UOAQ Newsflash #12 - Whose Bank Account Is It?
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Dear Subscriber,

Some owners may be aware of recent media coverage about a former BCM charged with an alleged fraud of $750,000.  We cannot, and do not, make any comment or inference either directly or indirectly about that matter.

However, now is an opportune time to alert all owners to a very common  ‘strata industry practice’, one which exposes their funds in the transaction accounts to an unnecessary risk of catastrophic loss.

Specifically, this risk concerns the absence of control, by the owners, of the transaction account.  This is a systemic, and endemic problem across Queensland.

This article was first published on 16 August 2016 in LookUp Strata. We feel this ‘strata industry practice’  requires attention from both the Commissioner’s Office and Strata Communities Australia (the BCMs association).



Wayne Stevens
President
Unit Owners Association of Queensland Inc.

WHO KNEW?  Some Insights Into The Strata Banking Game

3.3:  Whose Bank Account Is It?


Many owners may not be aware that their funds are sitting in someone else’s bank account.

Many owners pay their levies electronically via an on-line facility into a transaction account operated by their Body Corporate Manager (BCM) under the name of the Body Corporate.  This transaction account is then used by the BCM to pay the bills on behalf of the owners.  It is a very common ‘strata industry practice’.

There are at least 2 major risks with these transaction accounts.


Risk 1: Poor Interest Earnings

Transaction accounts are often no more than electronic versions of what used to be called ‘cheque accounts’, earning virtually no interest.  We already have alerted owners that it is common practice for many BCMs to park large sums of owners’ funds for extended periods in these transaction accounts.  This practice can cost owners many thousands of $$$s in foregone interest each year. We wrote about it previously here.
 

Risk 2: Lack of Control

Some owners may be aware of recent media coverage about a former BCM charged with an alleged fraud of $750,000.  We cannot, and do not, make any comment or inference either directly or indirectly about that matter.

However, now is an opportune time to alert all owners to another ‘strata industry practice’, one which exposes their funds in the transaction accounts to an unnecessary risk of catastrophic loss.

Specifically, this risk concerns the absence of control, by the owners, of the transaction account. 

If you are not a signatory, you do not legally control the account.
It is true that the account must have the name of the Body Corporate on it.  But what really matters is the name of the signatory.

Being the signatory to any bank account means having access and control of the account and the money in it. Conversely, ‘not a signatory’ means no access, no control… and if any owner has any doubts about this, try asking the bank for access to your transaction account.

In Queensland, it is a common ‘strata industry practice’ that none of the owners are signatories to the transaction account, not even the Chairman, the Treasurer or other committee members.  The Body Corporate Manager (BCM) is usually the sole signatory.

Q: What happens if the BCM misappropriates the money?  A: You could lose the lot!

You may be able to recover your losses from either your own insurer or the BCM’s insurer…but it is difficult imagining the bank offering to make good on the losses.
 

Prevention Rather Than Cure

Most Bodies Corporate inherit this type of transaction account from the original developer.  Then the practice just develops a life of its own, rolling on from one year to the next.

It should be remembered that this ‘strata industry practice’ is just that, a practice…it is not a legal requirement. There is no statutory impediment to owners taking back control and ownership of their own money.  If the owners wish to do so, they can.

This doesn’t mean that the BCM has to stop operating the transaction account on behalf of the owners, using it to collect the incoming levies and pay the bills.  This is a service most owners, especially the Committee members, would prefer to retain and pay for.

It is more a question of ensuring there is just enough money in that transaction account to cover the bills when they fall due… but no more than that.

Managing this balance can be quite easy and straightforward.
 

A Simple, Safe Solution

One very common solution involves the Body Corporate establishing an interest-bearing holding account in its own name.  Then, the Body Corporate directs the BCM that all receipts flowing into the BCM’s transaction account must be electronically on-forwarded, without delay, into the Body Corporate’s own account.

The signatories to the Body Corporate’s holding account are usually Committee members eg the Treasurer, the Chairman.  This provides the owners, through their elected representatives, with access, control and ownership of their money.  The Body Corporate can then set its own rules about how their Committee will deal with its money.

When funds are required by the BCM to pay the bills, an electronic request is made by the BCM to the signatory of the Body Corporate’s holding account.  This request should detail how much is required, for whom, and for what.  If satisfied with this request, the Body Corporate’s signatory then electronically transfers the money across to the BCM’s transaction account.

To ensure there are no unfortunate delays in this request/transfer process, many Bodies Corporate will allow their BCM to be one of the signatories on their Body Corporate holding account.  This may compromise the integrity of the new process to some degree: however, the Body Corporate’s designated signatory eg the Treasurer, always has real-time access to the holding account.

Concerns are often raised about the amount of work that may be required of the Body Corporate’s signatories.  It is our experience that reference to their Administration Account history will inform owners that nearly all expenses, especially the large ones, are easily budgeted for in terms of both timing and amount eg energy, pool maintenance, lift maintenance, insurance, BCM’s fees, caretakers fees, etc.  Unexpected, one-off expenses are easily managed, as and when they arise.

This budgeting process also allows the Committee to easily identify amounts surplus to foreseeable requirements, which then can be transferred in a timely manner from the Body Corporate’s holding account across to the investment portfolio.
 

UOAQ Service and Support

Helping set up this type of banking arrangement is one of the many services the UOAQ offers to its members, via an associated money-management service run by our Treasurer, under ASIC licence. There is no set-up fee, we cannot touch your money… we simply identify the best deals available and help you with the paperwork.  Please contact the office for more information.
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