Keeping Track of the Bottom Line Make Your Financial Reports Better

Keeping Track of the Bottom Line

It's a typical scenario. The board and managing agent assemble for the regular monthly meeting. Things get lively and everyone participates. The group discusses staff issues, makes decisions about the tile color in the laundry room and directs management to post signs about hot water downtime. Then it's time for the monthly financial report, and a lull falls over the room. While the managing agent and treasurer launch into a discussion about year-to-date budgeted versus actual expenditures, several board membersuncomfortable with discussions involving calculations or financestune out. They flip absently through the pages of the monthly financial report to create the illusion of involvement; but, in reality, they're confused, and hopeful that the financial discussion won't last too long. Eventually the meeting moves on to a new topic and everyone is back in the loop again.

If this situation sounds familiar, you're not alone. It's a common one, not because board members don't recognize the financial aspect of their obligations , but because most boards are comprised (at least partly) of people who have never been exposed to even the most basic accounting procedures. To them, the financial report looks like just so many pages of tiny numbers arranged in neatly-justified columns. The challenge of reading and interpreting the report is simply too overwhelming.

Yet, the financial oversight of a cooperative or condominium is arguably the most important aspect of operations. And the information contained in the regular financial reports provided by management is vital, if property decision-makers are to make knowledgeable, responsible decisions. While there's little that can be done to turn every member of every board into a financial management or accounting whiz, the financial report is an instrument that can be fine tuned to provide this critical information in the most accessible and least intimidating way.

The Best Reports

Good and complete financial reports prepared by management should contain up-to-date, clearly identified information, including a statement of operations (which should contain a budget analysis reconciled to the property's bank statement[s], income, expense, cash flow and necessary footnotes) as well as specifically categorized information about receipts, disbursements, paid bills, outstanding payables, a list of shareholder or unit owner arrears and all information pertinent to a property's unique financial situation. A cover page that summarizes the last month's financial activity at a glance is also advisable.

The quality and presentation of the information is as important as the information itself, explains David Kuperberg, president of Cooper Square Realty, Inc., a management firm in Manhattan with a portfolio of 60 co-ops and condos. We've developed a cover page that lists the general categories of income and expense and shows all 12 months year-to-date on one page. A board member who's only interested in generalities can spot trends and those interested in more detail can find it later on in the statement.

I've seen a lot of formats, adds Marc Taub, a partner with Ellenbogen Rubinstein Eisdorfer and Co., LLP, a CPA firm in Manhattan with 45 co-op and condo clients. The ones I like give summaries on the cover page detailing highlights such as total receipts and disbursements, break the disbursements out into major categories and show a cash flow. The ones that include budgeted versus actual year-to-date figures are the best, he adds. Supporting documentation is also crucial to responsible financial reporting and management. Copies of bills and invoices should be attached to the report, advises Rick Montanye, a partner at Marin and Montanye, LLP, an accounting firm in Roslyn, New York with about 300 residential clients.

Deciphering the Numbers

But even if all the appropriate information is contained in the financial report and presented in the best possible format, it's useless unless there's someone on the boardusually the treasurerwho knows what all the numbers mean. A well-informed, knowledgeable treasurer is an asset to the property; however, sometimes, we find treasurers who were elected by default, says Jarvis Irving, a CPA in private practice in Manhattan who serves about 70 co-ops and condos. They're the only board members who forgot to say they didn't want the job. They don't pay attention, and they don't follow through.

Some lucky properties have treasurers who are professionally involved in accounting or some aspect of financial management. But not all properties are so fortunate; and, for them, it's important for the information contained in the monthly financial report to be as accessible as possible for all board members. This may mean presenting the facts in a variety of ways, using aids such as graphs and verbal anecdotes.

At Cooper Square, for example, each monthly financial report is accompanied by a variety of graphs that show comparisons with budgets, indicate industry trends and compare a given property to other similar properties, says Kuperberg. To the extent we're presenting this information in a way that's clear and easy to read, we're making the board's job easier.

For board members who are more comfortable with words than with numbers, anecdotes and explanations can be helpful. We don't expect our board members to be accountants, says David Zweig, director of management for Manhattan-based Lawrence Properties, which services about 75 area properties, most of which are co-ops and condos. So we provide narratives and anecdotes on expense items, with the invoice number and some brief written explanation of what those items mean.

Irving agrees that narratives and anecdotes are helpful. However, he adds, you need someone within the management company who's able to create the narrative so that it enhances the financial report. Oftentimes we find that the managing agent is not a financial reporting expert, so the person within the management company who has accounting knowledge should be the one to add the anecdotes.

Timeliness also counts. In order to be as current as possible, financial reports should be issued monthly, no later than ten to 15 days after the month closes. If all reports, including bank reconciliations, aren't available by that deadline, management can provide ancillary information afterward and present an update at the monthly board meeting. In any case, reports should be distributed to the board sufficiently prior to the board meeting so that directors and managers can review and come to the meeting prepared to discuss them. Boards should demand that they have timely information from their management company, and not accept anything less, advises Taub.

If special projects are going on, even more frequent reports might be necessary. There may be a special fund that needs to be administered for a construction project, for example, or a property with a specific financial difficulty, or instances of mortgage refinancing or work-outs, where more frequent reporting icalled for, observes Kuperberg. Whenever there's something unusual going on, the board should be kept informed on a more frequent basis.

Customized Reports are Popular

Increasingly flexible financial reporting programs make it possible for properties to request a certain level of customization in the financial reports management prepares for them. Lawrence Properties and Cooper Square Realty both have in-house capability to format statements according to building requests. For example, says Kuperberg, a building that has difficulty collecting maintenance may want to see a more detailed arrears report each month indicating what's going on with each shareholder in arrears. That might not be necessary for another building, which might want more information about capital projects, for example.

But there is a need to standardize, as well, Kuperberg adds. It would be difficult for the bookkeeping staff of a management firm to have different categories for expense and income items unique to every building. As long as the reports are formatted with the client in mind in the first place, what works for one usually works for another, he says. I also feel that if one client wants a certain kind of report, that request probably has validity for our other clients, and we really look at it.

If a board is not satisfied with the manner in which their financial reporting is presented by management, They should make the management firm aware of their concerns, advises Zweig. The bottom line is, it's your money and it's your right to be comfortable with what you're reading. If your management firm isn't giving you on-time reports that make sense to you, then they're failing you.

Barbara Dershowitz is a contributing editor for The New York Cooperator.

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