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Council of New York Cooperatives & Condominiums
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Conference Highlights

Publication Date: Autumn 1999

Every autumn, the Council of New York Cooperatives & Condominiums holds its day-long information-packed Housing Conference at Hunter College, where 60 workshops and seminars present unparalleled opportunities for board of cooperatives and condominiums to learn and to share information on every aspect of operating their buildings. Small buildings are often those most in need of education for they are often self managed. Accountant Charles Zucker lives in one such building, where he has been proclaimed "treasurer for life". Mr. Zucker's lively and informative course on Internal Controls for Small Buildings is summarized below. It will be offered again at this year's Conference on Sunday, November 14, 1999.


INTERNAL CONTROLS
FOR COOPERATIVES & CONDOMINIUMS

If you leave a door open, the old expression goes, someone will walk through it. That's a lesson that some cooperatives and condominiums learn the hard way, says Charles Zucker, a partner in the accounting firm of Zucker & Shernicoff.

Just ask the board at a small building on Manhattan's Upper West Side. Out of the blue, the co-op found itself in foreclosure for non-payment of the mortgage, in rem by the City of New York for non-payment of taxes, and dissolved as a corporation by the State of New York because corporate franchise tax returns had not been filed for several years. The sponsor had been responsible for taking care of all these filings and payments, and the board had taken it for granted that he was doing his job. But he wasn't. "You cannot assume that someone else is watching the store," says Mr.Zucker, who admits that his own West Village co-op has been remiss in this area: Mr. Zucker has been the treasurer of this self-managed building since 1975. "That's wrong. It's not the way it should be. There need to be all kinds of checks and balances, because you never know when good people will yield to temptation and turn into bad people."

GETTING ORGANIZED
The first step towards taking control of your building is to create a comprehensive operational manual, says Mr. Zucker. This should cover every small detail of running the building, from the location of the water shut-off valve to the procedures for maintaining the building's finances.The manual should be particularly strong on outlining the various tax payments that are due each year, he says. "Have your accountant help you develop a thorough checklist of all the filings that are due, and keep track of when these filings are made."

"No board stays in power forever, nor should one set of people stay in power forever," he says. "A good, thorough operational manual will insure that the controls and procedures are maintained even as the faces on the board change." In his own building, Mr. Zucker has created a treasurer's manual that details when bills should be paid, which tax filings are due and other details associated with the treasurer's role. He keeps it with the checkbook."If something happens to me, the next guy will be able to use common sense to find the manual, and he'll be able to pick up right where I left off,"says Mr. Zucker.

DIVIDING THE RESPONSIBILITY
Another basic step is to make sure no single person or small group of people on the board is responsible for everything, and that none of the building's professionals or management staff is left to act unmonitored. Mr. Zucker recommends breaking up the board's range of responsibilities into four main areas, and assigning these areas to different people on the board:

    1. Financial. This is the treasurer's domain, and includes overseeing maintenance/carrying charge collections, bill paying, and interaction with the building's accountant for tax preparation.

    2. Maintenance. This person would be in charge of overseeing repair, maintenance and capital improvements. If the building has a managing agent,this person would act as the board contact responsible for monitoring the progress of any work in the building and reporting back to the board.

    3. Legal. This is generally the job of the board secretary, and includes handling or overseeing such issues as share transfers and contracts.

    4. Procedural. Each year, co-ops and condos must make dozens of different filings with the City and State, as well as with the Building Service Employees' Union. This person would be responsible for making sure these are done correctly and on time.

There is a great danger in ignoring such safeguards. Mr. Zucker cited the example of a condo on the Upper East Side had entrusted its managing agent with paying bills, and had not bothered to check which bills were being paid. Five years later, the building owed $100,000 in unpaid dues to the Building Service Employees' Union. "The agent fooled the board by showing union reports to the board but he never paid the dues," says Mr. Zucker. "The building is now negotiating a settlement."

LOOK AT EVERYTHING
According to Mr. Zucker, the most common problems can be avoided if the board watches all the details. For example, many buildings get into trouble because no one looks at the mail. "If someone at the foreclosed West Side condo had simply opened the mail, they would have seen that the taxes were not being paid," he explains. Trouble can also arise with basic invoice approvals. "Most checks that are signed by the treasurer do not need approvals, such as those for utilities and other standard monthly payments," he says. "But all repair bills should be approved by the board member in charge of the project before being signed by the treasurer." The board should review all bills over a predetermined dollar amount, he warns. This would at least limit the amount of damage that can be done. Your board can set this dollar amount at any level. Make sure the limit is clearly stated in the operational manual. The best safeguard is if more than one person – at best, an entire committee – reviews all non-recurring bills. For example, the House committee should reviews all bills from contractors before they are approved for payment. Requiring two signatures on checks is not always a foolproof way to defend against theft. According to Mr. Zucker, banks have become so automated that many single-signed – and even unsigned – checks slip through.

ACCOUNT SAFEGUARDS
A basic rule for all cooperatives and condominiums is to keep the operating account separate from the reserve fund. This means keeping them in separate and distinct bank accounts and keeping them under the control of separate people. In the foreclosed West Side building, for instance, the reserve fund was the one element that the sponsor did not control. This left the building $25,000 to help bail it out. Beware of wire transfers, a method of paying bills that has come into vogue,says Mr. Zucker. At one building, he notes, the treasurer paid all the bills by wire transfer from the building's bank account. When he was relocated to the Midwest, he took the PIN code with him and accidentally withdrew $9,000,thinking he was making the transfer from his own account. "He paid back the money as soon as the error was discovered, but this highlights the type of danger that wire transfers can pose," he says. Finally, keep an eye on the treasurer by making sure that he or she presents the board with monthly financial reports. "All you need to see is a simple statement, showing the maintenance collections and the bill payments," says Mr. Zucker. "This should be seen by all board members. If you know what's coming in and what's going out, then it becomes difficult for someone to walk away with the store."

 
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