C Is For CPA

Boards of residential cooperatives and condominiums are entrusted with significant fiduciary responsibilities to their buildings and to their fellow shareholders or unit-owners. To ensure the board’s successful performance, every property should engage a team of expert professionals who can guide and assist the board. This team should include a managing agent for operational management, corporate counsel for legal services, and an independent certified public accountant (CPA) to provide accounting and financial oversight.

It is the specific role of the accountant in service to a co-op or condo to assist the board in the performance of the various financial tasks required of their fiduciary position. To that end, the accountant’s services should include:

Preparation of the property’s annual audited financial statements based on information usually provided by the managing agent; the filing of property tax returns.

Reviewing and monitoring of the manager’s financial services (the accountant should bring to the attention of the board any shortcomings in the managing agent’s finance/accounting processes or reporting that could have a meaningful impact on the property’s operation).

Providing authoritative guidance in all financial matters throughout the year, including how to plan for anticipated and unanticipated expenditures, the actual disbursement of those expenditures, and their impact on the property’s finances.

The accountant should advise the board on how bank accounts should be set up for operations, working capital, and replacement reserves. Additionally, the accountant may participate in the preparation of operating, capital, and other budgets, depending upon the extent of the managing agent’s participation in preparing these budgets. (Some properties rely exclusively on their managing agents to prepare their budgets, while others engage their accountant for this service, and still others employ a hybrid where the managing agent and accountant coordinate on budget preparation.)

Often, a co-op/condo’s accountant also is expected to be present at the property’s annual meeting, to explain the annual audited financial statement and to answer owner’s questions about the financial direction of their investments.

In all aspects of an accountant’s service to a co-op or condo, it is important for the accountant to have thorough, accurate, and timely financial information about the property. For this reason, boards should instruct their managing agent to provide to both the board and the accountant all required reporting documents, including the monthly management report, bank statements, paid bills, disbursements, related paid invoices, and payroll details.

In this way, the accountant can monitor the building’s finances along with the board. This ensures that the managing agent is properly addressing periodic recurring expenses, such as water and sewer bills or tax bills, which may not appear on a monthly report. It also permits the opportunity for educated questions to be asked about any variances, unusual expenditures, or unpaid bills.

For example, if the managing agent fails to provide information about arrears, then the treasurer cannot report the status of collections to the board, and the accountant will not have a full perspective on how the building is faring financially. This is just one example, but it is a significant one in difficult financial times such as these.

To best serve their mutual clients, the managing agent should include the accountant on the distribution list to receive management reporting documents at the same time they are given to the board. That ensures that everyone has the same information at the same time. In addition to the monthly financial report, the agent should provide board meeting minutes to the accountant so that he/she can be aware of any upcoming projects or major capital expenditures that the board is contemplating. If the agent fails to provide this information, then the accountant’s understanding of the property’s financial status will be incomplete and he/she will not have the opportunity to provide financial advice that may assist the board in its planning.

It is especially important for the managing agent to keep the property’s board and accountant informed about any special circumstances that may arise during the course of the year that may affect the property’s financial status. For example, we have seen several cases where weather conditions have caused extensive damage to buildings, or where budgeted capital improvements have had significant cost overruns. The accountant must be made aware of these situations, so that he can offer advice and also ensure that the year-end financial statements properly reflect these variables. It is often the case that a CPA will have suggestions or solutions developed from his own experience.

The production of annual financial statements, filing of tax returns, and provision of authoritative financial advice are the basic services a co-op or condo should expect from an independent accountant. Additional value comes from the accountant’s ongoing assistance with future planning to ensure that the building’s assets are protected.