How has Management dealt with the 2021 Surplus to Budget amount of $90,194

The surplus to budget was seen as a good result for the residents, who, at the 2021 AGM, voted to allocate $5,000 of the 'surplus to budget' to the upgrade of street signage within the village, and the remainder $85,194 to be placed in the 'Capital Works Fund'. Seemed to be a simple assignment.

There are 2 issues in play here:-

• Upgrade of street signage at the residents cost, and
• bulk of the surplus to be allocated to the Capital Works Fund (CWF)

1. Upgrade of street signage

Residents may well ask, "Why are the residents paying for the upgrade of the street signage within the village?"

Short answer, they shouldn't!

For those residents that are new to the village, updating street signage as the Operator continues to construct more villas and apartments within the village, is the responsibility of the Operator.

The operator should ensure accurate street signage keeps pace with the construction of new dwellings and at his cost.

His refusal to act quickly in the upgrade of street signage has the potential to cost lives of our elderly residents, as on many occasions ambulances responding to emergency situations here at the village, have struggled to find the correct villas, because the street signage does not accurately reflect the villa numbers in many of our streets.

Ambulance drivers have had to stop and ask residents for advice, wasting valuable time in responding to the urgent needs of our residents.

Most residents are indeed puzzled why there should be any delay at all, in upgrading street signage within the village. 

After many instances involving ambulances unable to attend callouts quickly and efficiently, while referring to incorrect street signage, once inside the village and the reluctance and/or refusal of the Operator to upgrade the street signage to keep pace with his new villa constructions, the residents committee at the time, suggested that the residents pay for the upgrade of street signage, to avert the possibility that the late arrival of an ambulance, has the potential to cost a resident their life. 

While this decision was understandably accepted by the residents, it provided yet another opportunity for the Operator to avoid his responsibility and associated costs to upgrade the street signage.

2. Bulk of the 'surplus to budget' to be allocated to the Capital Works Fund

The remainder of the 'Surplus to Budget', $85,194 as voted by the residents of the village, was to be placed into the 'Capital Works Fund' (CWF). 

Editor's Note: Minutes of the 2021 residents AGM were supplied to Management on the 17 December 2021. Those detailed minutes clearly indicated how the residents voted to distribute the 'surplus to budget' amount of $90,194. An extract of those minutes is shown below, 'Graphic 1'.

Residents have a reasonable expectation that Management would process the 2020-21 'surplus to budget' amount of $90,194 in accordance with their wishes. The resident's decision, which required their consent, by way of a motion put and carried by a majority vote, is clearly indicated in the above minutes, which has been provided to management on 17 December 2023.

Management have chosen to ignore the advice reported to them, via detailed minutes, which included the vote results as to how the residents decided to distribute the surplus to budget amount of $90,194. Instead, indicating that they were not provided with formal directions as to how to process 'surplus to budget' amount of $90,194, by the residents committee at the time.

Mr. Van Dam also made mention at the last (2023) AGM that the residents committee at the time, had not formally advised the Operator how to process the surplus to budget amount of $90,194, referring to the Retirement Villages Act 1999, Schedule 1 Consent of Residents, Part 2, Consent Generally, No. 4 Result of Vote. 

If you examine the Retirement Villages Act, set out and highlighted in blue below for convenience, it does not indicate that a formal advice is required. The RV Act states that the decision is to be reported to the Operator by an officer of the Residents Committee. As the minutes were prepared by the Secretary of the Residents Committee (an officer of the Residents Committee) and forwarded to the Operator/Management on the 17 December 2022, which they have acknowledged, it would certainly appear that the committee has complied with the RV Act and its requirements.

The Retirement Villages Act 1999 - Part 2 Consent Generally (4) - Result of Vote,  States: - (Copied and pasted below for accuaracy)

(1)  The Operator of a retirement village must accept as the residents’ decision in relation to a measure or action that requires their consent the decision that is reported to the operator by—

(a)  an officer of the Residents Committee, or

(b)  if there is no Residents Committee established for the village, a resident elected by the means referred to in clause 3 (1) of this Schedule as the representative of the residents of the village in relation to the measure or action concerned.

(2)  Regulations may be made for or with respect to the election of a representative of residents for the purposes of subclause (1)."

Operator had advanced knowledge of how to treat the 'Surplus to budget'
It has also been brought to our attention, that the Operator, prior to the 2021 AGM, attended a meeting of the outgoing (VanDam) Residents Committee and said, words similar to; "There's a surplus to budget of $90,000, what do you want me to do with it?" Discussions took place at that meeting, and it was decided to take a motion to the AGM that $5,000 was to be allocated to the upgrade of street signage and the remainder to be put into the Capital Works Fund. Apparently, the Operator was there when that decision was made.

That motion was subsequently put to the residents at the AGM and accepted by a majority vote. Which in turn was advised to the Operator, with the supply of the AGM minutes, clearly indicating how the 'surplus to budget' was to be treated.

It would certainly appear, that the Operator was given the heads up (advanced notice) of how the surplus to budget amount was to be treated, prior to the vote being conducted a the 2021 AGM.

2021-2023 Residents Committee's Interpretation of the RV Act

When the 'RV Act Part 2 Consent Generally (4) - Result of Vote' is examined there are 3 key components to consider for compliance.

1. 'The Operator must accept as the residents decision in relation to a measure or action that requires their consent'.
How a 'surplus to budget' is treated or distributed is a matter for the residents, and their decision in relation to how they treat the 'surplus' requires their consent. That consent was obtained via a motion put at the AGM and the majority decision to distribute the surplus to budget as indicated in the said minutes. The Operator must accept the residents decision and comply with their wishes.

2. 'That the consent decision is reported to the operator'
The decision on how to treat the 'surplus to budget' was clearly defined and reported to the Operator, by supplying a detailed copy of the AGM minutes to the Operator/Managment on the 17 December 2023. Management have acknowledged the receipt of those minutes. 

3.  That the decision is reported to the Operator by an officer of the Residents Committee.
The minutes were prepared by the Secretary of the Residents Committee at the time, who is obviouisly an officer of the Residents' Committee.

Summary
As the RV Act indicates that the residents decision is to be reported to the Operator, with no mention of a 'formal direction' required, the 2021-23 Residents Committee feel they have complied with the above mentioned (Part 2 Consent Generally (4) - Result of Vote) of the Act.

If, after reading the minutes supplied, the Operator/Managment were in any doubt, as how to treat the 'surplus to budget', a phone call or email from Management to the Residents Committee seeking clarification, would certainly have solved any problems. No phone call or email communication was received from Management regarding the surplus to budget amount of $90,194.

Management has now indicated that they have carried the 2020-21 'surplus to budget' over to the next financial year, which is the normal practice or the default option when dealing with a surplus to the budget for a given financial year. That's providing the residents have not voted to distribute the surplus in another manner.

Note: When the Operator of a retirement village carries a surplus to budget forward to the next financial year, that surplus amount should be shown in the proposed budget for the next financial year. Thus, showing residents that the surplus has been carried forward correctly. 

If the Operator/Management does not show the surplus carried forward in this manner and chooses to show it as retained earnings as part of the balance sheet, then the residents have no way of knowing if the surplus to budget has been treated correctly, simply because residents are not provided with a copy of the balance sheet.

An examination of the 2021-22 proposed budget shows no such 'surplus to budget' amount has been shown to be carried forward from the previous financial year. To view the 2021-22 proposed budget, click here...

An examination of the 2022-23 proposed budget shows no such 'surplus to budget' amount has been shown to be carried forward from the previous financial year. To view the 2022-23 proposed budget, click here...

An examination of the 2023-24 proposed budget shows no such 'surplus to budget' amount has been shown to be carried forward from the previous financial year. To view the 2023-24 proposed budget, click here...

If the Operator/Management has carried the 'surplus to budget' forward as indicated in their correspondence to residents, then why is there no reference to the surplus to budget amount of $90,194 in the 2021-22, the 2022-23 or the 2023-24 proposed budgets? 

Additionally, there is not one 'End of Financial Year Report', put forward by the Operator/Management, including the 'Income and Expenditure Statements' supplied to residents, which shows how management has processed the 2020-21 surplus to budget amount of $90,194. Even more concerning is the fact that the Auditor (PKF) has not picked up on or reported on this issue for the 2021- 2022 financial years. 

Management's indication that the matter has been finalised.

Set out below is a response by Management (HTR) in relation to the Residents Committee's enquiries and the Finance Sub-Committee enquiries as to why the $90,194 had not found its way into the Capital Works Fund, in compliance with the residents wishes, as voted at the 2021 AGM.

Standards or rules that govern Operator's conduct

There are rules or standards of conduct that govern 'Operators of retirement villages' as to how they should conduct themselves when dealing with residents of retirement villages. Some of those rules, pertinent to this issue are displayed below: -

Schedule 3A Rules of Conduct for Operators of Retirement Villages (Retirement Villages Regulation 2017)

Part 2 Standards of Conduct 

• Sect (6) (1) Operators must have regard to the best interests of all residents
  Q1. Is the Operator/Management suggesting that carrying the 'surplus to budget' ($90,194) forward and retaining it in the Operators working accounts for 2 years, as opposed to depositing it in the Capital Works Funds, (where it would earn interest for the residents of the village), is in the best interest of all residents?  
  
  
• Sect (7) (1) Operators must exercise skill, care, and diligence - when exercising the Operators functions.
  Q2. If the Operator was unsure, concerned, or in any doubt as to what he should do with the 2021 surplus to budget, how easy would it have been to ask the Residents' Committee at the time for some clarification? Is it the Operator's contention that he has exercised skill, care, and diligence in dealing with this surplus to budget amount of $90,194?
  
  
• Sect (8) (1) An Operator must act honestly, fairly, and professionally to all parties with negotiations, transactions and any other dealings relating to a resident or prospective residents.
  Q3. Is it the Operator contention, that he has acted, fairly and professionally when dealing with the residents and residents committee regarding, the 'surplus to budget' transaction of $90,194?

Clarity sought from the Operator/Management

In the above correspondence from Ms. J. S. Smith, she states, "and therefore the financial management of this transaction, by carrying the surplus forward to the accounts for the next financial year was correct and is concluded." 

As the Operator has brought down a 'surplus to budget' for the 2020-21 financial year , those funds were surplus to the financial requirements for that year and as such those funds do not belong to the Operator. To carry those funds forward to the next financial year, is normal practice, (provided the residents have not indicted otherwise - which they have), but does NOT mean that the said funds can be transferred into the working accounts of the Operator and subsequently lost to the residents.

Those surplus funds, carried forward should be placed into an account, or parked in an account, until such time the Operator is clear, as to how the residents would like the surplus funds dealt with. It is our contention, that the Operator/Management has been advised in compliance with the RV Act.

From the resident's point of view, the surplus to budget transaction will be concluded when the $90,194 is deposited into the Capital Works Fund as voted by residents. This is certainly a matter that needs to be clarified by Management.

As it is the Residents Committee's job to advocate on behalf of residents when dealing with disputes against the Operator/Management, chasing the $90,194 surplus to budget for 2021 should be high on their agenda. Advice should be sought from Bishop Collins as a matter of urgency.