An Overview of Financial Analysis

Prepared by B.K.Khaitan*

Ashiana Maintenance Service Limited hereinafter referred to as AMSL is providing Maintenance service to Residents of Ashiana Utsav.  It is charging the Residents for the services rendered thru Monthly Billing.  Since Billing of the current month is done by the 1st week of the month, it is based on the estimated expenditure. AMSL is undertaking budgeting exercise every year towards the end of the year for the next financial year. Budget is proposed to both RWAs and subsequently finalized by the end of the year. Budgeted expenditure is the base on which the Billing is done.

Our experience has been that AMSL does not take into consideration the views of RWAs in finalizing the budget. It takes unilateral decision in finalizing the budget which is unfair to both RWAs and Residents of Utsav and therefore unacceptable. It is felt that the budget is highly inflated, illogical, and arbitrary. Budgeted FMC Rate which is fixed Maintenance Cost divided by total super built up area of all flats has gone up from Rs 1.01 per sq ft in FY 2012-13 to Rs 1.63 per sq ft in FY 2015-16 registering an increase of 63%. Considering rate of inflation which is about 7-10% (as per AMSL), the increase should not be more than 30%. On analyzing further, we find that there is a steep rise in cost of Horticulture, Sanitation, Security.

Ashiana Maintenance Service Limited hereinafter referred to as AMSL is providing Maintenance service to Residents of Ashiana Utsav.  It is charging the Residents for the services rendered thru Monthly Billing.  Since Billing of the current month is done by the 1st week of the month, it is based on the estimated expenditure. AMSL is undertaking budgeting exercise every year towards the end of the year for the next financial year. Budget is proposed to both RWAs and subsequently finalized by the end of the year. Budgeted expenditure is the base on which the Billing is done.

Our experience has been that AMSL does not take into consideration the views of RWAs in finalizing the budget. It takes unilateral decision in finalizing the budget which is unfair to both RWAs and Residents of Utsav and therefore unacceptable. It is felt that the budget is highly inflated, illogical, and arbitrary. Budgeted FMC Rate which is fixed Maintenance Cost divided by total super built up area of all flats has gone up from Rs 1.01 per sq ft in FY 2012-13 to Rs 1.63 per sq ft in FY 2015-16 registering an increase of 63%. Considering rate of inflation which is about 7-10% (as per AMSL), the increase should not be more than 30%. On analyzing further, we find that there is a steep rise in cost of Horticulture, Sanitation, Security, AMC, Salary & wages which form the bulk part of FMC.  Horticulture, Sanitation, Security and AMC are contractual assignments and therefore it is expected of   AMSL to have copies of contracts at its disposal. On being asked, where the copies of contracts are, evasive replies are given.

There is absolutely no control over Actual Expenditure. Even with inflated Budget, actual expenditure far exceeds the budget. Although Budgeted FMC in FY 2014-15 was fixed as Rs 1.47 psft, actual FMC rate based on average expenditure works out to Rs 1.59 psft. The graph with monthly figures is shown below.

                                        Apr         May        Jun      Jul       Aug        Sep        Oct         Nov            Dec           Jan         Feb           Mar         Avg
FMC Rate/sq ft 1.35 1.57 1.70 1.74 1.33 1.92 1.77 1.59 1.40 1.52 1.45 1.81 1.59 .59
Budgeted FMC Rate 1.47 1.47 1.47 1.47 1.47 1.47 1.47 1.47 1.47 1.47 1.47 1.47 1.47 .47

FMC Rate Comparison
(FY 2014-15)
 

Details of expenditure are not shown to us on one pretext or the other.  This shows utter lack of transparency on the part of AMSL although in principle, it proclaims it believes in complete transparency while dealing with its customers. The heads of expenditure in respect of Budget are not synchronized with that of Actual expenditure making the task of comparison very difficult. Although it has been pointed out to AMSL during budget meeting in Feb, 2015 but no action has been taken so far despite promises made by AMSL to make suitable changes.

Sharing of expenditure in respect of Horticulture, Sanitation, STP, and Security etc is done with Manglam on the basis of super built up area of Residential flats/ Villas and as such 63% of total cost is billed to Ashiana Utsav and 37% is billed to Manglam. It is highly objectionable as there is no logic behind super built up area of flats/villas being linked to the said expenditures. Pl refer to Annexure I of tripartite agreement which says “ For shared services with other complexes namely comfort Homes, Villas etc, the cost shall be shared in proportion to the super built up area of these Complexes”.

As per tripartite Maintenance agreement, Article 3 Section 3.1(d), AMSL will send every month details of monthly expenditure to FAC or put it on notice Board and as per Section 3.1 (e) under Article 3, AMSL will send quarterly statement of expenditure duly audited and certified to FAC. AMSL does not comply with this clause of tripartite agreement which amounts to Breach of Tripartite Agreement. 

The format of monthly Bill is faulty and misleading. In the present format, all adjustments in respect of surplus/deficit of previous months or any other adjustments are done in FMC Rate with the result it either increases or decreases as and when the adjustments are made.  It is very difficult to know what is causing the fluctuation in rate. For example, it is not possible to know whether reversal of service tax has been made or not in the Bill in the present format.

FAC is of the view that 10 year reducible interest free  management deposit (IFMD) has been taken by AMSL from the residents at the time of sale of the flat vide Para 10 of the sale agreement with the clear understanding that it is being charged as management fee to manage and supervise the Maintenance service. But the ground reality is that AMSL is including the salary of Assistant manager, CRO in monthly billing which does not explain why 10 year interest free management deposit has been taken.

Capital Maintenance Fund is created which is meant to be utilized for capital repairs such as external repair & repainting of buildings, Road repair, Boundary walls, Major repairs/replacement of generators, Transformers and other heavy equipment as per Annexure II of Tripartite Agreement and not to be utilized for any other purpose. It is our understanding that AMSL is using the fund for purposes other than what is listed under Annexure II of Tripartite Agreement. Moreover, AMSL is not maintaining any register to show on record the details of purchases made. It is not known where these goods are physically lying and whether any physical verification has been done.  According to our calculations, taking into account phase wise completion of buildings, total Capital Maintenance Fund works out to Rs 45, 16,525 by the end of FY 2014-15 and if the amount collected from Residents of Utsav thru monthly Billing is invested by AMSL in fixed deposit Bank account, the simple interest earned @8% per annum works out to Rs 6, 98,183 by the end of FY 2014-15. The detailed working of Calculations is available with FAC. FAC is of the opinion that AMSL is bound to give detailed account of Capital Maintenance fund to both RWAs detailing investments made and goods purchased from the said fund.

It is absolutely necessary to budget capital expenditure along with Revenue Budget. AMSL is not doing any budgetary exercise for capital equipment proposed to be purchased in the new financial year. Instead it uses Capital Maintenance fund as and when the need arises to purchase capital equipment. It is GROSS misuse of capital maintenance Fund which is meant to be utilized for major repair work only.

AMSL is in the habit of arbitrarily changing/ Relocating the staff without taking concurrence of both RWAs which has serious financial implications causing maintenance Bill to increase substantially. 

AMSL does not honor commitments made in its meeting with FAC. For example, it was agreed that AMSL will print the monthly expenditure on the reverse side of Bill every month. But instead of printing monthly expenditure in the Bill for month Mar-15, it printed its own advertisements.

The Service Provider, Vatika Marketing Limited (VML) now AMSL has stated that “ It would be prudent to mention that maintenance expenses are likely to go up by about 7-10 percent yearly due to inflation and the consequent increase in salaries and costs.”  Ashiana Utsav, Bhiwadi has similar facilities as Ashiana Utsav Jaipur. Both these locations are within the state of Rajasthan and both are managed by the same service provider under similar conditions; but FMC Rate differs substantially.  For example, in respect of Bhiwadi, agreed rate for F.Y. 2015-16 is Rs 1.16 psft  whereas in case of Jaipur it is fixed as Rs. 1.63 psft without concurrence of Both RWAs/FAC. AMSL has failed to give any satisfactory explanation as to what is it that causes the difference in rates.

FAC is of the view that AMSL is acting in MOST unprofessional manner disregarding views of FAC.

*Author is an IT Professional and  Member of Financial Advisory Committee of Ashiana Utsav Jaipur.

Note: - A detailed presentation is proposed to be given on 6th June 2015 at 06.00 pm in Activity Hall. All Utsavites are cordially invited to the presentation. All residents/flat owners are welcome to forward their VALUABLE suggestions to Mr. B.K. Khaitan for incorporating in the proposed detailed presentation latest by 4th June 2015. 

, Salary & wages which form the bulk part of FMC.  Horticulture, Sanitation, Security and AMC are contractual assignments and therefore it is expected of   AMSL to have copies of contracts at its disposal. On being asked, where the copies of contracts are, evasive replies are given.
There is absolutely no control over Actual Expenditure. Even with inflated Budget, actual expenditure far exceeds the budget. Although Budgeted FMC in FY 2014-15 was fixed as Rs 1.47 psft, actual FMC rate based on average expenditure works out to Rs 1.59 psft. The graph with monthly figures is shown below.
                                        Apr         May        Jun      Jul       Aug        Sep        Oct         Nov            Dec           Jan         Feb           Mar         Avg
FMC Rate/sq ft 1.35 1.57 1.70 1.74 1.33 1.92 1.77 1.59 1.40 1.52 1.45 1.81 1.59 .59
Budgeted FMC Rate 1.47 1.47 1.47 1.47 1.47 1.47 1.47 1.47 1.47 1.47 1.47 1.47 1.47 .47

FMC Rate Comparison
(FY 2014-15)
 




















Details of expenditure are not shown to us on one pretext or the other.  This shows utter lack of transparency on the part of AMSL although in principle, it proclaims it believes in complete transparency while dealing with its customers. The heads of expenditure in respect of Budget are not synchronized with that of Actual expenditure making the task of comparison very difficult. Although it has been pointed out to AMSL during budget meeting in Feb, 2015 but no action has been taken so far despite promises made by AMSL to make suitable changes.
Sharing of expenditure in respect of Horticulture, Sanitation, STP, and Security etc is done with Manglam on the basis of super built up area of Residential flats/ Villas and as such 63% of total cost is billed to Ashiana Utsav and 37% is billed to Manglam. It is highly objectionable as there is no logic behind super built up area of flats/villas being linked to the said expenditures. Pl refer to annexure I of tripartite agreement which says “ For shared services with other complexes namely comfort Homes, Villas etc, the cost shall be shared in proportion to the super built up area of these Complexes”.
As per tripartite Maintenance agreement, Article 3 Section 3.1(d), AMSL will send every month details of monthly expenditure to FAC or put it on notice Board and as per Section 3.1 (e) under Article 3, AMSL will send quarterly statement of expenditure duly audited and certified to FAC.  AMSL does not comply with this clause of tripartite agreement which amounts to Breach of Tripartite Agreement.
The format of monthly Bill is faulty and misleading. In the present format, all adjustments in respect of surplus/deficit of previous months or any other adjustments are done in FMC Rate with the result it either increases or decreases as and when the adjustments are made.  It is very difficult to know what is causing the fluctuation in rate. For example, it is not possible to know whether reversal of service tax has been made or not in the Bill in the present format.
FAC is of the view that 10 year reducible interest free  management deposit (IFMD) has been taken by AMSL from the residents at the time of sale of the flat vide Para 10 of the sale agreement with the clear understanding that it is being charged as management fee to manage and supervise the Maintenance service. But the ground reality is that AMSL is including the salary of Assistant manager, CRO in monthly billing which does not explain why 10 year interest free management deposit has been taken.
Capital Maintenance Fund is created which is meant to be utilized for capital repairs such as external repair & repainting of buildings, Road repair, Boundary walls, Major repairs/replacement of generators, Transformers and other heavy equipments as per Annexure II of Tripartite Agreement and not to be utilized for any other purpose. It is our understanding that AMSL is using the fund for purposes other than what is listed under Annexure II of Tripartite Agreement. Moreover, AMSL is not maintaining any register to show on record the details of purchases made. It is not known where these goods are physically lying and whether any physical verification has been done.  According to our calculations, taking into account phase wise completion of buildings, total Capital Maintenance Fund works out to Rs 45, 16,525 by the end of FY 2014-15 and if the amount collected from Residents of Utsav thru monthly Billing is invested by AMSL in fixed deposit Bank account, the simple interest earned @8% per annum works out to Rs 6, 98,183 by the end of FY 2014-15. The detailed working of Calculations is available with FAC. FAC is of the opinion that AMSL is bound to give detailed account of Capital Maintenance fund to both RWAs detailing investments made and goods purchased from the said fund.
It is absolutely necessary to budget capital expenditure along with Revenue Budget. AMSL is not doing any budgetary exercise for capital equipments proposed to be purchased in the new financial year. Instead it uses Capital Maintenance fund as and when the need arises to purchase capital equipments. It is GROSS misuse of capital maintenance Fund which is meant to be utilized for major repair work only.
AMSL is in the habit of arbitrarily changing/ Relocating the staff without taking concurrence of both RWAs which has serious financial implications causing maintenance Bill to increase substantially.
AMSL does not honour commitments made in its meeting with FAC. For example, it was agreed that AMSL will print the monthly expenditure on the reverse side of Bill every month. But instead of printing monthly expenditure in the Bill for month Mar-15, it printed its own advertisements.
The Service Provider, Vatika Marketing Limited (VML) now AMSL has stated that “ It would be prudent to mention that maintenance expenses are likely to go up by about 7-10 percent yearly due to inflation and the consequent increase in salaries and costs.”  Ashiana Utsav, Bhiwadi has similar facilities as Ashiana Utsav Jaipur. Both these locations are within the state of Rajasthan and both are managed by the same service provider under similar conditions; but FMC Rate differs substantially.  For example, in respect of Bhiwadi, agreed rate for F.Y. 2015-16 is Rs 1.16 psft  whereas in case of Jaipur it is fixed as Rs. 1.63 psft without concurrence of Both RWAs/FAC. AMSL has failed to give any satisfactory explanation as to what is it that causes the difference in rates.
FAC is of the view that AMSL is acting in MOST unprofessional manner disregarding views of FAC.
*Author is an IT Professional and  Member of Financial Advisory Committee of Ashiana Utsav Jaipur.
Note: - A detailed presentation is proposed to be given on 6th June 2015 at 06.00pm in Activity Hall. All Utsavites are cordially invited to the presentation. All residents/flat owners are welcome to forward their VALUABLE suggestions to Mr. B.K. Khaitan for incorporating in the proposed detailed presentation latest by 4th June 2015.

An Appeal to All UTSAVITES

Dear friends, brothers and sisters,

All of us purchased flats in Ashiana Utsav to spend our twilight years peacefully, but soon after shifting to this place we started facing one problem or other due to poor quality of construction, uneven and broken road, non functioning of emergency response switches, security lapses due to low boundary wall height and inadequate barbed wire fencing etc. Even after repeated complaints, the builder or the service providing agency did not do much except giving vague assurances.

All of us have felt that inspite of unsatisfactory state of services being provided by the service providing agency Ashiana Maintenance Services Limited (in short AMSL), maintenance bill is being increased arbitrarily without any logical reasoning. In last two years fixed maintenance charges have been increased by more than 50 % where as the inflation rate in the country is around 8 -10 % only. As a result the amount of maintenance deposit which we paid upfront at the time of purchasing the flat for 18 months has exhausted within 12 to 14 months.

Baffled by this abrupt increase in maintenance billing residents took up the matter with AMSL officials individually as well as through RWAs but all their efforts proved futile as the management either did not reply to their requests or side tracked the main issues through vague and irrelevant replies.

As the maintenance billing is supposed to be done based on actual expenditure, RWAs requested AMSL to let them scrutinize the actual expense details so as to curb the unnecessary expenses and also to stop unethical practices and leakages, if any. For this purpose RWAs requested AMSL to allow Financial Advisory Committee (FAC) members of Ashiana Utsav Jaipur constituted by AMSL, to go through their accounting books and give them copies of AMCs and work contracts. However inspite of repeated requests and reminders AMSL has not provided these records for review of Ashiana Utsav Jaipur constituted by AMS. From this it is very clear that all is not well behind the screen and promises of fair dealing and transparency are nothing but misleading hollow slogans.

FAC had also been requesting AMSL to show them details of income and expenditure in Capital Fund account but the same has yet not been accepted by AMSL and as such Utsavites are not aware about the details of capital equipment purchased by AMSL from their hard earned money and whether these equipments are still available in Utsav premises or have been stolen away, because AMSL is not maintaining any stock register for capital equipment.

Now let us talk about preparation of budget by AMSL and its monitoring. From a cursory look at the budget for 2014-15 and actual expenses during that year,

it is absolutely clear that there is no correlation between the two documents. Actual expenses under various heads widely differ from the budgeted amount. For example actual expenses under staff welfare, Horticulture, Repair and maintenance and consumable materials heads were 24%,44.5%, 153% and 57%, higher than the budgeted amount where as that for security and sanitation it was 15% and 20% lower than budget amount. This means that no attention is given to budget at the time of incurring expenditure.

Budget proposed by AMSL for 2015- 16 is no better than their previous budget. FAC has pointed out several irrationalities in this budget but AMSL did not pay any attention to these observations except for some minor changes here and there. As such FAC and both RWAs have rejected in toto the budget proposed by AMSL for 2015-16. In absence of basic accounting records, work contracts and AMCs etc FAC has suggested to AMSL two possible ways to prepare the budget for 2015-16.

(a) To link the budget for Ashiana Utsav, Jaipur with that of Ashiana Utsav, Bhiwadi as both these societies are for senior citizens, both are located in the same state Rajasthan, both are being maintained by the same service providing agency AMSL and services being provided at these societies are also almost the same. For your information the budget for Ashiana Utsav, Bhiwadi for 2015-16 has FMC (fixed maintenance charges) of Rs. 1.24 per sft where as they want to charge FMC of Rs. 1.63 per sft for Ashiana Utsav, Jaipur. AMSL has no explanation as to why they want to charge Rs. 0.39 per sft extra from Utsav, Jaipur residents/flat owners.

You would be surprised to know that in the budget for Utsav, Bhiwadi for 2015-16 the component of Branch cost+ Administration cost + project staff +welfare expenses is only Rs.0.364 per sft where as in the proposed budget for Utsav, Jaipur it works out as Rs. 0.671 per sft, i.e., more than 1.8 times of that at Bhiwadi . Not only this but even the Annual Maintenance Contracts (in short-AMC) expenses at Bhiwadi for the year 2014-15 was less than that at Utsav, Jaipur, although Bhiwadi project is more than double the size of our project and the number of lifts and air conditioners and other equipment is also much more at Bhiwadi.

(b) To link budget of Ashiana Utsav, Jaipur with that of next door society of Ashiana Manglam, this is also being maintained by the same agency AMSL. Most of the services available to residents of these societies are common and rate can be adjusted for additional services to the extent of their actual cost. Another difference in billing system of these two societies is that for Ashiana Manglam AMSL is levying a service charge on the FMC where as flat owners/residents of Ashiana Utsav have paid in advance reducible Interest Free Management Deposit (in short IFMD) amount towards management fee for 10 years. To counter this difference either service charge component is subtracted from FMC

rate of Manglam before applying it to Utsav or the management fee charged from Utsav residents is refunded to them and then FMC rate of Manglam is charged to Utsav residents also. FMC rate for Utsav, Jaipur worked out on this basis would be almost same as that for Utsav Bhiwadi.

AMSL has yet not given any response to above mentioned proposals of FAC and have continued billing for April 2015 as well as May 2015 @ Rs.1.63 per sft.
You would certainly like to know why AMSL is charging such a high rate of maintenance from flat owners/residents of Utsav , Jaipur and is not listening even to their simple demands and ignoring the joint communication from the two RWAs. One obvious reason is that flat owners/residents of Utsav, Jaipur are divided amongst themselves over petty issues and are not standing united for common welfare issues and their basic rights.

You might have also noted an important lacuna in our maintenance bills that though the bills are being raised by AMSL, but the payment is being demanded in favour of Ashiana Utsav. If all is well, AMSL is fair and transparent in their dealings, then why is this accounting hotchpotch?

There are innumerable such cases /incidents of AMSL high handedness, but the details given above are enough to make you realise that it is high time to shed away the attitude of indifference, understand the ground realities, rise above petty disputes and take a united stand in overall interest of all flat owners/residents of Ashiana Utsav, Jaipur.

A detailed presentation with all facts and figures is being prepared and would be given on 5th June 2015. You are all requested to attend this presentation irrespective of whether you are a member of one RWA or the other or you are not a member of any RWA, and give your valuable suggestion as to what should be our next step under the prevailing situation to ensure a peaceful and happy living. We would like to make it very clear that we do not have any intention what so ever of replacing AMSL with any other service provider. Our interest is only to ensure that they work diligently and honestly.

We thank you very much for spending your valuable time in reading this note. We await your suggestions on the above mentioned as well as on other important issues.

Author: Mr. M.L. Rathi (M-246) Member FAC, AU Jaipur.