Working With Your Accountant How to Maximize Board-CPA Relations

Working With Your Accountant

While real estate brokers live by the old adage, Location, Location, Location, accountants define their relationships with the real estate community with another phrase: Communication, Communi-cation, Communication. While cooperatives and condominiums generally hire accountants to take care of the fiscal necessitiesthe annual financial statement, budgeting, tax returns, etc.they still need to be educated about how to maximize their relationship with these professionals. To accomplish this, cooperative and condominium clients must gain a precise understanding of their accountant's role in their business dealings. Only by keeping the lines of communi-cations open between these two parties will the accountant's services be fully realized.

The Accountant's Duties

Almost all co-op or condo offering plans require the board of directors to issue financial statements and provide financial information to the members of their organizations on a regular basis. In addition, laws governing the operation of co-op and condos require that they prepare certain tax filings and various reports. Board members must understand their accountant's professional responsibilities in such situations in order to avail themselves fully of his services.

In order for the accountant to perform effectively, the board must decide, in advance, how fully to integrate him into their financial affairs. Often, the extent of his involvement hinges on the fiscal stability of the building. If the building is in poor financial condition, a board may require the accountant to prepare an interim financial statement to ensure that certain corrective measures have been taken. If the building's finances remain stable, the accountant can restrict his attention to the basicsthe annual financial statement, budget, and tax return.

Keeping Communication Open

Positioning the accountant to perform effectively also involves determining where to place him in the communication chain. The client must decide, in advance, how the accountant should report his or her conclusions through management, or directly to the board. In addition, the board must make every effort to communicate effectively with the accountant through regular meetings, phone conversations, and other correspondence. Only by doing so can board members fully tap into and benefit from his expertise. For example, many tasks that an accountant performs can become transparent to the client, especially after board transitions. Often, a new board may operate differently or subscribe to requirements or goals that depart from those of the previous one. Only when a board maintains solid lines of communications with its accountant can his input and work be appropriately considered by board members. After all, the accountant has read the minutes of their meetings, allowing him to respond with suggested solutions to issues as they are developing. Chances are that he possesses the knowledge to solve problems that board members might not even be aware of.

The Treasurer's Role

One of the first tasks that a board president must undertake is to designate a board liaison, normally the treasurer, who can work with the accountant directly. The treasurer should keep the accountant informed of specific ffb developments, speaking to the accountant on a day to day basis and relaying important information gleaned from these exchanges to the board.

The treasurer, as the designated liaison between the board and its accountant, must be well-versed in reading the financial statements. While not requiring a strong background in finance, the treasurer must master the components of a financial statement and understand how they interact. Usually the information that the managing agent provides differs, sometimes substan-tially, from the information contained in the building's financial statements. The treasurer needs to explain these differences so that everyone on the board can understand the reasons behind the discrepancies.

Financial Statements

To prevent problems from developing when the building issues its financial statements, the board must remain aware of a number of important issues. It must regard the audit procedure as an important tool, and remain cognizant of the fact that its accountant often relies on many instruments of third parties, such as contract information, legal disclosures and independent confirmations on bank accounts and mortgages, to finalize a financial statement. Also, if it plays a direct role in a transaction such as a reserve fund investment or a special construction contract, the board bears the responsibility of providing the necessary documentation. All this necessitates that the board keep adequate records and keep the accountant informed.

The vast majority of the co-ops and condos in the metropolitan area operate on a calendar-year basis. As a result, they issue the financial statements in the first few months of the calendar year, probably the busiest time of the year for all accountants. In addition, in some instances, a mortgage refinancing, or other priority, may dictate that the financial statements be issued very quickly, further subjecting an accountant to deadline pressures. All this illustrates how important it is for the treasurer to inform the accountant of a specific deadline, ensuring that the accountant accomplishes all his responsi-bilitiesoften including the collection of data from third partiesby then. Adequate time must also be set aside for the accountant to review carefully the financial statements before the board meets, ensuring that the information is accurate before the board reviews and publicizes the statements.

Managing Reserve Funds

Board-held reserve funds become another issue that delay the auditing process. Many boards feel that they maintain better control of their buildings by retaining custody of the reserve fund. This approach creates a number of significant problems: proper documentation of transactions is not kept and contracts, paid bills and bank records are lost. Collectively, these shortcomings can hold up the audit process indefinitely. To avoid such an undesirable outcome, the building's managing agent might handle the record-keeping process, allowing the accountant to obtain the records from one central place, thereby streamlining the audit process. Also, brokerage houses with cash management accounts might be entrusted with the reserve funds, thereby significantly consolidating account reporting into one statement, one set of signature cards and monthly statements, duplicates of which can be sent to the building's accountant for free. This option provides the board with a wider range of investment vehicles which generate better investment yields. Controls can still be maintained by requiring board members' signatures on those accounts that the members wish to restrict access to.

The Budgeting Process

Over the course of the year, the accountant monitors a building's activities to spot problem areas. In some instances, he issues an interim financial statement; in others, he relies on the building's actual financial activity for the year as well as information available from outside sources to project and forecast results for t ffb he coming fiscal year. Regardless, the board should keep the accountant informed about special items to be included in the budget. The budgeting process normally includes input from the managing agent, the board treasurer and the accountant, making it especially important that everyone remains briefed so that they all offer informed suggestions.

The Annual Meeting
The accountant must be notified in advance about the upcoming annual meeting if his attendance is required. Also, time should be set aside before the meeting actually commences in order to discuss with the accountant matters that may be brought up at the meeting. After all, the accountant possesses an intimate knowledge of the building's finances. Yet, such a well-spring of important information must be tapped by members of the board in order for him to yield his advice. Proper planning is also neces-sary to ensure that all the attendees at the annual meeting are prepared to address current issues as well as contend with the politics of the board.

Planning for the Future
A board must keep its accountant informed about special needs financial and otherwisethat will arise in the future. One might liken accounting and financial planning to the process of assembling a puzzle: if all the pieces of financial information are not available, then projects cannot be assembled nor completed. Furthermore, all the pertinent financial information must be harnessed in order to plan for the future and address key concerns and questions such as: What steps must be taken to deal with a mortgage that is going to mature in a few years? What capital improvements must be made over the next ten to 15 years? What are the board's require-ments for its reserve fund? To prepare for future financial obligations, funds can be accumulated in small amounts over a long period of time.

The board's accountant should be relied upon for advice on cost-cutting measures and other prudent financial measures to maintain a building's fiscal integrity. Above all, as with most professional relationships, a board and its accountant need to establish good communication to accomplish their objectives and maintain their building's financial well-being.

Mr. Montanye, CPA, is a partner in the accounting firm of Marin and Montanye which represents over 300 housing cooperatives and condominiums.

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