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5 Things Those Statements May Not Tell You

Financial statements are only as good as the information that goes into them.  There’s the rub.  Take a bite into a freshly baked apple pie, and you can get a pretty good idea what went into it. But there’s no comparable way for owners to test the validity of what’s in those statements.  Anyway, they’re not designed to tell you everything – only certain things, and even those can be hard to ferret out depending on how much is disclosed.

Here are five items which may leave you with more questions than answers.

  • Did the board spend your money the best way it could? The statements won’t tell you: they’re quantitative, not qualitative. They’ll show the total dollar amount your building spent, but not the thought process that went into it. So you have no way of knowing whether the Board overpaid or underpaid, or shelled out more or less than the contract required, or properly signed off on bills, or got what it was supposed to get for your money.
  • Is the amount in cash reserves real? It should be, but sometimes it’s not. Know those Repo 105 transactions that Lehman used to bolster its balance sheet. I’ve been told of some buildings that give their finances a similar year-end lift by pouring cash available from their credit line into reserves each December, then removing it come January.  How do you tell — not easy
  • Does your building have enough money to pay for all the future major repairs and replacements that need to be done? Odds are you won’t find that answer either because the accounting rules say boards don’t have to tell you or even come up with a plan to figure out how much is needed or where it’s going to come from – all of which means you and your fellow residents likely will ultimately have to foot the bill.
  • Are your building’s accounts inflated with temporarily parked money?  This can happen if the board has collected assessments for some project but hasn’t yet spent the money. Sure, it’s better to put the cash in the bank than under the mattress. But unless the fact and amount of parked money is disclosed — which not all buildings do –- you may think your building is a lot richer than it really is, and could be in for a rude surprise when the money goes from park to drive, and the glass slipper turns into a pumpkin.
  • What happened to all that money you were assessed for? Don’t expect to get a complete answer here because money may be collected and/or spent over more than one year so you’ll only get a partial picture  in the statements for any one year. The statements should show how much you were assessed over the year. (See item: Special assessment – improvements or similar)   They should also show the amount spent. (Under Cash Flows from Investing, see: Amount for purchase of building improvements or similar.)  Only that amount could incude monies spent on other projects, not just the one you were assessed for, so it’s not necessarily comparing apples to apples.
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