Page 11 - CooperatorNews New Jersey Summer 2021

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COOPERATORNEWS NEW JERSEY
—SUMMER 2021
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with Th e Condo Queens, an accounting fi rm
in New Jersey, “Financial leakage can come
from two directions: the income side, and
the expense side. On the income side, asso-
ciations sometimes absorb costs that really are
the responsibility of individual unit owners.
Th is is more common in high-rise buildings.
Associations should always look at their gov-
erning documents to determine what their
common elements are, what the association
is responsible for maintaining and repairing,
and what should be paid for by owners.”
Th at said, Sackstein continues, “Th e larger
piece of the puzzle is on the expenditure side.
Contracted vendors may be performing ad-
ditional work and charging for it—and that
should be covered under the contract. It’s
critically important to be specifi c in contracts
so you don’t get overcharged. Another area to
consider is competitive bidding. If you’ve had
a contractor for a long time, check the market.
Are you getting maximum services at the best
price? Every so oft en, go out into the market
to check bids.”
Dan Wollman, CEO of Gumley Haft , a
Manhattan based co-op and condo manage-
ment fi rm, adds that “leakage occurs when we
spend more than we budget for or anticipate.
Waste can fi gure in when we overuse sup-
plies, for instance.” He points out that leakage
also occurs when management isn’t paying
enough attention to the division of respon-
sibility between owners and corporations or
associations.
“When we do work within apartments
that owners should pay for and it’s not billed
back correctly, we have substantial and costly
leakage,” Wollman says. “Th ere are also utili-
ties such as water and sewer, electric and gas,
as well as other issues with recording those
billings; are you being charged correctly? In
one case,” he says, “we had an excessive wa-
ter bill in one building we manage. It wasn’t
clear if it was a leak or there was a problem
with the meter. We had the meter recalibrated,
and then found a leak in the condensate tank.
It turns out that was the source of the actual
physical water leak that led to the fi nancial
leakage.”
Audits
Th e best way to determine if your prop-
erty is suff ering from fi nancial leakage is to
complete a thorough audit of your fi nancial
records. “We look at it from two perspectives,”
says Zanjirian. “Th e fi rst is at what the pro-
jected or expected amount of an item was—or
what it should have been—and if it’s out of
line with projections. If it is, we go to deter-
mine why. Let’s say a project should have cost
‘X’ dollars, but it cost 10 percent more—or
alternatively, say there are more payments to
a vendor like an exterminator than expected;
we do further investigation. It has a forensic
aspect; perhaps you were misbilled. Or was
there maybe an extra visit to the property for
some reason? We will verify, correct, and con-
fi rm, but I can’t tell you if you overpaid until
our assessment is complete. In the end, the
numbers never lie.”
When working with auditors, Wollman
says that as a manager, he will provide the
board raw information, vouching for bills,
and examining any written for over a certain
set amount. He will also compile a fi nancial
statement as a budget and comparative tool.
“It must be accurate, thoughtful, and realistic,”
he says.
Th e pros agree that the best long-term
approach to controlling fi nancial leakage is
vigilance. Management and boards should
be reviewing expenses on at least a monthly
or quarterly basis and coordinating with their
accounting professionals when any unexpect-
ed expenses occur. Zanjirian suggests that a
‘Round Robin’ approach may be best. Audi-
tors should look at diff erent items every year.
Some years energy costs or metered services
should be scrutinized. Other years it might be
supplies or annualized repairs.
Aft er an accounting audit, Wollman
checks against his own projections. “If I did a
good job, it’s close,” he says. “If something is
out of whack, we turn to a specialist.” In addi-
tion to accountants, “there are also profession-
als who can renegotiate your water bills and
other services with the city to get you a reduc-
tion. Th ey are familiar with city programs you
might not be familiar with.” Wollman points
out that this can help—but it does cost money.
“You have to pay for these services.”
Zanjirian also says that while it’s primarily
the responsibility of the association or cor-
poration treasurer to review expenses on a
monthly basis and compare them to budgeted
projections, every board member should be
reviewing these numbers themselves, even
if they don’t have a professional background
in fi nance or accounting. “With new board
members,” he says, “they can call me and I will
walk them through the monthly statements
and how to view them. More than one pair of
eyes is always better.”
“Th ere should be regular board partici-
pation in reviewing actual costs and seeking
comparable information from other asso-
ciations to see what they are paying and get-
ting from vendors,” adds Sackstein. “Having
a good management company with a good
reputation and a wide network of vendors
helps as well. When doing a capital project, do
proper due diligence on vendors to make sure
they are reliable.”
Don’t DIY
Unless there are board members who have
extensive professional experience in real es-
tate, fi nance, and accounting, a board should
not undertake a full audit of their expenses
on their own, says Zanjirian. When it comes
to association fi nances, it’s best to hire a spe-
cialist. “Accountants do [audits] and studies.
Th ere are also consultants who do expense
studies specifi c to your spending. Appropri-
ately qualifi ed managing agents can also do
them. Much stems from how good the man-
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