For a crystal-clear picture of how a co-op board or condo association is doing, there are few better lenses than the community's budgets and financial reports. From an investment perspective, they show the association board, property managers, the unit owners/shareholders and tenants whether the property is solvent or not. If the numbers add up and monies coming in and out balance, you can safely assume everyone is doing their job, and upholding their financial and fiduciary duty to the community. If the property is in the red, it’s important to determine why that is, and what needs to be done differently to turn the situation around and restore solvency.
Maintaining and updating the accounting of their property is one of the primary responsibilities of a board—one that is all-too-frequently neglected, according to the pros.
“I think the place to start would be to, to steal from the late Sy Syms—and the message is that an educated board member is the best board member,” says Jules C. Frankel, CPA, from the certified public accounting and consulting firm of Wilkin & Guttenplan, P.C., with offices in New York and New Jersey. “And that doesn't mean that a board member should be interfering with a managing agent or what the management company is trying to do. But that a board member has a fiduciary responsibility, should understand what's going on, and therefore help protect the property and the property values for their particular condo or co-op.”
It’s important to understand each financial document and its purpose so you can have a better understanding of exactly what’s going on in your building board or association. So here’s a little Financial Paperwork 101.
Financial statements show the income and expenses for a building board or an association.