If you want to find out about the history of any town, region or country, head  to a museum or look it up on the Internet. If you want to find out about your  family’s history, look at your photo album, whether it’s in a book or online. And if you want to find out your medical history, good  luck!  

 But if you want to find past financial records of a condo or co-op development,  that history is composed in all sorts of documents, financial records, minutes  of meetings, election results, invoices, and other records that are kept from  year to year. How are these records kept, and what are the most important  pieces of the “historical record” for board members and managers? The answers are complicated, but fortunately,  several financial professionals have agreed to help us out.  

 What Should You Know

 To begin with, what is the minimum financial information that board members  should know and understand about their buildings? While boards need a financial  professional in their corner, that doesn’t mean that there isn’t some basic information that they should know and understand on their own.  Obviously, the accountant or other expert can’t be there all the time!  

 Professionals interviewed by New England Condominium mentioned quite a few  important items as essential. These include shareholder or unit-owner arrears,  cash balances, unusual items such as special repairs or overtime, long-term  unpaid invoices, reserve activity and balances, profit-and-loss statements (also called income statements), accounts payable,  accounts receivable, subsidiary ledgers, bank reconciliations, check registers,  general journals, open liabilities, expense and income vs. the budget, and  major capital projects coming up.  

 Many of these items are contained in a monthly report provided by the managing  agent, which is reviewed by the treasurer or other board members each month. “Generally the property managers that we deal with are very sophisticated. They  know the industry very well, there’s tons of checks and balances that both the property management company, the  specific property manager, and then the treasurer and board of trustees of the  condo, they get lots of monthly information. They’re able to compare year-to-date and month-to-date results with the budget,” says Mark Love, CPA, a principal in the Worcester, Massachusetts-based  accounting firm of Love, Jarominski & Raymond, LLP.  

 Pay Attention to Small Things

 While the board president and treasurer are responsible for this financial  information, “all board members should know accounts payable, reserves, and cash positions on  a monthly basis.” And Jules Frankel, CPA, of New Jersey-based Wilkin & Guttenplan, says that good management companies will produce budget vs. actual  reports (meaning a report that shows how well you are meeting your budget for  income and expenses) throughout the year.  

 With all this information, there’s plenty of opportunity for mistakes and/or oversights by administrators or  boards. Here are some of them that have been known to happen: “The days of ledger sheets and manuals, and spreadsheets are pretty much by us,  because condominium associations are pretty much small businesses. They need to  be given the accounting, and financial attention that small businesses do,” says Love.  

 One common mistake is the use of cash-basis financial statements. “A cash-basis [record] can be a misleading position,” says Gerald P. Paolilli, CPA, at Paolilli, Jarek & Der Ananian in Westford, Massachusetts. “It just shows you your cash balance. It doesn't show your obligations. On an  accrual basis you record the expense when the cost is incurred, but you record  the responsibility to pay that bill at a certain time, which will show up on  the books. Many management companies use strictly cash basis, and some trustees  prefer it that way because they lack the basic business knowledge to see  otherwise.”  

 Checks & Balances

 Another common mistake is to delegate full control to a property manager or a  board member without any oversight. “There are no checks and balances in the way of monthly reports, dual signatures  on checks, and comparing of year-to-date results with budgeted numbers. In many  cases they’re not made because people are smart enough to make sure they don’t expose themselves to those deficiencies,” says Love.  

 Often times, boards don’t hold managers and their treasurer accountable either because they simply don’t think there’s anything wrong with putting financial power into just a few hands. Sometimes,  it’s also laziness, or just the simple comfort of routine. “The common problem that I see is that many board members will say this is the  way it’s been going for years, so it must be correct. Some members become a little  cocky and think they’re doing things fine,” says Thomas P. Foley II, CPA, in South Hadley, Massachusetts.  

 Unfortunately, this isn’t always the case; a control system is necessary. At times, records can get lost  when a building changes managers, for example, which can lead to issues of  fraud or lost money. Not reconciling bank statements, not producing quarterly  or monthly reports on a timely basis, not resolving unreconciled items, and not  making sure that carrying charges are credited to the correct person’s account can lead to huge problems down the road.  

 Here’s a question some of you might be asking: When it comes to financial paperwork,  filings, record keeping and disclosure, what responsibilities do you have as an  owner? For the most part, it’s not common to face a lot of taxes on common spaces. “The unit owner owns the unit. So, they have their own mortgage and traditionally  pay their own real estate taxes. Occasionally there may be some common area  real estate taxes that are paid, whereupon the unit owner could in some cases  technically be eligible to include that portion on his or her tax return as  well, but generally the deciding factor is who paid it. If something paid for  something on your behalf, then you don't get the deduction. But it could be  argued that the assessment and condominium fees allowed the condominium  association to pay for it,” says Love.  

 Now that we have an idea of what records have to be kept, where do they have to  be kept? In most cases, they are kept at the manager’s office, although in self-managed buildings, they can be kept in an office on  site. Increasingly nowadays, these records are scanned in, then are accessible  digitally by board members and managers. Even if they are kept by the manager,  however, it is important for the board to have access to these records as well — there have been too many cases where a building switches managers and the new  manager doesn’t know where the old manager kept them.  

 It’s important to realize that a degree of trust and thoroughness need to combine  to ensure a healthy financial atmosphere among unit owners, managers, and all  the businesses and services that do work for the condo. “I think of one particular property where the trustees are afraid to increase  fees, so they keep the budget down, because they figure if they budget for less  expenses, the fees don’t have to go up — but the problem is, the property still has to get taken care of. Consistently,  we'll see the budget versus actual is never in line, which leads you to believe  the budget process wasn’t well done. But, I don’t see that too often,” says Paolilli.  

 Transparency is Key

 We’ve seen what some of the problems can be. How can condo and co-op administrators  streamline their buildings’ financial profiles to make them simpler, more transparent, more efficient and  less likely to result in missed deadlines, missing paperwork and penalties?  Obviously, the board and managers should have a regular schedule to review  documents and reports and to discuss them. A checklist, with a schedule of  important due dates, will keep things running on an efficient basis.  

 What managers should have is a variance report. “The budget in and of itself is a management tool, and the financial statements  are accounting-principles driven. So you might be looking at an apple and an  orange. Do we do investigate huge budget swings? Yes we do, to make sure there  are no improprieties, and secondly, just to make sure the budget process was a  sound one, and the variance that occurred was an anomaly, not just the result  of very poor planning,” says Love.  

 Electronic banking and automatically recurring payment plans are becoming more  and more commonplace in most small businesses, and condos are no different.  Especially when working with the right numbers and projections, electronic  payment systems and record keeping can really streamline matters. “Occasionally, in the olden days somebody would pay their condo fee, and it would  sit unattended and under-deposited for a certain amount of time because the  people who were dealing with those matters were doing it on a part-time basis,” says Love.  

 “So to expedite the money getting into the condominium association’s account quicker, often times payments are made either to a bank directly, or a  P.O. box, some type of ‘lockbox vehicle.’ For instance, I might pay my JC Penney bill that I shopped in Marlboro, but I  sent my payment to Texas because it’s going to hit the account immediately. There’s some efficiencies that go into that, the present-value-of-a-dollar advantages,  but there’s also a slight cost, because the people that are doing it are not doing it for  nothing,” says Love.  

 Finally, it’s important to get more unit owners or shareholders involved and to set up  committees where they can volunteer. Otherwise, the same small group of  volunteers will have to carry the ball on everything, and they will be  overtaxed and overspent. What resources exist for boards and/or managers to get  solid advice on how to better organize and manage their financial records? The  information in this article is minimal, but there are many resources that are  available to interested condo boards and property management companies. “There are CAI (Community Associations Institute) courses that a board member can  attend and learn the proper presentation or contact an accountant. It would be  well worth the fee they would have to pay to review their documents to find out  what’s going on — kind of like a checkup with your doctor. Go visit your accountant once a year,” says Foley.  

 Most boards have their own professionals, such as accountants and attorneys.  Each type of professional can provide a different type of advice. CPAs can  provide advice about record retention; lawyers can provide advice about legal  matters, contracts or mortgage refinancing; and managing agents can give  examples about practices that are working well in other buildings.  

 Seminars, including those given by trade organizations or at events such as the  New England Condo Expo are another resource.  

 Simple, basic practices — like good record keeping, regular maintenance and good communication between  the condo/HOA board and the building administrators are keys to keeping the community fiscally  sound and on track. 

 Raanan Geberer is a freelance writer and a frequent contributor to New England  Condominium. Editorial Assistant Tom Lisi contributed to this article.