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Lessons and advice for new treasurers
So how does a new treasurer figure out what he or she has to learn and from whom? Property managers and accountants are obvious choices, but sometimes a new treasurer may be hesitant to turn to them because of the question's simplicity. To help, Habitat posed questions from several new-to-the-job treasurers to three experienced ones.
Carl Wish spends around 4 hours a month on building treasurer work, and he's been watching over the books for the past 21 years at 70 Riverside Drive. Paul Jacoby, treasurer for the past year-and-a-half at 215 West 98th Street, clocks in between 5 and 10 hours a month. Kenneth J. Eisner, treasurer at 1264 Amsterdam Avenue for nearly a decade, put in 15 hours a month.
What do these seasoned treasurers know that new-to-the-job directors don't? "The best treasurers keep an open mind," says CPA Carole Newman, managing partner of Newman Newman & Kaufman. "They don't have the conclusion to the problem before they start." The worst ones, she continues, "spend their time nickel-and-diming and reach a conclusion before they even start the process."
So how does a new treasurer figure out what he or she has to learn and from whom? Property managers and accountants are obvious choices, but sometimes a new treasurer may be hesitant to turn to them because of the question's simplicity. To help, Habitat posed questions from several new-to-the-job treasurers to three experienced ones. The following are the lessons taught.
FIRST INNING: Wish Coaches Klein
Carl Wish, long-time treasurer at 70 Riverside Drive and now retired as a financial manager at Exxon, speaks plainly: "When you're a financial type you understand the broad ramifications, even if you are not an accountant. "Budgets and control, that's what being a treasurer is all about."
At the seven-story, 81-unit White Plains co-op, the board directors at the Estates of Crystal House faced a major problem: the death of the treasurer. When the man they tapped to take on the responsibility informed them he wouldn't be available for the job, they turned to Tom Klein, an interested shareholder who had been coming to board meetings for the past year and publishing a monthly newsletter about board activities.
Klein's professional career had taken him up the comptroller path, and he was now semi-retired. He understood the financial side of for-profit corporations but was new to the non-profit world of co-ops. As a new treasurer, Klein wanted to "develop a position description and a list of priorities for the position."
Annual Financial Statement
Klein: What involvement should I have in the preparation or review of annual financial statements?
Wish: I always ask for a draft copy of the financial statements to review before they're "officially" issued. I look at the "notes" section to make sure things like mortgage details, commercial rent terms, and a few key operating expense figures are properly stated. The other "bookkeepery" type figures like depreciation, accruals, prepaid items, etc., I assume the accountant is handling correctly.
Klein: What involvement should I have in the preparation of the annual budget?
Wish: This is one place where the treasurer proves his or her worth. I have a huge involvement with the managing agent in preparation of the budget. They prepare a first draft and then we go through it line by line, from salaries to operating expenses, real estate taxes, etc. I question all the assumptions underlying the managing agent's estimates for reasonableness and accuracy. I also factor in any planned projects or expenditures that the agent may not be aware of. Then, I look at current anticipated income and estimate what sort of maintenance increase would be necessary to sustain that budget level. Only when I'm satisfied with the results of this analysis do I bring it before the rest of the board for review.
Tight budgets typically act as a catalyst [to seek out additional revenue or cut expenditure items]. About six or eight years ago, the budget looked tight in terms of revenue. Someone on the board had heard about submetering, and we put that plan in the works. We're always looking for opportunities to increase revenue or reduce expenses - bulk cable service, new windows, and a new boiler are some of them. We closely watch our 80/20 [tax] situation, because we have commercial income.
I think our managing agent does the right thing by drawing up an initial pass at our annual budget. [But when asked if management could do more, Wish says emphatically, "Management's primary responsibility is to pay the bills and prepare a preliminary budget. But I don't want someone else telling our building how to spend our money."]
Monitoring Financials Against Budget
Klein: Should I monitor actual financials for interim months against the budget?
Wish: This is another key treasurer contribution. I monitor actuals against the budget on a monthly basis and track down (with the managing agent, building super, etc.) any major aberrations to ensure nothing is going off the rails. I report such findings to the board each month.
[Wish's monitoring technique is really quite simple. He copies the figures supplied by the agent onto an Excel spreadsheet, with the months on top and the expense and revenue items down the side. He calculates a simple percentage figure for these numbers against the budget, and then finds the reason for any variation.]
Doing it this way gives me an opportunity to analyze the budget on a monthly basis, and a clue for where to look if there are aberrations. For instance, I can see whether management is taking advantage of fuel discounts for prompt payment. It takes me about 15 minutes to review the numbers, then another 15 minutes to bring them over to Excel.
Long-Term Capital Improvement Plan
Klein: Should we have a long-term capital improvement plan?
Wish: We do not have a formal 20-year plan, but do look periodically at potential major expenditures over the next few years. The key here is planning far enough ahead to ensure that a proper building reserve fund is in place when needed. What you don't want is "firefighting" where you need frequent, unexpected major assessments or maintenance hikes to take care of problems. A long-term plan allows for a smoother more acceptable phase-in of these expenditures, through modest, annual, anticipatory maintenance increases.
Ten years ago the board - on somewhat of a formal basis - tried to anticipate what could go wrong. We don't have a formal plan in place now, and I consider that a bit of a shortcoming. But I don't see anything dramatic in the future, so the plan would not have that much added value.
Klein: In regards to approval authority for disbursements, what limitations and signing limits are standard in the field?
Wish: In our building, the managing agent can routinely pay any individual bill under $2,500. Items in excess of this limit require the signature approval of a board member, normally the president or treasurer, before the managing agent is permitted to pay.
SECOND INNING: Jacoby Coaches Jamrozy
Paul Jacoby works in finance and is the treasurer of his 35-unit co-op at 215 West 78th Street. As with many experienced treasurers, he is comfortable with the numbers and has the support of a management company that provides him with good data and financial information. Even so, Jacoby says the most difficult thing about being treasurer is "staying close to transactions that you are nowhere near. You really don't know the vendor and may not see what the services are that the vendor delivers. So you are left trying to make sure that the shareholders are getting what they paid for while only being able to review transactions at arm's length."
Ed Jamrozy has served on the board of his 96-unit prewar building in Kew Gardens, Queens, for the past four years. "The first year the president was a one-woman show, and our sole function was to agree with her, not to demonize her, because she was on target a good deal of the time," Jamrozy says. "She moved out of the building, and I became president the following year, then treasurer for the last two. I feel like I still have a lot to learn in both capacities."
Now retired, Jamrozy worked in the financial sector providing computer support at Merrill Lynch. He's Excel-savvy and tries to keep track of his building's numbers on a simple spreadsheet. His Queens co-op is split 70/30 between shareholders who live there and sublets held by a holder of unsold shares. The managing agent has been on board since the building converted.
Jamrozy: How can we increase revenue, other than by increasing maintenance? Our building is not amenable to commercial rental, and the management company extensively uses the basement, so things like an exercise area or such are not feasible. We are investigating a flip tax.
Jacoby: Flip taxes are a good way to increase building revenue. They can serve as a safeguard that helps to protect the value and financial strength of the co-op and offer an additional, although inconsistent and lumpy, revenue stream. Flip taxes oblige shareholders to give a little something back to the institution that they have derived so much value and service from over their tenure as residents. Taking care to structure the flip tax fairly is important - give shareholders alternatives as to how to fulfill their obligation. Common practices are that the selling shareholders can choose to pay a fixed minimum, or a predetermined percentage of profit on their sale (less any documented capital improvements), or a fixed percentage of their gross sale price. Also, make sure to put safeguards in for shareholders, like a cap that cannot be exceeded.
Another popular revenue stream that seems pretty fair is to institute a "renovation" or "elevator" fee. This basically charges residents for use of building common resources (service elevator, porter or superintendent assistance) while undergoing renovations on their apartments. Fees could be daily for the life of the renovation project, and typically run $25 to $75 a day.
Beyond that, the building really can only create revenue by leveraging its physical assets - that is, by having people (usually, shareholders who may be reluctant to have to pay fees to use what they already, in effect, own as shareholders) pay extra fees for special usage rights.
Additional alternative revenue ideas include: installing rental laundry machines on the premises and allowing the co-op to keep a percentage of the profit, clearing out unused space in the basement to be used as a shareholder storage or a bicycle room, with fees. Alternatively, there may be an opportunity to rent out common space (terraces, meeting or party rooms). The building's roof could be a source of revenue, if you wanted to rent out the space to cellular phone service providers to install a tower.
Jamrozy: How big a reserve fund is appropriate? The holder of unsold shares, who owns 30 percent of the apartments, likes to keep it lean.
Jacoby: Appropriateness of reserve fund size is largely dependent on expenses the co-op can be expected to face in the next three to five (or perhaps ten) years. Generally, the bigger the better, especially when it comes to older buildings that may have a lot of ongoing rehabilitation and maintenance work required to keep the building's infrastructure (plumbing, heating, exterior) healthy. A simple rule of thumb might be to try thinking about it in terms of a multiple of annual expenses. I've heard that a reserve fund of one times the building's operating budget is considered to be healthy.
Jamrozy: Any suggestions about refinancing our mortgage? We currently have the kind where the interest is guaranteed; it is, I think, 11 percent, to be paid off by 2019.
Jacoby: Talk to your managing agent or a knowledgeable mortgage broker. It should mostly be a mathematical decision - if rates being offered to a building of your profile in the current interest rate environment are low enough for your new monthly payments to enable payback on the cost of the refi in one to two years, and if your building could make use of the extra liquidity that may come with refinancing, then it may be a good idea. However, getting saddled with a floating rate mortgage as rates rise is not a very good call, either, but you could probably do better than a fixed eleven percent mortgage rate. (Our building has closer to a five percent rate on a mortgage with less than a 20-year term).
Jamrozy: How do we monitor the management company? Not that I think they are larcenous, but what are things I should keep an eye out for?
Jacoby: Play an active role in budgeting for your building and keep an eye on expenses and fees (invoices, receipts, ledger accounts) each month. Know what management fees are being charged for what specific services (office services like managing agent copies, faxes, and FedEx costs are common), and ask what is included in managing agent monthly service fees. Basically, just know where the money for each line item on the budget is going and make sure the recipients of the cash are legitimate and that the rates being charged are reasonable and at market rates. If you're not sure, ask for projects to get multiple (at least three) bids from vendors before making a decision.
THIRD INNING: Eisner Coaches Macri and Newton
Kenneth J. Eisner oversaw the books for nearly a decade at his 22-unit co-op at 1264 Amsterdam Avenue. Trained as both a lawyer and a CPA, Eisner had a strong financial background that helped him stay focused on four main issues: to hold the line on maintenance increases; to protect the reserve account so it would be available for boiler, roof, and building facade repairs; to stay attuned to refinancing opportunities and then take the building through two major underlying mortgage refinancings; and to prepare the building for the financial hit when its J-51 benefits expired.
To compound matters, 1264 had growing pains. Converted in 1987 and located near Columbia University, the small, 100-year-old property suffered during the market downturn in the 1990s. What started out as owner-occupied soon became a building of renters, with 16 out of 22 units sublet at one time. When it became clear that the co-op would be unable to refinance because of the sublets, Eisner, along with other board members, devised a policy which provided a several-year window to owners to either sell their units or move back in. "We tried to be fair to most tenants and devised a lottery system and priority system to get the sublets down to five or less," Eisner recalls. It worked, and today, the cooperative has only three sublets.
Susan Macri, a social work supervisor at Jacobi Hospital, grew up in a Bronx co-op so she knew what community living was about. When she moved into Bryn Mawr Ridge, a 520-unit garden apartment co-op complex in Yonkers three years ago, she joined the shareholders association that functioned as a way for residents to voice their concerns to the board. "Doing that made me realize that being on the board was a good way to get involved. I didn't want to just sit there and complain without doing something about it," Macri recalls. She joined the board as vice president and was elected treasurer in December 2003.
Unlike many treasurers, Macri doesn't have a financial background. But her training in social work gives her skills for working with a group that many with financial training lack. "I look at things in a more dynamic way," she says, "and go from being a social worker by day to a business person by night."
Lauren Newton, treasurer for the past 15 months at the 65-unit 345 West 55th Street, has a corporate managerial background. While at Instinet Corporation she sat on a cost-cutting team, so attention to detail was not a new thing for her. When her neighbor decided to step down from the treasurer's job, Newton was asked to run. At first, Newton professed to be "a little scared. I felt like it was all on my shoulders to make sure our accounts were okay.
"When I first took office, I asked our then-managing agent a really simple question about some phone bills that had been paid almost a year earlier. They couldn't give me an answer as to why the bills had spiked up for several months, and it was only after months of questioning that I learned the problem was that our bill was paid as an automatic deduction from our checking account and the managing agent didn't have a copy of the bill. Bills were being paid late and we were assessed late fees, and I thought there was a lack of attention to these details. It took me a few months after assuming office to finally speak up," and then Newton pushed to hire a new management firm.
Now enrolled as a part-time student in a Creative Arts Therapy master's program, Newton still prowls for every penny she can find. When she learned from her new management company that her building could assess shareholders for the amount of the real estate tax rebates and put the roughly $35,000 a year back into the co-op's coffers - but had never done so before - she knew that the management switch had been worthwhile.
Newton/Macri: What is the best way to keep a record of the checks that are written?
Eisner: The check numbers, dates, and payees should be listed on a spreadsheet. Excel is an excellent spreadsheet program to use. Set it up in columns with those three headings, and you can add up the figures by months and tally by years. Also, tally the income on those sheets by source, such as shareholder income, interest, and dividend income, flip tax, etc. the expenses should include payroll, payroll tax, water, utilities, mortgage payments, repairs, and other categories, as applicable.
Storage Time for Bills and Checks
Newton/Macri: Have you found it helpful and important to keep copies of all the bills and the checks?
Eisner: Yes. It's important to keep copies of bills and checks for at least seven years.
Relevant Information for Monthly Treasurer Report
Newton/Macri: What information is relevant to include in a monthly treasurer's report to the board of directors?
Eisner: The board of directors needs to know the monthly shareholder income, a list of the shareholders and whether they are up to date, interest and dividend income, other income, the expenses by category, with emphasis on large unusual items. If large repairs are being made, they need to approve a budget and the budget must be updated as work is performed.
Role of the Treasurer
Newton/Macri: How would you best define/describe the role of the treasurer?
Eisner: The treasurer has a few roles. He or she must monitor income and expenses, advise as to whether projects make sense financially, give projections at least annually of income and expenses, must monitor the real estate tax situation, and advise as to whether maintenance increases are necessary. Also, the treasurer must monitor investments and advise the board as to the proper way to invest. The treasurer must supervise the refinancing of the underlying mortgage as required and make sure the board is aware of the length of the loan so that the process of refinancing begins well before the end of the mortgage should the mortgage balance not be paid in full.
Best in Treasurer
Who are the best treasurers? Carl Wish would say those who have a combination of knowledge and interest. Those just beginning to learn the job often fall into the trap of micro-managing the numbers, and never move on to see the big picture that the numbers represent. Accountants, managing agents, and seasoned treasurers alike all note that the "Best in Treasurer" prize goes to the person who is most able to keep the big picture in mind while understanding and questioning its underpinnings. Not an easy task, but one that Wish says will allow the treasurer to "shepherd, control, assess, and evaluate for the board what's being spent in the building.
"It's our money, we were elected to manage that money, and that's what we should do," adds Wish. Good "treasuring" - and advice from the masters - will help you do just that.
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