How to Read a Body Corporate Financial Statement

Why Bother?

Financial statements are tabled at every AGM. Most owners scan them briefly or ignore them entirely. But they contain some of the most important information about whether your scheme is being managed well — and whether your levy money is being used effectively.

Spending 15 minutes understanding the financials before the AGM is one of the most valuable things you can do as a lot owner.

The Two Funds

Body corporate financial statements cover two separate funds:

Administrative fund: Day-to-day operations — insurance, management fees, maintenance, utilities. Think of it as the operating account.

Sinking fund: Long-term capital reserves — the savings account for major future works.

Each fund has its own income, expenditure, and balance. They are kept strictly separate.

What to Look For in the Administrative Fund

Income vs expenditure: Did the fund collect enough in levies to cover its expenses? A deficit means the fund spent more than it collected — fine occasionally, but a pattern of deficits indicates levies are too low.

Significant expense items: What are the biggest costs? Insurance and management fees typically dominate. Have they increased significantly? If so, why?

Unexplained items: Is there expenditure you don't recognise or that seems unusually large? Ask for an explanation at the AGM.

Closing balance: Is there a comfortable buffer, or is the fund nearly empty going into the new year? A very low administrative fund balance leaves the scheme vulnerable to any unexpected expense.

What to Look For in the Sinking Fund

Closing balance vs the sinking fund forecast: The forecast projects how much should be in the fund at each point in time. Is the actual balance tracking the forecast, or falling behind?

Contributions vs withdrawals: Is the fund growing appropriately, or is it being drawn down faster than it is being replenished?

Expenditure: What major works were carried out from the sinking fund this year? Were they anticipated in the forecast?

Common Warning Signs

Administrative fund closing balance is less than one quarter's worth of expenses
Sinking fund balance is significantly below the forecast recommendation
Levies have been flat for several years while costs have risen
Large "miscellaneous" or unexplained expenditure items
Insurance has not been reviewed or revalued recently
Accounts are qualified by the preparer or show incomplete information

Questions to Ask at the AGM

Why has [specific expense] increased by [amount] compared to last year?
When was the last insurance valuation conducted?
Is the sinking fund on track with the current forecast?
What major expenditure is anticipated in the next 2–3 years?
What is the plan if the administrative fund runs short during the year?

No question about the finances is unreasonable. The committee is accountable to the owners for how the money is managed.

This article is general information only and does not constitute legal advice. For advice about body corporate financial management, consult a strata lawyer or the Office of the Commissioner for Body Corporate and Community Management.