After an In-House Theft, a Co-op Board Cleans House

The new board’s first two hires were the lawyer Mark Hankin, a partner in Hankin & Mazel, and the accountant Carl Cesarano, of Cesarano & Khan. The new professionals were in for some unpleasant surprises. “For instance,” says Hankin, “we had to figure out why over a period of six years, a group of 20 or 30 people didn’t pay maintenance.” But that wasn’t even the tip of the tip of the iceberg.

“They had an in-house bookkeeper and manager,” says Cesarano. “The internal controls were extremely weak because there was no supervision of duties, or checks and balances.”

Cesarano also discovered that his predecessor, Bill Artuso, was paid on a monthly basis, and he’d received $49,000 over the previous three years – more than double his agreed-upon rate. Artuso says the extra compensation was for extra work he did discovering and unraveling the office manager’s theft. Artuso has refused to hand over certain financial records to Cesarano, claiming the previous board still owes him more than $8,000. Hankin, the board’s new attorney, calls Artuso’s actions “unethical,” and he’s working to force Artuso to hand over the records.

The CPA uncovered more problems. “I looked at the annual financial statements from 2009 through 2014,” Cesarano says. “In 2009, there was a budget surplus, and every year after that there were six-figure deficits. It’s ridiculous.” The co-op’s spending history was also, as he puts it, “a little illogical.” For instance, the co-op refinanced its mortgage in 2013 – for $5 million at a 4.25 percent interest rate – in order to repair leaky roofs and complete mandated Local Law 11 exterior work. But in that year alone, Cesarano discovered, the co-op spent $743,000 repairing “interior leaks.” To call this a “little” illogical is more than a little generous.

In May, the co-op completed the clean sweep when it went beyond self-management and it hired Metro Management Development. Jennifer Terman, the hard-working office manager who replaced the thief, is thrilled to be working with an established management company. “Now, with Metro, they have a system,” she says. “Every week I make sure the maintenance checks are right, then I give them to Joe Doren, the managing agent, and he pays the bills. It’s definitely better. There’s more structure. The staff are hard workers, but before they would do what they wanted to do when they wanted to do it. Now there’s a schedule; things are organized.”

“There are things we helped turn around,” says Doren, whose full title is director of property management. “We streamlined the billing and organized it better. We got the buildings cleaner and shinier than they were. The staff gives us input now, and new ideas. They’re happier.”

Adds board president Eliot Tokar, “What Metro helped us do was refine our bookkeeping and accounting, enforce the union contract, prioritize capital spending, and figure out how much things should cost and how much we should pay.” The board also set out to collect arrears and discovered, to Tokar’s surprise, that most people were “quite willing” to pay what they owed. So far, more than $14,000 has been collected.

The turnaround, considering the years of turmoil that preceded it, has been astonishingly swift. In its first year, the board cut expenses, reduced the deficit by two-thirds, collected arrears, paid vendors, systematized bookkeeping, and started rebuilding the repair reserve fund, which as of early December was $47,000. And they did it not by raising maintenance or imposing an assessment, but rather, according to Tokar, “by not wasting money and by spending money intelligently and at market value. We brought this co-op into the real world. That’s the bottom line.”

In the end, this is not merely a story about a clean sweep after a theft. It’s a story about the perils of self-management, a system that works well in certain buildings but which, if mishandled as it was at Lindenwood Village, could lead to chaos.