UOAQ Newsflash #22 - Audits, Auditors and Planning for the Unexpected....Carefully
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Dear Subscriber,

We recently published an article about the value of planning for a substitute auditor:  Who Knew 5.2: Audits, Auditors & Planning for the Unexpected.

We cautioned bodies corporate to tread lightly with this initiative, to ensure their best intentions to avoid one problem did not inadvertently lead to another.

An adverse adjudication decision in  Northcliffe [2017] QBCCMCmr 69 highlights the need for the owners to insist on first receiving advice from a competent strata law professional.  It would appear the owners at Northcliffe are faced with the added cost of 2 EGMs, just to properly appoint their auditor for the financial year ending 31st May 2017.


Wayne Stevens
President
Unit Owners Association of Queensland Inc.

WHO KNEW?  Some Insights into Strata Audits

5.3:  Audits, Auditors & Planning for the Unexpected…Carefully

 

First… A Touch of History


We recently published an article about the value of planning for a substitute auditor: Who Knew 5.2: Audits, Auditors & Planning for the Unexpected.

We cautioned bodies corporate to tread lightly with this initiative, to ensure their best intentions to avoid one problem did not inadvertently lead to another.

Mention was made of an adjudication application already in play and waiting for resolution.

That application now has been decided and published, and merits our attention.
 

Northcliffe [2017] QBCCMCmr 69:  Their Latest Decision


The application concerned Motion 4, considered at the 2016 AGM.

Motion 3, which was not in dispute, concerned the statutory motion whether to have an audit.

Motion 4 was the statutory motion to appoint an auditor, and it was worded as follows:
“That pursuant to the Body Corporate and Community Management Regulations 1997 and subject to the resolution of the previous motion, that John Garforth of John Garforth and Associates (or an Auditor appointed by the Committee) being a registered company auditor and who has the necessary qualifications and experience required by the Act be appointed to audit the statement of accounts of the body corporate for the financial year ending 31 May 2017

The primary concern with the motion was the inclusion of the words (or an Auditor appointed by the Committee)”.

Specifically, an auditor has to be appointed in accordance with subsections 153(2) and 153(3) of the Accommodation Regulation Module.[i]
  • Subsection 153(2) requires that the auditor must be appointed by an ordinary resolution of the body corporate in a general meeting.
    This makes the appointment of an auditor a restricted issue, under subsection 42(1)(d) of the Accommodation Regulation Module.  That is, a committee cannot appoint an auditor.
  • Subsection 153(3) provides that a motion for appointment of an auditor must include the name of the auditor.
The Adjudicator seemingly had little difficulty concluding:
  • While the reasoning behind inclusion of these words in the motion is understandable, I believe that the result was that the motion did not comply with the specific requirements of section 153…”, at [26]; and
  • I am therefore of the view thatmotion 4…was at all times void.”, at [29].
It seems that a body corporate can plan for a substitute auditor, but the requirements of s.153 must be closely observed.  It may even be advisable to seek advice from a competent strata law advisor.
 

Northcliffe [2016] QBCCMCmr 211:  How One Dispute Lead to Another


The offending words “(or an Auditor appointed by the Committee)”, included after the nominated auditor, John Garforth, first appeared on the Northcliffe scene in Motion 4 at their 2015 AGM.

Prior to then, it had been the nominated auditor or no one.

Unfortunately, none of the owners noticed the words’ inclusion at the time of the 2015 AGM, or if they did, they did not appreciate the implications in terms of contravention of the BCCM legislation.

Looking at the ‘enhanced’ Motion 4, it is easy to understand why this error was overlooked by owners back in 2015, and why it may have continued to slip through unnoticed and unchallenged in subsequent years.  After all, body corporate managers are paid professionals, and owners expect them to get things like this right.

It was only because of the findings and comments by the Adjudicator in Northcliffe [2016] QBCCMCmr 211,  issued in mid-May 2016, that some owners paid closer attention to all of the motions included in their October 2016 AGM… and then concerns emerged about Motion 4.
 

Northcliffe may not be alone


It is understood that Motion 4 may be a standard-form template used by Northcliffe’s body corporate manager for its other clients, and that the ‘enhanced’ version may have been in play from early-2015.

If this is the case, then those other clients may be interested in knowing that their own Motion 4 may also be void. If it is void for Northcliffe, then logically it is also void for these other clients.

It is understood that the body corporate manager has been contacted, seeking their assurance the offending words are no longer used in their standard-form Motion 4… but so far no response or assurance has been forthcoming.
 

Pull just one thread, and the whole garment can start to unravel


You may have noticed that the Adjudicator in Northcliffe [2017] QBCCMCmr 69 did not need to order an EGM to rectify the mistake with the 2016 Motion 4, since the body corporate already had taken the initiative of calling an EGM for 14th February 2017.

The purpose of this EGM was twofold:
  1. Revoke Motion 4 from the 2016 AGM; and
  2. Re-appoint an auditor, presumably in accordance with s.153.
We understand that at that EGM on 14th February, Motion 4 from the 2016 AGM was successfully revoked.
 
Unfortunately, the motion to re-appoint an auditor had to be ruled out of order by the Chairman, under section 79 [ii]of the Accommodation Regulation Module.  [This is a story for another day, and concerns the words “registered company auditor”.]

This still leaves Northcliffe with a continuing responsibility to appoint a suitably qualified auditor for the financial year ended 31st May 2017.  Northcliffe will have to call yet another EGM, and soon. 

This saga demonstrates how a body corporate committee can so easily end up wasting a whole lot of body corporate funds simply by failing to verify both the law and the facts regarding what should be a very routine, but nevertheless very important, matter.

We will keep you posted…
 
[i] Similar provisions exist in the Standard Regulation Module
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