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We are being encouraged to accept a proposed budget that seems to defy common sense.
All shareholders have been assessed in order to pay for new elevators currently being installed.
The managing agent wants the funds received from the new elevator assessment in 2013 to be included in the 2013 budget as co-op income. Doing so will make the budget appear balanced.
However, the contracted costs for the elevators are not included among the 2013 expenses.
In other words, the budget is being made to appear balanced because income from an assessment to pay for contracted capital improvements appears to be available to pay for our utilities, building salaries, etc.
Obviously, if the assessment money is used to pay for general operating expenses, it won’t be available to pay for its intended purpose – the new elevator contract. Conversely, if the assessment money is used to pay for the elevator contract, it won’t be available to pay for general operating expenses.
In my opinion the proposed budget is deceptive.
Can someone advise as to whether this kind of budget manipulation is standard and acceptable practice for co-ops?
Or is this kind of budget manipulation a warning sign that we should be looking for a new managing agent?
I cannot give an opinion on whether something is “kosher” however your budget sounds unbalanced at best.
I am an accountant but not a CPA. Best practice is that capital assessment funds be deposited into a dedicated capital reserve checking account (while operational assessments can go into the operating account). This also communicates clearly to your CPA what amounts get added to your cost basis so when you sell your unit, if your sale is taxable, your profit and corresponding taxes are less. The assessment funds at my co-op get transferred on a one month lag into the capital funds from the operating account (i.e. after the previous month’s assessment funds are fully known).
My two words of caution would be to: check the loan payments to see if they went up (a loan may have been used to cover the project costs); and to check to see if your building already had reserve funds which are being used to cover the costs. It seems odd that if elevators are ‘being installed’, the contractor would do so without needing progress payments as the work is being completed.
If your suspicions are true, you may have a big budget hole. Assuming it was not an honest mistake, you may also need a new management company or a new manager. Even if it was an honest mistake, you still may need a new manager who understands building finances a little better.
Good luck!
The two previous posters are spot-on. Your treasurer should have been part of the budget-making process for 2013, and can hopefully provide answers to your questions. If not, you may need a new treasurer in addition to a new property manager.
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1--what reason does the agent give for under-budgeting?
2--how does the agent suggest you actually pay for the elevator work?
3--most important, what does your accountant say? Most accountants I know would deem it ILLEGAL to assess monies for designated capital improvements, commingle those receipts w/operating funds, & use them to pay routine expenses.
Tread carefully here, & try to figure out the agent's motive.
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