Keep track of the money: Finance and Condos Part 1
Be sure to check out my post on governance policies for condo boards, and an earlier post on best practices for condo board communication. Financial policies are the topic of this post. I have divided into two parts. Part 1 covers reviewing financial statements and condo fees, and Part 2 provides insights into the art of overseeing expenditures.
Monthly Financial Review
Reviewing the condo’s monthly financial statements is one of the most important tasks each month. It is great if a member of the board is an accounting professional like a Chartered Accountant (CA) or other similar designation, but it is still possible to have a great board without a CA. Establishing policies and procedure helps a great deal towards sound financial oversight. Anyone can learn how to read financial statements. As I mentioned in an earlier post, having a forensic sense of curiosity is an asset.
Monthly Financial Statements
One of the key items to review regularly are the monthly financial statements. These statements contain valuable information about the condominium corporation’s operations. I cannot stress enough the importance of becoming familiar with financial statements and instilling the discipline of reviewing them monthly.
Look at actual versus budgeted costs and pay close attention to any variations. Always ask why a cost is higher or lower than budgeted. Are there any unusual patterns? A sudden increase, for example, in the water bill, could mean that water is leaking due to leaks. Good property managers will notice unusual patterns and bring them to the board’s attention, but it is good practice for the board also to check. The board needs to understand why costs are increasing and be able to explain to the owners when drafting next year’s operating budget.
Always keep an eye on fee payments. Fees are the life blood of the condo and the condo’s primary source of revenue. If a written policy has not been established regarding late and overdue payments, then now is the time to create one and provide it to the owners. Be sure to give new owners this information, so that they get off on the right foot.
Late payments and non-payment are separate items; each needs an appropriate response. Late payments are payments that arrive at the management office after the due date. This problem should occur less frequently today now that many owners pay their condo fees automatically from their bank accounts. Encourage all owners to pay by automatic deduction. It is much more efficient to organize automatic deductions than keeping track of checks. Owners who pay their fees late cost the corporation in time and effort. Late payments disadvantage the other owners who pay on time. Often an administrative fee is charged in this situation. Make sure owners know the consequences of paying their fees late.
Overdue payments are another issue. In this situation, an owner does not pay their fees for more than one month. I find these situations difficult when I know the owner is having financial difficulties and cannot pay their fees. It is situations like this that test the ability of the directors to act in the best interest of the corporation and not allow one owner to get preferential treatment even when it feels like the right thing to do. Directors cannot play favorites with any owner in any situation. Overdue payments need timely action to ensure that the condo can recover overdue fees (see link for more information). The legal requirements for a lien vary by state and provincial legislation so be sure to know the law in your location.
Some owners deliberately withhold payment of their condo fees because they are not happy with the board or the property management company. It does not matter why an owner does not pay their fees are not paid; the consequences are the same. Owners will face the prospect of legal action regardless of the reason for non-payment.
Make sure to read part two. Do you have any suggestions for financial policies or have a question about those listed here? Tweet us @BoardSpaceinc with #CondoFinancialPolicies or leave a comment on our Facebook page.