Operator/Management finally returns the $90,194 to the residents CWF

Editor's Note:
When the operator delivers a 'surplus to budget' for a financial year, the residents determine how to utilize the surplus funds for that financial year. The residents can choose to distribute the surplus amount back to themselves or approve an alternative proposal for spending or distributing all or part of that surplus.

Residents may recall that at the 2021 AGM, Mr. Joe Van Dam put forward a motion recommending how the residents should treat the '2021 Surplus to Budget' amount of $90,194.

The recommendation: - (motion put to residents)

• $5,000 to go to the Operator to assist with the upgrade of street signage (because the operator refused to upgrade street signage to keep pace with the construction of their new villas)
• the remainder - $85,194 to be placed into the Capital Works Fund (CWF)

The motion was seconded and carried by a majority vote. 

Section 120B of the Retirement Villages Act supports the resident's rights to distribute the surplus as they wish.

Division 7 Surplus or deficit of accounts

120B   Any surplus to be carried over

(1)  Any surplus in the annual accounts of a retirement village is to be carried forward to the accounts for the next financial year unless—

If the residents for whatever reason, fail to notify the operator how such a 'surplus to budget' is to be treated and/or distributed, then the operator must comply with the Retirement Villages Act and carry the surplus forward to the accounts for the next financial year.  

However, that's not the case in this instance. The residents had decided and consented to a proposal for the expenditure of the entire $90,194 surplus. As such, the operator/management had no right to carry the surplus forward to the accounts for the next financial year.

The operator claimed they were not formally notified of the residents' decision regarding the distribution of the budget surplus.

How did the operator advise the residents and their committee about the 2021 surplus?

The operator attended the last residents' committee meeting of the Van Dam committee tenure in 2021 and stated, "I have a $94,000 surplus to budget, what do you want to do with it?"

The operator stayed at the committee meeting until the committee decided on a motion that was to be put to the residents at the upcoming residents' AGM. That motion was identical to that mentioned at the beginning of this article.

It should be noted that no other formal notification was provided by the operator to the residents or the residents' committee in office at the time about this substantial surplus to budget amount, their notification to the residents committee was verbal.

It is reasonable to assume that when the operator left the committee meeting, he had a clear understanding of what was to be presented to the residents at the next AGM and how the committee would recommend treating the 2021 surplus to budget. At the 2021 Residents AGM, the recommendation was presented to residents and subsequently passed by majority vote.

As indicated above, a detailed copy of the minutes, which included the motion put forward, the vote, and the results of the vote, were reported to the operator.

Both the operator and management were well aware of how the residents voted to treat the 2021 surplus to the budget amount of $90,194.

There are two additional issues of concern with the operator's claim, that they require formal notification.

1. The operator's claim that he requires formal notification, cannot be sustained. 

Again referencing the Retirement Villages Act, Schedule 1 - Consent of Residents. Part 2, Consent Generally, No. 4 Result of Vote. (quoted below) indicates how the result of a vote is to be reported to the operator.

Schedule 1 - Consent of Residents, Part 2, Consent Generally, No. 4 Result of Vote. (quoted below) 

(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 ......

The legislation requires the residents' committee to ensure that the residents' decision regarding the treatment of the surplus is reported to the operator, and this report must be made by an officer of the residents' committee.

Schedule 1 - Consent of Residents does not mandate a formal notification of the residents' decision to the operator. It does not exclude the possibility that such notification can be verbal.

The Act specifies that the residents' decisions must be reported, without mentioning formal advice, merely reported. Furthermore, it stipulates that the report to the operator must be made by an officer of the residents' committee.

As the minutes of the meeting were later prepared by the new incoming Secretary of the Residents Committee and distributed to all residents, including the management/operator of the village, such detailed minutes or report to the operator was indeed made by an officer of the residents' committee.

Therefore, it is reasonable to conclude that the residents' committee in office at the time complied with the requirements outlined under the Act concerning the reporting of the residents' decision on distributing the surplus budget amount of $90,194 to the operator.

2. No evidence can be found that the operator carried the surplus to budget forward correctly, to the next financial year

If the operator as they suggest had carried the surplus to budget of $90,194 forward to the next financial year, it should have been shown in the next financial year's proposed annual budget as a surplus to budget amount brought forward from the previous year.

This didn't happen. There was no mention of the surplus to budget amount of $90,194 for the next three financial years.

Should residents wish to confirm each financial year's budgets and the operator's end-of-financial-year statements for themselves, click the links for 2021 to 2023 financial years, set out below: -

To see the 2021 - 2022 financial year, click here...
To see the 2022 - 2023 financial year, click here...
To see the 2023 - 2024 financial year, click here...

Even more concerning, the operator has failed to disclose any expenditure allocated to the Capital Works Fund in their end-of-financial-year reports from 2021 to 2023. These documents can also be accessed by clicking the links above.

Because of this fact, a complaint was lodged with NSW Fair Trading. While numerous issues of complaint were covered, a response from the operator was not forthcoming and further, the operator was reluctant to share any answers that they supplied to Fair Trading.

An application under the Freedom of Information Act (GIPA) was lodged with Fair Trading and some of the information received, about the surplus to budget is displayed below: -

However, according to the Act, the residents' committee is not required to formally notify the operator of the residents' consent to the proposal on how to spend the surplus.

The 

As the newly elected Secretary of the Residents' Committee prepared the minutes of the AGM, ensuring the discussion and the ensuing vote on how to treat the $90,194 surplus to the budget was all detailed in the said minutes, which were sent to all residents and the management/operator of the village, 

Note: The Act does not state that a formal notification is required. Simply the resident's decision is reported. The Act does not stipulate how such a report is to be made. It is reasonable to assume that the residents committee at the time, has complied with the Retirement Villages Act by notifying the operator of the resident's decision on how to treat the surplus to budget amount of $90,194.

What appears to be a simple and reasonable decision regarding how residents decided to allocate the surplus budget amount of $94,194 has turned out to be anything but straightforward.

If the operator was in any doubt as to how the surplus to budget was to be treated after receiving the copy of the 2021 AGM minutes, a simple phone call or email to the residents committee in office at the time, would almost certainly have resolved the issue. But to remain silent for almost 3 years, can only be considered, unacceptable.

The operator's code of conduct, tells us that the operator should always have the best interest of the residents at heart, especially when dealing with financial matters pertaining to the village finances.

It would be difficult for the operator to justify their placement of the 2021 surplus to budget into their village cash account as opposed to the capital works fund as per the resident's wishes, is in the best interest of the residents of the village.  

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To be clear, the operator and or management do not decide how a surplus to budget is to be treated, only the residents have that right.

Referring to the Retirement Villages Act, Section 120B, shown below for convenience.

Section 120B of the Act indicates that any surplus to the budget must be carried forward unless the residents consent to a proposal for the expenditure of the whole or part of the surplus.

At the AGM, residents voted on how they wished to allocate the entire surplus to the budget amount of $94,194. This information was conveyed to management through a detailed copy of the AGM minutes, which included the motion regarding the surplus, the vote count for and against, and the final decision carried by the majority.

As a result, the entire surplus amount of $90,194 should have been transferred into the Capital Works Fund according to the residents' wishes.

To confirm this action, the Residents Committee and the Finance Sub-Committee should have referred to the operator's end-of-financial-year audited accounts. According to the Retirement Villages Act, the operator is required to disclose any income and expenditure related to the Capital Works Fund each financial year.

However, this disclosure did not occur. The operator only reported the income via the residents' recurring fees and the opening and closing balances of the Capital Works Fund (CWF).

It was at this stage the Residents Committee in office at the time, started to question the operator's compliance with the Retirement Villages Act and in particular their failure to report any expenditure allocated against the capital works fund.

Numerous requests to management to provide the bank statements for the capital works fund for specific times were refused. While some statements for periods not requested were supplied. 

Historically, the Operator’s EOFY reports for the CWF, have only shown the total deposits made for the year (via input from recurring fees), and in his ‘Income and Expenditure Statement’ he provides the closing balance of the capital works fund.

There is not a single reference or information supplied in the Operator’s EOFY reports from 2020 to 2023, that shows residents he has accessed the capital works fund and withdrawn more than $288,000 from the fund.

In August 2023, the residents, the finance sub-committee, and the residents' committee became increasingly concerned about the operator's access to the capital works fund, without any notification and relevant subsequent end-of-financial year reporting to the residents of the village. 

Around this time, the Village Manager Ms. Jennifer Stuart Smith issued an email correspondence to residents, relating to the 2021 'Surplus to Budget' amount of $90,194. The email is displayed below: -

In the above correspondence, Ms. Stewart clearly states, "The financial management of this transaction by carrying the surplus forward to the accounts for the next financial year was correct and is concluded".

There is no ambiguity about Ms. Stewart Smith's communication, management considers their treatment of the 'Surplus to Budget' is correct, and the 2021 surplus has been transferred to the accounts of the next financial year and therefore lost to the residents of the village.

While there were a few residents in the village, who continued to resist management's attempts to consider the matter closed and have the surplus to budget amount returned to the capital works fund, as per the residents' wishes, a complaint was lodged with Fair Trading regarding the issue.

Management has refused to share their answers to our complaint to Fair Trading, with the residents of the village.

In an attempt to view answers to our complaint against the operator, we attempted to leverage the Freedom of Information Act (GIPA). Under the Government Information Public Access (GIPA) Act 2009, you can apply for access to government information.

To view information received under the GIPA Act, click here...

At this stage, it should be noted, that management has refused to tell the residents where the money, the surplus to budget amount of $90,194 has gone or what account it has been placed into.

One of the questions posed to Ms.Jennifer Stuart Smith, by Fair Trading, was where is the surplus to budget amount of $94,194?

Ms. Stuart Smith had to respond to Fair Trading's question and her answer was, it's in the 'cash account'.

Armed with this new information I contacted the new Village Manager, Ms. Aileen Stewart, as Ms. Jennifer Stuart Smith is no longer in the operator's employ.

Ms. Aileen Stewart asked what I required from this information, I simply stated, that I would like to see the $90,194 put into the CWF as per the resident's wishes.

How the operator notified residents or the residents committee of the said surplus in 2021

Paul Singer attended the last residents committee meeting of the Van Dam committee in 2021 and said, in words the same or similar to: - "OK I've got a $90,194 surplus to budget, what do you want me to do with it?"

Paul Singer stayed at that residents committee meeting until the committee decided on a motion that was to be put to the residents at the upcoming Resident's General Meeting (17 December 2021).

When Paul Singer left that residents committee meeting, not only did he have advanced knowledge of the motion to be put to the residents at the upcoming residents general meeting, but must have had a genuine understanding of how the residents would be advised to distribute the entire 'surplus to budget' amount of $90,194. 

Joe Van Dam was to put a motion to residents in attendance at the RGM, that $85,194 be deposited into the CWF and $5,000 be allocated to the operator/management/village accounts to assist with the upgrade of street signage in the village.

True to plan, at the Residents General Meeting on the 17 December 2021, Joe Van Dam put that motion to the residents, which was subsequently seconded and then carried by majority vote of residents. No amendments to the motion were sought.

Note:
When the operator hands down a 'surplus to budget' for a financial year, it is the residents that decide what to do with that surplus money, and if they so decide, that surplus can be distributed back to the residents themselves, or they provide their consent to an alternative proposal on how to spend or distribute the whole or any part of that surplus.

Residents General Meeting  - 17 Decemebr 2021