“Should We Audit Our Owners Corporation in Victoria?” is a question that we are regularly asked by strata Committees here at Strata Management Consultants. Owners Corporations in Victoria that are deemed prescribed owners corporations, among other things, need to have their accounts audited every year. Owners corporation in Victoria that are not prescribed are not required to have their accounts audited – but should they? Let’s take a closer look and break this down into 5 key areas:
- What Can You Garner from the Financial Statements?
- Different Types of Audits for Owners Corporations
- Will You (or the Auditor) be Able to Obtain all the Records and Documents?
- Complexity of the Accounts of the Owners Corporation
- What are the Objections for Auditing the Owners Corporation?
So, Should We Audit Our Owners Corporation in Victoria?
1. What Can You Garner from the Financial Statements?
Often the financial statements for smaller owners corporations are not necessarily overly-complex (‘smaller’ being roughly less than 50 primary lots or less than $100k in levies collected per annum). Therefore, a good starting point for any owners corporation Committees and Owners to scratch a bit deeper might be to run through the financial statements line item by line item.
Start by comparing the current year’s full-year actual figures to last year’s full-year actual figures. Also comparing the current year’s actual figures to the budgeted figures may also give some indication as to where to examine in more detail. Knowing where to look is good then the next step is getting account breakdowns for the line items that stood out.
The below analysis was prepared by a Committee Member (from a years ago) and ultimately illuminated quite a few areas for them to investigate.
2. Different Types of Audits for Owners Corporations
It always good to ensure that the solution fits the problem. We regularly hear a lot of Committees and Owners Corporations wanting to jump headfirst into getting an audit done.
Firstly, I think it’s important to understand that when it comes to audits and auditing, there are many different types of audits:
- Internal audit (typically an audit of internal controls and processes);
- External audit (typically an audit of the financial reports by an independent third-party accounting firm);
- Compliance audit;
- Operational audit;
- Information system audit;
- Forensic audit; and
In the context of owners corporations and strata management, I think most Committees and Owners are referencing either an external audit or a forensic audit. It’s important to understand the auditor’s role, their scope and mandate, and then to match these with the objectives that the owners corporation is trying to achieve.
3. Will You (or the Auditor) be Able to Obtain all the Records and Documents?
Owners corporation managers are often unwilling to open the entire books and records of the owners corporation at the best of times. We hear from plenty of Committees and Owners getting stonewalled when they want access to their books and records….
And there’s certainly a paradox there. The owners corporation employs the owners corporation manager to set budgets, keep the accounts and accounting records, issue levy notices, collect (and follow-up) levies, and maintain the records of the owners corporation.
The books and records that pertain to an owners corporation are the property of the owners corporation; the owners corporation is merely holding the books and records in trust of the owners corporation.
Yet why is it so difficult for the owners corporation Committees and Owners to view and obtain copies when required?
How successful are most auditors when it comes to obtaining all the source documentation and records that they need to fully undertake their work?
4. Complexity of the Accounts of the Owners Corporation
On the whole a lot of owners corporations less than 20 or 30 lots probably don’t have the complexity of accounts and records to warrant the need for an audit. We suggest that in most instances Committees or eagle-eyed Owners would be able to pick up most things from the financials and by asking a few probing questions of the owners corporation manager.
That’s a broad statement there and certainly not a ‘one-fits-all’ assumption.
5. What are the Objectives for Auditing the Owners Corporation?
Sometimes the auditor’s purpose is more concerned with checking information flow and ticking-off figures back to source documents – which can sometimes miss the vested interests and conflicts… In the landscape of owners corporations in Victoria whereby in recent years the most destruction has stemmed from:
- Poor / lack of communications by the owners corporation manager;
- Slow attendance to maintenance items;
- Simply sending out 1-2 tradies that come back with higher than market quotes;
- Insurance premiums that go up and up every year, and managers receiving insurance commissions;
- Very low barriers to entry when it comes registering as an owners corporation manager in Victoria; and
- At least 3 sketchy owners corporation management companies that have embezzled the funds of the owners (including one that amounted to millions).
So, whilst audits are definitely useful in some regards when it comes to owners corporation they don’t necessarily always uncover all the dangers and hazards that lurk beneath.
Strata Managers Collect Levies and Maintain Your Bank Account; Owners Corporations are Effectively Entrusting Them to Look After Their Funds.
Due diligence and choosing carefully is important – have a read of this article for one example of where did things didn’t go right – Don’t Trust a One-man Band with Your Money (or Owners Corporation Management).
Lastly, Strata Management Consultants specialises in not only advising and guiding Committees on how to change body corporate management companies but have also carefully vetted every management company we work with. Find out more about the value of having a Strata Consultant working for you here, or feel free to get in touch on 1300 917 848 or via email at email@example.com.
Should We Audit Our Owners Corporation in Victoria? in Victoria? – Content Copyrighted 2020 by Strata Management Consultants