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Balancing Books

Started by AnnaD2 • 13 replies • 2117 views

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AnnaD2 (Florida)
Posts: 960
Posted:
Hi All! From Florida---the land of condo nightmares and horrible management companies. I'm the treasurer of my complex. We have a management company. When I opened my July 2007 Association Financial Statement I noticed our management company wrote a check to themselves for (supposedly) unpaid charges for 2006! Some were office recoup charges and some were employee payroll charges----which I'd straightened out during the 2006 year. What in the world is that about? Aren't condo associations supposed to close out their finances at the end of the year? Shouldn't the management company also have their OWN finances balanced within a reasonable amount of time? Some of these charges are from 13 months ago! I look forward to your comments and opinions about THIS one. Thanks ALL!
RogerB (Colorado)
Posts: 5,067
Posted:
Anna, as Treasurer it is your responsibility to make sure the financials are correct. Ask the MC to explain anything you do not understand or think is not correct.
AnnaD2 (Florida)
Posts: 960
Posted:
Thank you Roger. I'm aware of that. I've been working with my management company for FOUR years.....this is the FIRST time they've charged us for items for PREVIOUS year. I will meet with them.. But Im wondering what everyone else thinks about these "bookkeeping" and auditing issues. Doesn't anyone else think this is unusual?
NancyD1 (Florida)
Posts: 447
Posted:
Quote:
Posted By AnnaD2 on 08/15/2007 3:03 PM
Hi All! From Florida---the land of condo nightmares and horrible management companies. I'm the treasurer of my complex. We have a management company. When I opened my July 2007 Association Financial Statement I noticed our management company wrote a check to themselves for (supposedly) unpaid charges for 2006! Some were office recoup charges and some were employee payroll charges----which I'd straightened out during the 2006 year. What in the world is that about? Aren't condo associations supposed to close out their finances at the end of the year? Shouldn't the management company also have their OWN finances balanced within a reasonable amount of time? Some of these charges are from 13 months ago! I look forward to your comments and opinions about THIS one. Thanks ALL!

Anna,

The MC wrote a check to themselves so they have control of the association accounts. In FL you have 60 days (now 90,new law) to finalize the books. If they wrote out a check for expenses in 2006, were these expenses in your accounts payable year end 2006, and carried forward? If not, then they have to explain. Who handles the posting of the invoices to payables? Do you as Treasurer sign off on any of these or even see them before the checks are drawn? If these charges were for 2006 and they were not included in the payables, the MC, doing your books is not doing a good job. Ask for these invoices.
SharonM3 (Virginia)
Posts: 23
Posted:
I'd recommend doing it all in writing, including the management company's response(s). Email is fine. You want written documentation of your request(s) for information and documentation.
MadaleineD (Florida)
Posts: 12
Posted:
Hi AnnaD2 -- Look up Condo financial rules and responsibilities in Florida Condo law -- it is pretty specific about how your finances are supposed to be handled. I am on the Board of a Florida HOA -- HOA rules are not as stringent and we have to close our books at the end of our fiscal year and we have to have an audit every year. You can obtain the condo laws online by searching Florida Condominium law. HOA laws are written under Section 720 -- I don't remember what section Condo laws are, but they are not hard to find. When you get to them, you can pull up the index and find out what subsection the financials are written under. The site if very user-friendly. Good luck.
DonN (Michigan)
Posts: 357
Posted:
AnnaD2

The treasurer is responsible and accountable for the receipt and disbursement of funds. Giving that authority to a management company is not good business practice.

It is also not good business practice to have the accounting and disbursement authorities with the same person. Good practice always has checks and balances — particularly when managing other people's money.

Any authority to the management company to write checks should be authorized by a "boiler plate" resolution of the board including the signature card for the checking account. Any limitations should be clearly stated in the resolution and on the signature card given to the bank.

My recommendation is for the accounting to be done by a third party. The management company should prepare a folder containing the invoices to be paid with full documentation together with the checks to be signed. The accountant and/or management company should initial and date the invoices and documentation. The checks can be prepared by the accountant. The checks can then be signed by the treasurer after reviewing and initialing with date the invoices and documentation. Anything not paid has to go back to the accountant for adjustment. The invoices, documentation and copies of the checks are then re-filed to provide the necessary permanent record.

The procedure should be in writing so there is no doubt about the documentation of due care. Set specific dates for reviewing the folder and signing the checks — typically weekly or twice a month.

Another alternative is to hire a business expert to set up the system for your association.
RogerB (Colorado)
Posts: 5,067
Posted:
Don, I agree with your statement with the following two exceptions.
1. Giving AUTHORITY to a management company is required; otherwise a management company would be stupid to sign any management Agreement since they would not be acting as an AGENT. But never give a management company the RESPONSIBILITY for the finances nor any other HOA function; that is bad business practice.

2. Most of our management Agreements include accounting and we have the business expertise to handle the bookkeeping and accounting, as do many other management companies. We do all A/R & A/P, financial reports, budget drafts, tax preparation, and status letters. But we will not accept signature authority. On this I empathically agree with you - DO NOT GIVE SIGNATURE AUTHORITY TO A MANAGEMENT COMPANY! I realize many HOAs do because it would not be convenient to do otherwise. Such HOA Board members are apparently ignorant of the problems that can occur.
DonN (Michigan)
Posts: 357
Posted:
Roger,

Good controls are required for good management. That typically requires having at least two independent parties involved with the handling of money that belongs to someone else.

Please note in AnnaD2's beginning post that "our management company wrote a check to themselves for (supposedly) unpaid charges for 2006!". Or consider the management company in Ohio that recently took over a million dollars from associations. Or another management company in the Virginia area that took even more.

If a management company were to have agent responsibilities for accounting, receipts, payments, etc., I would insist that the MC be bonded, at MC's expense, to protect the association. I suspect the bonding company would require the kind of controls I have described.

I go back to my recommended procedure. If the owners association board is not involved in the receipt and disbursement of funds, it is an invitation to mismanagement. My view.
PaulM (Pennsylvania)
Posts: 1,347
Posted:
AnnaD2:

There is no way any of us can have an opinion, yea or nay, on why the mgmt. company wrote themselves a check for unpaid charges.
It seems strange to me that you have been working with this mgmt. company for 4 years (without problems?) and now there is a problem with their writing a check to themselves. You, as the Treasurer, are responsible to ensure that invoices are billed correctly, and that they are paid on time. Has the mgmt. company, by any chance, assigned you a new agent as your manager?

A management company should not be given any authority to write checks for any reason. Their name should not be on the bank signature card, and I find it interesting of late that there have been other postings regarding this same issue. Note: Boards should not be allowing this to happen!!! Not a good practice for the very reason you have noted. It is entirely possible that all is being handled correctly, but to avoid all impropriety, no mgmt. company should even want to sign checks on the community's behalf. They shouldn't even have access to the community's checkbook!!! Why do they need it? The vendor invoices are mailed to the mgmt. company address, they are reviewed and initialed for purposes of approving that the work was done, and the bill should be passed onto the one writing/signing the checks--the Board.

The bank signature card needs to have only a Board member (perhaps the Pres. & Treasurer as a back-up) signature on it, no mgmt. company! Create a new bank card which supersedes the present one. Meet with your mgmt. company agent and ask for clear financials to prove these 2006 unpaid charges. Have the already-received and paid 2006 invoices at hand to verify what has been paid by you and whether these charges are new and indeed are even valid.

RogerB (Colorado)
Posts: 5,067
Posted:
Paul, I strongly agree that no management company should ever be allowed signature authority. But, regarding your control process, IMO there is a better system than what you stated for protection from theft. We control the blank checks not the signer on the account. The checks are printed upon input into our accounting software after we verify each bill. The prepared checks and verified bills are then provided to an authorized Board member for signature. Fidelity (theft) insurance is also needed.

In our management agreement we specifically state the MC shall have no signature authority on any financial account. Also, all accounts receivable payments must be made payable to the HOA - never to the MC. The only weakness in this system is that an authorized signer (Board member) could go to the financial institution and withdraw funds from an account since banks only require one signature. We would find this discrency within 30 days while doing monthly reconciliations and financial reports.

When the management company is allowed to sign checks the Treasurer should be held responsible to have an independent means to verify the financial statements each and every month. This should include receiving copies of all invoices and bank statements and analyse these against the monthly financial statements. HOA finances are not large nor complex so it should never take up to a year to recognize a problem. If necessary the Board can hire an accountant to set up the financial controls needed.
KW3 (California)
Posts: 146
Posted:
Ok, I searched the forum and came up with this (old, old) thread related to my recent question. So here goes: our hoa bylaws only has a brief provision for signing checks from association fund and that is: the matter shall be determined from time to time by the resolution of the board. I reckon that "from time to time" means every time there is a newly elected board as we are now just after a successful election in 20+ years. So other than all the very affirmative advice I read here that "never authorize/ask MC to write/sign association checks for payments", does anyone know of any state law (CA) set on this matter (e.g., no other person or entity except board members is allowed to write/sign association checks)? Thanks
TimB4 (Tennessee)
Posts: 21,059
Posted:
KW3,

Unless your bylaws specifically identify who will sign checks (as mine do) I believe an Association may delegate that authority to anyone they chose. Mind you delegating authority is not the same as delegating responsibility. So if a bill doesn't get paid, the company is going to look to the Association for the payment - not the management company.

Personally, I think that delegating check writing authority is not a smart idea. Why would you give someone you don't know, who has no real roots in your Association, control of your check book? If you believe that doing this doesn't cause potential problems let me know and we can make arrangements for your salary checks to be deposited directly into an account I'll set up. Trust me, I'll pay all the bills and you won't have to worry about a thing. This sounds kind of foolish doesn't it. However, Associations are giving this type of authority to management companies everyday.

My Association does contract out for bookkeeping services. Part of that service is for them to collect the assessment checks and make deposits to the bank. They do not have the checkbook. They are not on the signature card. They receive a check from us once a month for their services. This doesn't eliminate any potential problems. However, it does minimize them.

Tim
KW3 (California)
Posts: 146
Posted:
Tim, I apologize that my post (question) failed to reveal what actually in my mind. I look for a specific law that prohibits MC from becoming authorized to write/sign association checks. The reason I hope to find one is that the law, if available, shall put off other BDs who insist authorizing MC for the sake of saving everybody's time (it's true that often MC had difficult time to get hold on BDs to sign checks, but that's not an excuse). I feel I will be accused of not trusting our MC when the board discusses and argues this issue if I don't have an official or authoritative law/rule/guideline to backup my point. Example: When the board set to select the election inspector, I suggested MC is not qualified to serve the inspector as MC is not an independent third party by common perception. Some BDs insisted that's not a matter (implying that I do not trust our MC) by adding that MC would save association some service fee and proceeded appointing MC as the inspector. (The actual performance of MC serving the inspector was described as sloppy, ignorant, and ineffective plus violating some election rules, but that's not about the discussion here.)

So, don't get me wrong. I am firmly on the position in NOT authorizing MC as a check signer. But I do need all the legal backup available. Thanks

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