1--Corporate Headquarters8200 NW 33rd Street, Suite 300 • Miami, FL 33122Phone: 305.476.9188 • Fax: 305.476.9187Toll Free 800.514.5770SW Florida Office3358 Woods Edge Cir, Ste. 102Bonita Springs, FL 34134Phone: 239.495.3428Fax: 239.495.6292Tampa Office2963 Gulf to Bay Blvd, Ste. 265Clearwater, FL 33759Phone: 813.448.3982Fax: 727.253.4949Orlando Office5401 South Kirkman Road, Suite 310Orlando, FL 32819Phone: 407.705.3236Fax: 407.203.7759New York Office75 Maiden Lane, Suite 500New York, NY 10038Phone: 212.596.7210Fax: 212.596.7211Ft. Lauderdale Office13790 NW 4th Street, Suite 107Ft. Lauderdale, FL 33325Phone: 954.933.5644Fax: 954.933.5645Bahamas OfficePO Box 024009Bimini, BahamasPhone: 305.476.9188Fax: 305.476.9187
- 2 -Dear Board Member,At the start of 2013, we experienced great optimism whenthe reported rate of unemployment was at 7.8% and homesales were at 8.5% for single family residences and 2% forcondominiums.The statistical data reflected the substantialdecrease we were witnessing in the number of homeownerswho were behind in their association fees and in the amountof money being spent on collection efforts by associationsas residences were being sold not only at an acceleratedrate but at an increased market value.Our optimism was dampened, though, by the increasedreporting of financial fraud occurring in associationsthroughout the state and the country. As a full servicemanagement company whom has worked diligently for nineyears to promote professionalism, transparency and anunrelenting pursuit of ethical behavior in our industry, wewere disheartened not only by the number of instances offraud reported by local print news, but by the number ofunpublicized cases that we learn about when we meet withcommunities to educate them on what capabilities andqualities to look for from a professional management firm.Although precautions can be effectively implemented toprevent fraud, Florida associations have lost an astonishing$847,448.00 between operating and reserve accounts in thepast eight months:• Volusia county HOA: $8,000.00 lost to fraud.• Sarasota county HOA: $7,448.00 lost to fraud.• St. Johns county Condo: $26,000.00 lost to fraud.• Polk county HOA: $18,832.95 lost to fraud.• Miami-Dade county Condo: $466,309.75 lost tofraud.• Lee county Condo: $290,000.00 lost to fraud.As a result of this, we have decided to focus on fraud andthe legal and financial ramifications for associations(including insurance coverage) in this edition of our quarterlynewsletter. We hope the ideas discussed within the articleswill prove to be valuable tools that you can use as a boardmember to protect your association.If you have any questions regarding any of the informationdiscussed in the newsletter, or you would like to learn moreabout KW PROPERTY MANAGEMENT & CONSULTINGplease contact us at (800) 514-5770.With warm regards,Kelly Ann Vickers, LCAMSenior Business Development Managerkvickers@kwpropertymanagement.com
- 3-Presidents Perspective— by Michael Hinman, Meridian Condos..............................................................................P 4-5Do You Know Where Your Associations Money Is?— by Ellen Hirsch de Haan, Esq. ...........................................................................................P 6-7Financial Transgressions — Lifting the Veil on Lies— by Percy Legendre, CPA....................................................................................................P 8-9Association Crime Insurance — Protecting the Liquid Assets— by Barry Scarr, Community Insurance and Risk Management Specialist................................P10The Language of Numbers — Learning to Read a Financial Statement— by KW PROPERTY MANAGEMENT & CONSULTING ..........................................................P11IN THIS ISSUE:KW PROPERTY MANAGEMENT & CONSULTING, as a professionalorganization dedicated to assisting its clients in achieving financial healthiness,is proud to announce that it was successful in its efforts to recoup over $38,000in erroneous billings from the previous management company for anassociation in North East Florida.Foiling Fraud
President’s Perspective—By Michael Hinman- 4 -2020VisionI don’t think I truly understood how big the housing bubblewas until 2005, when as a real estate reporter for a regionalbusiness newspaper, I wrote a story about an apartmentcomplex that had been converted into condominiums.A developer had purchased a complex in Tampa’sWestshore District, built in the 1960s, which the monthbefore saw tenants paying $650 a month. The developerpainted the buildings, added some landscaping and put innew appliances, and wanted to turn around and sell themfor $200,000 … each.I thought this was crazy, and while still trying to remainobjective, I had hoped that some of that would rub off intothe story. Instead, when the story went to press, I came intowork the next morning with more than a dozen voicemessages, asking what the phone number was becausethey wanted to buy them.When I bought my condo at Meridian Luxury Condominiumin 2007, I had really believed that while the housing marketwas still on the downturn, it was close to the bottom.Yeah, Iwas wrong. And now to say I’m upside down in my condowould simply be polite.I became president of the Meridian board in 2008, and ourboard had a very tough road ahead of us.The developer hadnot sold half the units, and those that were sold containedvery unhappy owners who had no idea how they were goingto get out of this investment.The next few years would be challenging – like it was inmany communities. Paying bills, keeping staff on board, andsomehow finding a way to ensure that our communities werelivable. A couple years ago, I finally stopped to take a breath,and looked around.What I realized is that while Meridian was far from the levelI wanted it to be, we were out of the woods. No longer didwe sweat the bills, hoping they could be paid. No longer didwe find the cheapest way to do something and hoped no onewould question it. No longer did we fear a call from acollector.The storm was over. And now it was time to rebuild. But howdo you do that? And what do you rebuild to? Do you recreatethe magic that made me buy here in the first place, or do wetry to accomplish something different, knowing that housingboom likely will not happen again anytime soon.
- 5 -I developed what would become known as the Vision 2020plan. It was first and foremost a capital improvement project,spread out over nearly a decade, that would be manageablenot just from a coordination perspective, but a costperspective. And while I felt that our assessments werecompetitive with other similar communities, I knew that wewould become even more attractive to buyers by working tolower monthly assessments.When Vision 2020 was first implemented, renters occupiedthe vast majority of the units. While I have nothing againstrenters (trust me, I miss my days as a renter), it’s tough tobuy into a community where the neighbors are, at best,transient.The housing market works in cycles, and while it wouldn’tbe a boom like 2005 and 2006, values would eventually startto return. But Meridian isn’t the only community with ownersholding on as long as they can, hoping for more value. Howdo we compete with these other communities when itbecomes a seller’s market again? What will Meridian havethat’s special that others won’t have?Meridian sat down and looked at what we really needed:building repairs (nearly $500,000 worth), extensive repairson part of our parking lot that is prone to potholes, andaesthetics – landscaping, new mailboxes, a nicer swimmingpool, even a sign greeting residents as they come home withimportant messages. We also felt it was time to try and cutthe expense of living here too.So Vision 2020 is actually the combination of two parts:Building a better community, but also building a much morecost-effective community.Yes, it requires investment. And we chose to do thatinvestment with the special assessment. Nearly everywhere,“special assessment” is the same as cursing. But atMeridian, we made it clear that this is a direct investment –and one that stakeholders can be assured will take place.If we were to just add money to the budget and say that we’regoing to spend that money on something like buildingrepairs, there is nothing specifically tying the board to spendthat money that way. Instead, with a simple vote, we couldjust spend that money on a new hot tub.Through special assessment, we have to not only say whatthe money is for, but we also have to make sure that themoney we raise only go to that project. So if we are raising$80,000 to replace our mailbox pavilion, we are only goingto spend that $80,000 on the mailbox pavilion. It gives youthe kind of guarantees you never really see in government,and it ensures that the leaders of the community will fulfilltheir promise.The second portion of this comes in reducing the overallbudget. Our goal is to decrease spending by 3.5 percenteach year. That’s a lot – tens of thousands of dollars. And ifyou already run a tight ship, there is not a lot of places youcan cut.But the best way to achieve budget reductions is to find waysto curb spending while you’re actually spending.That is whyeach June, our property manager comes to the Board withdetailed spending cuts based on the budget she’s beenprovided.These cannot be corners that were cut that affectsthe quality in the community, but instead, innovative ways tosave money.For example, we were spending nearly $1,500 on poolmaintenance each month. Yet, we could send our on-sitemaintenance person to a training class and make himcertified in pool maintenance for around $350. So instead ofspending $18,000 on pool maintenance in 2013, we’respending $350 – a savings of 98 percent.We also realized that using energy-efficient bulbs in commonlit areas can reduce the electric bill. That an audit of waterleakage in the community can reduce our overall utility bill.There are plenty of ideas out there for cost-cutting, and bypresenting it in June, we can then apply those types of costsavings to our upcoming budget.But what about our staff, who is doing all the work lookingfor ways to decrease expenses? Should they do it becausethey are told to, or should they do it because they have achance to benefit as well?Our staff is incentivized to find these savings because theirsavings translates to an automatic pay raise for them. Anysavings up to 5 percent is matched in terms of pay raise forthe entire staff.So if our staff reduces spending in that 12-month period by3.5 percent, which is our annual goal, they will see apayraise of 3.5 percent. And that doesn’t include anynormal pay increases they may get along the way.This is something they have control over. Save thecommunity money, and you will get a bonus, so to speak. It’ssaving thousands of dollars at the cost of hundreds ofdollars. And everyone is happy in the end – owners, theBoard, our staff.In the end, when we reach 2020, the goal is to have thecommunity dominated by people who both own and live intheir units, in a community that is both beautiful and secure,with a financial commitment to the common good that ismore than reasonable.It’s our vision of Meridian, and through our continued hardwork, we’ll make it happen.
- 6 -It’s 2013 — Do you know where your association’s money is?Ellen Hirsch de Haan, Esq.2013 marks eight years since the real estate bubble burst inwhich the loss of jobs and foreclosures of homes became anational epidemic. Finally, the economy seems on the brinkof recovery with the job market showing improvements, andthe amount of foreclosures by Associations and lendersslowing down. The boards of directors are now able to turntheir attention away from delinquencies and financialshortfalls, and back to maintenance, repair and improvementof the common properties. Unfortunately a new challengehas arisen - the sudden surge of thefts affecting communityassociations.The incidents being reported run the gamut from a fifteenyear tenured manager employed by the association whobegan stealing two years ago, an association treasurer witha gambling addiction compounded by a terminal illness whohad possession of an ATM card linked to the reserveaccounts, and a management company employee who usedassociation charge cards for personal purchases and to payher bills. Amounts stolen from associations in Florida haveexceeded a million dollars thus far.What are the legal impacts of theft of association funds onyou, as a director and an owner, and on the association as awhole?The Florida Business Judgment RuleThe corporate law provides that a director must act in goodfaith, with the best interests of the community as a wholeforemost in his mind, and with the advice of experts, whenappropriate; and doing so, he/she will have no personalliability for making a decision that a reasonable person insimilar circumstances, and with similar information, mightmake, even if the result of the decision is problematic for theassociation. But, are you protected if someone steals theassociations money?The Buck Stops HereThe board of directors is ultimately responsible for operatingthe community and the association, and each director has afiduciary duty to the association members. (Fiduciary dutyarises when you handle other peoples money.) Under theLaw, the board can delegate tasks to individual directors, amanaging agent, or a committee, etc.., but cannot avoid theconsequences if something goes wrong and the directors arenot paying enough attention. For example, fiduciary dutyrequires the treasurer of the association to keep track of thefinances and be familiar with the accounts even if thefinances are handled by a manager. Additionally, if thetreasurer is personally handling the day-to-day accounting,then the remaining directors have a duty to be informed aboutand familiar with the collection of assessments and state ofthe associations accounts as well.Who Signs The Checks?The board should have a written, formal check signing policythat should be part of the associations Official Records. Ifyour association is managed by an LCAM hired by theassociation or by a management company, does themanager have check- signing authority? Does a member ofthe board also have to sign a check? Does a board memberhave to review the invoices and approve payment of any bills?Do you want to provide that the manager will cut and signchecks for ordinary, recurring monthly budget expenses, butnot for reserve account expenditures? For self-managedassociations, how many signatures are required for eachcheck? Who approves invoices for payment? Thesequestions shouldbe considered andanswered by everyboard every year,and the policyshould be carefullyfollowed at alltimes even when itis a littleinconvenient to doso.Do Your HomeworkThe directors should receive a monthly financial reportincluding a check register for that month. As a director, it isyour fiduciary duty to review the reports and ask questions ifyou see something which looks odd or you dont understand(even if math and accounting are not your strong suit).You dont have to prepare the reports, but you do have toknow the gist of what is in them.Duty to InsureUnder the Law, and under the various governing documents,each board has an affirmative duty to insure the property forwhich maintenance and repair are its responsibility. Inaddition, condominium associations are required to carry afidelity bond covering all individuals who have access toassociation accounts, in an amount equal to the totalamounts available, including reserves, in any 30-day period.For cooperatives and homeowners associations, thegoverning ocuments may also require a fidelity bond bepurchased by the association.
- 7 -Even if there is no such language in the documents, everyassociation should have a fidelity bond in place, to protectthe association from theft of its funds. (Also, be sure youhave Directors and Officers Liability Insurance, to cover thedirectors if they are sued individually for breach of duty, incase of a theft of association funds.)If you hire a management company, be sure the companyhas fidelity bonding for its employees to protect theassociations funds (in addition to the associationsinsurance). Being able to make a claim under a fidelity bondhas saved a number of associations in the last three or fouryears enabling them to be reimbursed for money stolen aswell as some of the legal fees incurred by the association inpursuing the theft.Criminal ActUltimately, stealing association money is a crime, and theboard will have to consider whether to report a theft to thepolice for investigation and possible action. Be sure to checkwith your fidelity bond carrier to determine whether a policereport is required in order for the insurer to process yourclaim.Warning SignsBe alert to personal issues which impact your directors,manager, or volunteers who have access to theassociations funds. In a number of the cases I havepersonally seen, the thiefhad a catastrophic illness or there was a family member witha serious health issue. In other cases, gambling debts leadto pilfering of association funds.Luckily for one association, the gambler was good at it, andshe returned the money to the reserve accounts from herwinnings, from time to time. In the case of the Associationwhose Treasurer had a terminal illness the association wasleft with only about $1,000 missing that was covered by theirfidelity bond after the Treasurer succumbed to her illness.Be VigilantThere are potential legal consequences to directors for failingto take care of the associations money.Theft is often a crimeof opportunity. Let everyone know that you are watching theassociations finances, and then do so. Dont rely on anyoneelse to protect the associations money. As a director of yourassociation it is your responsibility. Do consult with theassociations legal, accounting and insurance professionalsfor a review of the associations procedures and potentialrisks, and both heed and adopt their suggestions for changesand best practices to protect your association funds.Ellen Hirsch de Haan of Becker & Poliakoff is the Managing Shareholder ofthe Firm’s Tampa Bay Office, where she focuses her practice in the area ofCommunity Association Law, representing condominium, cooperative,timeshare and homeowner associations. Ellen can be reached at (727)712-4000 or firstname.lastname@example.org
- 8 -Financial Transgressions — Lifting the Veil on LiesThe terms “embezzlement” and “fraud” are often usedinterchangeably to characterize a financial transgression,however; fraud is defined as a crime that involves cheatingsomebody, obtaining money or some other benefit bydeliberate deception, and embezzlement is defined as amisuse of entrusted money or property, and taking forpersonal use money or property that has been given on trustby others without their knowledge or permission. Simplystated, fraud is an acts or acts of deception perpetrated topromote personal gain, and embezzlement is fraudcommitted for the primary purpose of promoting financialgain.Do Fraud and/or Embezzlement Really Occur atAssociations?In the past nine years there have been substantial reports(and the prosecution) of fraudulent activities occurring atcommunity associations including the embezzlement ofoperating and reserve funds. The local news media hasreported on multiple cases including:• $200,000.00 stolen by the President of the Board ofDirectors in a condominium association in Davie, FL(November 2007).• $50,000.00 plus stolen by the President of the Board ofDirectors in a condominium association (August 2007).• $1,400,000 embezzled by four residents in aHallandale Beach condominium association through a kick-back scheme (May 2007).• $46,000.00 plus stolen by the President of the Board ofDirectors through ATM withdrawals made at the Hard RockCasino in Hollywood, FL (May 2010).• $1,000,000.00 plus embezzled from multiple Tampacommunity associations by a bookkeeper (February 2010).• $4,000,000.00 plus embezzled from multiple Port Charlottecommunity associations by a bookkeeper (April 2005).• $167,000.00 embezzled from a Jacksonville condominiumassociation by the manager (December 2009).When we speak to an association that has experienced fraudor embezzlement what we usually hear is, “We never thoughtthat they would do that to us.We trusted them.” In the twenty-eight years we have been providing associations withaccounting services and consulting we have not once heardanyone say, “You know what? When we hired that person wefelt confident they were going to steal from us. We aren’t theleast bit surprised!”How Does it Happen?The most common and costly type of fraud an associationcan experience is financial collusion. In a scenario such asthis the property manager and/or board members partnerwith a service provider (painter, landscaper, etc.) to stealfunds from the association through the method of falsebilling where the vendor produces an invoice to theassociation for $5,000.00, and the work performed, ifany, was worth $2,000. The manager signs off on theinvoice, and a board member signs the check for $5,000.00.The vendor then cashes the check, and splits the $3,000.00between the parties involved in the scheme.The next widely used scheme to steal money from anassociation involves the usage of a credit and/or bank debitcard, and pilfering from petty cash. Most associations makeit a point to have a credit card available to allow for the quickpurchase of every day or needed items such as paper towelsand hand soap for the pool restrooms or parts for the weedwhacker. However, it is far too easy these days for anindividual who is entrusted with the association credit card tomake purchases on behalf of the association for items thataren’t really needed that they then return for cash, or evenfor the individual to use the credit card to make personalpurchases or obtain cash advances.Petty cash is also a vehicle for theft, and it can be used inmuch the same way as a credit card. Unnecessarypurchases can be made to validate the expenditure of thepetty cash, and the items can be returned for cashreimbursement. Being that the initial purchase produced avalid expenditure receipt the association would never thinkanything of the expense.Additionally, fraud can occur through the falsification of payrollrecords. Typically an association will employ individualsdirectly or through a leasing arrangement, and theassociation can be exposed to employees reporting hoursthat were not actually worked including overtime hours thatare billed at time and a half and the submission ofreimbursable expenses such as mileage.Lastly, although a relatively new scheme, associations canbe defrauded through cash receipts not beingdeposited. When the real estate market turned in 2007,associations began having difficulties collecting all of theassessments owed by the membership, and the bad debtbegan mounting. There are individuals whom have figuredout how to collect these moneys from the owners throughpayment arrangements, but not deposit them into theassociation account. Sadly, it is coming to light that this samescheme is being used to divert rental income fromassociations.—By Percy Legendre, CPA
- 9-What is the Greatest Exposure for an Association?The greatest exposure to any association is the lack ofsegregation of duties as it relates to the financialrequirements of a community. It is widely reported that mostoccurrences of fraud and/or embezzlement occur incommunities that are self- managed, and the manager (or aboard member) is performing the operational and financialfunctions for the association. In this type of environment theindividual has the autonomy and ability to solicit bids forrequired services (financial collusion), purchase items onbehalf of the association using petty cash or an associationcredit card, report their own hours and mileagereimbursements without providing proof, and depositreceivables into the operating account on behalf of theassociation as well as reconcile the bank accounts. Thefailure to implement a system of checks and balances in anenvironment such as this can cost an association hundredsof thousands if not millions of dollars over a period of time.How Do We Protect Our Association?The first step to protecting your association is to be involvedas either a member of the Board of Directors or an interestedand invested owner, and to hire ethical, competent andprofessional service providers including a management firm.In order to protect its assets the vast majority of associationselect to hire a management company that segregates notonly the operational components from the financialcomponents of the association business, but who alsointernally segregates the various sub-components ofmanaging the financials including accounts payable,accounts receivable, and bank reconciliation.A well-established management company will provide addedsecurity to the association by requesting that the membersof the board of directors agree to (1) require payments ofassociation assessments be made to a lock boxprocessing center managed by the association’s bank, (2) allchecks for payables be signed by at least two board memberswhom have diligently reviewed the supporting documentationassociated with the payment, and (3) appointed members ofthe board of directors meet with a CPA from the managementfirm on a quarterly basis to review the association’s finances.Additional measures that can be taken include:• Hire vendors who are known in the industry and haveperformed similar, verifiable work at other associationswhen projects are being undertaken.• Require a scope of work for the projects being considered,and request no less than three sealed bids from unrelatedvendors. Before signing off on any agreement or contractmake sure the language is clear regarding change ordersthat could manifest later to increase the costs.• Confirm that the vendor that is awarded the project isproperly licensed, insured and bonded, and has nopersonal relationship with any board member orassociation employee.• Reflect in the minutes of the board meeting the bids thatwere received, and the vote on which one to accept.• Establish specific credit accounts such as Lowes or HomeDepot, and forego the usage of a general bank issuedcredit card for random purchases.• Discontinue the usage of petty cash, and insteadimplement a system in which an association employee isreimbursed for verifiable expenditures (receipts) throughthe issuing of a check.• Implement a policy where the only forms of paymentaccepted from an owner for association assessments are(1) checks mailed to the lock box with the correspondingpayment coupon, (2) credit card payments made on-linethrough the management company’s payment portal, or (3)a money order made out to the association.• Be vigilant.Percy Legendre is a Certified Public Accountant with over twenty eight years’experience working with community associations, and he is the ManagingPartner of Bashor & Legendre, LLL, CPAs. If you have any questions orwould like to discuss his services, please contact Percy at (813) 961-3220or by email email@example.com. To learn more about his firm pleasevisit their website www.blcpas.com
- 10 -Association Crime Insurance — Protecting the Liquid AssetsThe most controversial andmisunderstood, but necessaryaspect of any association budgetis the insurance policy. Moreoften than not the mere usageof the word “insurance” canevoke the rolling of eyes,groans and a litany ofcomplaints at any givenmoment, but the downside is that the lack of theappropriate insurancecoverage can inspire farmore detrimentalreactions and results on alarger scale. Mostassociations, whenreceiving bids for insurancepolicies, focus primarily onthe standard components ofthe Master Insurance Policyincluding the general liability andproperty coverage, and tend topurchase a Directors and Officers (D &O) policy to afford protection to the Boardof Directors in regards to the actions theymake take on behalf of the association as a whole.The aforementioned components, often classified as liabilityexposures, protect the entire membership in regards to theirinvestment within the community.Income exposures, which are becoming far more evident inthe state of Florida, are damages that result from financialmismanagement such as fraud, theft and embezzlement.Florida Statute 718.111 (11) (h) requires condominiumassociations to specifically carry fidelity bonding and crimeinsurance in order to protect the association.The statute reads:“The association shall maintain insuranceor fidelity bonding of all persons who control or disbursefunds of the association.The insurance policy or fidelity bondmust cover the maximum funds that will be in the custody ofthe association or its management agent at any one time. Asused in this paragraph, the term “persons who control ordisburse funds of the association” includes, but is not limitedto, those individuals authorized to sign checks on behalf ofthe association, and the president, secretary, and treasurerof the association.The association shall bear the cost of anysuch bonding.”Although the statute is precise in determining who is requiredto be covered by the fidelity bond, it does not provide anyclarity regarding the amount of coverage that should bepurchased. To ensure that the appropriate coverage is inplace to protect the association it is recommended that theformula to be used for the calculation includes three monthsof revenue (operating income) plus reserve funds roundedup. For example, if the “It Couldn’t Happen to Us”Condominium Association is comprised of one hundred tenunits that each pay three hundred dollars a month towardsthe operating costs, and the association is allocating fifteenpercent of the monthly income to the reserves then theformula would be $33,000.00 + $14,850.00 = $47,850.00 or$50,000.00 in coverage.The association’s “liquid assets” represent the single greatestrisk of loss at any given point in time being that multipleindividuals have access to them on a regular basis includingmembers of the Board of Directors, managing agents(management company and/or property manager) andassociation employees. In order to protect those funds whichare in the care, custody and control of the agent for theassociation, the bond (crime policy) must include aDesignated Agent Endorsement that specifically names thecontracted management company or agent. It is importantto note that a salaried manager, whom has no affiliation witha management company and is employed directly by theassociation, is covered as a defined employee under theassociation’s bond.In addition to having the fidelity bond in place to protect thefinancial assets of the association the crime policy shouldalso include coverage for electronic transfer fraud (EFTpayments), forgery or alteration, computer fraud and theft,and money orders and counterfeit money.Although the association’s insurance policies are typically the“big ticket item” on the annual budget the simple andunavoidable truth is that it is the one expense that canactually save the association money in the long run. If themembership of the “It Couldn’t Happen to Us” CondominiumAssociation hadn’t harangued the Board of Directors toreduce the insurance coverage at last year’s budgetworkshop they wouldn’t be losing sleep over the $223,000.00the book keeper diverted from the association through cashadvances on the credit cards opened in the association’sname.Barry Scarr, who is the principal agent and President of Scarr InsuranceGroup, has been assisting associations with their insurance needs since1984. He is a CIRMS (Community Insurance and Risk ManagementSpecialist), the past President and active board member of the SuncoastChapter of the Community Association Institute, the author of “How toUnderstand, Buy and Use Condominium Insurance,” and he was an LCAM(Licensed Community Association Manager) and CPM (Certified PropertyManager) for condominium associations for ten years.If you are interested in having Barry review your association’s insuranceneeds please contact him at (800) 299-5055 or by emailBScarr@scarrinsurance.com. To learn more about Scarr Insurance Groupvisit their website at www.scarrinsurance.com.“The expected never happens; it is the unexpected always.”— John Maynard Keynes, Economist (1883 – 1946)— Barry Scarr , Community Insurance and Risk Management Specialist
$3,500,000.00- 11-If you have any questions regarding the articles contained in thisnewsletter, or would like to participate in an invitation only educationalseminar regarding reading financial statements as steps that can beimplemented to prevent fraud, please contact Kelly Ann Vickers, LCAM,Senior Business Development Manager and Education Coordinator forKW Property Management and Consulting, LLC. Kelly Ann can bereached at (800) 514-5770 or firstname.lastname@example.org.KW PROPERTY MANAGEMENT & CONSULTING, a privately ownedmanagement and consulting firm, has established itself as an industryleader in the past nine years through its commitment to independenceand professionalism in the property management industry. With officesthroughout the state of Florida from Miami to Jacksonville, New York andthe Bahamas, KW PROPERTY MANAGEMENT & CONSULTINGemployees approximately 650 professionals to provide exceptionalservices to over 40,000 residents in the hi-rise, garden-style condos andtown homes, and homeowners communities managed by the company.To learn more about KW PROPERTY MANAGEMENT & CONSULTING visitwww.kwpropertymanagement.comTheoretically, the line between negligence and fraud isseparated by “intention”, and, as a member of the Board ofDirectors for your condominium or homeowner association,you can take steps to ensure that this line is never crossed.One of the most important steps that can be taken is to readand understand all financial documents that you receive fromyour manager and/or management company on a monthlybasis. The key components of most financial statements forassociations are the (1) balance sheet, (2) the incomestatement (income and expenses accounting for reserves),and (3) the bank reconciliation with all supportingdocumentation.The balance sheet is a snapshot of sorts in the respect thatit represents the current financial position of the associationat the date of the financial statements. It reflects the assets(funds in the bank account, accounts receivables, etc.) andliabilities (accounts payables, prepaid assessments, etc.) ofthe association.The first order of business when reviewing the balance sheetand understanding the current financial condition of theassociation is to focus on how much operating cash theassociation has in comparison to all of the current liabilitiesof the association.Current liabilities are usually comprised of accounts payable,accrued expenses and prepaid assessments. Theassociation is considered healthy when the operating cash issignificantly above these amounts. Please note, do notconsider cash specifically assigned to reserves. Also,consider the long term liabilities and the cash flows to servicethese liabilities. It is important that the budget considers thedebt service requirements for these liabilities.The other key component of the financial statements toreview closely is the income statement. Review all variancesfrom the budgeted expenses as compared to the actualexpenses. After obtaining an understanding of thesevariances, consider how all of the variances combined willaffect the association over the remaining portion of the year.This is important in conjunction with your review of the cashand current liabilities above.A financially healthy association will have sufficient funds tocover any projected variances and/or shortages for the entireyear. Replacement of any shortages incurred in the currentbudget can be replaced in the following year’s budget. Thiswill ensure that the current operating working funds willremain healthy going forward.The final key components to review in detail are the bankstatements and reconciliations. This will ensure that you arefamiliar with the entire cash flows of the property. All inflows(deposits) and all outflows are taken into account on thesedocuments. It is important that you have some basicunderstanding of all cash flows so that you understand whereand how funds are being spent and collected.The Language of Numbers — Learning to Read a Financial Statement— Statement by KW PROPERTY MANAGEMENT & CONSULTING
A Professional and Independent Approach to Managementkwpropertymanagement.comTampa Office2963 Gulf to Bay Blvd, Ste. 265Clearwater, FL 33759