2004 July

PROTECT YOUR ASSOciATION ASSETS

By Joseph T. Rodgers, CPA

Managing an association is similar to managing a small business.  A business has assets which it can use to produce goods and services, and ultimately to create wealth for its owners or stockholders.  An association also has assets.  It uses those assets to provide services to the owners of the units or homes.  The assets of an association are different from those of a business, since they do not directly create wealth, but they do create value.

Protection of an association’s assets should be the highest priority of the board of directors.  In many cases, the documents of the association spell out the responsibilities of the board, specifically delineating prudent steps which the board must follow to organize and run the “business.”

Do not overlook the common property.  Although not owned directly by the association, the owners have an undivided interest in the property, and maintaining its appearance, condition, and overall durability is an important part of asset management.  The property components need to be replaced and repaired on a regular basis as needed, to continue to have those assets create value for the owners.

Associations may also have title to personal property assets, such as trucks and equipment.  Each association, like a business, should have an inventory of those assets. This inventory should be checked regularly by a board member or manager representative.  The most common thefts in business are committed by employees; small tools and supplies are particularly vulnerable.  Employees may also use association assets for unauthorized personal use, creating financial losses in the form of excess mileage, excess telephone or beeper use, time wasted in personal errands, or unauthorized use of the internet.

The most significant asset for most associations, especially small ones, is cash or investments.  Most associations permit their managers to sign checks on the operating checking account, although a second signature – either a board member or another person at management – is usually required.  We suggest that all checks over a certain dollar amount should be approved by the treasurer, president or other authorized member of the board.  In addition, the manager should not be permitted to access reserve funds without board approval.  Be cautious with the use of signature stamps and make sure that they are kept in a secure location.

Computer access codes should be guarded and limited to those who work with the information.  Make sure that regular vendors, especially those working directly on the property, are promptly paid – they will let you know immediately if there is a payment problem.  All major contracts for repairs or services should be approved by the board.

Limiting the risk of embezzlement means limiting the number of people who control association funds.  No manager, employee, or board member should have sole control.

The frauds we have observed over the years were of two types.  The first type is money diverted to personal use by an unauthorized disbursement of funds, such as a check which did not go to the intended recipient.  The second type is a certificate of deposit or other savings instrument cashed by a single person who had authority over an account.  Your bank or other financial institution may be ultimately responsible if an unauthorized person withdraws an investment.  However, if the association has been careless in giving authority to the wrong person, the board is responsible.

A note about board meeting minutes – here is the place where the board can show that its decisions and actions are well thought out, have substantial support, and are prudent.  Approval of decisions as to investments, major contracts, late fee policies, and other financial matters should always be included.  Good minutes will help to protect board members against any misunderstanding, and will provide a consistent history of board policy.   Make sure that you communicate your decisions to other unit owners, with periodic meetings, notices or newsletters.
 
Protection of these assets is important to each owner in your association.  With these limited precautions, your board will be able to provide this protection, and help to safeguard the association from loss.

Joseph Rodgers, CPA is a partner and Director of Condominium Services at Carney, Roy and Gerrol, P.C. He is a frequent speaker on condominium tax and accounting topics and currently serves as Treasurer of CAI-CT and is a member of the Golf Committee.