The main reason for regularly reviewing condominium financial documents is first off and foremost to advert any financial mismanagement on the part of management company employees, condominium employees and board members in general. Frankly put, honest people don't mind others keeping things on the up and up, only those with nefarious motives are the first to complain about any kind of oversite or audits. Responsible competent board members should be at the vanguard of protecting community funds, as it is their fiduciary responsibility to see to it that industry standard financial practices and controls are adhered to. The following document should be reviewed by you and by individuals familiar with the management of condominiums. Not any old lawyer, accountant, or real estate agent will due. Get someone familiar with and experienced with condominiums!!!!!

Type of Documents to be Reviewed:

Balance Sheet
Comparative income and Expense Report
Account Receivable Aging Report
Bank Statement
General Ledger Detail Report
Reserve Studies
Any other reports generated by the accounting system your community utilizes

Lawsuits, Legal Fees, and Insurance Costs

The most important thing to look out for when purchasing or owning a condominium is wasteful reoccurring expenses that are higher than normal. Such as legal fees caused by the board actions that are litigious in nature or as the result of unlawful actions. Sometimes it is easy to pick legal battles with other people’s money.  Additionally, larger than normal legal expenses are a red flag for what might be the result of any number of issues that might impact your decision to buy or continue ownership. Also, high insurance cost might be a red flag due to past lawsuits by residents, fires, or vulnerability to natural disasters

Operating Expenses

Any expensive operating can be a red flag that should be dug deeper into and this is why someone with experience in management of condominium is best consulted with in this matter. Disproportionate expenses may be an indicator of ongoing structural defects that may impact your buying or selling decision. Such as: (Real World examples) aging cast iron sewer pipes in an old building that are rotting out continually, defective plastic water line mains, plywood roofing that rots prematurely, asphalt repairs, sidewalk repairs etc. Sometimes associations have received payments for defective materials and have elected to spend the funds in other areas and have forgone the necessary remedial repairs. Hence forth they have ongoing operating expenses that you will be paying for. There can be any number systematic structural issues in a community so do your homework and research anything questionable.

A good auditors report may also point to some of these obvious expenses and/or issues, but they too can be diplomatic in the use of their language and opinions in their reports.

Arrears

Look over the arrears accounts to see how many members are behind in paying in their condo fees, Your obviously don't want to have a lot of members behind in their payments. This is a bad reflection on the management of the condominium in general by both the board and the managers. Management needs to convey to the owners of the serve cost and penalties associated with nonpayment of fees. Additionally, Collection fees are costly and result in more profit for the attorneys than to the condo many times

Loans

Loans and their terms should be looked for in financial statements especially ones that don't have fixed term interest rates. Loans in general are liabilities against the value of your assets and should not be large to the relative to operations expense of your community

Reserve Studies

look for Reserve Studies, they are your best guild to what the future financial obligations of the condominium will be and then see how much funds are in the reserve accounts to fund they upgrades/ and or repairs. These are the big-ticket common area items that may be in need of repair in your community based on their remaining service life

• Elevators, Large common heating and cooling systems

• Wood Exteriors/ Exteriors with a substantial around of rotting wood trim

• Roofs, Metal chimneys, Doors, Windows, balconies

• Parking garages, Asphalt parking and roadways,

• Large concrete walking areas

• Pools, sewer pump stations

• Landscaping designs that incorporate wood that is rotting

• Large amounts of wooded common areas that need maintenance or removal

Cash Flow, Reserve Accounts, and Past Due Payables

The bottom line, no pun intended, comes down to is the association working with a reasonable and reliable good cash flow position on a yearly basis and are they putting away funds for necessary future repairs as needed. Most of the funds should be comings from unit member fees, and possibly from rental units and or commercial space owned by the association. Keep in mind, these funds can disrupted if the tenants decide to not renew. The association should at least a few months of working capital at hand to pay the association normal monthly bills. Of course, many bills are paid on a seasonal or yearly basis.   So, this rule of thumb has its limitations.  Looks for larger than normal accounts payable.  They usually are red flags to deeper issues to be explored. Also, no reserve accounts are bad news in general and lead to special assessment that you will be paying out of your pocket.  Another key item to look for is the interest rate that reserve accounts are earning.  Keeping them at top market rates takes vigilance on the part of the people for the financial affairs of your community.

Your (Condominium Experienced) lawyer, realtor, accountant, and home inspector should all be taking a look at the financial accounts of your association as if they are an owner and /or potential buyer.