Timely, comprehensive, and accurate financial reporting must be a priority for all businesses which have to make decisions related to income and expenses. A Condo Corporation , is in fact, a business operation and can therefore not operate unless all financial information is readily accessible and accurate. Reports provide the Condo Corporation with the information necessary to determine whether or not their current operation is viable and if there are problems, what corrections need to be made in the short term and in the long term to put the Condo Corporation back on course. Financial reports should also serve as a planning tool to assist the Condo Corporation in making decisions regarding the future maintenance and administrative operations.

The overall objective of a Condo Corporation is to provide a comfortable, positive living environment for all owners; to maintain the property and enhance the environment and the value of the property over time. In order for this scenario to be realistic, there must be sufficient income to meet the current and projected expenses of the property. Therefore, the financial information you generate must be able to assist you in:

  • monitoring the current financial condition of your property;
  • making operating decisions regarding the property over the next year.

In addition, in order to meet regulatory and legal requirements, a Condo Corporation may be required to file specified reports. In this case, the information you generate needs to be sufficient to satisfy reporting requirements.

At Condocare we use best in class accounting software in order to generate meaningful accounting data. Unlike some other property managers who use canned property management software, we know what goes into the system and what is ultimately generated.

 

sagequickbooks

 

 

INTERNAL CONTROLS

Internal Controls refers to the systems put in place to assure that money is recorded, accounted for and expended in accordance with the requirements of the Condo Corporation and relevant laws. Internal controls also reduce the likelihood that equipment and supplies will be misappropriated. Internal controls are not a separate system, but an integrated part of systems used to operate any business that is handling money, inventory and/or equipment. Without adequate internal controls, in the best case, innocent and costly errors can be made. In the worst case, individuals can mismanage and misspend millions of dollars.

Without internal controls, money can be stolen, service providers can cheat the Corporation and mistakes can be made which result in inaccurate financial information being provided to the Board and owners. In establishing an internal control system, the

Corporation should try to meet the following objectives:

  1. Safeguard against theft;
  2. Make certain that costs billed and paid for services are correct;
  3. Provide reliable financial information for budgeting and planning purposes; and,
  4. Meet legal obligations of the Corporation.

 

Examples of Common Internal Control Procedures

The limiting factors in the use of internal control procedures are likely to be cost and/or availability of staff. The following examples cost virtually nothing. In addition, they can be implemented with as few as two individuals with responsibility for financial management.

  • one person orders supplies and a second person receives and processes the invoice;
  • one or more Board members sign/co-sign checks;
  • one person writes checks and makes deposits and a second person reconciles the statement from the bank;
  • one person receives assessments and a second person maintains records and deposit receipts;
  • the Board authorizes a limit for spending and any amount over that must receive written approval;
  • pre-numbered forms are used;
  • financial files are locked;
  • current signature cards are kept on file at the bank;
  • receipts are issued for all cash received;
  • all transactions are recorded as they are executed;
  • deposits are made daily;
  • if a computer is used, access to financial accounting software is provided by password;
  • a log of capital equipment is maintained;
  • the approval process for purchases and invoices is in writing and clearly identifies who is authorized to approve and at what point in the process;
  • an inventory of supplies is maintained;
  • purchases can be made only with pre-numbered purchase order forms;
  • Board representative signs off on all financial reports; and,
  • an annual audit is conducted by an independent auditor.

An adequate system of internal controls will prevent misappropriation of cash and other resources and misstatement of available cash due to undetected errors (either intentional or unintentional). It should foster the safeguarding of the Condo Corporation’s assets, check the accuracy and reliability of accounting data, and promote an efficient financial management operation.

RECORD KEEPING

The professional discipline of Accounting encompasses an entire field of knowledge and expertise. Individuals attend University for several years to receive a degree in accounting

. Clearly, it is not possible nor is it necessary for Board Members or individual Condo owners to be accounting experts. What is beneficial is that Board Members have a sufficient understanding of the fundamental components of financial recordkeeping that they are capable of reviewing financial reports, identifying items which require explanation, asking the “right” questions and holding accountable the people to whom they have delegated the responsibility for financial recordkeeping.

We have previously discussed key elements of a financial management system. The following information provides additional details on the key components of the financial recordkeeping process.

Basically, financial recordkeeping for a Condo Corporation deals with the income and the expenses of the Corporation. In terms of income, the primary source of income will be the individual unit assessments payable by all unit owners in accordance with their beneficial interest in the property. Other sources of income may include rental income from commonly owned commercial or residential space, interest earned on

Corporation bank accounts, late fees collected from owners who are delinquent in their payment of assessment and any municipal subsidies. Typically, expenses will include payments for upkeep and maintenance of the property, communal services, professional fees and insurance.

There are two standard systems used for accounting for income and expenses: cash accounting and accrual accounting. It is important to understand the fundamental difference between the two. Cash accounting assumes that all money that is owed to the Condo is received and that all money owed gular cycle. If this is in fact the case, a financial report which shows cash received and disbursements made will provide an accurate snapshot of the financial condition of the Condo Corporation and cash accounting is an appropriate method to use.

However, because Condo Corporation budgets are not designed to create excess cash and because expenses during the course of the year may vary, even a Condo in good financial health may find itself “strapped” for cash from time to time. Similarly, even responsible owners may find themselves in financial difficulty and be late in paying their monthly assessment. Under this scenario in addition to recording receipts and disbursements, in order to present an accurate financial picture, it is necessary to account for invoices received and fees owed even if neither has been paid. The accrual accounting method reports on receipts and receivables (money owed to the Corporation) and disbursements and payables (invoices received but not paid). If a Condo Corporation typically has unpaid fees and/or unpaid bills, the accrual method must be used in order to accurately portray the financial condition of the Corporation.

  1. The Accounting Cycle
  2. Cash Receipts

As stated previously the most common source of income for a Condo

Corporation will be the monthly assessments from unit owners. Other possible sources may be rental income from commonly owned property, late fees from delinquent owners and municipal subsidies. The steps in handling cash receipts typically include the following:

  • invoicing;
  • collecting revenues;
  • issuing receipts for cash;
  • depositing cash receipts;
  • following up on delinquencies;
  • making correct account and journal entries.

 

Good management practices for receiving cash include:

  • all receipts are pre-numbered;
  • until deposited, cash receipts are kept in a secure place;
  • when possible cash receipts should be photocopied and stamped for deposit only;
  • the cash receipts should be recorded and reconciled by someone other

than the person collecting the cash; and,

  • cash receipts should be recorded and deposited in a timely manner.

 

 

 

  1. Cash Disbursements

The most likely categories of cash disbursements for Condos include payment for communal services, supplies, contractors, insurance and payroll.

The key steps in disbursements of funds are as follows:

  • receiving invoices and other claims for payment;
  • verifying the validity of the invoices;
  • issuing checks;
  • classifying and charging disbursements to proper accounts; and,
  • entering disbursements into journals.

Good management practices for disbursing funds include:

  • require purchase orders and purchase authorizations for expenditures;
  • verify that goods were received;
  • determine availability of funds to pay the invoice;
  • determine that invoice is not a duplicate;
  • check the terms and conditions of any vendor contract;
  • make all disbursements by check;
  • impose spending authorization limits;
  • require dual signatures on checks;
  • require that all employees prepare and sign time sheets to support payroll expenses; and,
  • set up procedure for payment of recurring expenses that may not provide invoices.

 

  1. Month End Closings

The typical time period for compiling and summarizing financial activity is a monthly cycle. Even when financial reports are not presented on a monthly basis, the cycle is used to reconcile current financial records. However we recommend that reports be prepared and presented to the Board each month so that they are fully informed about the financial condition of the Condo and can take any necessary corrective action before too much time has elapsed.

This is especially important with respect to collection information. In many cases, a Corporation will have at least a few owners who are delinquent in their Condo fees. It is much easier to deal with these delinquencies on a monthly basis, rather than quarterly when the amount they owe will have grown four times and will be more difficult for them to pay. Equally important is keeping track of money the Corporation owes for products and services. A monthly report will allow the Board to see an accurate and timely report of bills to be paid and could result in significant savings by avoiding unnecessary interest fees and penalties. Steps involved in monthly closings are:

 

  • summarize all journal entries;
  • post journal entries to a general ledger;
  • run a trial balance;
  • reconcile cash balance to bank statements;
  • prepare monthly summary of revenue and expenses;
  • prepare reporting comparing actual income and expenses to budgeted figures;

 

  1. Year End Closings

The accounting activity that occurs at year end is similar to that which occurs each month. This accounting is usually done or reviewed by the external auditor hired to prepare the Annual Financial Statement.

  1. Year End Financial Statement

The year end financial statement will be prepared by the Auditing Committee or by an outside auditor. Using the same closing procedures as occur at the end of each month, the year end statement will include:

  • a statement of income and expenses for the year;
  • a balance sheet;
  • a statement of changes in operating position; and,
  • comments on accounting procedures and internal controls (if prepared byMan outside auditor).

 

 

  1. Reporting

Recordkeeping is not a goal unto itself. Rather it is intended to provide information about the Condo Corporation to the Board, individual owners and any outside entities which have a financial stake in the Condo property (for example, a lender who is providing funds for capital improvements or a municipality which is providing a subsidy). It is in effect a management tool which will assist in determining priorities for the maintenance of the physical plant and determining how much income is necessary to provide adequate services to all owners. The basic reports which should be prepared on a monthly basis are listed below with a brief description of their purposes:

 

  1. Statement of Receipts

 

This report provides information about all the monies received during the month, sorted by category. Categories may include assessments, late fees, rental income (if applicable) and interest income. It informs the Board of how much money is flowing into the Condo Corporation in general and is incorporated as part of a budget comparison report.

  1. Statement of Receivables

This report details information about any money owed to the Corporation which has not been paid. Typically, this money represents delinquent assessments.

This information is very important so that the Board knows who is not paying on time and can follow-up to make certain that fees are paid. This statement may include an “aging report” which lists unpaid fees and other monies by date.

Monies that are overdue by more than thirty days require more severe action than those which are only overdue a short time.

Without this information, it is difficult to implement a collection policy.

  1. Disbursements

This report lists all monies paid out during the course of the reporting period.

The name of the payee, a brief description of the services, the amount and date paid are all included. This report provides detail to the Board of payments made.

  1. Accounts Payable

This is a listing of all invoices received during the month which are unpaid at the end of the monthly reporting period. The listing includes the name of the vendor, a brief description of services, the amount and due date. It is important for the

Board to be aware of unpaid bills in order to understand their total financial obligations at a point in time.

  1. Bank Statement and Reconciliation

Bank usually send a statement of all transactions each month.

This statement is reconciled to the cash balances recorded by the Corporation.

By providing the Board a copy of the bank’s statement and the report reconciling to the accounting records, the Board can be assured that the cash is being accurately accounted for and that no misappropriation of funds has occurred.

  1. Profit & Loss Statement (Budget versus Actuals)

 

In many ways, this report is the most important financial management tool. The report is in effect a statement which compares actual revenue and expenses to those projected in several ways. It compares current month revenue and expenses to monthly projections. It compares year-to-date revenue and expenses to year-to-date projections and it itemizes the annual budget projections along with the unexpended budget balance. Careful review of this statement serves several important purposes:

Helps to determine whether or not revenue estimates are accurate, and in which category revenue may have been over or underestimated;

Provides a concise picture of expenditures and how they compare in total and by category to original estimates;

By reviewing monthly, year-to-date and annual budget information provides insight into whether variances are temporary or permanent.

By carefully reviewing the information in this report, the Board can decide whether or not action must be taken to reduce expenses or increase revenue at any point in time before a crisis occurs.