Thursday, April 8, 2010

Accounting and Finances

The board's treasurer and I finally met with our property manager and a representative from our property management company's accounting department last week. Our treasurer, as always, was on the ball with a number of questions. I didn't say/ask much since he had already prepared to cover the issues I had raised at previous meetings. Here is a summary of what we learned:
  • The association is currently about $26,000 in arrears with regard to homeowner assessments.
  • The reserve account(s) is/are approximately $30,000 in arrears with regard to budgeted funding.

    This point requires some explanation. I've written at length about our reserves being underfunded. The term "underfunded" in those contexts refers to the deficit between the amount of money the association has in reserve and the amount of money required to repair/replace association assets that have reached the end of useful life. For example, if $346,000 were required to repair assets that had reached the end of useful life, and the association had only $100,000, the reserves would be underfunded by $246,000. Alternatively, in this situation, the reserves would be at 30% funding.

    Now, saying that the reserve account(s) is/are in arrears by about $30,000 with regard to budgeted funding, using the previous example, means that instead of having $100,000 in the reserve account(s), there would only be about $70,000. Not coincidentally, this example is that of Park Lane's reserves.

    I've mentioned before that the 2009 board borrowed $10,000 from the reserves.

    The solution to the mystery of the remaining $20,000 was finally revealed during the course of the meeting. Bruner & Rosi (our property management company) has a policy of not funding an association's reserves each month unless that association's operating account contains at least 1 month's worth of assessments. Since our operating account does not contain the requisite amount of money, the management company has not been transferring money each month to the reserve account(s). Furthermore, this money is not explicitly accounted for anywhere and likely would not have been noticed save for the vigilance of our treasurer.

    It is my belief that this money represents a loan from our reserves in violation of Civil Code 1365.5(c)(2); however, the rest of the board (only one of the other members has explicitly expressed his opinion) does not.
  • The management company reports assessments and reserves on what is known as an "accrual" basis. This means that when finances are reported to the board by the management company, the records show that all assessments are being paid and the reserves funded each month. It is not until one tries to reconcile these records with others that are provided that one realizes that this isn't the case. Furthermore, without extra work to reconcile these two reports, it is very difficult (if not impossible) to determine exactly how much variance in income the association has each month.
  • Our property management company charges upwards of $.50/sheet of paper (it may be $.25/sheet; I don't recall exactly, now) for copies and, in addition, also charges the association for all outgoing phone calls made on its behalf.
In short, Park Lane's finances are an unmitigated disaster and seem to get worse with every layer of the onion that gets peeled back.

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