The co-op and condo community has been shocked by recent disclosures concerning inappropriate and/or illegal activities by real estate managing agents, their employees and the various industries selling supplies and materials to co-ops and condos or rendering repair, mainM-tenance and capital improvement services.
The District Attorney's office has indicted a number of managing agents, some of whom have admitted their guilt. Sealed indictments, with no disclosure of names, have been issued to other agents who supposedly admitted their guilt and agreed to cooperate with the District Attorney. As a result of this problem, a number of managing agents have gone out of business or have merged with or have sold their business to others.
As a result of all these activities, many co-ops and condos have realized that they must institute tighter financial controls, and keep closer tabs on their own affairs. Much of the weight of this burden falls on the shoulders of the treasurer of the board of directors. The position of treasurer of a cooperative is similar to that of Chief Financial Officer at a corporate business, but without pay. The treasurer, ideally, has a background in finance or business, understands financial statements, internal controls and budgeting and is knowledgeable about investments, investment procedures, yields, risks and investment costs. A working knowledge of corporate taxes is also a plus. The treasurer must have the dedication and the available time to fulfill his duties and must maintain a line of communication with management, the attorney and the accountant.
In light of last June's indictments and the on-going investigation, boardsand treasurers in particularshould re-evaluate the integrity and capabilities of management and the other professionals chosen by the board to advise, guide and assist in the conduct of its affairs. The board should engage only the most qualified professionals. Do not be unduly influenced by small differences in fee structure; adequate fees are necessary for professionals to function properly and to fulfill the full scope of their responsibilities.
The building's accountant is part of the advisory team, together with the managing agent, attorney, insurance agent and engineer. Your accountant, however, has another functionthat of auditor, protecting building funds and monitoring transactions. As such, he or she should be recognized as an additional set of eyes and ears in order to properly fulfill the scope of services. When incapable or dishonest managing agents complain that your accountants are inquiring too much, digging too deep or being too demanding, you must review the situation. Hopefully, management's complaint will not be justified and you will be able to affirm your accountants' obligation to protect your building's interests.
The board should also consider establishing a finance committee to review all of the building's invoices as well as internal controls of the managing agent. Review prior to payment is preferable to post-payment review if it would not interfere with timely payment of invoices. If a finance committee is not available or is not practical, the treasurer should perform the review on an ongoing basis throughout the y ffb ear. He or she should also ascertain that the corporation's accountants are also doing their review in sufficient depth to be meaningful.
The treasurer and members of the board of directors should be involved with all major contracts. They should request bids from a number of reputable contractors, review and discuss the contracts and the contractors. The services of a reputable engineer or architect are recommended. Check references and make inquiries of other co-ops and condos, industry associations, your attorney and accountant.If the board of directors is switching managing agents, consultation with the building's accountant might avoid a serious mistake. Hopefully, the accountant has had extensive experience with most of the agents and is in a position to objectively evaluate their performance. If the accountant is not familiar with the bookkeeping procedures utilized by the proposed managing agent, engage him to visit the agent's office and review their procedures and internal controls.
Seminars, lectures and workshops sponsored by the various cooperative and condominium organizations in the metropolitan area are held frequently. Attendance by the treasurer and board members would enhance their knowledge and update them on current matters.
One of the primary functions of financial auditing is the prevention or discouragement of the misapM-propriation of funds. Kickbacks, payoffs, payment of padded bills and other forms of unscrupulous activities are properly classified as misappropriations. There is no substitute for honesty and integrity. All the combined efforts of the treasurer and the accountants will not prevent illegal activities from occurring. They will, however, discourage these activities, reduce temptation and help to eventually restore confidence in this troubled industry.