In this special Budget edition of our Bulletin, we provide two important articles devoted to the scrutiny required on the annual budget, what to look for, who does what, what meetings are required, voting and so on.
- The first article is drawn from work done by our Treasurer last year and
- The second is a cautionary tale from our honorary auditor Bishop Collins based on their experience in auditing village accounts.
Craig Bennett
RVRA President
What is the Village budget?
The Village Budget is an annual reflection of the costs of running and maintaining your Village, including staffing, building insurance, cleaning, gardening, repairs and maintenance, common area electricity and water and so on. Under the Act, residents are required to reimburse the Operator for these costs, and the budget is the vehicle to set these costs out in a structured way and to seek the agreement of residents to the proposed expenditure therein.
The objective is that the total of the reimbursement, which is made up of resident payments known as recurrent charges, should be equal to the total of proposed expenditure. The costs reflected in the budget must not include management’s legal costs, sales costs, capital replacement and a few other items listed in RVRA Information Sheet 29. The budget must be presented to residents at least 60 days before the commencement of the next financial year.
How is the budget prepared?
The budget is usually prepared by the Village Manager/Operator and based upon historical expenditure data, projected increases, information sourced from the Asset Management Plan and known costs that must be dealt with in the coming year. The process usually starts in the third quarter of the financial year and, as outlined above, must be finished and presented to residents at least 60 days before your financial year ends. It should be noted that the budget is the Operator’s responsibility and residents have limited input.
For most villages where the financial year ends 30 June, this means it must be presented to residents by 30 April each year. The Treasurer/Finance sub-committee of the Residents’ Committee is usually consulted by the Operator before release to residents to gain feedback and to discuss any options that might be available.
Who checks the budget on behalf of residents and negotiates with the Operator?
If you have a Residents’ Committee, it is this body (or the Treasurer/Finance sub-committee) that is responsible for checking the budget. If there is no Residents’ Committee, individual residents can do this. Checking can include reviewing the data used to form the budget, checking quotes for major items included (within reason) and ensuring prohibited items are not included.
If there is a need to negotiate before the budget is presented it is the Residents’ Committee that does this. It generally involves suggesting changes to individual line items in the budget to reduce expenditure and make the budget more palatable when it is presented to residents. This may need to be done again following a vote by residents that rejects the increased recurrent charges therein. If the budget has been rejected and successful negotiation takes place, then the matter must come back to the residents for vote again.
Calling a meeting of residents
Within 30 days of receiving the annual budget, the Act requires that residents meet, consider and vote (if necessary – see below) on the proposal to approve the budget expenditure. Such a meeting is referred to as an Annual Budget Meeting, and at least 7 days’ notice (preferably more) of the meeting is required to give residents time to consider the information provided by the Operator and the motions proposed. The notice of meeting must include an agenda, matters to be discussed and an invitation to submit questions in advance of the meeting.
The other related issue that must be dealt with in that meeting is the appointment of an Auditor for the coming year. If audit fees are included in the budget, Operators must seek the consent of residents for the appointment of a suitably qualified person as the auditor of village accounts and this must be done annually unless residents have agreed to a longer appointment.
Do residents need to vote to accept the budget?
Your contract will state the method by which recurrent charges can be increased, either by a “fixed formula” or “otherwise than by fixed formula”. The former often ties changes to increases in a specific measure, such as the Age Pension in the same period. The latter is the most common and will generally refer to increases in recurrent levies related to increases in the CPI, usually the Sydney All Groups measure for the preceding 12 months. This is important to understand as it determines whether or not residents are required to consent to the increase in recurrent levies and the proposed budget.
If the increase is equal to or less than the CPI, then residents are not required to vote and are “taken to have consented” to the proposed budget. The Operator is still required to provide the budget to residents in the same 60-day timeframe, but the advice of variation in recurrent charges is not required until at least 14 days before the change is due to come into effect. Under the “fixed formula” approach, no consent is required, and the variation advice must still be provided at least 14 days before the change is due.
If the increase in recurrent charges exceeds the prescribed CPI measure, then residents are required to vote to accept both the increase in recurrent levies and the itemised expenditure in the budget. Residents must “meet, consider and vote” on the proposed budget and be given the opportunity to question the Operator and/or the Residents’ Committee on individual line items. If a vote is required, a simple majority is needed, or more than 50% of voters present at the meeting. The meeting must be held at a time that provides for advising the Operator of the voting outcome within 30 days of receiving the notice from the Operator.
What happens if residents do not approve the budget?
If agreement cannot be reached, the Operator is to be advised of the particular line item or items to which residents object, and this advice must be given within 30 days of the request to consent. The Residents’ Committee should attempt to negotiate on this point of disagreement, and if progress is made the budget must be brought back to residents for another vote. If the revised budget is still rejected, the Operator or the Residents’ Committee (or an individual resident if no committee exists) can apply to the Tribunal (NSW Civil & Administrative Tribunal, or NCAT) for an order in respect of the proposed expenditure in the budget.
The Tribunal may make orders for several possible solutions, including allowing the proposed expenditure to proceed, give direction to both parties to seek agreement, make recommendations about how to proceed, direct that no expenditure occur (or that a varied amount may occur) and determine liability for any expenses incurred since the commencement of the financial year.
Of necessity, this is a concise overview. For the issues covered members can find more detailed information in the Information Sheets accessible in the Members section of the RVRA website. The Budgetary Process, a chart outlining the timing for various actions and linking them with the Legislation, is also available below and on the website HERE.
- https://www.rvra.org.au/education/budget-guide.
John Rosewarne
RVRA Treasurer
BUDGETARY PROCESS
Timeline Originator1 Action Reference
28 October, December, March, June
– within 28 days after the end of
each quarter in the financial year
Operator Operator must provide the RC2 with a copy of the quarterly financial accounts.
After the 28 day period, the Operator must provide a copy to any resident who makes a request. S. 118E
January and February RC/Operator Meet and agree budget process for the period to 30 June, including the scope of the work.
This also includes the CWF expenditure and the AMP costs if appropriate.
Best
Practice
March RC/Operator
Forecasts for income and expenditure agreed, including apportionment of any expenses between HO
and Village expenses, where appropriate. Requests for further information determined and
provided. Operator must provide responses to any reasonable request for additional information.
Best
Practice
March/April RC/Operator
If the annual budget is released to residents before the issue of the March CPI then the December CPI
must be used. If issued after the release of the March CPI, then it must be used as it is the one
“published most recently” before the current budget is provided to residents.
S102A(2)
April RC/Operator 3rd quarter budget finalised. March CPI advised.
Budget and accompanying papers finalised and agreed.
Best
Practice
1 May - i.e. At least 60 days before the
commencement of each financial year Operator
Operator must supply all village residents with proposed annual budget, accompanied by all relevant
explanatory papers. Proposed budget must be accompanied by a notice.
Operator must provide responses to any reasonable request for additional information.
S. 112
Organise the budget meeting
RC to determine own procedures RC3 Send out initial notice of the meeting and agenda, and then a reminder.
Organise the meeting, voting method to be used and proxies – advise residents in notice.
Best
Practice
By 31 May - within 30 days of receiving
proposed annual budget RC3
Residents must meet, consider and vote on the budget if the increase in recurrent charge is above
CPI. Letter sent to Operator advising of acceptance or rejection of budget.
Chair of RC chairs the meeting. If there is no returning officer, one will need to be elected by a show
of hands. Residents will vote on 3 motions: recurrent charges if above CPI, expenditure in proposed
annual budget and auditor consent.
Special Resolution required for any change in services.
Operator may attend but must leave prior to any vote being taken.
S. 114
Best
Practice
Schedule 1
S. 75
31 October – within four months of
the end of the financial year Operator Operator must provide the village residents with copies of audited accounts. If no RC then a copy to
be displayed on common property or provided to a resident who requested a copy. S. 119
1. In this document, use of the word Operator may be interchanged with and/or include the Village Manager, depending on the Village Operators and RC refers to the Residents Committee or Finance
Sub-Committee depending on RC organisation and operations within the Village.
2. Where reference is made in this document to the actions of the RC, if there is no committee any resident may act.
3. These actions do not apply where recurrent charges have been varied by fixed formula or have not been varied or the variation does not exceed the CPI. However, a vote may be required for the Auditor Consent.
In February 2025, many Australians were pleased to see an interest rate reduction – the first in over four years. With this reduction comes a glimmer of hope that inflation is under control and the CPI will continue its downward trend.
This optimism and underlying financial relief should translate to reliable and accurate resident village budgets being presented in March and April for the ensuing financial year.
Not so it seems.
We would note up front that the following examples are not universal across all operators and budget setting protocols – but the reality is, they do exist.
Several villages resident committees have already been presented with unreliable and baseless budgets. Some of these are set at an estimated CPI (e.g. 2.4%), others at a higher amount. But the underlying modus operandi is clear: to attempt to convince residents to pay higher recurrent charges.
How is this occurring?
To use a simple analogy, some village budgets are being treated like that of the vehicle odometer being tampered with to report a lower kilometre figure.
In preparing the budget we have seen examples of higher numbers being reported with a view to increasing perceived value. Residents and committees accordingly need to exercise caution.
How it works in practice
Three common strategies are regularly employed.
- Strategy One: Set all the expenditures by line item for the year. Recompute and estimate theincrease in recurrent charges so that the budget balances to zero. Voila!
- Strategy Two: Look at the most recent CPI. Add a markup to this number. Adjust all budgeted expenditure to zero the budget. Hey presto.
- Strategy Three: Look at the most recent CPI. Adjust recurrent charges to CPI or below. Adjust all budgeted expenditure. Well, what do you know…
The telltale signs of a broken village budget, include:
- Noticing things that aren't quite right: This includes budgeted expenditure being equal to previous budgeted expenditure without any consideration of actuals. Similarly, references to actuals that are unreliable and unlikely to occur in future.
- Faults in service delivery: Failures in management oversight, gardens not being maintained (including requests for additional staff), maintenance requests and asset replacements not occurring and so on.
- Missing staff and inconsistencies in information: Comparing audited accounts and village budgets between years will highlight anomalies. These will be more readily apparent when the information does not align with supporting documentation (e.g. invoices, quotes, service agreements, scope of works and so on).
- Withholding information: Operators withholding information from residents regarding the appropriate and valid use of their funds is a telltale sign the budget is inherently unreliable.
- Failures in oversight: Errors in budget documentation, financial reports, and audit report qualifications.
You will note that the first three strategies are caught under the umbrella of a “balanced budget”. The “balanced budget” in these instances is inherently flawed because it starts with the previous budget and is adjusted. Incidentally, this strategy also maximises the recovery of costs to maximise operator profits without reference to other inputs, assumptions and factors (including residents wishes).
This is in stark contrast to a “zero based budget” which is a budgeting technique in which all expenses must be justified for a new year starting from zero. Just so you know, the zero-based budget is far superior because it focuses on needs and costs and improves control, transparency and accountability.
This leads to the fourth strategy, which seems to be becoming increasing rare, but can be used under the balanced budget or zero-based budget approaches. This strategy is a consultation process that actually strikes a balance between costs, services and objectives of residents and operators.
The Cambridge Dictionary gives an excellent definition of consultation: “the act of exchanging information and opinions about something in order to reach a better understanding of it or to make a decision, or a meeting for this purpose” [emphasis added].
Strategy Four: Consultation with the resident committee. Includes understanding key service adjustments (and related fee alterations), revisions to services by residents, tendering of all services, providing documentation (including invoices, quotes, schedules, spreadsheets and so on) to the resident committee, re-computing and estimating the recurrent charges and finalise the draft budget for resident consideration and potential approval.
Did you note that one of the foundations of the consultation process involves the exchange of information.
Rarely, if ever, are all documentation and assumptions provided to committees or residents.
Important Annual Budget Reminder
No resident (or committee) should ever entertain granting consent to a change in recurrent charges or proposed expenditure unless all documentation and assumptions underpinning the budget have been provided in full.
A vote in favour of either, without full investigation, is nothing more than allowing the wind-up to become a stitch-up.
The views, opinions and information contained in this article do not necessarily represent the views of the Association.
Bishop Collins Group is a dynamic professional services firm specialising in the provision of services to not-for-profit entities and specifically those in the retirement villages and aged-care sectors. Bishop Collins is a proud corporate partner of the RVRA and sector supporter.
This article has been carefully prepared, but is general commentary only. This article is not legal or financial advice and should not be relied upon as such. The information in this article is subject to change at any time and therefore we give no assurance or warranty that the information is current when read. The article cannot be relied upon to cover any specific situation and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Bishop Collins Group to discuss these matters in the context of your particular circumstances.
Bishop Collins Group, their partners and/or directors, employees and agents do not give any warranty as to the accuracy, reliability or completeness of information contained in this article nor do they accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.