For a crystal-clear picture of how an association is doing, there are few better lenses than the community's budgets and financial reports. From an investment perspective, they show the shareholders, managers, tenants, owners, and board whether the property is solvent or not. If the numbers add up and the monies coming in and out balance, you can safely assume everyone is doing their job, and upholding their financial duty to the community. If the property is in the red, it’s important to determine why that is, and what needs to be done differently to turn the situation around and restore solvency.
“I think the place to start would be to, to steal from the late Sy Syms—and the message is that an educated board member is the best board member,” says Jules C. Frankel, CPA, from the certified public accounting and consulting firm of Wilkin & Guttenplan, P.C. in East Brunswick. “ And that doesn't mean that a board member should be interfering with a managing agent or what the management company is trying to do. But that a board member has a fiduciary responsibility, should understand what's going on, and therefore help protect the property and the property values for their particular condo or co-op.”
It’s important to understand each financial document and its purpose so you can have a better understanding of exactly what’s going on in your association. So here’s a little Financial Paperwork 101.
Financial statements show the income and expenses for an association. Start by taking a look at the various governing documents.
“Associations often do not have a complete set of governing documents. It is imperative that this information be available since it provides valuable information from both a financial and operational standpoint,” says Karen Sackstein, CPA, who has her own accounting practice in Fair Lawn.