January 20, 2022 Published by Grand River Chapter

Budgeting: Should Last Year’s Surplus Be Used to Fund a Pet Sanctuary?

It’s that time of year again for the Annual General Meeting and the process of forming next year’s budget. The auditor happily noted that the condominium had a growing surplus in both accounts. A golden retriever with a goofy grin ran onto the stage. His owner read a flyer that showed the benefits of having a pet sanctuary.

Budgeting: Should last year’s surplus be used to fund a pet sanctuary? 

It’s that time of year again for the Annual General Meeting (AGM) and then comes the process of forming next year’s budget. 

AGM Meeting

The AGM began with the auditor taking the stage to present the audited statements. The auditor happily noted that the condominium had a growing surplus in both the general account and the reserve account. After the auditor had left the meeting, the president of the board opened the floor and asked the unit owners what they would like to do with the surplus funds. 

Unit Owner Discussion 

The serious accountant, fiddling with her laptop, informed the other unit owners that they could put the surplus into a GIC, but the interest rates had fallen since the pandemic started in 2020, so the benefit was minimal. She then suggested that they could decrease their monthly common element assessment fees for the next fiscal year or keep their fees locked at the same rate for the next few years.

The active triathlete piped up, suggesting that the condominium should install an Olympic-sized pool and gym with stationary bikes for spin classes. He went on and on about the health benefits of exercise until a golden retriever with a goofy grin ran into the room and escorted him back to his seat by tugging on his pant legs. 

The owner of the dog, a unit owner and humanitarian, took the stage. He read a flyer that showed the health benefits of having a pet sanctuary.

Pet Sanctuary

The room was abuzz with excitement, as many unit owners in that community loved pets. The board took this to a vote, knowing that they would need 66.67% of the owners to approve any change to the common elements. The vote was unanimous in favour of purchasing the pet sanctuary. 

Budgeting with a Surplus Balance 

At the next board meeting, the directors discussed how to form next year’s budget to plan for the coming year, as a budget is required by the Condominium Act to be included in the audited financial statements. The board followed these steps:​

  1. They looked at the auditor’s financial statements. The auditor had let the board know that the corporation had one year’s worth of expenses as a surplus in the general fund. (Typically, accountants like to see ½ month to 3 months’ worth of spending as a surplus in the general fund). 
  2. When forming the budget, they were told to work backwards. 
  3. What were the known expenses? The landscaping contract was $35,520. Property management fees were $25,100. Insurance premiums were quoted at $9,000. 
  4. What were the trends of increasing/decreasing expenses over the last five years? They saw a trend of water expenses increasing by $1,000 every year. Waste removal was also increasing by $2,000 each year.
  5. The treasurer of the board added up the total expenses they were anticipating for the next fiscal year. 
  6. The board member in charge of the pet sanctuary project had researched the costs of constructing the pet sanctuary and added the project, as a one-time expense line item to the budget. The board member had also researched the costs of maintaining the pet sanctuary and added another $1,000 to their budgeted utility expenses. The board debated decreasing security costs due to the additional security the pets provided. They decided to wait another year to get a more accurate measure of how the sanctuary impacted security costs. 
  7. The treasurer observed the reserve fund study to see if there were any upcoming major repairs that they needed to consider. The corporation had been transferring the required amount to the reserve fund. There was appropriate funding for their reserve expenses and the treasurer saw no additional transfers required in the reserve fund study within the next three years. 

After doing this exercise to figure out their total expenses, the treasurer noticed that their budgeted expenses were higher than the total amount of fees that they collected in the prior year by $20,000. As a group they decided that they were comfortable keeping their monthly fees consistent with the prior year, resulting in a planned shortfall of $20,000 for the current year. After the initial construction of the pet sanctuary, they would have fewer costs in the subsequent fiscal year. Their plan allowed them to continue with a surplus of $80,000, which gave them enough cash flow to cover the costs of the year, paying all of their vendors on time.

Now that the board had the financial plan for the year, the pet sanctuary committee could start selecting which pets they would like to save. 

… If I was on the committee, I would definitely have chosen the monkeys first!

Jennie Buerkle CPA, CGA

Senior Accountant at RLB LLP


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