Dear Tony: Our strata council is doing some weird and creative accounting and the owners are concerned we are not getting the real picture.
Over the years, we have approved a number of expenses from our contingency fund for routine upgrades and repairs. The last was $25,000 for fencing, and the strata moved the money from the contingency fund to the operating fund. The final amount of the project was $19,000.
But at the end of the year, our budget was overspent in a number of areas, and our year-end balance had a small surplus of $200. Our council used up the $6,000 difference as a slush fund for a number of questionable expenses.
If we total the past five years this has happened, we have spent more than $50,000 of our contingency on slush-fund expenses never properly accounted to the owners. Is this a normal practice?
Collen M., Abbotsford
There is a basic rule of finances in the Strata Property Act and Regulations that many strata corporations seem to selectively ignore: 鈥淭he operating fund, special levy funds and contingency reserve funds must be accounted for separately.鈥�
Each of the funds has separate approval procedures, accounting requirements and end-of-project conditions. The only way to meet those conditions is to annually report to the owners the activity of each account. At the end of each fiscal year, every account requires a separate financial report showing the opening balance, any contributions to that fund, the details of any expenses to that fund, and the closing balance.
The operating fund is approved at an annual general meeting and can be amended by majority vote at the time the budget is considered. The account includes all of the operating expenses for the next fiscal year, and includes the amount approved to be contributed to the contingency fund. These two amounts are shown and calculated separately, so each month, every owner knows how much of their strata fee goes to the operating budget and the contingency.
The contingency fund is the strata鈥檚 reserve fund, used to approve expenses that occur less than once a year. These are for emergencies or insurance deductibles, or resolutions approved either by a three-quarters vote or majority vote of the owners at a general meeting for specific projects.
When a contingency fund expense is approved, either by council for emergencies or an insurance deductible or by a resolution of the owners, the amount is NOT transferred to the operating fund as a revenue/expense item.
The amount approved is for the purpose intended from the contingency fund, and the details of the expense are reported as part of that fund. This prevents strata corporations from abusing and manipulating contingency expenses, as in your situation. If the strata only spent $19,000 on the fence, the remaining $6,000 remains in the fund and council does not have discretion to spend the remaining funds on other expenses without the approval of the owners.
Special levy funds must also be accounted for separately. There are still many strata corporations that require special levies because their contingency balances are not sufficient to meet major repairs.
Each special levy must be accounted for separately and is not part of either the operating or contingency fund.
At the end of a special levy, if any owner is entitled to receive $100 or more in a refund, the balance must be refunded to all owners, and all active special levy accounts in a fiscal year must be reported separately as part of the financial reports of the annual general meeting.
Tony Gioventu is executive director of the Condominium Home Owners Association.
