I’m on the phone with each Board Treasurer each month clarifying particular points of interest in their monthly financial reports. Below are common inquiries they have for me. If you’re a Board member looking for clarity in your monthly financials, the below section is for you! If you have any questions following your reading of this post, leave a comment and I’ll try to help you.
BALANCE SHEET
Bank Accounts
Operating Account – Month over month, make sure your management company covers utilities, payroll, real estate taxes (if there is no escrow account), and other expenses without coming close to over drafting. Remember, this is your book balance, accounting for checks cut and not deposited, which your bank reconciliation will pick up on. Your bank balance is higher than this figure.
Optional Real Estate Escrow Account – Check to see that the transfer was made.
Reserve Account – Keep an eye on interest earned. If your building is fortunate enough to have at least three months of overall shareholder maintenance income in its reserve as liquid, you have the option of laddering your balance in investment products from your bank. Laddering is the ability to have your optionally locked in investments free up at varying times. I recommend looking into terms such as three months, six months, nine months, and one year. This will keep your reserve relatively liquid.
Tenant Security – Do you see purchasers’ security deposits being added to the account? Does your manager have a tenant security account? Make sure they do. The inadvertent spending of a tenant’s security being lost in your operating account is dangerous. Hold your managing agent accountable for all alteration, purchase, or other required tenant security deposits.
Income
Maintenance – What is your year to date variance? How far behind is your building in arrears? What is the managing agent doing about it? Do you have anyone in legal? Are any owners over 3 months in arrears? Perhaps it’s time to take them to small claims court, put a lien on their account, and possibly freeze their bank accounts.
Storage Lockers, Bicycle Rentals, Gym Memberships, Garage Parking – Is your managing agent on top of billing your residents for their monthly or yearly building amenity fees? Ask to see their billing and collection records. Have you thought of raising the cost of these amenities?
Move In, Move Out, Sublet, and Alteration Fees – Is your managing agent collecting these fees? Are subletters moving in and out without being billed? Does your building have a move in/out fee for subletters? When alterations are processed and if your building requires a fee be paid to the building, is it being collected? How is it being tracked? Is there a GL (General Ledger Code) for these fees?
Assessments - Is your building assessing this month? How is the assessment’s collection being tracked? At what point will the assessment’s collection be swept from the operating account to the reserve account? Is there a separate GL to track the assessment’s income?
Payroll
Are all of your Union building’s fees being paid and tracked appropriately? Is overtime out of control?
Gross - If your gross pay to employees shows a high variance, ask to see when overtime was paid and to whom. If need be, ask to see past time sheets. Are relief workers being used to cover for staff that call out to avoid paying over 40 hours a week to regular staff?
Worker’s Compensation – How did your managing agent decide upon a worker’s compensation carrier? Was the policy bid out?
Utilities
There are ways to cut these costs but not by a lot.
Fuel - Keep a close eye on fuel payments. Does your building have a level billing plan? If so, was the account analyzed in April or May for overpayment throughout the year? Were actual invoices as well as level billing invoices being paid inadvertently? Is a credit due for less consumption than paid through level billing? Ask your managing agent for an invoice-by-invoice breakdown versus actual consumption. The fuel provider can issue this.
Water & Sewer – This expense rises by roughly 13% per year. The cost cannot be altered, however the consumption can. Make sure your commercial tenants and laundry company are being appropriately billed or individually metered for their own water use. Have your Superintendent do an apartment-by-apartment inspection for running toilets and faucets.
Repairs & Maintenance (Select Items)
General Rules –
1. Make sure all expenses that are building improvements (non-repairs) get booked as capital expenses. These expenses are tax-free and fall outside of operating budgets. Occasionally, big ticket items, such as entire sidewalks, big boiler replacement items, or others are booked as capital expenses so the operating budget is not thrown out of proportion.
2. Chargebacks – How do they appear? Do they show up under R&M? Can your managing agent provide you with a list of chargebacks from a particular period? Some engineering, plumbing, electrical, intercom, carpentry, and exterminator invoices can be billed back to owners if they did not stem from building expenses. Generally, any work that occurs “From the paint in” is a shareholder expense, whether it is billed back to them or to a different shareholder that either caused the leak, cut the intercom cable, or whatever the source of the problem was. Buildings are generally responsible for any work that occurs “From the walls and out”, such as plumbing risers. However, electrical problems are almost always a shareholder responsibility as Proprietary Leases often state that shareholders are responsible for all electrical repairs from the breaker box to the outlet.
Boiler – Were replacement items, such as heat exchangers or burners, accounted for in the operating budget? Was the boiler overhauled prior to heating season?
Elevator Maintenance – Did your building pass City Category 1 testing? Were repairs needed and/or conducted to pass as satisfactory? When is the last time your management company bid the contract to other companies?
Supplies – On occasion, ask your managing agent to audit your Superintendents supply bills. It is very common for building staff to take items home for personal use. Have them ask their Supers to show them purchased tools off of supply bills. If the Supers cannot present the requested tools, discuss further disciplinary action with your managing agent.
Administrative
General - When reviewing your administrative fees, reference your managing agent’s contract. Managing agents make additional revenue through miscellaneous fees, which are subject to yearly increases. This is common, however if your contract has special stipulations, such as a set duplicating or postage fee, make sure this is accounted for.
Postage and Messenger Fees – Have your doormen obtain all resident email addresses and your managing agent obtain all live-out owner and shareholder email addresses for future mailers. Email anything possible to limit the cost of document transmittals. For building memos, have a fax machine setup at the building for the agent to fax memos or have the Superintendent setup with a computer and printer.
Insurance
I recommend having your building try to pay its premiums in one lump sum each year. It will save your building $2-4,000 in finance charges.
Professional
Engineering – Alteration reviews should be charged back to unit owners. Review fees for capital work should be included in your capital budget.
Legal – What are these fees for? Are they from general council? If they are related to unit owner collections, ensure that they are charged back to the delinquent owner.
Mortgage and Taxes
Is your mortgage being paid on time? Are your real estate taxes being paid quarterly? Was your City tax abatement booked correctly? Were your SCRIE, STAR, and other exemptions paid back to applicable shareholders?
Capital
Were any capital costs incurred in the prior month? Were they accounted for somewhere in the monthly financial report? Were taxes paid on these? (If they were building upgrades/improvements and not just building replacements, taxes should probably not have been paid. Consult your auditor for more information).
DISBURSEMENTS
You should see a list of all paid bills each month. Each item paid should have a short description next to it. Look for:
· Board member or managing agent staff reimbursements.
· Reserve transfers and mortgage payments.
· Invoices you approved for payment in the prior month.
· Payments for miscellaneous managing agent fees.
· Proper GL coding of payments (some agents use a different set of GLs for capital expenses)
JOURNAL ENTRIES
Look for:
· Requested reclassifications of operating expenses to capital expenses
· Miscellaneous payroll expenses
· Reserve account interest
· Security account deposits and transfers
OWNER/SHAREHOLDER & COMMERCIAL ARREARS
Look for:
· Were late fees applied?
· Is anyone not paying applicable assessments?
· Are charged back invoices appearing on shareholder billing statements? Are they paying them?
· Is anyone more than two months in arrears? Is the agent contacting them? Is it time to send them to legal?
· Are your commercial tenants current?
UNPAID INVOICES
A list of unpaid invoices should be provided on a monthly basis. Look for:
· Invoices entered into the system more than two months ago and not paid.
· Invoices recently entered but with service dates over six months ago.
· Contractors’ invoices appearing higher than discussed.
· Large individual invoices. Request your managing agent to setup a payment plan with the contractor. Contractors want to be paid, but won’t necessarily have a problem with you paying a single invoice over the course of a few months, they just want money however they can get it.
(This image is a bit more crude than I usually post, but I thought it accurately portrayed Board and Manager senses of humor!)
(images from: balance from philstockworld.com, plumber from belaireng.com, good luck from frederatorblogs.com)
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