Money Missing

Hi RogerB. You have always been a good source of information. If anyone else has recommendation on the following, please reply:

1) You mention "HOA Fidelity Insurance". This would most likely be part of our Officer's Insurance, correct? Currently we carry the two basic ones: Property and Officers. That insurance sounds similar to what they would refer to as being "bonded", is this correct?

2) You mention, "we will not not be an authorized signer of payment checks; but are authorized to transfer funds between accounts when necessary."
Our current mgmt company would like to have signing privileges to our operating account. We have always said no, but have recently considered a policy based system, where they are allowed to sign checks that are expected each month due to an existing contract. New payments or ones over a certain amount will require board approval. Sounds fine on the outside, but how do you enforce such a policy, since it's not like the bank is going to know.

Also, what is this kind of policy called? It seems other mgmt companies have these kind of policies, yet if you try to look up online for an example of one it seems difficult to find. I would imagine we would go to a lawyer to help ensure the proper legal aspects are properly addressed, esp so that it is specific to our circumstances, however an example beforehand would be helpful.

Is this something you would even recommend? Why or why not?

3) Our mgmt company is in the process of changing their accounting software. Previously they used "Tenant Pro 7" and now are switching to one called "Promise". Is anyone familiar with these?

4) I am a little concerned about the mid-year switch as we had experienced problems last year due to bringing them on mid-year (March 2006).

There were key factors that affected the hand-off:
1) Lack of good records: Previous 2005 mgmt company did NOT provide a general ledger or individual ledgers for each homeowner that showed all payments received for that year (Dec 05 / Jan 06 to February 06 - when her contract ended). Instead all she did was give us an aging report that showed what was owed, not actual payments made and how they were applied, especially with check numbers or deposit slips to coordinate with. She used Quickbooks btw.

2) Lack of history: 2006 was my first year as Treasurer (second year on the board - previously VP without signing privileges or involvement in the finances -then I became President the final month of the 2005 board when our president bailed on us just before the annual meeting) Therefore I knew little about the financial issues, esp since the outgoing President stated she had nothing to turn over, yet she was the one signing all the checks, completing circumventing the previous Treasurer. In addition, an annual audit (which is required by our HOA documents) had not been performed - though our previous President kept promising it would happen.

3) Lack of concern (new mgmt company): While we provided the new mgmt company all the documents they requested, to include creating individual ledgers based on the aging report and bank statements, etc, by the end of the year, they were almost $10,000 off. Just by looking at the entire year of bank statements and noting all deposits and withdrawals, we could perform a quick audit that pointed out the problem. Yet the new mgmt company refused to make corrections, even stating that due to their software, they could not go back and correct it. Not even an attempt to show on paper (not within the software) where the problem lay. Later I was told by them, they wanted to wait until the audit was performed. When we had the official audit performed, the report pretty much confirmed what I saw. I personally didn't want to continue with this company, but other board members seemed apathetic since they didn't get involved in headaches of this whole process (They were kept well informed but chose not to get involved - most likely because they didn't want to stay on the board for 2007 and have since left the board.)

I am told this won't happen this year, but with plans to change their software mid-year, I can only be reminded of last year. Am I wrong to be concerned?

Thanks for taking the time to read through this.
-KH

Kevin, you have ever right to your reaction; it is your money.

Our annual budget is $22,500 and we were often off by a thousand or more from what the bank showed. Our old Management Company messed up the financials at the end of the year. They were always late on payments and showed things when they were due, not when they were paid. It made it very hard to compare what the bank said had happened and what really happened. What they said happened each month is not what the bank showed and so I got the details from the bank and at the end of the year started with the starting balance and then added every deposit and withdrawal to come up with what really happened. Other problems they had were categorizing expenses as income and vice versa. Because of this and other problems we elected to just do it ourselves and save about $6,500 to $7,000 a year.

If you aren't comfortable with who is handling your money get someone else. You need to be able to trust the person is your steward and representative to the community.

That may be true Roger. However, when Page 1 doesn't match Page 2 or Page 3 of their financial statement and "Coupon Stop Payments" have been added to the income instead of expense any an all respect for their financial sense is gone.

And so should the MC (be gone) Brad. Otherwise how is one to know if Money Missing?

oops... I guess I didn't end Roger's quote properly before my response. ^^^
sorry. no way to edit now apparently.

Joe, thanks for your link. http://www.communityassociations.net/weblog/archives/2007/03/what_you_should.html
With regard to your comments under "A Manager Is NOT An Attorney or CPA"

I agree that a manager should not provide an "OPINION". CAI personnel and attorneys who teach some of their courses have stated:
"the manager is often asked questions that they should never attempt to answer. Not only are they not qualified to give certain advice, but they could end up in serious trouble if they do. It's called "practicing law without a license" and the legal profession takes it very seriously."

However, I believe Manager should offer ideas and suggestions when asked a question. They can make it clear it is not a legal opinion, merely a suggestion which the Board may wish to consider. In fact, I believe it to be a critical part of my job as a Manager to provide education and continuity for new Board members. I believe if the Manager can not provide guidance for most questions they are not qualified for the job.

I realize employees of large Management Companies are trained to follow the above quote. Is it because the firm is afraid of what the inexperienced employ may say which could result in the firm being sued? Probably. And these management company employes often get training at CAI courses taught by attorneys. Do they want clients? Probably. Are Board members often left frustrated by comments like "I will consult with an attorney and give you an answer." Probably. These are reasons we have a small highly experienced staff.

I have a pet peeve, in case you haven't noticed. "How can I help?" comes right after "the Golden Rule"

Roger,

General guidance is fine, but all too often I've seen managers asked to help define "gray" areas in the documents and that can cause serious problems. Having been told by a judge that I wasn't "qualified" to give that opinion to the board, when I knew the answer as well as the association's attorney, makes me a little cautious.

A lot of the advice I give on this board, and in my blog, borders on legal advice, but I wouldn't want any board to rely on it, in order to save a few dollars, especially when it comes to interpreting their documents. I'll almost always say "get a written opinion from your attorney". That's about the only thing that has a chance of standing up in court. And that's the ultimate issue, would your advice, or opinion, stand up in court? Not on its merits, but on your qualifications in giving it. Besides myself, I've seen attorneys make mincemeat out of managers for some of the quasi-legal advice given to a board, and then shred the board for following it.

Good managers know as much about community association law as a lot of attorneys, but they have to know when to shut up and how to qualify any advice that enters into the legal arena.

Managers, try answering these:

Does "setting a bad precedent" really matter?

Can "exceptions" be made to the rules, the bylaws, the CC&R's; if the board believes they have a good reason?

If the documents only allow for an interest penalty for a late assessment payment, can management add an administrative fee, per their contract, to be paid by the individual?

The answers to the above???? Maybe, sometimes, it all depends on the circumstances, the document wording, the state laws, etc.

Kevin,

You will need to understand the "Plateau Principle of Association Management". From a blog that's no longer on the public pages: "I was reminded today of one of the earliest principles of community association management, the "Plateau Principle". This was fostered by one of the few management philosophers I've met by the name of Art Hiban. I can't remember the exact wording of the principle, but basically it stated that "Management companies will grow to the breaking point (plateau), then hire the needed staff which will require the company to move to the next breaking point." In other words, you never really find the balance between staff, accounts and profitability.

I imagine it is as true today as it was back in 1977 when I first heard it. Unless you've determined to stop growing, and stay at a determined size, the cycle never ends. Stretch staff to the limit, hire new staff, find new accounts to pay for new staff, which stretches larger staff to the limits....

I really thought that by now, someone would have come up with a formula that solves this problem, but although people may have figured out a way around it, no one has put it on paper that I know of. Somewhere out there must be a math major turned manager who can make sense of it. All you need to do is figure out the relationship between the cost and timing of adding new staff, add in the necessary increase in company overhead, factor in your increased time supervising and reduced time in managing, determine when and at what rates new accounts will come on and how much time they will take to manage and "voila", you have it.

Hmmm...maybe that's why no one has reduced it to a simple formula. If you have, we'd love to hear it, even if its just a hypothesis, we'd be glad to test it, or, come to think of it, maybe just asking that 8-ball on your desk is still the best way."

Good luck with the observations.

Joe