A Six-Step Program for Boards Plan Ahead for a Healthy Financial Future

In 1991, the American Institute of Certified Public Accountants (AICPA) issued its Guide to Audits of Common Interest Realty

Associations, more commonly referred to as the CIRA Guidelines. Much controversy followed this event as professional organizations of every stripe either encouraged boards to comply as soon as possible or warned them of serious consequences if they did not. As usually happens when boards are confronted by such momentous choices, the status quo (i.e., do nothing) solution won out. While I agree that a cautious approach to this important change probably was warranted at the time, I cannot ignore its principal by-product. The prevailing recommendation to delay full compliance with the new reporting guidelines legitimized the myopic planning horizon of most boards.

The Problem

CIRA guidelines call for an assessment of the useful life remaining in a building's major components, and a cost proposal and projection for any anticipated repairs or upgrades. As buildings age, their skin and internal organs wear out with ever-increasing frequency. The longer a board postpones repairs, or worse, ignores this relentless deterioration, the greater the risk of an expensive emergency. Murphy's Law ensures that all such emergencies will occur during the wrong season and when the co-op can least afford them. Certainly no board can avoid emergencies entirely. But an on-going program of preventive maintenance and replacement, coupled with a comprehensive budget that includes monthly contributions to the building's reserve account, can reduce both the number and severity of the emergencies that do happen.

So why do most boards still bounce from crisis to crisis? It is an unfortunate fact that most co-ops are run by groups of unpaid volunteers whose expertise lies largely outside the field of real estate and property management. During their precious evening hours, these well-intentioned individuals must make the tough decisions that other business executives get paid to make during normal working hours. Afterwards, these same board members must endure the criticism, second-guessing or outright wrath of other shareholderssome of whom are their friends or neighbors. Is it any wonder that politics and private agendas sometimes get in the way of clear thinking? Of course not. But avoiding hard decisions today will make them even harder tomorrow.

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