Thursday, May 14, 2009

Ways To Protect Your Association's Funds

In today's Chicago Journal, Jim Stoller, president of The Building Group, which manages 80 properties, lists safeguards to prevent condo association funds from being misused. Among them:

* Pay attention immediately when monthly statements are not received or present an inaccurate record of cash flow. It usually means trouble.

* Research your management company. Talk to current and past clients. If possible, find out if accurate records are provided monthly. Also ask if funds were ever misappropriated or if there was evidence that the firm received kickbacks from vendors.

Some management firms engage in less-than-ethical dealings such as accepting “referral fees” (i.e., kickbacks) from vendors or pad the association’s charges with undisclosed, add-on fees. Many firms own related companies--from painters to maintenance to insurance agencies-- and use their services instead of seeking independent, competitive bids.

* Make sure your management company has a fidelity bond to insure client’s funds. Become a “named insured” and get a copy of the certificate.

* Read and decipher the financial statements every month. Is every check and wire transfer documented; are there any missing? Are the checks payable to known association vendors and for the appropriate amounts? Are bank statements included for every association account and are they reconciled with the financial statements?

* Make sure your funds are not co-mingled with other clients. Also avoid “master programs” in which your building is grouped with others, thereby making it easier for a management company to add undetected fees and harder for an association to trace its funds.

* Reserve accounts should be controlled by the board and require multiple signatures on their checks. Excess funds should be transferred out of management-controlled operating accounts when they reach previously set amounts.

* Audits by a third party CPA should be performed annually.

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