Contingency Fund
Contingency fund
Reserves set aside for extraordinary
expenses resulting from a possible business interruption or disaster.
Also called contingency reserve.
—definition—business dictionary
It is obvious that a condo corporation needs an operating fund and the
Condominium Act states that the condo must have reserve funds but
why does a condo need a separate contingency fund?
I can see the need for one if the condo corporation finds itself
getting into a long and expensive litigation or if there is another
similar expense coming up that may be occurred but generally a
contingency fund should not be required.
If the operating fund and the reserves are fully funded, and no
expensive legal expenses are expected, then there is no need for a
contingency fund.
Not everyone shares this opinion.
Some condos created contingency funds as a third account in their
financial statements. Any funds that have been collected through the
condo fees and by other means that exceed the amount needed to balance
the operating fund is transfered to the contingency fund.
If the money was transferred to the reserve fund, then it could only be
used for major repairs and replacements and the management finds that
far too restrictive.
A slush fund
So the contingency fund supposedly kept to pay for any future disasters
is used to pay for various miscellaneous items or on pet projects that
the board fancies.
Condo #1
They first started a contingency fund when they provoked the
ground-floor commercial units into suing the condominium. The legal
bills ran over $600,000. Once that legal battle was over, they spent
$60,000 from the remaining funds on various operating expenses
including cleaning dryer vents, electrical work, playground equipment,
bicycle racks, elevator maintenance, carpet repairs and buying
furniture and fixtures.
At the end of the year, instead of putting the remaining $94,681 into
the Reserve Funds, they used the contingency fund to pay for $2,400
worth of
plumbing repairs.
Condo #2
This condo has $250,000 in their contingency fund. This fund has paid
for new barbecues for the terrace and plumbing repairs. The condo's
district manager defended having the contingency fund because it will
allow the condo to pay for future energy-saving projects. (How
barbecues and new equipment for the fitness room fits into energy
saving projects is beyond me.)
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