Examine the statements

The board includes the previous years' audited financial statements with the AGM information package. The owners have the opportunity to review the actuals against the budget so they can ask the auditor, and the treasurer, informed questions at the meeting.

There is only one problem. The owners don't know how to read the statements so they cannot ask informed questions.

A look at the statements
Two members of the board of directors should have signed them. (I have seen financial statements where there was only one signature and many where no one had signed them.)

The front page is an introduction on what the financial statements contain and whether or not the auditor is giving an unqualified opinion.

The financial statements contain tables listing the financial information comparing the actuals to the budget and should include the prior year's actuals.

The back pages contain notes giving extra information about the financial statements. The notes can be very difficult or impossible to understand for anyone who has not had any accounting training or familiarization and may not be that easy for most who have.

Read through the financial statements and compare the current year with the previous years. Compare the actuals in the financial statements to the budget. They should be close.

Look at all the figures and read the front pages and the Notes very carefully.

If in the first paragraph, the auditor states that he rendered an opinion on the financial statements not on the accounting records, he may be trying to give the readers a message.

Questionable entries
Look for questionable entries. As an example, for two years in a row, the guest suites showed zero income while the expenses showed a combined $2,700 spent on Guest Suite cleaning. Why was so much money spent cleaning guest suites when they generated no income?

Anything missing?
I also saw five-years worth of financial statements where the only sources of income were common element fees and interest. The rental income for the party and meeting rooms were not recorded in the financial statements so I suspect that someone pocketed them.

Income
Income consists of common element fees, interest, the renting of amenities,  parking spots, lockers and may include special assessments and/or loans.

Receivables
Listed as Assets, the “Common Element Fees Receivables” or sometimes just  "Receivables" are monthly maintenance fees and charge backs that are in arrears. I have seen one condo's financial statements where 23% of the condo fees were in arrears. (The next year it went down to about 15%.) Six to ten percent of the fees being in arrears is not uncommon.

Expenses
Utilities
At the AGM, ask the auditor if the corporation is paying all of its monthly utility bills on time when they are due and if the corporation has been hit with late fees or missed out on any discounts for not paying the utilities on time.

The utilities are a huge part of the operating costs and so if the utilities are being paid on time, then most likely, all the bills are being paid on time.

Operating fund deficits
General fund deficits can run as high as 20% of the condo’s gross annual income. It does not sound possible but it has happened. Interest charges on loans can eat up to 30% or more of a condo’s expenses. Some condos spend $24,000 a year on utility late payments and missed discounts.

There are two listings at the bottom of the Operating Funds. Here is an example of a corporation who is either spending too much or is not collecting sufficient fees.

Surplus/Deficiency for the year	$  -38,504	expenses over income
Fund balance	$-174,554	total operating deficit

Reserve Funds
The reserve funds is a condo's long-term savings account. It is designed to save up money to pay for expensive repairs and replacements of major components such as:

•	underground parking garage repairs.
•	water penetration through the building envelope. (Water getting in through the exterior walls.) This can cause bricks to fall off the exterior walls.
•	replacing windows.
•	repairing balconies.
•	replacing water pipes (risers) that are having pin holes.
•	boilers and air conditioning units (chillers).
•	leaking roof.

A lot of condos do not collect sufficient money to fund the reserves so as the building ages, the owners face expensive special assessments and loans to pay for the repairs.

Underfunded reserves
Look carefully for an underfunded reserve fund. This is a serious issue as someday down the road, the condo will be hit with huge special assessments or it will have to take out loans to pay for major repairs or replacements.

I have seen a Reserve Fund balance start the year at a deficit of ($647,165) and with the help of a special assessment ended the year at $499,898. Looked good on paper but the corporation needed about $14 million in repairs.

Shared facilities
If your condo corporation has shared facilities with other condo buildings, or other corporations, then the financial statements for the shared facilities need to be included in your AGM package.

Shared facilities needs its own budget, operating and reserve funds and audited financial statements.

I have been to AGMs where the owners have never seen any financial records for the shared facilities.

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