Condo owners, directors and even condominium managers may be surprised when first learning of problems in their community. They can be in denial about red flags that may have been evident, sometimes for years, before financial losses become extreme.
One of the greatest tools available for detecting problems in condo communities is learning to recognize early warning signs. Any of the following signs suggest the need for more detail to uncover potential problems.
Reserve Fund Studies
- Different reserve fund studies by different engineering firms within a three year period.
- Multiple reserve fund studies covering the same period showing large variances.
Property Management Company
- Changes in property management company or condominium manager.
- Frequent changes in manager or management company can be an indicator of internal problems with the condo board.
- Infrequent condo board meetings may signify nobody providing adequate oversight over expenditures and bank balances. E-mail and verbal decisions are not a replacement for meetings – they fail to provide a trail of decisions that can be followed.
- Minutes lacking detail about major decisions. This could signify one person making decisions without discussion and/or an inactive condo board.
- Large unexplained variances in financial statements.
- Old accounts receivable and payable.
- Multiple structural problems relating to major systems – heat, air conditioning, water, HVAC, garage. Multiple failures in major systems over a short period of time can signify inattention to regular maintenance, inadequate maintenance or lack of funds to undertake necessary maintenance.
Major Service Contracts
Contracts for management services, security and cleaning services are some of the higher expenditures in a condo budget. Look for the following signs of trouble:
- Contracts awarded shortly after a new condo board has taken over.
- Contracts awarded to businesses not typically dealt with.
- Sub-standard work by a long-trusted service provider – may signify someone internally has been benefitting.
- Electricity cost higher over a 12 month period than would otherwise be the case from a primary provider such as Toronto Hydro.
- Gas rates significantly higher than those posted by Enbridge at the time a contract was entered into without reasonable explanation.
- Gas rates significantly higher than those posted by Enbridge during the life of a contract without a corresponding increase in Enbridge rates or reasonable explanation.
- Gas rates significantly higher than those of similar contracts entered into during the same period and with similar terms.
- Changes to the auditor particularly when occurring at the same time as a new property management company, condominium manager or condo board.
- Auditor without a history working with condo corporations.
- Lack of a manual documenting roles and responsibilities – suggests an informal structure carrying on without recognition of historical experiences and best practices.
- Non-existent or infrequent resident communication, or communication lacking in substance. Failure to effectively communicate can be an indication of internal problems being hidden.
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