For the majority of co-op or condo owners, their apartment is their largest asset. That apartment should be viewed as an investment and one that makes fiscal sense. But that approach is impossible if unit owners are missing important parts of their building’s big financial picture. While each unit owner or shareholder is responsible for managing their own personal finances and doing their part in maintaining the value of their investment in the building, the board and treasurer in particular have fiduciary responsibilities to honor in order to keep the building community in the black.
Board treasurers and professional accountants balance a building community’s books and hold its purse-strings, so trust and confidence in their motivations and abilities are crucial. The working relationship between the board treasurer and the accountant, and the ways in which they both help the board manage the affairs of the community, are crucial to running a functional, solvent co-op or condo. To create such a cooperative and businesslike climate, the board must make choosing the best people for those jobs a top priority. First, you have to know what to look for in a good job candidate.
The treasurer could be the most essential of all of the unpaid, volunteer board members’ jobs. Even so, many boards don’t recognize the importance of the treasurer job and the necessity of picking a person who has at least some basic qualifications to serve in the position. The job is usually filled by appointment and is filled by a fellow board member. Sometimes, the board’s disregard for proper qualifications can result in unqualified people taking the job and quickly getting in over their heads.
“It is extremely helpful if the person chosen as treasurer has an accounting background,” says Robert Mayer, of the accounting firm of Mayer & Co., in Deer Park. “At minimum, they should have some sort of financial background, to understand the management reporting.”
A treasurer must also understand accounting principles, says Andrew Brucker, of the Manhattan-based law firm Schecter & Brucker. “It’s probably the most technical position on the board. The treasurer is the intermediary between the board and accountant and the shareholders and accountant,” he says, adding that the best treasurers work closely and collaboratively with their building's accountant.
Perhaps because of its technical nature and also the responsibility that goes along with the position, the treasurer’s job is often the least sought after position on the board. Still, the would-be treasurer should have some training or education in finances or at least in business to do the best possible job, industry experts say.
“It’s a bad idea for a layman with no financial background to be appointed treasurer,” Brucker says.
In many cases, the day-to-day business of a building is partly in the hands of the building’s treasurer. In some buildings, the property manager might not pay bills until they are OK’d by the treasurer on behalf of the board. An inattentive treasurer might miss discrepancies in bills or payments, such as an accidental double-payment to a vendor, or a suspicious supply purchasing pattern. A top-notch treasurer will double-check the manager’s invoices to ensure accuracy and will be able to explain his actions to his fellow board members.
“The treasurer should be the person on the board who is capable of explaining the financial position of the property to the board,” Mayer says. “The treasurer and other board members should have a very good relationship with the accountant. They should feel comfortable enough to call up the accountant and ask for help.”
Mayer gives free seminars to board members on the fiduciary responsibilities of board members. He views the topic as extremely important because the chance of a board member making a costly (though unintentional) mistake while trying to help his community that ends in a lawsuit is real. “There is a real possibility of a board making a mistake and being hit with a homeowner’s lawsuit,” Mayer cautions. “You should have directors and officers insurance, but it’s important for board members to know what their responsibilities are.”
In addition to having the proper insurance for all board members, other mechanisms should be in place to protect the treasurer from liability, while ensuring transparency in financial operations. Every board should have, or adopt a policy whereby any building-related expenditure under a certain amount is paid by the management company on behalf of the board, says Carole Newman, managing partner for Long Island-based accounting firm Newman, Newman & Kaufman, LLP, “but expenditures over that amount would need to be approved by the board, or the treasurer,” she says.
Treasurers also should understand what the accountant’s bailiwick is and how they complement that financial advisor’s role.
Accountants are hired as any contractor would be hired by a board—the board prepares specifications for the job and accepts proposals from prospective applicants. Accountants are retained by the boards of residential buildings to do a number of tasks, chief among them being preparation of an annual audit that details the financial status of the community (as required by law). Accountants also usually prepare a building’s corporate tax return and they often assist the building’s management in preparing and evaluating budgets for the upcoming year and by helping them to determine appropriate maintenance charges.
Forward-thinking boards use the services of accountants to plan for the future, by helping them prepare for adequate capital reserves for future major repairs on the building, Mayer says. “You need to accumulate money in bank accounts so the money is there when you need to do the work,” he says.
But how do you choose the right accountant? How do you know if he or she is truly impartial and completely professional? What questions should a board ask to ensure they hire an impartial accountant?
Boards can avoid the appearance of conflict of interest by asking potential accountants if their firm works directly for the management company employed by the building because having such a relationship would be a conflict of interest for the building’s accountant. “The accountant should be independent of the board and management company,” Newman says.
A search for a new accountant could be due to the retirement of a specific accountant, or because of poor work on the part of the current accounting firm, or even because of accountant fees that are deemed by the board to be too high. When seeking an accountant, most boards ask for a minimum of three proposals [from three accounting firms] and go through an interview process to select an accountant.
Treasurers should be the most involved in that selection process, because their financial acumen should help to translate the board’s concerns and needs into easily understood questions for the accounting firm. That acumen also should help the treasurer to have a better-than-average sense of the would-be accountant’s abilities.
Like a ship’s captain guiding the community vessel forward, the smart treasurer keeps an eye on current finances while paying attention to those costs approaching on the horizon. Treasurers should be working with the accountant and the board to develop long-range business plans for the community, as well as being the watchdog of the management company, scrutinizing its actions.
Often, a treasurer is appointed to the post by his fellow board members and holds that position for years. Such a person builds up an understanding of the financial state of the community, as well as how operations work, in part by doing a good job of keeping track of month-to-month finances of the building. As a result of that knowledge, boards that allow such an individual to retire from the treasurer chair without grooming a successor could be in for trouble.
Some building boards find it wise to have both a treasurer and an assistant treasurer on the board, as a fail-safe measure. With such a system, both treasurers can keep an eye on the finances and actions of both the managing agent and the vendors. Also, the assistant treasurer can take over when the treasurer steps down, and then have a new assistant appointed for seamless continuity in the position.
With the help of the building’s treasurer, paid auditors may become aware of a lack of internal controls on building transactions, and provide remedies to these problems. Auditors also often will advise a building’s board on potentially favorable (or harmful) tax situations that apply to the co-op or condo community.
A new treasurer always should be someone who has been on the board, knows the building operations and what’s going on in the community, Newman says. “Without that financial background, it’s helpful to appoint someone who’s at least been on the board,” she says.
Boards can help with the process by educating themselves so they understand accounting practices and financial procedures. Board members can sit down with representatives from their management company and also their financial analyst to learn what their day-to-day costs and expenses are, and then have their auditor explain their view of the community’s financial situation, Newman advises.
In many cases, day-to-day payments made for the building are handled by property management companies. Such companies should have accountants on staff that do daily bookkeeping. In general, treasurers should have their hands more directly in the work of running the community, experts say.
“We would like to see the treasurer more involved in the daily financial transactions,” says Neil Kaufman, CPA, also a partner at Newman, Newman & Kaufman. “They have access to this information and they should review it.”
And at the end of the day, that's what it boils down to: oversight, transparency, and committed involvement from a building's hired financial professionals and board members. They are the linchpin to maintaining solvency and financial success. When those elements are all present and working together, any building regardless of size can take control of its financial destiny.
Jonathan Barnes is a freelance writer and a frequent contributor to The Cooperator and other publications.