Strata accounting can prove a complex area to get your head around but there is much to be gained by understanding how your levies are being appropriated.
In the decade since Caren Chen first became involved with strata titled communities, she has regularly been present when residents have had their worlds upended.
As a client relationship manager with Tinworth Accountants, it has often fallen to Chen to deliver the news that poor financial decisions made on behalf of those standing in front of her have resulted in the disappearance of their money.
It is largely for this reason Chen, whose employer holds membership with peak industry body Strata Community Australia and strata advocacy group Owners Corporation Network, urges those involved in strata to make a point of educating themselves when it comes to understanding the financial statements provided by their strata committee.
While acknowledging strata accounting is a “complicated” area, Chen says owners should not be afraid of demanding more information from their managers given that they are in essence “the customer”.
She strongly recommends owners consider an audit of their strata committee’s accounts to obtain assurance that their funds are being managed appropriately.
“It is very important owners are aware their buildings must be registered for GST when their ‘projected’ turnover (levies raised) exceeds $150,000. It does not matter if this is a one-off special levy. The ATO charge late lodgement penalties and general interest (currently at 8.94%) where you should have been registered for GST but were not. We see this very regularly being picked up when a building is being audited for the first time.”
Chen says the key areas of the accounts that strata owners need to take note of include the balance sheet – used as a photo of the net wealth of the building at the end of the year as well as helping budget the future year’s budgeting of strata levies – and the income and expenditure statements reports, which show how much was raised in levies and how this was spent during the year.
It can then be judged against the budget set by the strata committee.
Likewise, owners also need to take particular note of the financial provision portion of the accounts, which details how funds have been raised and spent transaction by transaction, she says.
Chen says it is important owners understand and are aware of how their money is being used as it’s always prudent to compare line items against budget items to ensure there are no anomalies.
Chen says that while owners can ask questions about the accounts to their strata manager at any time, it is best to do so at the AGM or strata committee meeting. Better still is if owners can first look analytically at the report before raising the issue with your strata manager prior to the AGM so they have time to investigate if any inconsistencies arise.
Chen says most owners’ corporations typically rely on their strata manager to prepare the financial statements and explain the financial position to the owners at an AGM. Oversight at the strata committee level, therefore, is critical.
“In our experience, if a strata committee approves all invoices prior to payment by the strata manager, the chances of such errors occurring is greatly reduced and this also greatly enhances the internal controls over spending.
“The key motivation here is to protect their financial position [as] we track our own bank account and [to] make sure [the strata account has] got sufficient funds without creating any needs of future borrowing.”