Money 101

In my years as treasurer at a small co-op on Jane Street in Manhattan, here are some items of concern that I uncovered:

• A legal bill that was actually for clerical work, verifying whether some prospectus documents were in a file drawer at the law firm. It was billed as “legal consultation.”

• A $21,000 proposal from a fuel supplier for an unnecessary boiler-tube cleanout.

• A $900 proposal for a water filter that included not only the filter but the cartridge holder as well, “just to be safe,” at prices that were double what I found on the internet. There was nothing wrong with the cartridge holder. We bought only the filter directly for $200 and our super installed it for free.

• Undocumented expenses for overly numerous photocopies, which were typically billed the same as self-service commercial rates: seven cents per copy. The materials cost one cent for the sheet and two cents for the toner; why are they charging you more than twice the cost of materials?

• A $25,000 certificate of deposit that our mortgage lender required us to buy when we refinanced, paying one-fourth of one percent interest. That was OK, it was part of the re-fi, but after three years we were allowed to cash it in. Nobody paid attention to that, and the cooperative held it for a few more years, earning $5 per month interest instead of $20.

You are a volunteer. You have limited time. You’ve just taken on the treasurer’s job, making you legally responsible for the control of the funds. If you shirk the task of reviewing each expense and verifying that it is accurate, reasonable, and proper, sooner or later you will find the trouble you most assuredly are asking for. What follows are my suggestions for making sure everything runs smoothly.

Step by Step

To begin with, you should be prepared for a careful review of your management company’s monthly report. It might arrive two to three weeks after the end of the month, meaning that some items are almost two months old. That makes it harder to ask questions and get full and prompt answers. Here’s what you need to do:

Get expense explanations
All checks have a memo field. Ask your manager to be as specific as possible in filling this in: “new weatherhead” or “garbage bags” tells you more than a bookkeeping category, such as “supplies.” Calling it “supplies” is informative – just not informative enough.

Make daily downloads
Use software like Quicken to make daily downloads of the activity in your building’s bank account. Unless your co-op is very large, with a full range of equipment and services, typically there will be 12 to 20 payouts per month, and two-thirds of these will be recognizable recurring expenses (mortgage, insurance, payroll, utilities). You could be dealing with only three or four payouts that need to be identified. Quicken will deliver the payment transaction info the day after the bank has paid the check.

Review the bills

Management should send any out-of-the-ordinary bills to you for review and approval before payment. This does not apply to routine recurring items; however, professional services, repairs, equipment, maintenance, and supplies should be vetted as soon as the bills come in.

Review the paid checks
Go to the bank’s website, log in to your account, and view the image of the paid check and read the memo. If that is not clear, then call your manager.

Verify the management report

By doing all of this, you’ll reap your well-deserved reward. When you receive the monthly management report, you just have to revisit transactions that you have already seen. The report will show scans of the bills supporting the payouts, and it will be easy to deal with further questions and information if need be.

Review the checking account Review the checking account once a month to determine, in consultation with your managing agent, how much excess cash can be transferred to the reserve account, where it should be earning interest. You should be using a bank that has a decent high-interest savings account or money-market account. If you have a reserve account of $100,000, that means $1,000 per year in interest income. Even though the amount is not large, shareholders will appreciate your efforts to secure this “free money” for their benefit.

Keep a history

When it comes to major repairs and capital expenses, a good ongoing system is for the treasurer to make a scan or take a screenshot of every capital expense or major repair invoice. These can be found in the monthly management reports. The graphics can be put on a regularly updated “Capital Improvements” webpage or otherwise made accessible to management and the board. An alternate system would be to maintain a spreadsheet or table listing the items and the reports where they may be found. Keep in mind that the system has to be external to the managing company and individual board members. Both can come and go, so the record-keeping must be accessible to new personnel.

Get a manager who suits your needs

Frankly, I think the shared oversight structure of co-ops can verge on the immoral. We have boards who are unpaid, often with skill sets that range from rarely proficient to nonexistent. They may be short-term volunteers with limited time to devote to your building. Building management may be motivated to save their own time and not necessarily your money.

Ideally, the board should collectively acquire an understanding of boiler systems, legal issues, types of insurance coverage, property taxes, simple bookkeeping, and alterations/improvements, but the full-range happens only in the breach. Unfortunately, there are always shareholders who join the board so they can beat back maintenance increases, sublet fee increases, sublet term limitations, and expensive renovation projects. Aside from this focus, they are quite disengaged from the boring process of overseeing the management of the property.

Compare this to a single owner/manager of a market-rental building whose profit motive compels him/her to acquire the necessary knowledge and understand the relevant issues, much like a single homeowner. Now take that focus and hold it up against this scenario: at a shareholders’ meeting in our building, it was decided that the composition of the board would be “more fair” if its members hailed from different floors of the building. (If you require this type of parliamentary democracy to manage your apartment building, I feel sorry for you.)

A reality is that management is not motivated like you are to save your co-op’s money. In finance this is called the “agency problem” – your hired agent doesn’t care about your money as much as you do, being motivated by a natural self-interest that may conflict with a principal’s best interest. Management makes the same fee whether there are three hours or thirty hours of work devoted every month to your building. You can counter this and motivate management to put in the necessary time to do the job right by being fully engaged yourself. Nothing aggravates management more than a disconnected, hands-off board (unless it’s a board whose members are in active conflict). E-mail and the phone are wonderful tools, but nothing beats sitting in the same room, manager and board members together, interacting as they work through an agenda and devise plans of action.

When my board hired our current managing company, we interviewed six references from board members of other co-ops who had hired the same company. These were lengthy conversations, about 20 minutes each. The recommendations of the managing company happened to be excellent, but it was impressive that all six of these board members who gave us references were fully on point.

In the final analysis, if you thrive on praise and gratitude, the treasurer’s job is probably not for you. But if you have, or are interested in developing, the types of skills it entails, being the guardian of the money can be a fascinating experience. And a satisfying one, too.