Treasuring the Role Investing in an Effective Treasurer

Of all the members of a condominium’s board, the treasurer is in a unique position to uphold the fiduciary  responsibility of the association, similar to that of a chief financial officer  in the corporate world.  

 Basically, the treasurer is “the financial representative of the board and the interpreter of such  information,” says Chad Clark, a partner in the Woburn, Massachusetts firm of Roselli, Clark & Associates, Certified Public Accountants. Treasurers must be familiar with  their association’s expenses and keep watch over how residents’ money is spent, in addition to organizing that information and keeping the  board and unit owners informed about the condominium’s financial standing. The position carries with it great responsibility and a  requirement for precision and care—a wrong move or careless calculation can have dire consequences for the  association’s finances.  

 The Right Stuff

 Ideally, a treasurer would have a background in finance or business to help make  quick work of financial statements, internal controls and budgeting and enable  him or her to decode the language of investments, corporate taxes, yields,  risks and costs in their sleep. The ideal treasurer would also have the  dedication and the available time to fulfill his or her duties and maintain an  open line of communication with management, the board's attorney, the  association’s accountant and financial advisers to ensure that the condominium’s money is well spent and wisely invested.  

 But as most board members are well aware, most board positions are part-time  positions held by volunteers, the duties of which vary depending on the size of  the community. There’s not always an MBA with tons of time on their hands around when you need one. “A good understanding of general accounting standards would be beneficial and  experience or education in understanding basic financial statements would also  be beneficial,” says Sondi B. Stanton, a certified public accountant at Stanton, Schmiedel & Co. in Woburn, Massachusetts. “In my experience, most of the treasurers don’t have tax experience but can understand their tax situation with explanations  from the accountant that prepares the returns.”  

 Clark, agrees, and notes that a good treasurer can look beyond the paperwork,  too. “Ultimately, the most successful treasurers are those who develop the ability to  read and understand the financial reports provided to them by the management  company,” Clark says. They are not only able to inquire about financial transactions or unexpected  results thereof, but they also can look to the future and anticipate if a  condominium has adequate funds to achieve its goals and whether other sources  of revenue must be considered or cost cutting measures employed.”  

 And, he notes, it’s not a single-handed proposition. “Taking on the role of treasurer should come with the understanding that patience  and teamwork may be key aspects of the position,” Clark says. “A treasurer may have to devise ways to explain the financial results in a manner  that would allow those with little or no accounting knowledge to understand the  financial health of the condominium. Most successful treasurers understand their role is to educate and share  information with the board and that sometimes the position may place a large  amount of responsibility on one individual but that the authority remains with  the collective group.”  

 Stephen Beer, a partner with Czarnowski & Beer, a Manhattan, New York-based accounting firm specializing in co-ops and  condos, says that although the board decides on officers, "Anybody who’s got any kind of financial background can be a likely treasurer—that’s the first priority—and the second thing is willingness to do the job, because [the treasurer] can  be the toughest job for them if it’s done the way it should be." Beer says doing the job right involves a lot of  work, and because of that, “A lot of people don't want to be treasurer.”  

 It’s a good idea, then, for a prospective treasurer to take a long, hard look at  the requirements for a particular community association before agreeing to  tackle the job. “The range in time commitment could be as little as a few hours a month to a  number of hours every week,” Clark says. “If someone is looking to or has been asked to become the treasurer, they may  wish to discuss with the previous or outgoing treasurer as to what their  general responsibilities were and the amount of time they devoted to those  duties.”  

 Often, the size of the association determines the level of interaction between  financial advisors and treasurers.  

 “If a management company is doing the daily processing, then the treasurer’s primary responsibility may be to review what is provided to them and make  inquiries on a monthly basis,” Clark explains. “A self-managed condominium could necessitate the treasurer keeping financial  records on all unit owners, handle all deposits, and write checks to vendors,  as well as reconcile the accounts each month and write a report for the board. In other scenarios, a condominium with large or multiple reserve projects could  find themselves involved in significant aspects of project management and  planning.”  

 A Day in the Life

 The treasurer’s duties also depend on the size of his establishment. “The duties should include a review of the monthly financial statements, discuss  ongoing financial issues with the board and management company, help with the  budget process and be a financial advisor to the board,” Stanton says. “They may also include making investment decisions or discussing these issues  with investment professionals the association may hire. A good understanding of  the condominium and the financial issues that are particular to the association  are the duty of the treasurer.”  

 And professionals say the treasurer’s most important role is, essentially to serve as the quarterback on internal  control for the association. “The treasurer should examine the balance sheet and the underlying supporting  documentation including bank reconciliations, assessments receivable and  accounts payable subsidiary ledgers. Review the deposits and checks written  monthly paying particular attention to payees on checks,” Stanton says. And there’s more. “Make sure the payments are authorized and agree to the invoices. Review the income statement and comparisons to prior year and budget and  question the variances. Review the general ledger activity monthly paying  particular attention to journal entries made by the management company.  Question any that are not understood and ask for supporting documentation.  Understand the internal control procedures related to accounting functions in  the association and make sure there are controls related to fraud in place at  the association level and the management company level.”  

 Treasurers, Stanton notes, “should have open and regular dialogue with the other board members. The  information they provide to the board inherently impacts the decisions or  options that the other board members face, even if all board members are not as  focused on the financial aspects of operations.”  

 Keeping Watch Against Fraud

 The treasurer maintains internal controls by ensuring that daily items are  correct. The board that doesn’t get involved or ask questions is most susceptible to misappropriation and  fraud. “Generally, fraud will occur through the accounting for cash; to that end,  [treasurers] should always ask for a copy of the bank account statements and  the cash reconciliations of those accounts,” Clark advises.  

 “Particular attention should be made of the items describing the variance between  the bank statement and general ledger; these items should be timely to the  period end and related to expected transactions.  

 “Furthermore, they should review the general ledger detail activity for ‘correcting’ or general journal entries made through the general ledger system; such  transactions may not show as receipt or payment transactions on the accounting  system’s template reports and could be used to clear fraudulent transactions through  the general ledger fairly unnoticed. Other options include looking at budget versus actual variances relative to  revenue and expense accounts; amounts and variances that are unanticipated  should cause the treasurer to inquire of the property manager as to what caused  these anomalies.  

 “Finally,” Clark says, “treasurers should be aware of their vendors; if payments are being made to a  vendor for services and they do not recognize the vendor name, they should  always inquire as to what services the vendor was hired to perform and whether  the board had approved that vendor.”  

 Generally the manager collect bids for projects over a certain amount and brings  them to the board, so the treasurer doesn't have to pick the vendor. His or her  job, Beer says, is to make sure the bill was approved and paid for in the right  amount. With smaller items, he says, either the manager or the superintendent  just orders supplies. “I like the treasurers involved in supplies/inventory to know where the stuff is  kept and to keep an eye on what's being purchased—that it doesn't seem unreasonable,” Beer says.  

 With volunteers serving in key positions for a community whose assets are valued  in the millions and whose operating budgets involve significant amounts of  money, fraud can be difficult to identify. Clark notes that the procedures he  outlined “are designed to identify fraud after it has occurred, since fraud prevention  controls are generally cost-prohibitive for many condominiums. However,  treasurers who establish a practice of consistently performing activities  similar to those stated above, can create an inherent fraud deterrent by  creating an expectation that ‘someone is watching.’ And this may dissuade a person from stealing from that condominium since they  are more likely to be caught, he notes.  

 Throughout the year, Beer says, there might be cases where the treasurer asks  the association’s accountant for suggestions regarding such matters as budget problems. “Towards the end of the year the accountants might have questions for the  treasurer about certain things—they may need to get to reserve fund accounts,” Beer says, adding that the accountant and treasurer usually have to communicate  with one another to access reserve fund accounts.  

 “One of the most important things for the all board members is a directors’ and officers’ liability policy, which almost all the [associations] carry,” Beer adds. "Other than that, if you have some kind of fraud occur, it may not  be something that the treasurer could have controlled—so the more active the treasurer is the easier it is to defend them."  

 The Last Word

 Treasurers generally report to the entire board and discuss at meetings where  the funds are at and issues that have arisen since the last meeting. Although  they have access to the building’s finances, they don’t handle every financial interaction.  

 A word of caution: Treasurers should avoid becoming overly accepting of the  information and reports they receive from their management company. “The time should not come when the treasurer stops reviewing those reports for  completeness and neglects to inquire about the financial activities or  variances that are out of the ordinary,” Clark advises. “This is not to insinuate that there should be a lack of trust when the board is  pleased with management’s performance. However, the treasurer does perform an important function in the  accounting control structure by serving as an independent and integral piece of  the checks and balances relative to financial transaction processing.  

 “There are times when we as CPAs are asked to advise treasurers,” Clark notes. “In most instances, it relates to their inquiry of our reports in order to gain a  better understanding of the information contained therein. In line with our services, there is sometimes tax planning involved for certain  condominiums that utilize a multi-year tax strategy. Additionally, we have provided some planning analysis relative to the funding of  capital projects and whether it can be accomplished through general or special  assessments or a loan through a financial institution.”  

 It's not the easiest job, but if handled properly the position of treasurer can  help keep a building not only cost-efficient but also fraud-free.  

Michael McDonough is a New York-based freelance writer. Editorial Assistant  David Chiu also contributed to this report.  

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