A body corporate has certain financial requirements and obligations that must be met in order to keep it operational. While body corporate financial management can seem complex, you don’t need to know every financial detail, rule and obligation yourself. Your body corporate manager will usually have it covered. However, if you’d like to know more, below is a rundown of the basics of managing money in a body corporate situation.
Body corporate bank accounts
The starting point for any money management method is a bank account. All bodies corporate must have one. All schemes under the Standard Module, Accommodation Module, Small Schemes Module and Commercial Module are required to have one or more bank accounts at a financial institution such as a bank, credit union or building society.
Who can manage the bank account?
The account can be managed by anyone authorised to do so by the body corporate, or a body corporate manager or associate of the manager who is authorised by the body corporate to do so. The body corporate manager can only manage the account however and cannot make decisions on when and how the money is spent. The committee (generally at a committee meeting) or the body corporate as a whole (at a general meeting) make such decisions and authorise the body corporate manager to carry them out. As a side note, if the body corporate no longer engages the services of the body corporate manager, they must notify the financial institution in writing that the manager is no longer authorised to operate the account.
Statement of accounts
It is vitally important that the body corporate keeps accurate accounting records. The statement of accounts must include a statement of assets and liabilities, show the income and spending of the body corporate for the current financial year (including expenses, allowances and remuneration paid to committee members), and include corresponding figures for the previous financial year.
The statement of accounts can be prepared on a cash or accrual basis.
Administrative and sinking funds
All money received into these funds is paid into the body corporate bank account; likewise, all payments made from these funds is made from the financial institution account. Payments from either of these funds can only be made following a written request for payment or presentation of written evidence of payment, such as a receipt. Funds cannot be transferred from the administrative to the sinking fund and vice versa.
Body corporate budgets
As with bank accounts, schemes registered under the Specified Two-lot Schemes Module are not required to have a formal budget (although they can choose to agree on expenses to ensure appropriate financial management). Schemes registered under all other modules must prepare a budget for the administrative and sinking funds each financial year. These budgets aim to forecast body corporate spending for the year and determine how much owners need to pay in body corporate levies. The cost of goods and services usually increases from year to year, so budgets need to account for this rise in costs. Committees should review previous expenditure and consider obtaining quotes for goods and services when preparing the budget.
The budgets are presented at the annual general meeting, and can be approved by ordinary resolution.
If a proposed budget needs to be adjusted, it can be done at the annual general meeting, as long as the amount of the adjusted budget is not more or less than 10% of the original budget, and is approved by a majority of voters. If the budget is changed, the levies must also be adjusted to accommodate the change. Each owner is entitled to receive a copy of the approved budget along with the minutes of the annual general meeting.
There are no financial reporting requirements for schemes registered under the Specified Two-lot Schemes Module, but schemes registered under all other models have certain requirements that must be met.
Reporting to the committee
To ensure financial transparency, a body corporate manager who pays a bill on behalf of the body corporate must give a written report on the payment to the committee (if asked).
Transfer of financial records
If a body corporate manager’s contract ends, all financial records must be given to the body corporate within 30 days after the contract has ended. Within those 30 days, the body corporate committee can give notice to the manager asking for return of all body corporate property and records; in which case the manager has 14 days to do so.
Auditing body corporate accounts
Schemes registered under the Specified Two-lot Schemes module have no auditing requirements to carry out. Smaller schemes can decide to audit their accounts, but the auditing requirements for such schemes are not as strict. Schemes registered under all other modules must make a decision at the annual general meeting about auditing their accounts. If they decide not to go ahead with auditing, they can pass a motion to this effect at the annual general meeting. This motion is passed by special resolution. If this motion is not passed, the body corporate must have its accounts audited. It will then need to pass a motion by ordinary resolution to appoint an auditor.
The appointed auditor must have appropriate experience and qualifications, be independent and not a body corporate manager or committee member. The auditor will examine the financial affairs of the body corporate and provide a certificate reporting on the accounts.