[200William-EC] Fwd: Financial Planning and Control

[Diana Dennison]

---------- Forwarded message ----------
From: Stratasphere by STM <news at stratatitle.com.au>
Date: 30 May 2013 17:46
Subject: Financial Planning and Control
To: didee at zip.com.au


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  Edition 8 - 2013      Financial Planning and Control

    *Part 8 of 12 in Effective Governance for Executive Bodies of Strata
Communities
*

Traditionally, committees have focused well on budgets and financial
planning. Sometimes this is to the detriment of other aspects of the
management of strata communities. Other times the focus is on reducing fees
and levies rather than budgeting for appropriate expenditure. Seldom, if at
all do committees focus on financial control.

The budgeting process typically happens in the last quarter of the
financial year prior to the AGM. Last years accounts are taken as the base
and some rudimentary calculations are
applied to increase the sums thought to have increased over the year.

Budgeting for administrative expenses is not hard. It is budgeting for
capital items that presents more challenging items and test the strength of
the committee. Most agree that it is fair and reasonable that owners of the
day should save annually for the repair and replacement of capital items.
However, not all committees back this up with adequate savings.

A budget for capital items should be reviewed annually using a quantity
surveyors report about the cost and useful life of all capital items.
Simplistically, if a fence costs $10,000 to replace and has a life of 10
years, then $1,000 should be put away each year to replace the fence. This
should be reviewed annually to take account of inflation so that if
suddenly the cost of timber rises and the total replacement cost will be
more then $10,000 a catch up payment will be made and future contributions
will be increased accordingly.

Strata communities that work on this premise will have adequate funds to
pay for repairs and replacements as required, will avoid the trauma of
one-off special levies and will find their apartments attractive to
purchasers because of a healthy reserve account.

In terms of monitoring the expenditure of funds, again, strata communities
usually perform this function quite well. Usually accounts are monitored
monthly or quarterly to ensure that spending is in line with the budget.

An area that requires more attention is precautionary financial control
procedures. Most strata communities entrust their administrative and
sinking funds to strata managers with little or no investigation into how
the strata manager handles financial control internally. Three principles
underpin good financial control within a strata management company:

•Segregation of duties - dividing duties between individuals increases the
degree of protection against fraud, error or oversights. For example, if
one person records incoming cash and another checks bank statements, it
becomes easier to detect dishonesty. Segregation of duties is one of the
fundamentals of tenets of robust control. Smaller organisations are
disadvantaged in this regard;
•Qualification of staff and advisors – the committee should ensure that the
strata managers are competent and properly trained; and
•External audit – some committees are legislatively forced to have audits
prepared annually, others have a discretion. More often than not those with
discretion choose not to have externally audits performed. This practice is
to be discouraged. If costs are an issue, then perhaps an audit every three
years could be considered.

*Next week: Funding Major Works*


       Kind regards,

*Roderick Smith*
General Manager              *Stratasphere - Creating strong committees and
harmonious communities***    To view earlier editions please click here
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go to the client resource centre on our website.    Strata Title Management
offers Stratasphere to clients to assist in educating them on their roles
and responsibilities. The content within this publication is of a generic
nature and may not be applicable to all owners corporations. Strata Title
Management attempts to provide the most up-to-date and accurate information
for our clients, however we strongly recommend that individuals and
Committees seek further advice before acting on any information in this
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