New York's Cooperative and Condominium Community
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The monthly management report is the most essential document you’ve never read.
The more people you have reviewing the monthly management report, the better it is for your community.
Vincent Baudelot likes to check things out for himself. As the treasurer at the Isabella, a 63-unit condo in Clinton Hill, Brooklyn, he receives a monthly report from New Bedford Management. But he doesn’t let it end there.
“I also keep my own spreadsheet with the building’s finances to check from month to month,” he says. That way, he can compare December’s projected budget to the actual budget and then back to December from the year before. “I look to see where we actually are versus our budget, and then I look at cash disbursements to make sure that the check for the gardener actually went to the gardener, and then I look to see how many people we have behind on common charges,” Baudelot says.
Meanwhile, at Beech Hills, an 816-unit co-op in Queens, co-op board president Janice Schreibersdorf works closely with the on-site general manager and the bookkeeper to put together a report for the rest of the board every month. Like Baudelot in Brooklyn, she says that the most important thing is the income/expense statement, “so we can see if our spending is normal. Say our fiscal year starts in October, then we can look at October, November, and December and see how much of our budget we’ve spent so far,” she says. “You can compare each month to the past month, and each month to the same month last year.”
There’s a reason Baudelot and Schreibersdorf are so scrupulous in reviewing their management reports. They understand that the report is the key document that keeps a co-op or condo on the right path. Savvy board members, CPAs, and managing agents say this monthly review is crucial to the financial health of a building.
Yet, for all its importance, the management report is frequently not given the attention it deserves. With dozens of pages of financial figures, it can be a daunting affair, and many board members only give it a cursory glance. But a monthly management report deserves more. It should be delivered by the 20th of the month and contain:
• Cash disbursements report including accounts payable
• Payroll report
• Copies of paid bills
•Year-to-date and month-to-date summaries
Comparison of budget to actual expenses
Copies of all monthly bank statements
Copy of bank reconciliation
•Cash receipts reports
Accounts receivable report
How Should You Read the Report?
If you’re not going to read the entire document, what are the top seven steps you should take that are the most useful?
Compare what the books say to the actual payments. Most management reports include income statements, actual spending versus the planned budget, payables, cash balances, and arrears. Additionally there are bank statements, which are very important, allowing board members to line up the actual payments with what’s on the books. There will also be a list of outstanding payments that may not have yet cleared.
Examining spending by comparing the bank statements to the management report can be important to prevent other errors, as well. Maybe one digit is transposed and it looks like you have $51,000 in a reserve account versus $15,000, giving you a false sense of security. “You have to look at the actual bank statements,” says Schreibersdorf, the Queens president. “That’s the most critical thing.”
Baudelot, the Brooklyn treasurer, says that it is important to double-check that charges are categorized correctly. Say something is marked down as “maintenance,” and it really should be a “repair,” you might not pick up on the fact that one of your systems is starting to falter. “A contract for maintenance is being proactive,” he says. “A repair is being surprised.”
Examine the receipts for services rendered. Baudelot estimates that most months he spends “a few hours” on the reports, and although this is his first year on the board, his diligence has already paid off. Early in 2015, the board purchased a new snowblower. He noticed the cleared check on the ledgers, but knew that there was no snowblower at the building. It turned out that it had been shipped to the wrong address.
Check the unpaid bills. Unpaid bills might be a problem area for a variety of reasons. Sometimes a managing agent sends your money to another building’s account by mistake. Maybe the bill got lost in the shuffle, or if the entire board has to approve the payment, perhaps one member is dissatisfied and is withholding payment. “It’s the managing agent’s job to wave the red flag, but the more eyes on it the better,” says Thomas Thibodeaux, CFO of New Bedford Management.
Examine the footnotes. Seth Kobay, president of Majestic Property Management, says his company’s reports include footnotes for transactions that require some explanation, and that process can help boards understand the report better. For example, say the annual budget for labor is $120,000, but one month ends up with more than the projected $10,000 a month breakdown. The footnote will indicate why and how it will “even out” for the rest of the year, or what you need to do to break even.
Review bank transfers. Stephen Beer, a CPA and partner at Czarnowski & Beer, also counsels clients to make sure they look at the so-called “journal entries” or ACH bank transfers that are frequently used for payroll. (ACH transfers, or Automated Clearing House transfers, are automatic transfers such as direct deposit.) Often reports mark these as a journal entry instead of a payment, so it takes an extra step to track.
Obtain overtime reports. In addition, Beer suggests boards ask for monthly reports on overtime. That can help boards know whether they are being inefficient (“Does it make more sense to hire another person, or set a different schedule?”) or whether there is inappropriate payment (“Why would we have 40 hours of snowplow overtime when it was mild?”). “Many boards I’ve seen that monitor overtime wind up saving money,” Beer says.
Check the reserves. Kobay says board members should keep a close eye on seasonal expenses like heating fuel and snowplowing as these can vary widely and take you by surprise. “You need to have an idea of where you are with these things so you know that you can deal with it before you get into trouble,” Kobay says. “Snow has been a huge expense lately, and you have to know if you need an extra solution like an assessment or borrowing from the reserve.”
Schreibersdorf says she keeps a close eye on their reserve accounts (they have one in cash and another in CDs). In general, reserves can be a place for fraud because you don’t use them all the time, so it’s easy to forget to keep track of them.
Who Should Read the Report?
Who on the board should be doing this evaluation? While many boards pick one person to review the monthly reports, most of the experts agree that it would be better to share the load.
“The best thing to do is to get a financial committee going and have everyone look at it,” says Beer. While every board is primed to catch fraud and error, these situations are far more common, he says. “I love it when I get detailed questions from more than one person.”
Mindy Eisenberg-Stark, a CPA who works with condo and co-op boards, says the gold standard would be for more than one person on the board to examine the monthly report. “It would be great to have one person look at accounts receivable, and someone else look at paid and unpaid bills,” Eisenberg-Stark says. “In reality, there is usually only one person looking at it, if anyone is looking at it at all. We find that the buildings that get into trouble are the ones who are not paying attention.”
When doing that review, remember: you should look at the reports from a “big picture” perspective. As Thibodeaux notes: “If you’re looking at it and saying ‘Why did we pay $3.50 for a mop head when I’ve seen them for $2.50?’ – that’s not the best use of your time. You want to have a large overview of your financial health.”
In the final analysis, such reviews are crucial, since the more you know, the better off you are. Say you start having budgetary problems because of a heavy winter and added heating expenses. You’ve blown through a good chunk of your budget already, maybe some other bills went unpaid. Now let’s say that a new resident is trying to buy into your building, and they go to the bank for their loan.
“You start getting calls from people saying that the bank is telling them there are problems with your building’s financials. If you keep an eye on things,” concludes Beer, “you can help prevent those situations.” Or, at the very least, you can explain how you got there.
Learn all the basics of NYC co-op and condo management, with straight talk from heavy hitters in the field of co-op or condo apartments
Professionals in some of the key fields of co-op and condo board governance and building management answer common questions in their areas of expertise
Got elected? Are you on your co-op/condo board?
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