Financial management and condo accounting

Financial management and condo accounting

Condo accounting and financial management

Syndicate accounting done by professionals

Since November 1st, 2016, the financial management of the transactions performed by a syndicate of co-owners has become more complex. In fact, the financial transactions that it performs must be accounted for per fund.

For example, Article 1071 of the Civil Code of Quebec imposes the creation of a contingency fund. Condominiums must therefore — at a minimum — account for the day-to-day operations in a general or administration fund and create a contingency fund.

1

We receive your request

2

We consult our team

3

We present our plan and activities

Fill out the form below, and we will contact you as soon as possible!

* Mandatory fields

The constitution of the funds

Although it seems simple in appearance, management by fund complicates the condo accounting.

In fact, it is not enough, as many imagine, to open a bank account for the contingency fund to meet the requirements of Article 1071 of the Civil Code. 

The principle that drives per-fund management is the total independence of these funds from each other. 

In terms of accounting, this means that financial statements must be kept for each fund:

  • Profit and loss account,
  • Balance sheet (financial statements),
  • Net assets.

Unfortunately, this independence does not prevent inter-fund transactions that can sometimes not be settled at the end of the year, especially in the case of an advance from one fund to another in the absence of liquidity.

However, the Civil Code states that the assets of the contingency fund must constantly be liquid, de facto limiting advances from the contingency fund to the other funds. Indeed, a debt receivable from the general fund does not constitute a liquid asset for the contingency fund.

The constitution of the funds

Although it seems simple in appearance, management by fund complicates the condo accounting.

In fact, it is not enough, as many imagine, to open a bank account for the contingency fund to meet the requirements of Article 1071 of the Civil Code. 

The principle that drives per-fund management is the total independence of these funds from each other. 

In terms of accounting, this means that financial statements must be kept for each fund:

  • Profit and loss account,
  • Balance sheet (financial statements),
  • Net assets.

Unfortunately, this independence does not prevent inter-fund transactions that can sometimes not be settled at the end of the year, especially in the case of an advance from one fund to another in the absence of liquidity.

However, the Civil Code states that the assets of the contingency fund must constantly be liquid, de facto limiting advances from the contingency fund to the other funds. Indeed, a debt receivable from the general fund does not constitute a liquid asset for the contingency fund.

The tendency is to multiply the funds

Many condominiums cannot resist the attractive temptation to multiply the funds to better compartmentalize the syndicate’s transactions. 

In this way, other, more exotic funds come to be added to the mandatory contingency fund, such as: 

  • The service and maintenance fund,
  • The improvement fund, 
  • The renovation fund, 
  • The painting fund,
  • The reserve fund, 
  • The self-insurance fund, 
  • The legal fund, 
  • Etc. 

Certainly, this looks attractive on paper, but in reality, it complicates the accounting even more by creating numerous calls for funds and inter-fund transactions. 

Besides this complexity of the accounting, which has a cost, it then becomes very complicated to explain and even understand the financial statements. 

As much as possible, you should keep this as simple as possible and avoid excess funds.

The tendency is to multiply the funds

Many condominiums cannot resist the attractive temptation to multiply the funds to better compartmentalize the syndicate’s transactions. 

In this way, other, more exotic funds come to be added to the mandatory contingency fund, such as: 

  • The service and maintenance fund,
  • The improvement fund, 
  • The renovation fund, 
  • The painting fund,
  • The reserve fund, 
  • The self-insurance fund, 
  • The legal fund, 
  • Etc. 

Certainly, this looks attractive on paper, but in reality, it complicates the accounting even more by creating numerous calls for funds and inter-fund transactions. 

Besides this complexity of the accounting, which has a cost, it then becomes very complicated to explain and even understand the financial statements. 

As much as possible, you should keep this as simple as possible and avoid excess funds.

Reserves seen as an alternative to multiplying the funds

Reserves recorded as net assets can be a good compromise to multiplying the funds. 

Unlike a fund, there is no requirement to open a separate bank account for a reserve. The reserve is simply recorded as an asset when the surplus from the administration fund is allocated to an upcoming project. 

The co-owners therefore know that the reserve is constituted, and this gives a reason for being and a justification to the surplus, which could be considered excessive. 

Reserves are usually constituted to cover the amount of the insurance deductible in the event of a claim and the amount of the unforeseen expenses related to one or two probable claims. 

In the event of a claim, the related expenses are deducted from the reserve, which is then reconstituted with a portion of the surplus.

This lets you avoid creating an insurance fund with an associated bank account in which there would be virtually no transactions. 

Creating funds requires upstream thinking with the trustee to avoid incurring enormous management fees. The financial management of a condominium depends above all on the advice and experience of the trustee in the service of the condominium to avoid certain pitfalls and mistakes.

Reserves seen as an alternative to multiplying the funds

Reserves recorded as net assets can be a good compromise to multiplying the funds. 

Unlike a fund, there is no requirement to open a separate bank account for a reserve. The reserve is simply recorded as an asset when the surplus from the administration fund is allocated to an upcoming project. 

The co-owners therefore know that the reserve is constituted, and this gives a reason for being and a justification to the surplus, which could be considered excessive. 

Reserves are usually constituted to cover the amount of the insurance deductible in the event of a claim and the amount of the unforeseen expenses related to one or two probable claims. 

In the event of a claim, the related expenses are deducted from the reserve, which is then reconstituted with a portion of the surplus.

This lets you avoid creating an insurance fund with an associated bank account in which there would be virtually no transactions. 

Creating funds requires upstream thinking with the trustee to avoid incurring enormous management fees. The financial management of a condominium depends above all on the advice and experience of the trustee in the service of the condominium to avoid certain pitfalls and mistakes.

Simple when well done

The syndicate’s accounting, at the heart of the expertise provided by Condo Stratégis.

Condo Stratégis ensures that it’s constantly up to date, i.e. by repetitively communicating with co-owners when they don’t pay in a timely manner or are late in making monthly payments and by entering all accounting bills and cheques immediately upon receipt. This allows each administrator and co-owner of having an overall and clear picture of their co-ownership property.

Our partners

 

Discover our other services

Administrative management

Regular follow-up, effective communications, constantly updated condominium register

Human resources management

Recruitment and methodical staff follow-ups

Building management

Weekly visits with report tracking, PGA updates, preventions

Co-ownership Syndicate management

Enjoy the expertise of Condo Stratégis in its entirety