Budgets and auditing requirements

Differences in expenditure between approved items and actual expenditure

Section 116 of the RVA permits flexibility, to enable a prudent operator to vary or adjust expenditure items in an approved budget provided that the total expenditure sum for that year is not exceeded.

As there was no evidence that the variations between budgets and actual expenditure exceeded the approved total expenditure sum, the operator was under no obligation to repay or reimburse the recurrent charges.

Capital replacement v capital maintenance

Repairs and maintenance – definitions

‘Repairs’ and ‘maintenance’ are two separate concepts and are not interchangeable.

If expenditure is necessary to ensure an item of capital, in fact, works (i.e. repairs), or is to allow the item of capital to continue to function or to preserve its ability to work (i.e. maintenance), and it cannot be said, objectively, that it would be more cost effective to replace the item rather than repair and maintain it, then it is apt to be characterised as capital maintenance.

‘Consumables’

The replacement of ‘consumables’, being items that are intended to be used up or worn out by use, is maintenance. Examples from this case include crockery and mop covers.

Replacement of items as maintenance

If a part of a whole system must be replaced to make good the efficient functioning of a system, that replacement is a maintenance item. In this case, this principle was applied to the replacement of swipe readers in a security system.

Capital replacement – role of invoices

A statement in an invoice regarding ‘replacement’ is not necessarily determinative of there being a capital replacement item.

The issue is whether the expenditure changes the character or function of the item so that if the work done has the effect of substantially improving an item of capital beyond its original condition.

Obstruction of residents committees

‘Obstruct’

An operator cannot obstruct a residents committee under s70(b)(b) of the RVA.

As the term ‘obstruct’ is undefined in the RVA, the Tribunal will give the term its ordinary meaning (ie to stop or to hinder) when determining if the requirement has been breached.

Responding to queries and requests for information

The residents committee alleged that the operator obstructed its operations by:

(a) failing to respond to information requests in a timely manner; and

(b) upon responding, providing insufficient information (that is, the information ought to have been more extensive).

The Tribunal dismissed the claim as there was no evidence of actual obstruction of the formation or operation of the residents committee.

Compelling an operator

Demanding capital replacement

The decision to replace an item of capital is a discretionary matter for the operator.

The Tribunal cannot direct an operator to incur a replacement cost of an item of capital in circumstances where the operator has formed a proper view that maintenance is an appropriate action and is in fact being undertaken.