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. “You have to look at the actual bank statements,” says Janice Schreibersdorf, board president at an 816-unit co-op in Queens. “That’s the most critical thing.”
Vincent Baudelot, treasurer at a 63-unit condo in Clinton Hill, Brooklyn, says it’s 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. (Automated Clearing House transfers are fund movements 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 or whether there is an inappropriate payment. “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.
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