 Good afternoon everybody and thank you for joining us for another episode of Kondo Insider. And I have with me Raylene Tenno and she's part of the Hawaii Council Education Group and she's going to be, and she's a co-host on Kondo Insider. Thanks for joining me on this program, Raylene. Oh, thanks for having me. Yeah, because we're talking about association accounting. Yeah. It's, you know, a subject that I think that's kind of near and dear to everybody who sits on a board, right? And the reason why we're talking about this is because recently there was a, you know, a news article about, you know, a recent, you know, theft of association funds. Want to talk about that? I mean, is this something that happens often or? Well, the article did name that there's been other occurrences that have made news, you know? And so if there's other occurrences, I'm sure it happens. I don't want to say quite often, but I'm sure it can happen. And I think that's where the board members have to exercise their due diligence to go through those financials. I know it's a boring part of it, and it could be a sleeper. And you're just looking at a bunch of numbers that could be just blurry, make you blurry-eyed. But every once in a while, once you start, to me, once you start going through them on a routine basis, you're going to be, it's going to be easier to spot something that looks weird or doesn't look right, that you should be entitled to ask questions about it without being any finger pointing or ramifications from the board. It's a legitimate question. To me, it's not any different than going through your bank statement or your credit card statement, and you see something there that pops up. It looks weird, you know? I do that every once in a while, and I found something that I couldn't have been getting charged, and I'm like, what is this for? And I go back, and it's something that should not have happened. And it was something that I didn't even realize I signed up for, you know? So to me, it's like running your household. You have to go through these financials. It's your money. You need to know that it's being, that the money's going out to where it needs to go out and not into somebody else's pocket that doesn't, it's not supposed to be going to. And, you know, this is the reason why I think board members get monthly, you know, it's usually about the time of their board meetings, right? They get these monthly financials. And, you know, some people, some of the board members don't even look at them, but, you know, why don't you, you know, point out why they should be looking at it and maybe point out, you know, and if you get a whole bunch of papers, I mean, you don't have to, you know, you might not have to look at every single one of them real closely, but there should be some things that you should be looking at, you know, every month. I take the one that has all the expenditures for the month and that they categorize it by whatever the category is. And I usually look at that first to see what was paid out for the month. And then it comes to the year to date part, because then I kind of, it can compare it to the budget, whether you're in a plus or minus with the budget. And I'm always having a highlighter, you know, or post it, because I'm putting a post on the page with a note to myself to ask questions about it. I religiously do that because sometimes I go through it, I see something, but I don't mark it, then I go back and try to find it and I can't find it. So I'm very religious about having a highlighter or post it to remind myself, you know, to ask questions about this. So to me, it's something important that so I start off with looking at the general ledger to see and then see how it compares to our budget, whether we're in line or not in line. And then even there, if they give you their outstanding checks, some will give you your check register, you know, to see where the checks have been paid out. And those are always good things to look at because you can see where the checks went out to. Right. And, you know, and so board members should get into the habit of looking at this before their meeting, because usually at the meeting, I mean, you've got your managing agent representative there and you've got your site manager, you know, who can answer questions. I mean, that's basically why the board members get this before the meeting, right? Correct. You're supposed to review those before the board being so that you can ask those, be prepared to ask questions regarding it. And, you know, we all have busy lives, you know. So I tell some people, I go, well, you know what, if you get into the religious of at least looking at it, documenting what you, what you, you know, have questions about or seems weird. Even if you do it after the meeting, at least come prepared to the next meeting, especially if you're meeting every month, so that you can ask those questions. And then if you see the next month, go through the next month, you see that same thing, then that starts to develop a pattern of oddity, you know, that would raise an eyebrow that, that, that it might not be that shouldn't be there or it's something odd. Right. And, and, you know, one of the things too that I think, you know, was kind of highlighted by this most recent event that was reported in the newspapers is that, you know, this kind of brings home the fact that, you know, you as an association or new as a board member, you want professional people who are handling your money, people that are bonded, who have insurance, because if something should go wrong and, you know, you knock wood, you know, and you hope that nothing goes wrong, but in the event something goes wrong, you want to make sure that the association funds are covered. And yes, it may cost you more money, you know, to hires of, you know, these professional companies, because they got to pay for insurance and, you know, they have expenses. But, you know, you don't want to hire, you know, you know, or do it in-house, so to speak, and have one of the board members be responsible, oh, so-and-so is an accountant or a bookkeeper. Why don't we have them, you know, report to us and take charge? Because those people, if something should go wrong, you can't, you know, go after their insurance, you know, to replace the money that's gone. Right. That's why the law requires that Fideli bond requirement. That's how they were, how this one condo was able to recover their money so quickly, you know, but yeah, because that's the Fideli bond requirement that's really, really important. Right. You don't want to be in a situation where you have to go and put a claim in against your Fideli bond. Yeah. And I think, you know, even though I think all associations have one, I mean, it's, you know, and, you know, it's one of those things that you never want to make a claim against because that means that somebody screwed up, right? And so, you know, you would much rather have professional property management and site managers because if something should go wrong, they have insurance and the recovery would come against, the claim would be made against their insurance companies rather than the associations. Yeah, and boards have to realize that, you know, this is a business, you know, and it's a household and it's a business just like, you know, some families, they run their household finances just like a business, you know, so it's the same concept just, you know, on a bigger scale, but you have to think of it that way. You have to protect your own finances and you're protecting it on behalf of all the owners in the building. Right. And, you know, I guess for a new person who's just coming onto the board, it's kind of daunting. I mean, I can remember when I first joined and I was getting all these financializing, oh my God, I mean, you know, what do these numbers mean? And, you know, so, you know, can you kind of give some tips to like a new board member as to what kind of numbers that, you know, they want to concentrate on when they look at these financial statements? I remember when I first started being on a board, I mean, I was like looking at it and I'm like, oh my God, this is really intense, you know, so I, for a little while I really didn't, I kind of put it aside, but then I really started to kind of get my feet wet and really did start taking the time to go through the financials and again, like I would do the highlighter or post-it notes so I could ask questions. And I have a little note for the other board members that are seasoned, you know, that they need to have a little bit of compassion for the new person coming on board asking questions. You know, I know sometimes some people that I've been in board members would have asked questions and, you know, I get kind of a, I want to say a snooty response back, you know, kind of, you know, it's their money too, so they have the right to ask questions. So, you know, they deserve a respectful answer at the same time. So, you know, just kind of be cognizant and think about it when you first started, you know, how you kind of have to get your eyes accustomed to reading these financials, you know, so, you know, that's the welcoming thing that our seasoned board members need to also do for our new board members because our new board members come in with a fresh new set of eyes and it could have been something on the financials that we all never even noticed before. And now you have somebody new that's noticing something that we're like, wow, we never noticed that before, you know, so you have to be cognizant and to me sometimes be a little bit more respectful of these new people coming in because they see things, they can see things on a different, you know, differently than what we've always known before. And, you know, when you sit on a board and you get these, you know, reports and you kind of trust the management company, you know, you kind of figure, okay, this is what they do, so, you know, they must have certain protocols in place, you know, to make sure that the information, you know, that is provided to the board is something that's useful and something that, you know, that they can use in the decision making. But, you know, is it, do you think that, you know, it's appropriate for the board to, you know, ask the management companies to use certain protocols when they, you know, do these reports? Oh, I certainly do. It's, and the board or the homeowner has to think of it as consumer protection. It's my money, it's just like when you ask your credit card company, what is this charge for? You know, I thought I was on a free annual plan kind of a thing, and now you're getting charged a plan. It's the same thing, you know, same concept. You have the right to ask the board or the management company, and the management company is obligated to respond respectfully to the owner because it is a valid question. It's their money, wanting to see where it's going and how it's being used. So to me, the managing agent also needs to, they also have to follow the accounting principles. I think it's called GAP, Generally Accepted Accounting Practices. They also have to follow those accounting principles as well. So, and one of the things that came to mind when I read that article is that some board members, some kind of, well, actually every kind of board should put into practice what is called a matching process. So there's kind of be like a two-way or three-way or four-way. So a two-way is you're going to match that invoice up with a document that supports that repair or whatever that invoice is for. You know, and this is, this is not the same as if you're doing utility bills, you know, because those are pretty standard. So you can't be, you're not going to issue a purchase order or a request for proposal for utilities necessarily, but if you have a repair project, you would match the invoice to that contract. And in that contract, it's going to show how the payments are supposed to be paid out because usually they're like, like in different intervals, you're not going to pay for that contract in full upfront, you're going to pay out portions at a time. So you're going to match it to what it says in the contract. And then a three-way is you're going to do that contract, then you're going to make sure that the goods have been delivered. And then you're going to confirm that it matches all that matches along with the invoice. And a four-way is you're going to do all of it plus you're going to verify that the work has been done. And to me, the four-way is the biggest thing that condos are missing in watching their money. I have seen where things have been paid, but the services haven't been rendered completely. The painting project, it was, you know, the contractor said they were dead and submitted the final invoice. And you know, I was in the repair business with my husband and I was like, okay, we're just going to leave like a 15% retention for incidentals, for punch list items, and not pay the final part until we get clearance that everything has been done and satisfied. There's no defects, you know, so they need to get into practice of that, protecting themselves. Because once you pay that invoice, it's hard to get that vendor to come back. They've already been paid in full. They have no incentive to come back and fix that little, you know, that Poco that's starting to appear under the paint. You know, so to me, boards need to start instituting a four-way practice of matching their payments to a work order or a contract. And how would they do that? Do they ask their managing agent to do that, or is it their site manager or, you know? I think it's a combination of all of them, because the site manager normally would be the on-site person to make sure that the contract is being executed. They meet with the vendors, the contractor, so they can see that, okay, I've got the contract in front of me, you know, they're supposed to be doing this, this, and this. So they know, and usually some, depending on the size of the contract, some will have stage one, two, three, whatever the stages are. So they're there to confirm that the work is being done. And it's just like a project manager, you know, when it's a big, huge project, they're going to, they're the ones that's going to verify if the work has been done according to that invoice that's been submitted, and they will approve it for payment. Right? So it's the same process as what a project manager would do on a big project. They're going to verify that the work is being done, even if you do a, like a single family home construction, when someone takes out a loan to do a construction, the monies are doled out, not doled out in full. There's an appraiser that's going to come in to verify that the work has been done up to a certain stage, and then they'll release the next stage of money, you know? So it protects the homeowner. So it's the same thing. You need to have a check some balances before you start paying things in full. And so you, so that means that the board members, because the board members, you know, aren't the ones who actually do this. So, you know, who do they, who's tasked, who should be tasked to do this? Site manager or the managing agent or who? I think it would be the site manager would be one crucial person, and it could be another board member, and it could be the board member on the, on the committee that organized the project. That could be for one. But they would have, and to me they would be, be the ones to kind of like sign off on whether it needs, that invoice needs to be paid and satisfied. Okay. And, you know, the AOAO board prepares and establishes annual budgets for their condos, including the amounts of the annual maintenance fees by select, and by selecting the management company that administers the collection of the maintenance and maintenance fee and disbursements. And how would, how would they work with the board in, you know, implementing these things? The board needs to set up a policies and procedures, and that's where they're going to have to get their legal counsel involved to set up this checks and balances and the property manager, and it should be included in the property management contract, that they need to do this, this, and this before any major invoices over a certain amount. David Vivi, who's on our ACCA board, he did a seminar on, on reserves and about counting and watching our money. I think that was in 2021. But then these were the steps he also said, you know, about protecting money, and of what managing agents and boards need to do. Because, and don't forget, the managing agent typically works at the direction of the board. So the board needs to put this into their managing agent contract. These are our steps. And the invoices really need to start coming to the site property versus the managing agent office, because those invoices just get sent straight to accounting, and there's no check there. It just gets put into process to be paid. So it needs to be sent to the site. I mean, I know one condo, nothing gets paid unless it's got their approval. And so she is very keen on watching those people's money. Because the admin people, they know nothing gets through her until she says yes, it can be paid. And what about encouraging managing agents to develop paperless procedures so that this would minimize the administrative expenses to the condominium? If there's some kind of an accounting feature where, you know, if they get the invoices, it can be sent directly to either the site manager or the board, and they can click to be paid or whatever it is. I mean, they can easily email them to be paid, you know. But then again, you've got some board members that are not tech savvy. So that's where they would have to, depending on the complexity of the board, the people involved, they would have to make sure that whoever's going to be in this approval process has the ability or at least can compensate for the inability to see these things electronically. And what about installing software programs that would allow site managers to interact with residents? In other words, there's a request for repair or maintenance or you're following up with somebody's not complying with their governing documents or making announcements to all members or taking polls or whatnot. What do you think about doing that? So like we saw the other day, this building links demo that we sat in on, I thought that was fabulous. And I know there's other software programs out there as well, and it depends on the size of your building because there is a cost to it. But it's also easy for a software developer to kind of create one, because the one that we have for our website, I mean, there's certain things that he does, I'm like, well, you can do there. He's like, yeah, it's easy. And it takes him like about a minute. So I know there's ways because we had talked about house rule violations, like how can we do this electronically so that some people who have a printed house rule violation slip that they got to fill out, then the resident manager sends that to the managing agent to send that to the homeowner and or the occupant of the unit. So that's, you know, you've got mailing times sometimes if they don't know how to do scan and email, but we had talked about doing it and it was possible to create a form that can be filled out for house rule violation. And then all you have to do can do is just email it to all the people, the parties involved. So it can be done. It's not, it's, you know, you just have to have the right person that can, that knows how to do that kind of stuff. And I may pick that back up, that conversation back up with that guy. And you know, the thing about it is, if you have, you know, if you have these forms or these procedures and you can do it online, you establish a record. I mean, you know, so that means it's paperless. And all you have to do, you can just go back and figure it, okay, we've done, we've, you know, given the notice and it's been 10 days. And so now we got to follow up and then you can put the follow up right, you know, right computer. Yep, that's your paper trial. So you can, it'll flag you on your calendar, you know, about certain things. It would be, it would be so much easier for life because everybody's busy, you know, I mean, the site managers, they've got even your resident managers, they've got a lot of things to do. They've got these repair issues, especially the surprises that pop up during the week or during the day that they have to drop everything and tend to, then it pushes everything back. So having something that is more electronic, that's more that can save time to me, those are, those are worth every, every money that you pay for, you know. And, you know, you and I, we sat on, we participated in a demonstration where there were these programs, right, for management. And what it does is it basically creates a file, right, for the interaction. I mean, if there is somebody who's not complying, you can send out, you know, the notice by email. And then the response would be by email. And the follow up would be by email. And then you can set it, you know, so that, you know, it can remind you that you have to do some follow up. And, you know, it establishes this record, you know, all, and it's all in one place. And it's all on, you know, you know, it's all on the computer. Yeah. And one of the good things that I like, the feature that I liked about that was, say you have an emergency water shut off. If those people, occupants of the building are registered into the system, they're going to get either a text or email alert. Hey, the water's being shut off at two o'clock. So because there's an emergency water shut off. And that person could be like, not even at work. And they're like, Oh, two o'clock, you know, so they can at least plan their plan the rest of their day, you know, maybe they don't want to come home immediately because I know the water's going to be shut off. Maybe we might go do something else. Just like with emergency stuff. If there's some kind of emergency in the building that the resident manager or whoever's in charge of it, the admin, can do a mass text or an email to everybody. So it's an awesome, you know, some of the programs out there for condos and communication, it is like awesome out there. And people have to remember that there's this kind of software that we're talking about. And then you have the other one that's town square. And town square is being more of a document portal versus a so not so much of a communication portal. Because I know my condo has been on town square for a while, but we don't see really any anything on there. The property manager don't use it that often. But having these other ones is awesome. Well, you know, and these programs that you talk about, I mean, the boards can use that so that they have oversight over what the management companies do or their site managers do. Right. Right. Yeah. Because even like the other one that we saw about the accounting part, that one was awesome. I really love that one. And it makes and you know what, when you think about Jane, it makes it easier to read the financials. Because you know, when you're looking at finance, you're just looking at numbers, this other software program, it can put it into like a pie chart to see where the money is, which is, which is makes easier to read. And also go Oh, wow, you know, versus just looking at a number. Charts and graphs pictorial stuff are easier to digest versus just looking at a number. Right. So what other, you know, what other tools, you know, are you aware of that are available to boards that would give them help them do oversight? Well, I think I think because of this article that came out to I think a lot of boards have to do some some serious deep thinking of setting up some really different protocols. And I think possibly changing some of their the softwares where they're going to get more immediate action versus waiting till like getting this big board packet a couple of weeks before the before their meeting, you know, maybe they and you know, being online is a lot easier than looking through documents now in today in today's world, you know. And I believe even some of the board packets are not even mailed or like emailed to everybody. And you know what, when you get a bunch of documents and then you got to print them at home, you know, a lot of people have, you know, the inkjet printers where those cartridges are very costly, you know, I know one of them cost like $50 apart, if not more. So your boards aren't going to print them. Individual board, they're just going to try to look on it, you know, online, which sometimes is harder to read versus a printed copy, you know. So that I think was one of the hindrance to is when they're emailed, some board members may not even open it up and read it because then they have to print it, which is more, you know, toward their expense. As far as you're suggesting that maybe, you know, these things be sent to the board members so that it makes it easier for them to, you know, to basically digest, especially the financials. Yeah, yeah. Yeah. And I and even if they switch off to a different software, a sister software that would complement their managing agent software, they can import them in just like some banks, you can download your checking account into like Quicken or QuickBooks or into it. And it comes into your own personal software and you can digest it all these different ways, you know. And people that use that have really been pretty savvy and it has helped them tremendously on their household expenditures and understanding where their money goes, you know. Like a lot of people don't even realize how much money they spend going out or how many times how much money they spend a month going to Starbucks, you know, until they actually digested into these little charts and graphs. Then they're like, wow, I need to stop going there, you know. So I mean, I remember a long time one guy goes, wow, I didn't realize I spent this much money going out to lunch. And so he stopped doing it for a month. And he goes, I can't believe how much money I saved. You know, it was several hundred dollars, you know. So he started like maybe only going out to lunch once a week, like at the end of the week. And that was his reward for surviving the week. It's amazing how we just have to, I think everybody has to change their thought of mine and use technology better. Right. And with technology, we're able to get these spreadsheets and reports that help the board members, you know, understand the finances that, you know, they got to deal with regarding their association. Right. Like the one demo we saw, it was a combination of even bringing in the reserves into the software. And so they can see how, you know, they're looking at their budget, they're looking at something that they need to look and compare it to their reserves and how if they change one thing on the reserves, they can see how it's going to impact them down the road. So they really can make those big decisions with the information in front of them, you know, and then they can print that information and say, okay, this is why we made the decision and present it to the, if the homeowners are complaining with, look, this is where it is. If we do this now, you know, it's going to impact later down the road or if we hold off on this repair, this is how it's going to affect in cost and cost is going to impact our maintenance fees. Right. So anyway, I think we've read up against our time and thank you so much, you know, for being my guest on this episode of Kondo Insider. And for, you know, our viewers out there, we ask you, you know, to tune in next week for another episode of Kondo Insider, the program about people who live and work in condominiums. So thank you so much for joining us this week.