Imagine sitting down with your significant other to pay the monthly bills. You both put your checks into a joint account and know how much there is to take care of expenses, or so you think. Out of his wallet your husband pulls out receipts for a new suit, dinner with his friends and a new part for the beat up old Chevy that he’s rebuilding. You add receipts for a manicure, a brand new red dress that’s hanging in your closet and the liquid lunch that you had with your gal pals from work. Both of you look at the pile, each upset that the other wasn’t notified about all the extra spending, and wondering how you’re going to cover your household bills now.

Money—and the spending of it—is a topic that some people are very skittish about discussing, but when you’re a board member or the managing agent of a residential co-op or condo building, there’s no benefit to skirting financial realities just because they may be difficult or contentious.

Tell All?

Cynthia Graffeo, director of client relations at New York based-Argo Real Estate, says that what information the board shares about the building’s financial information will also depend on what’s been traditionally done in the past for that building.

“Finances are one of the biggest components of the building, so shareholders want to make sure the board is meeting their financial obligations,” says Graffeo. “You want to be open to them with annual financial statements and letters that explain when a board decides to increase the maintenance or do an assessment.”

Each month, a financial report should be generated to give the residents and the board an idea of where the building is at from a monetary standpoint. This report compares where the budget is to where it should be. In addition, it also has a listing of all the bills that were paid and the monies that were collected. In other words, anything financial that has happened that month should be in the report.

“If a board decides they don’t want to be really open, they don’t publish their operating budget,” says Graffeo, adding that an operating budget is an annual budget that includes such expenses as salaries, taxes, utilities, maintenance fees and insurance. “Shareholders don’t understand that it’s a working budget and then have questions and concerns about what’s spent,” she says.

“A board should understand their fiduciary responsibility as well as their responsibility for confidentiality,” says Brookline, Massachusetts-based CPA David A. Levy. “Generally all finances are and should be open to the general ownership (residents are not all owners). I say ‘generally,’ because there may be some specifics that for confidentiality issues should not be distributed.”

“I’m puzzled when I see a board that is keeping things really close to the vest. I see it fairly often and I find it a little disturbing,” says Christine E. Evans, CMCA, PCAM of Associa, a nationwide management company.

“Minimally, I feel like there should be something that an owner can get at any given point that says what we’ve spent and what was taken in. I think that maybe because board members are volunteers they may be a little concerned about the depth of questions from particular unit owners that might have more financial knowledge than they do. They might be asked questions they don’t know the answers to and they don’t want to give the impression that they are not in control.”

Most management teams utilize the services of a certified public accountant or an accounting firm, who complete audits, reviews, budgets and more on a monthly, quarterly or annual basis.

“Just like a corporation, the CPA/firm can be present when the annual meeting is held to discuss the audit or review,” says Levy. “Accountants can also lend an outside objective opinion and discussion as to the overall financial stability of the association.”

Shhhhh!

However, there may be some instances where it’s best to keep certain financial matters quiet. In addition, private personnel records of association employees may also be off-limits to non-board personnel.

However, it’s common that there may be a unit owner who is going through a rough patch in his or her life or other owners who are struggling and haven’t paid their fees because they lost their job or have been ill. For example, If Mr. and Mrs. Smith are behind on paying their maintenance fees for whatever reason, should the other owners know?

“Delinquencies should not be discussed with anyone but the person who is delinquent,” adds Evans. “The exception may be the employees of the management company who have to deal with accounts receivable.”

“Any communication between an attorney and the board that relates to litigation should not be discussed with non-board members,” says Alan E. Lipkind, a partner with the law firm of Burns & Levinson LLP in Boston.

“Anytime a board is seeking legal advice, attorney-client privilege protects that communication. That’s to encourage the free flow of information between attorney and client. One thing with condos that has come up recently is delinquency records on individual property owners. When unit owners are in arrears, how should that be handled in terms of communication with other unit owners? It’s a bit of a touchy subject. An owner might not want his delinquency known to the whole world; on the other hand, the unit owners are co-owners of this enterprise and some may feel they have a right to know.”

Even after the board notifies the unit owners in writing of financial turmoil, a meeting with the residents may still be necessary.

“Let’s say that there is a major structural repair that needs to be done,” says Graffeo. “It is a hidden condition, but it’s going to cost the building $1 million to do it, but there’s no reserve money. If any money that’s coming in can’t meet the expenses, an assessment needs to be done and a plan of action needs to be created, such as obtaining a loan. This plan needs to be put into place and disclosed to the shareholders and unit owners. They should receive a summary of how the board expects to make the repair and that an assessment will be coming down the line in the near future. It’s all about disclosure for people to understand exactly what’s going on.”

To keep a building in the black, Graffeo says that her prep work for a budget begins in the late fall of the previous year.

“If a building’s fiscal year runs from January to December, we do a projected budget in the fall that’s...used by the board and sent out to the community,” says Graffeo. “If there’s a suggested increase in maintenance or common charges, we send out a letter with an explanation of why. Argo produces monthly management reports, so on at least a monthly basis there is transparency on the building’s financials. We also include a summarized copy of a working budget.”

The purpose of an annual shareholder meeting is to adopt the budget, and includes a presentation of the CPA’s annual report.

“Management might give out very detailed financial reports including check registers, AP (accounts payable) listings and AR (accounts receivable) details, to name a few. “The general requirement for the board is to issue to the owners is a set of financial statements which include a balance sheet, profit and loss (or income statements) and a statement of cash flows. Included in the audit or review will be footnotes regarding the financial statements, which are very important and should not be overlooked and are an integral part of any financial statement presentation.”

The shareholder meeting may, or may not, be open to all building members, but be aware that some members may come to the meeting with their own agenda.

Graffeo sums it up by saying that in a co-op or condo, everyone shares the cost of the common areas and when someone doesn’t meet their financial obligations, everyone has to bear the brunt of it. When a building’s financials go from bad to worse, Graffeo says that full disclosure to the unit owners is necessary. “There should be an obligation to have the operating expenses meet the operating income. There should be a balanced budget—and if there isn’t, it’s important to let the unit owners know.”    

Lisa Iannucci is a freelance writer and a frequent contributor to New England Condominium. Freelance writer Christy Smith-Sloman contributed to this article.