If you want to find out about the history of a town, region or country, head to  a museum or look it up on the Internet. If you want to find out about your  family’s history, look at your photo album, whether it’s in a book or online. And if you want to find out your medical history, good  luck!  

 But if you want to find out about past financial records of a condo or co-op  development, that history is comprised of all sorts of documents, financial  records, minutes of meetings, election results, invoices, and other records  that are kept from year to year. How are these records kept, and what are the  most important pieces of the “historical record” for board members and managers? The answers are complicated, but fortunately,  we have several financial professionals that have agreed to help us out.  

 What You Should Know

 To begin with, what is the minimum financial information that board members  should know and understand about their buildings? While boards need a financial professional in their corner, that doesn’t mean that there’s not some basic information that they should know and understand on their own.  Obviously, the accountant or other expert can’t be there all the time!  

 Professionals interviewed by The South Florida Cooperator mentioned quite a few important items as essential. These include shareholder or  unit-owner arrears, cash balances, unusual items such as special repairs or  overtime, long-term unpaid invoices, reserve activity and balances, profit-and-loss statements (also called income statements), accounts payable,  accounts receivable, subsidiary ledgers, bank reconciliations, check registers,  general journals, open liabilities, expense and income vs. the budget, and  major capital projects coming up.  

 Many of these items are contained in a monthly report provided by the property  manager, which is reviewed by the treasurer or other board members each month. “As the duties of the board require monitoring of cash balances, cash flows, and  the approval/timing of major repair and replacements, a qualified board should  have a good understanding of how to read their financial statements,” says Chip Swinarski, CPA at Swinarski & Company in Lake Worth. “A qualified board should be skilled at budgeting, and have a cognizance for  reviewing variance reports to identify problems, trends and other financial  indicators.”  

 While the board president and treasurer are responsible for this financial  information, all board members should have a least a basic understanding in how  to read monthly reports, so the work of the property manager can be checked. “You can't just turn a blind eye, and say I didn't know, or I didn't understand.  They have a level of diligence that they should live up to, or else, God  forbid, if money is misappropriated or not spent wisely, somebody can make a  claim against them,” says Matthew Zifrony, an attorney and a director at the law firm of Tripp Scott  in Fort Lauderdale. “There are property managers that do all the heavy lifting. And in those  instances, I think that the amount of involvement that the treasurer has, as  well as the other board members, will be a lot more limited, but I don't  believe that it means that they shouldn't be involved at all,” he says.  

 Pay Attention to Small Things

 With all this information, there’s plenty of opportunity for mistakes and/or oversights by administrators or  boards. “Some of the management companies have excellent accounting departments, and they  understand how to make journal entries, and record financial transactions,” says Brad Schneider, president of CondoCPA, which provides audit accounting and  tax services for community associations, and has offices in Sarasota, Florida,  Chicago, Illinois and Santa Cruz, California.  

 “With some other companies, usually they're smaller, may only have bookkeepers  that just know how to do accounts payable, accounts receivable transactions,  and when something comes out of the ordinary, they don't know how to deal with  it,” he says.  

 A common mistake among boards and even some property managers is the use of  cash-basis financial statements. A cash-basis system only shows the cash  inflows and outflows. So if you’re tracking your finances only through cash, you’re only getting a quick snapshot of how much money is in the bank, and if a  regular payment hasn’t gone through, or a long-term budget item isn’t included, the snapshot can be quite inaccurate. “The board on a monthly basis should be looking at the budget-to-actual figures,  and if something looks out of line, they should either be able to look at a  general ledger and be able to figure out what makes up the difference, and see  the invoices that month to see, for instance, if the plumbing budget went  $10,000 over budget, and see why that is,” says Schneider.  

 Changing Gears

 Another common issue can simply come from a changing of the guard. “When [boards] switch managers, it's always been an issue. When they switch  on-site managers, sometimes one might have a certain filing system, and when  another one comes on, when there's no overlap when the old one leaves and the  new one starts, a lot of times they can't find items that were filed,” says Schneider. “For instance, if there's maintenance agreements, a lot of times we see when a  new manager starts, that they may not be doing it the exact same way. So, as  time goes on the actual calculation is being done differently ten years later  than when it was supposed to be,” he says. If they were fired, property managers often leave with their ego bruised. In  those instances, some managers will deliberately leave the transitional work  unfinished and sloppy just to give the association a hard time. The only way to  avoid that situation is to try to get on the departing manager’s case while you’re still paying them.”  

 Unfortunately, bitter managers on their way out aren’t the only thing that can lead to missing records, and for that a control system  is necessary. Most property managers do their jobs quite well, but mistakes  happen; anything from not reconciling bank statements, not producing quarterly  or monthly reports on a timely basis, not resolving unreconciled items, and not  making sure that carrying charges are credited to the correct person’s account. “It would be a good idea that the board have some sort of written plan of how  long to keep records, for instance seven years,” says Schneider.  

 Florida law, by virtue of the Condominium Act and the Administrative Code, in  fact, does require that condominiums maintain official records of the  association within the state for at least seven years.  

 “Nowadays, with electronic records, it's important to continue to follow the same  policies,” says Schneider. “There are a lot of electronic filing systems and I think they should follow the  same purging of records—once they write out a policy, they need to follow it.”  

 Keeping Tabs

 Another important question to ask is where to keep records. In most cases, they  are kept at the managing agent’s office, although in self-managed buildings, they can be kept in an office on  site. Increasingly nowadays, these records are scanned in, then are accessible  digitally by board members and managers. Even if they are kept by the manager,  however, it is important for the board to have access to these records as well—there have been too many cases where a building switches property managers and  the new manager doesn’t know where the old manager kept them.  

 Since boards as well as managers change over the years, normally the best place  to maintain the information is in a dedicated, secure common area, so that  information can be passed from one board to the next. Now with the prevalence  of cloud computing, boards can remotely store records and not have to worry  about creating backups in a separate location—which was quite necessary given the exposure South Florida has to hurricane  season. If board members are not familiar with backing up documents on the  cloud, they should ask their property manager or accountant about it, and see  if it’s cost effective.  

 We’ve seen what some of the problems can be. How can condo administrators  streamline their buildings’ financial profiles to make them simpler, more transparent, more efficient and  less likely to result in missed deadlines, missing paperwork and penalties?  

 Obviously, the board and the manager should have a regular schedule to review  documents and reports and to discuss them. A checklist, with a schedule of  important due dates, will keep things running on an efficient basis. “There should be financials that are generated every month for the board, that  show what are the anticipated expenses. How much did the association take in?  How much did they budget to take in? This way the board members and the  treasurer can look to see the budget is being followed,” says Zifrony.  

 Checks & Balances

 It’s important to make sure that two board members are signatories on every bank  account, including those accounts maintained by management. Duplicate copies of  bank and financial statements can be sent to multiple individuals so that  responsible board members are kept apprised of the activity and can report  accordingly to board members. Many financial institutions will do this for  free. “When there's a fraud in the association, a backup for the invoice might be  missing. A lot of times, board members, or whoever is signing off, are  friendly. So if something's missing they feel pressure not to ask for the  invoice,” says Schneider.  

 In order to streamline payment processes with unit owners and service companies,  many banks have a lockbox center where the checks go to the bank, not the  management company. The bank opens the envelopes, credits, the accounts, and  sends an electronic file to the management company to update their records.  (The phrase “lockbox,” says Wikipedia, refers to the post office box, accessible by the bank, where  people who are paying—in this case, unit owners or shareholders—send their checks. A “lockbox” in common parlance is just a physical, secure, locked box where money was  stored, like a safe deposit box.)  

 Finally, it’s important to get more unit owners or shareholders involved and to set up  committees where they can volunteer. Otherwise, the same small group of  volunteers will have to carry the ball on everything, and they will be  overtaxed and overspent.  

 What resources exist for boards and/or managers to get solid advice on how to  better organize and manage their financial records?  

 The information in this article is very minimal, but there are many resources  that are available to interested co-op and condo boards and property management  companies. “If they're self-managed, they probably need to consult with either an  accountant, or a management company, and decide what to do from there,” says Schneider. “They can also have an audit done, and if the issue is with the management  company itself, the audit should come up with recommendations on dealing with  the books. If they're self-managed and they're having problems with  bookkeeping, the two alternatives are 1) to get a full management contract, or  2) at least contract out their accounting.”  

 Seminars, including those given by trade organizations or at shows such as the South Florida CooperatorExpo, are another resource. “In the big picture, the obligations of the board member, and more so of the  treasurer don't just stop because the property manager is doing a good job,” says Zifrony.  

 Swinarski adds, “Here in South Florida we are very fortunate to have a number of professional  associations that offer training and education,” from property management firms to lawyers. And he adds, the state’s Division of Condominiums, Timeshares & Mobile Homes also offers educational materials and training for board members.  

 As we mentioned earlier, the building’s accountant is not always available. But when attending trade shows, board reps or managers should look at some of the accounting  systems or software being offered, and see whether they are more efficient than  the systems they are using now.  

 Simple, basic practices-like good record keeping, regular maintenance and good  communication between the condo/HOA board and the building administrators are  keys to keeping the community fiscally sound and on track.   

 Raanan Geberer is a freelance writer and a frequent contributor to The South  Florida Cooperator. Editorial Assistant Tom Lisi contributed to this article.