34 Union Street - a really nice place to call home, close to everything, even the airport, but it could be a lot better

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A bit about money

Understanding our financial reports – AHB September 2020

I have occupied an apartment in our building at 34 Union St since February 2011. Like every owner, we settled down to a pleasant life at 34 Union Street.

In a remarkably short time problems arose, and with more investigation came more unpleasant findings. Many of the faults would have happened unnoticed particularly to non-resident owners. A fairly dramatic escalation came when the building was found in breach of fire regulations and the expensive installation of a sprinkler system was required.

The increase of problems, how they were to be fixed and the limited opportunity for legal action required unusual effort by your manager and committee. (Both the developer and the builder had "folded their tents" and legally no longer existed.) Eventually with good legal support we had success at VCAT.

We are now in 2021 and it would be quite reasonable for an owner to reflect on how we are positioned financially. We had an Admin levy to cover management and all routine maintenance, a Maintenance levy, special levies including $1.232 million from the sprinkler levy to fix that specific problem and $2.45 million from VCAT, totalling $3.682 million.

The annual financial statements presented to us each year fail to meet the requirement that they be understood by the target audience, the owners of the 56 properties that constitute our Owners Corporation. An assumption should be made that they have no particular skill in comprehending financial statements.

If we look at the financial statements presented to the 2021 AGM we find our net assets are about $33,998 – sounds like there’s not much left of the $3.68 million – but look closer. There’s one line that says “Total Assets $903,204” and that sounds encouraging, but just below it has “Total Liabilities $869,206”.

When we look closer we find among our "Assets" an investment of $878,177 and in our "Liabilities" $832,625 described as "Legal proceeds in advance". How can that be a liability? Surely the liability is better described as "Committed restoration works"?

If we pursue our look at the “Financial reports” there are more puzzles. The planned expenditure budgeted in 2021 for the items labeled “Maintenance & Repairs” and “Essential Services & Maintenance Agreements” total $61,130. We have to assume that the “Maintenance Levy” that totals a little less than $20,000 annually is purely a supplement to cover the combination of “normal” maintenance and the unexpected.

That's the puzzle presented by the annual financial statements. Where is the indicator of our present position, something that says we are managing our legacy issues with the funds awarded by VCAT and our Special Levies?

A financial trouble shooter who examined our annual financial statements at my request made the comment that they certainly needed a lot of explanation to work out what they were about. When I explained that we had an expensive start involving unexpected levies, legal fees and an eventual win, his response was that we should not have tried to fit everything into Administrative and Maintenance categories, but should have had a new "Recovery" category.

Whatever the name, if we recorded every item related to our unexpected activity in that box we would know exactly how we stood in terms of liability for the yet to be replaced Timber Cladding and the new Maintenance Plan.

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