“Should we audit our body corporate in Victoria?” is a question that we are regularly asked by strata Committees here at Change Body Corporate.
Yes, in Victoria, deemed prescribed bodies corporate, among other things, need to have their accounts audited annually. However, if they aren’t prescribed, they 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 Body Corporate
- Will You (or the Auditor) be Able to Obtain all the Records and Documents?
- Complexity of the Accounts of the Body Corporate
- What are the Objections for Auditing the Body Corporate?
To help you decide if your body corporate needs an audit, we’ll examine 5 key questions.
1. What Can You Garner from the Financial Statements?
Often, the financial statements for smaller bodies corporate 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 body corporate 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 actual figures. Also, comparing the current year’s actual figures to the budgeted figures may give some indication as to where to examine in more detail. Knowing where to look is good. The next step is getting account breakdowns for the line items that stood out.
The analysis below was prepared by a Committee Member (from years ago) and ultimately illuminated quite a few areas for them to investigate.
2. Different Types of Audits for Body Corporate
It is always good to make sure that the solution fits the problem. We regularly hear a lot of Committees and body corporate wanting to jump headfirst into getting an audit done.
Firstly, we think it’s important to understand that when it comes to audits and auditing, there are many different types of audits such as:
- 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
- others.
In the context of body corporate and body corporate management, we think most Committees and Owners are referencing either an external or forensic audit. It’s important to understand the auditor’s role, scope, and mandate and then match these with the objectives the body corporate is trying to achieve.
3. Will You (or the Auditor) be Able to Obtain all the Records and Documents?
Body Corporate managers are often unwilling to open the entire books and records of the body corporate at the best of times. Plenty of Committees and Owners are getting stonewalled when they want access to their books and records.
And there’s certainly a paradox there. The body corporate employs the manager to set budgets, keep the accounts and accounting records, issue levy notices, collect (and follow-up) levies, and maintain their records.
A body corporate owns its books and records; the body corporate is merely holding the books and records in trust of the body corporate. Yet why is it so difficult for the body corporate Committees and Owners to view and obtain copies when required?
How successful are most auditors in obtaining all the source documentation and records that they need to fully undertake their work?
4. Complexity of the Accounts of the Body Corporate
Generally, body corporates with fewer than 20 or 30 lots may not have complex enough 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 by asking a few probing questions of the manager.
That’s a broad statement there and certainly not a ‘one-fits-all’ assumption.
5. What are the Objectives for Auditing the Body Corporate?
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 bodies corporate in Victoria whereby, in recent years, the most destruction has stemmed from:
- Poor/Lack of communication by the manager;
- Slow attendance to maintenance items;
- Simply sending out one to two 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 to registering as a body corporate manager in Victoria; and
- At least three sketchy body corporate management companies that have embezzled the funds of the owners (including one that amounted to millions).
So, whilst audits are useful when it comes to body corporate, they don’t always uncover all the dangers and hazards that lurk beneath.
Body Corporate Managers Collect Levies and Maintain Your Bank Account; Body Corporate Effectively Entrust Them with Looking After Their Funds.
Change Body Corporate is dedicated to addressing the problems that bodies corporate face. With years of research, expertise, and experience, our company has created a list of trusted management companies we work with to ensure you get the outcome you deserve.
