paid by the “due date”.
For late payments, the Body Corporate may allow a penalty, of up to 2.5% of simple interest, to be applied for each “whole” calendar month a payment is late
Recovery of Unpaid Contributions
The Body Corporate may recover any unpaid levies or penalties and debt recovery costs as a debt.
It is enforceable jointly and severally against the lot owner when the amount became due and all subsequent owners.
BCCM Act requires the Body Corporate to start action to recover any levy overdue for 2 years.
Financial Year-End
The two most common ways to work out the Body Corporate’s financial year-end are:
  1. If the Body Corporate was established before 13th July 1997. The financial year ends on the last day of the anniversary month of the first annual general meeting for example: if the anniversary date of the first annual general meeting is April 26, the financial year ends on April 30.
  2. If the Body Corporate was established after the 13th of July 1997. The financial year ends on the last day of the month before the month in which the plan was registered for example: if the plan was registered on August 15, the financial year ends on July 31.
Audit of the Accounts
The Body Corporate must keep proper accounting records for its financial year, such as:
  • a receipt book
  • cash book
  • bank deposit book
  • levy register
  • cheque book
  • invoices
  • statements of accounts
  • budgets
  • contribution notices.
It must also prepare a statement of accounts showing the income received and payments made for each financial year. The body corporate accounts may be prepared on a cash or accrual basis and is normally a cash basis in a smaller complex.
Recovery of Unpaid Contributions
The statement of accounts must be audited each year unless by Special Resolution the Body Corporate decides not to have an audit.
A Body Corporate Committee member, or an associate, or a body corporate manager or their associate, cannot act as the auditor.
The Body Corporate may also decide to have an audit done for a certain financial period or a particular project.
A copy of the audit certificate must be sent to all owners with the notice of the next annual general meeting held after the certificate is given
Bank account
The Body Corporate must keep any bank account solely in the name of the Body Corporate.
Accounts may be held at one or more financial institutions including a bank, building society or credit union.
All monies received must be paid “intact” into one or more of the bank accounts and all payments must be made from the account.
There should be no payments made from the cash receipts.

A Body Corporate may only invest monies in authorized trustee investments.

Queensland Community Living Handbook 

The information supplied on this website is general information only and as such any individual or company must seek their own professional advice, in relation to their own particular set of circumstances.

Strata Living in Queensland

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Steve Reynolds e: qldclh@gmail.com PO Box 394 Surfers Paradise.4217