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Fallout from the Economic Slump: Surviving 2012's New Financial Realities

Joseph W. West in Board Operations on March 16, 2012

New York City

Photograph for Habitat by Jennifer Wu
March 16, 2012

Full audit of the books

In 2011 we saw a huge increase in embezzlement from condo associations and cooperatives.  It is all too easy to forge invoices, checks, bank statements and other financial records these days, and a financial review or compilation just doesn't dig deep enough to find anything but the most obvious problems. Yes, a full audit is more expensive than a cursory scan, but if you haven't had one in a year or two, or transitioned from a sponsor or developer, or changed management companies or managers, it's time.

Reserves

Making reduced reserve contributions or borrowing from the reserve fund is a very touchy situation. Before you start fooling around with the reserve account, make sure you can, and if you need to take any specific actions to make sure what you are planning on doing is legal.

More to the point, if you did borrow from or reduce the payment to the reserve fund, what are your plans for making it whole? Kicking the can down the road hoping the next board will deal with the problem is both irresponsible and cowardly. If the problems occur on your watch, then at least put a plan together to fix it. How are you going to repay those funds for the reserve account?

Deferred Maintenance

Like reserves, it not a good idea, nor is it fair to future owners and board members, to defer maintenance without a plan to deal with both probable and possible results of your decision. Probable may mean that if you defer painting another year that more chips may appear, resulting in more rotting and more expensive repairs down the road. Possible may mean that by not sealing the cracks in the sidewalks, pedestrian potholes could occur, resulting in trip-and-falls, with the attendant claims.

For everything you defer, plot the probable and the possible to see if you want to take those risks. Then make sure you include a plan on how you intend to catch up, or how you plan to deal with the risks.

Collections

I can't tell you how often I've read of boards asking how to collect assessments that are one, two, even three years behind. The smaller the amount, the easier it should be to collect. If it isn't, then the owner is in serious financial trouble, and the sooner you act, the lower the amount you may ultimately lose.

All condo or co-op boards should have a collections policy that is automatic, with checks in place to allow board members to confirm that the funds are indeed, in arrears and that the shareholder or unit-owner has some opportunity to put together a reasonable payment program. Every owner should be made aware that payment of the monthly charges is just as important as the mortgage and tax payments. Don't let the debt continue to accumulate.

Revenue

This is the time to seriously consider new revenue sources.  Although there are tax consequences to outside earnings, you first would have to actually make some money, and if you're having collection problems, then it's a good idea to look into other revenue streams. Take a tip from management companies: Their fees have basically remained the same for the past 30 years (adjusted for inflation — sometimes) and they have created ancillary services and charges to bring in the additional revenue they need to survive.

For instance, you can lease space for a cell-phone tower, or allow advertising or signs, or add vending machines. Never enter into serious discussions with vendors, however, until you've talked to your attorney, your insurance agent, and the owners.

Whatever the economy does, don't let tough decisions or needed planning slide to the next board. If you do, then you are just another part of the problem.

 

JoeWest

Joe West has been a community-association manager, consultant and educator, and a national staff member of the Community Associations Institute. He now produces related educational programs, many of which are available for free viewing on the website of his Community Associations Network (CAN). This was adapted from a post at his Community Association Considerations blog.

Main article photo by Jennifer Wu

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