Common financial management issues for your body corporate
Inadequate financial record keeping
Financial record keeping is extremely important for all body corporate schemes. A body corporate’s financial records should:
- Record and explain all financial transactions for tax purposes
- Cover all details of the scheme’s assets, liabilities, income and expenditure
- Be accurate and fair reports of the scheme’s financial situation
Failure to keep financial records correctly can be disastrous for a body corporate scheme. The consequences can be wide-ranging, from not being able to claim tax rebates to facing prosecution. Body corporates need to be extremely conscientious with financial record-keeping, which is no small task.
How a body corporate manager can help
A body corporate manager can take over financial record keeping tasks, by managing:
- Invoices and statements
- Receipts of paid invoices
- Bank account statements and deposit books
- The asset register
- Tax returns via a qualified tax agent
- Arrears management
- Debtor and creditor lists
This will ensure that the body corporate can minimise the legal and financial consequences of not complying with record keeping requirements of tax, business and privacy laws.
Mismanaging the bank account
All bodies corporate must maintain at least one bank account in its name, at a bank, building society or credit union. This account can be run by anyone authorised by the body corporate (for example, committee members) or a body corporate manager suitably authorised by the body corporate.
How a body corporate manager can help
A body corporate manager needs to follow spending decisions made by the committee or the body corporate itself. He or she cannot make decisions on how and when money from the account is spent, or on what it is spent. However, the body corporate manager can manage all the administration details and tasks relating to the bank account.
Mismanaging the administrative fund and the sinking fund
There are numerous rules to be followed in managing the administrative and sinking funds. For example, a body corporate cannot transfer funds from one fund to another. Administering these funds can be a big job, and one which has significant consequences if these funds are mismanaged.
How a body corporate manager can help
A body corporate manager can ensure that the administrative and sinking funds are managed appropriately, and remain at healthy levels. This ensures that the body corporate will be able to meet all their financial obligation in the future. The body corporate manager will need to prepare a monthly reconciliation statement for each account.
Unpaid levies and debt recovery
Body corporates will often accrue outstanding debts, due to unpaid levies. This is a significant problem. Levies in arrears may accrue, leaving deficits in the administrative and sinking funds and eroding any financial buffers. Levies in arrears can have a significant impact on cash flow. If the system breaks down, the body corporate may find itself in dire financial straits and unable to pay for necessary services or repairs.
How a body corporate manager can help
A body corporate manager will send the following pieces of communication as part of their debt recovery strategy:
- Initial levy notice (30 days before the due date)
- Reminder levy notice (15 days after the due date)
- First arrears notice (30 days after the due date)
- Second arrears notice (45 days after the due date)
- Letter of demand (60 days after the due date)
If the outstanding levy still remains unpaid, the committee will then need to instruct the manager on how to proceed with the collection action. Further steps may include close monitoring or referral to a body corporate lawyer.
The body corporate manger is also better able to deal with issues arising from unpaid levies in a fair and impartial manner. This can sometimes be a sensitive task, and one which can damage relationships between people living in close proximity. An objective party can more easily deal with levy recovery issues than someone involved in the scheme. Not only will the body corporate manager be able to handle these issues competently, they can do so while keeping relationships between occupiers of the building intact.
Unpaid or late payment of invoices
Many body corporates fall into the trap of paying their invoices late – or even not paying them at all. Not paying bills on time can lead to overdue fees, services being lost and tradespeople being unwilling to work for the body corporate.
How a body corporate manager can help
An efficient body corporate manager can take care of this task in a timely manner, ensuring that body corporate schemes stay on top of their financial obligations.
Mitigating risk
Lot owners face significant financial and legal risk through poor financial management of their body corporate scheme. Many buildings are run by individual owners who have been elected to make decisions on behalf of other building owners. That means that you essentially have untrained volunteers managing assets worth many millions of dollars, and with annual turnovers of hundreds of thousands or even millions of dollars.
How a body corporate manager can help
The vast majority of body corporate schemes should seek professional assistance to manage their financial responsibilities. A good body corporate manager can not only remove the burden of managing finances, but can also mitigate the risk of poor financial management.
If you’re interested in finding out how a body corporate manager can help manage your financial obligations, contact Capitol, the leaders in body corporate management, here: https://www.capitolbca.com.au/contact-us/
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