Keeping the Books The Role of the Accountant

Keeping the Books

 Accountants are a norm for most people around tax time. And then, post-tax  season, we rarely think about them. But for co-op and condo owners, this  shouldn’t be the case. It’s crucial that large buildings hire an accountant to help with multiple items  within the building.

 After all, for most co-op and condo owners, their apartments represent one of  their largest assets, if not their largest asset by far. That apartment can be  viewed as an investment—and while each individual unit owner or shareholder is responsible for managing  their own personal finances and doing their part in maintaining and increasing  the value of that investment, the building also has a duty as well.  

 Balancing the Books

 Boards work with outside accountants and financial advisors to balance the  books, to manage reserve funds and to deal with other money matters, and it's  crucial that the individual or firm in that position is capable, competent, and  trustworthy—as well as being someone who can communicate complex financial information  clearly and coherently to board members and residents, who are not all  professional money managers.  

 The relationship between the board and its accountant needs to be taken  seriously. This can be done via specific rulings and documents outlining  everyone’s roles. And there are ways to optimize that relationship as long as everyone  knows what to expect and what to demand.  

 The relationship between an accountant and a board usually begins when the  accountant is recommended to them by other clients or professionals who have  had favorable relationships with the accountant, says Joseph Cavalcante, CPA,  managing member of Cavalcante & Company, LLC, and financial advisor to co-ops and condos in New York for nearly  30 years.  

 Getting to Know You

 It’s not unusual for accountants and property managers to have common clients,  especially in New York, where there are a limited number of accounting firms  that specialize in providing professional services to co-ops and condominiums.  

 Certified public accounting firms that are licensed in New York State and are  members of the American Institute of Certified Public Accountants (AICPA) are  required to adhere to a code of professional conduct. This requires that the  financial services are rendered for the benefit of the client only, Cavalcante  says.  

 “Any conflict would mean we are not in compliance with that code,” he says.  

 In order to keep the firms on track, every accounting firm in New York must have  a peer review every three years. During that peer review, the firm’s adherence to all accounting auditing and ethical requirements are tested. If  the firm is not in compliance, it is noted in the peer review report, which is  made available to the public.  

 “Boards can and should request a copy of the prospective accounting firm’s most recent peer review report,” Cavalcante says.  

 They should also inquire about how many co-ops and condos they represent, in  addition to asking for a typical monthly report and an annual report so the  board can see what they will be getting—and if it’s easily understood, says Andrew Brucker, a real estate attorney with the law  firm of Schechter & Brucker P.C. and chairman of the New York City Bar Association Committee on  Cooperative and Condominium Law.  

 Once the board has done its homework and thoroughly reviewed the potential  accounting firm, the board will make an official determination via a vote, says  Attorney Steven Wagner, a partner with the law firm of Wagner Davis, which  specializes in co-op and condominium law.  

 AICPA requires the board and the financial advisors to enter into a formal  engagement for their services. They sign an agreement outlining the services to  be provided, along with the charges.  

 For many buildings, the accountant will be asked to audit the financial  statements, prepare its tax returns, prepare or assist in the shareholder  deductibility letters for the mortgage interest and real estate tax deductions  on their personal tax returns.  

 The accountant may also be asked to assist in a refinance of the building’s underlying mortgage or the budget process.  

 Internal Controls

 During an audit process, the accountant evaluates the internal financial control— the checks and balances—in place inside the co-op. If any weaknesses are identified, the accountant has  a professional obligation to report those to the board, along with the  suggested remedies, Cavalcante says.  

 It’s important to understand that there is a difference between an accountant and a  financial advisor. Accountants may provide financial advice and guidance, while a financial advisor  is normally used for investment advice for reserve funds. These are two  separate duties, so the building should figure out if they need to hire an  accountant plus a financial advisor—or just the accountant.  

 The board also needs to remember that while the accountant is there to do many  of the financial duties—it is up to the board to make all the decisions.  

 “Although the accountant frequently provides advice to the board of directors of  a building, they do not have any authority to make decisions for the board of  directors,” says Richard Montanye, CPA, a partner with Marin & Montanye LLP, a full service tax and accounting firm located in Uniondale. “The accountant should be responding to the board of directors of the building.”  

 Accountants generally attend shareholder meetings and certain board meetings,  during which they discuss the co-op’s financial statements, are available to answer questions from shareholders or  board members, and provide other advice at the board’s request, Cavalcante says.  

 Work with the Manager

 Typically, the managing agent is the center of it all. The manager should  regularly provide management reports, invoices, bank records and other  documents to the accountant for review and comment, Montanye says. Good  communication between the managing agent, accountant and designated board  members is the key to efficient and timely financial reporting, as well as  having a good understanding of financial transactions, budgets, capital  expenditures, cash flow and seasonal fluctuations on expenses and income.  

 This doesn’t mean that the board’s treasurer is useless. He or she too, has a major role in the building’s economic state of affairs. “The treasurer is usually the officer responsible for financial and accounting  aspects of the co-op,” he says. “The treasurer reports to the other board members throughout the year as to the  financial condition of the co-op from the information it receives from the  managing agent, usually on a monthly basis.”  

 The treasurer and other board members can consult with the accountant when  needed, but the treasurer has the ultimate fiduciary responsibility for the  co-op’s financial records and reporting.  

 “All reporting and transactions should be generated by the board of directors,  and at least two officers,” Montanye says. “There should be no situation where a single board member or managing agent  controls all activity. All financial activity should be reported directly to  the board of directors and at least two officers so that no one individual  controls an event or relationship.”  

 But the accountant is still a major force. He has the names, the addresses and  social security numbers of the shareholders should he be asked to prepare the  year-end mortgage interest statements (the 1098 forms).  

 “In order for the accountants to do their jobs properly, and in order for them to  certify their reports, all records of the co-op or condo must be available to  the accountants,” Brucker says. “Every single check and every single invoice paid must be checks by the  accountants.”  

 For example, if there is a payment to a contractor, the accountant will want to  see a copy of the original check, the bank statement which includes that check,  a copy of the invoice from the contractor (or the request for payment if it’s one of many payments to the contractor on a large job), the approval of the  board’s consultant to make payment and the approval of the board itself, Brucker says.  

 The accountant is also in regular contact with the managing agent throughout the  year.  

 “The managing agent prepares the co-op’s financial books and records, and has many of the supporting documentation the  accountant must review during the audit process,” Cavalcante says.  

 Many accountants receive monthly financial reports from the managing agent,  which he reviews upon receipt, Cavalcante says.  

 “If questions result from that review, the accountant and managing agent consult,” he says. “This would allow for a more efficient audit and tax return preparation process,  rather than waiting to year-end to obtain answers to questions.”  

 Switching Up

 Sometimes, the building’s board decides to change accountants. When this occurs, the board should  request that the prior accountant provide to the new accountant all the  information necessary to perform a complete and accurate audit. Accountants’ professional standards require that the prior accountant provide information  that it possesses to the new accountant to make the transition go as smoothly  as possible.  

 “Certified public accountants are subject to privacy laws that keep confidential  information secure,” Montanye says. “When there is a change in the accountant, normally the successor accountant will  request information from the former accountant, which is handled in a  professional and confidential manner. Personal information of residents may be  maintained by the managing agent, who should maintain an adequate policy for  privacy protection.”  

 Above all, as with most professional relationships, a board and its accountant  must strive to establish good communication so they can accomplish their  objectives and maintain their building's financial well-being.   

 Danielle Braff is a freelance writer and a frequent contributor to The  Cooperator.


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