Monday, April 23, 2012

The Role of the President/ Vice President Forum Session

Wes Herman, President of The Woods Coffee, a chain of fine coffee shops in Whatcom County, spoke to our session sharing his thoughts about leading a business.

He spoke regarding the requirement that a leader must have full command of the business rules and understand the competition in ways to make a business stand out and become memorable. One key trait for him, his business leaders and employees is the notion of being in service. (This trait is an excellent tip for board leaders.)

Wes discussed becoming an integral part of the physical community as he described the development of their Boulevard Park location. Key here was his ability to envision what was possible with the site. (Finding ways for common ownership communities to support and fit into the larger physical community is also a key tip for board leaders.)

Wes spoke about budgeting projects according to funds available and told stories about demonstrating trustworthiness to his investors as a way to encourage additional investments. (Being trustworthy with owners' monies -- assessments, special assessments, insurance payouts, settlement awards, etc., and how they are spent, is key for all board work.)

Being a natural visionary and innate entrepreneur, Wes discussed the requirement that leaders take the time to 'take the long view'. He mentioned that early on in the development of The Woods Coffee organization, his mantra boiled down to '12in10' -- the goal to open 12 locations in 10 years. Keeping the long view top of mind helped Wes make decisions all along so that recently, The Woods Coffee was able to celebrate its 10-year anniversary with 12 open locations.

Finally, Wes admitted that it is lonely at the top. Leaders make decisions that not everyone agrees with, but because of the leader's perspective, these decisions must be made, and some of them are hard. Knowing where to look for others in the same position, where to go for peer relationships, whom to trust with confidential conversations during the tough times: these are all critical for leaders.

We are deeply indebted to Wes for his comments and his willingness to share his well-earned leadership skills with us.

The Role of the Treasurer Forum Session

With Huge Thanks to Cathy Kuhn from the CPA firm Cagianut & Company, this session covered this role in extensive detail.

Cathy's session proved informative and entertaining, and she's supplied links to her session handouts

As well, their Web site is rich with details for treasurers and others involved in the financial business of common interest communities. Their topics cover taxes, reserves, critical issues and more.

Comprehensive Tasks: The Role of The President/ Vice President

The Role of the President
Community association presidents are required to fulfill many roles, but the primary roles are leader and manager. Different situations will determine which role the association president assumes. Sometimes the president must set aside other roles, such as neighbor or friend, to accomplish a task or make a decision.

Association presidents gain their authority to lead a community association from state law -- generally called the Common Interest Ownership Act. The president should have a basic understanding of the law pertaining to community associations, as well as the association’s governing documents—the declaration (also called Covenants, Conditions, and Restrictions—CC&Rs), bylaws (which address the association’s structure, the board, the officers, definition of a quorum, ability to enter into contracts, etc.), and the rules and regulations (the operational and behavioral laws that apply to association residents). Therefore, presidents must perceive the association as both a community and a business, as well as operate on the democratic principles of government.

T H E   R O L E   O F   T H E   P R E S I D E N T  TO  OV E R S E E   O P E R AT I O N S
Association presidents must adhere to budgets, formulate and enforce rules and policies, conduct meetings, prepare agendas, and work with committees.

S P E A K   F O R   T H E   B O A R D   A N D   A S S O C I AT I O N
The president is the official spokesperson for the board -- to association members, the community manager (or management company), vendors, the press, and the greater community.

S E E K   K N O W L E D G E
Learning how to be president of a community association generally comes from on-the-job training. However, educational resources for association volunteers are available in books, seminars, periodicals, and networking offered by groups that serve common-interest communities, such as Community Associations Institute and its chapters.

W O R K   W I T H   V O L U N T E E R S
The president is the leader of the board, a body that typically includes:
** The vice president -- who substitutes for the president in his or her absence
** The secretary -- the official recorder of the association’s activities 
** The treasurer -- the chief financial officer of the association 

It’s in the president’s best interest to encourage the officers’ participation in association affairs and to develop their skills as team members. The president should also attempt to identify and train potential association leaders, encourage them to join the board, and orient them to their new responsibilities. 

T H E   R O L E   O F   T H E   P R E S I D E N T  T O  W O R K   W I T H   P R O F E S S I O N A L S
Many associations employ either a community management company or a professional manager who directs association operations based on policy set by the board. The president is theliaison between the manager and the association. Seeking the services of an attorney, architect, or insurance professional is in the best interests of the association. Experts provide information and expertise that board members don’t normally have. For example:
** Reviewing legal contracts requires advice from an attorney.
** Managing reserve funds requires guidance from an accountant or investment advisor.

P R O T E C T   T H E   A S S E T S
Board members (and, in particular, the president and treasurer) have a fiduciary obligation to protect the community association by:
** Preparing and adhering to an association budget (with the assistance of the professional manager) that reflects the values and wishes of the members. 
** Adequately funding reserve accounts and educating homeowners about the value and purpose of a reserve fund.
** Collecting fees from homeowners.
** Seeking the advice of a certified insurance specialist and protecting the association with appropriate levels of insurance coverage.

The position of association president is not for everyone, but fortunately every president has a board from which he or she can draw support. As long as the members recognize theimportance of the community that unifies them, the role of president can be very satisfying.!

T H E   R O L E   O F   T H E   P R E S I D E N T

Working cooperatively with the board is essential to the success of the association. Heavy-handed or independent action by a president can put the entire association at risk. 

Presidents must educate themselves on the nature and scope of their obligations. Well intentioned but uninformed actions by a president can threaten a community’s economic and social stability.

The president must adhere to and enforce rules. Arbitrary or inconsistent application of rules weakens the association’s ability to enforce them. 

The president must see that the association’s insurance is adequate and appropriate. Federal and secondary mortgage agencies will not fund mortgages in the community otherwise, and this will affect property values.

Comprehensive Tasks: The Role of The Treasurer

 Role of the Treasurer
The association treasurer is responsible for maintaining the finances and ensuring the financial stability of the association. He or she is the financial voice of the board and liaison to auditors, CPAs, brokers, agents, and bankers. This includes a number of duties and responsibilities.

P R E PA R E   T H E   B U D G E T
The most important responsibility the treasurer has is preparing the annual operating budget.

M A I N TA I N   A S S O C I AT I O N   A C C O U N T S
The association’s documents and bylaws specify a number of financial responsibilities that the treasurer must oversee. These may include: 
** Maintaining adequate insurance coverage
** Keeping financial records
** Investing association funds
** Collecting assessments and delinquencies
** Reserving funds for future needs
** Filing income tax returns

UN D E R S TA N D   B A S I C   F I N A N C I A L   S TAT E M E N T S
The treasurer must understand at least the basic components of the financial statement:
** Assets
** Liabilities
** Members’ equity: reserves and operating fund balance

In addition, it would be advantageous to the association if the treasurer also had an understanding of the other components of the financial statement such as:
** Initial working capital
** Special project funds
** Income statement
** Statement of cash flow

R E P O RT   T O   T H E   B O A R D
The treasurer should report at regular board meetings on the state of the association’s finances based on the following information, which may be maintained and provided by the manager or finance committee:
** Balance sheet
** Statement of income
** Cash receipts and cash disbursements activity
** Unit owner balances
** General ledger activity and journal entries
** Schedule of accounts payable
** Bank statements and bank reconciliations

I M P L E M E N T   A   R E S E R V E   P R O G R A M
Reserves are a primary responsibility of the treasurer and the board of directors. The treasurer must:
** Conduct a reserve study.
** Update the reserve study periodically.
** Develop and implement a reserve funding schedule.
** Fund the reserve accounts appropriately.

S E L E C T   A   C PA   A N D   C O N D U C T   A N   A U D I T
Ensuring that the association is working with a qualified certified public accountant (CPA) is one of the treasurer’s important duties. CPAs with community association experience are better equipped to provide the expertise you need. The treasurer should work with the CPA to perform an annual audit—a very important document for a community association, the management company, and the board. Even if your association uses the services of a CPA, or if your treasurer is a CPA, all board members—especially in self-managed associations—should have a basic understanding of community association finances.

In smaller, self-managed communities, the treasurer’s duties may include bookkeeping.

F I N A N C I A L   L I A I S O N
The treasurer is the liaison between the association board and finance committee, its subcommittees, and between the board and the members on financial matters. In addition, the treasurer is the liaison to reserve study engineers, bankers, CPAs, insurance agents, investment brokers, and auditors.

M A I N TA I N   R E C O R D S
The treasurer should make sure that important financial records are safely maintained for an appropriate time.

T H E   R O L E   O F   T H E   T R E A S U R E R
*Diverting association assets from their intended use or purpose is a very real possibility in any community association. It’s important that treasurers use internal controls to prevent the misuse of association funds.
*Safety and liquidity of association assets are essential to the community association. It’s important for treasurers to know where and how to invest homeowner’s funds to ensure their protection.
*Treasurers must decide whether to file the association’s income tax returns under Internal Revenue Service Code Sections 528 or 277. It’s important to make the right decision—the wrong one can cost the association substantial penalties.
*There are numerous important considerations when developing a community association operating budget. It’s important to avoid some and include others to maintainthe financial strength of the community.
*Check your state’s laws for specific provisions regarding audits, financial statements, delivery, etc.

Comprehensive Tasks: The Role of the Secretary

The Role of the Secretary
The association secretary is responsible for preserving the association’s history, maintaining its records, and protecting it from liability. The secretary should be efficient, well organized, and have a commitment to the future of the association. Associations with a professional manager can ask the manager to perform some of thesecretarial tasks. 

R E C O R D   M I N U T E S   F O R   A L L   A S S O C I AT I O N   M E E T I N G S
** Board meetings
** Special meetings
** Annual meetings
** Committee meetings

G U I D E L I N E S   F O R   R E C O R D I N G   M I N U T E S
** Record the association’s actions and record why they were taken.
** Preserve board members’ voting records.
** State the authority by which directors take a certain action and cite the documents granting that authority.

T H E   R O L E   O F   T H E   S E C R E TA RY
** Record all matters brought before the board, whether adopted, dismissed without discussion or vote, rejected, deferred, tabled, or simply presented as information.
** Remember that the association’s minutes are official records and admissible as evidence in a court of law.

U S E   S TA N D A R D   L A N G U A G E   F O R   R E C U R R I N G   F U N C T I O N S
Certain functions occur frequently in all meetings. Recording these will be easier if the secretary develops standard language to cover functions such as:
** Call to order by the presiding officer
** Proof of meeting notice or waiver of meeting notice
** Presence or lack of a quorum
** Reading and approval of the previous meeting minutes
** Reading and acceptance of various reports
** Unfinished business
** New business
** Adjournment

A N N O U N C E   M E E T I N G S   A N D   P R E PA R E   A G E N D A S
Notifying board members and association members of meetings is required by law. How and when notice is given is typically stated in the association’s governing documents. Agendas are essential to the success not only of the meeting, but of the association as well.

M A I N TA I N   A S S O C I AT I O N   R E C O R D S
** Store and retrieve association documents as needed.
** Devise an effective filing system, and keep files safe and accessible.
** Identify and categorize all current and stored records.

T H E   R O L E   O F   T H E   S E C R E TA RY 
** Prepare and maintain a retention schedule for document disposal.

W I T N E S S   A N D   V E R I F Y   S I G N AT U R E S
Many associations have policies to safeguard assets that require two signatures on checks or a witness to verify signatures. Generally this responsibility falls to the secretary.

M A I N TA I N   L I S T S
The secretary is responsible for maintaining lists of all association board and committee members, officers, and members, their current mailing address, and voting percentages.

V E R I F Y   P R O X I E S
The secretary accepts and verifies proxies for annual or special membership meetings, and ensures that proxies and ballots are kept in the association’s records. 

F I L E   F O R M S   W I T H   S TAT E   A G E N C I E S
The secretary is responsible for filing certain forms with state agencies. These might include employment forms, incorporation documents, and other official records of theassociation.

M A N A G E   C O R R E S P O N D E N C E
** Route correspondence to appropriate association representatives—manager, office, board member, committee chair, etc.
** Ensure that tone, form, and spelling of all association correspondence reflect positively on the association.

T H E   R O L E   O F   T H E   S E C R E TA RY
*How and when you give notice of a meeting has a direct impact on whether the business conducted at the meeting is legal and binding. 
*It’s important to do it right. Not all association documents are public records. It’s important to know which documents must remain confidential and which must be available to members of the association and others.
*Failing to keep the membership mailing list accurate and current has legal ramifications. It’s important to know why and what to do.

The Role of the Secretary

Our first meeting in 2012 was heavily attended with more than 40 people interested to learn more about The Role of the Secretary. We're grateful to Scot Swanson, Bellingham association attorney for his useful and thoughtful comments.

In associations -- which are usually some type of corporation (or may be unincorporated) -- a secretary is a board position with separate responsibilities, different from other board members' responsibilities, but just what are they?

The Washington State law for associations isn't clear, nor are many governing documents clear about what these duties and responsibilities are. As a result, we can look to the state corporate laws to define the secretary's role.

Essentially the role of board secretaries covers paperwork, based on recording and keeping minutes, corresponding the board's communications among board members and to the membership, and finally filing, storing and retrieving the association's documents and records. Often association managers support secretaries in many of these duties, and each association must determine the efficacy of delegating these tasks or performing them in-house.

(A regular review of this checklist can help spot duplicate efforts and holes in these processes.)

Since this may be the most visible role, it's up to each secretary to fully understand what's required to be documented in meeting minutes, and who can read them, and when. Board meeting minutes document the actions of the board taken in their position of power, based on being elected by people (owners) who trust the board members. (This is a different scenario from publishing a newsletter about the goings and comings within the community.)

Board meeting minutes begin with an agenda. The secretary works with the president to formalize the agenda, which the secretary publishes to the board and to the membership within the proscribed time period, based on the type of board meeting being called. Your governing documents are specific about the length of time and type of notice required for each kind of board meeting.

Finalizing the drafts, sending them for review and suggested edits by board members, and publishing them in draft or unapproved form all take place soon after the board meeting. When board meeting minutes are finally approved -- usually at the next board meeting -- they are published as 'approved' or final minutes and become the permanent, legal record of the actions taken by the board on behalf of the corporation and its members.

You can read more in this booklet, published by Communications Association Institute, The Board Secretary: Roles and Responsibilities in Community Associations.

A few caveats about board meeting minutes:
  • Less is more: beware of too much detail
  • Recording meetings is not a good idea, since these recordings can be subpoenaed, and transcription can be expensive
  • Minutes document board actions: they are not written to educate members (newsletters can educate)
  • Minutes are used by courts, because they are legal documents -- a history of the association's business
  • When directors descent, it's a good idea to note vocal disagreements.
A few tips for board meeting minutes:

  • Include minimal financial details in minutes
  • Document all withdrawals from reserves and include the repayment plan
  • Require that committees prepare written reports for the board packets, and attach the reports to the minutes when archived -- don't publish committee reports to members.

Board members operate with the trust of owners. Board members hold the power to act on behalf of owners. Honouring this trust is key for any director or officer in board work.

There are several phrases that define ways in which board members can regard this fiduciary duty, and they are written within Washington State Law.
  • The Condominium Act (RCW 64.34.308) defines 'ordinary and reasonable care' as a guideline for officers.
  • The Non-profit Corporation Act (RCW 24.03.127) defines that officer's work be for the 'benefit of the corporation'.
  • The Miscellaneous Corporation Act (RCW 24.06) uses the 'business judgement rule' as a guideline for officer's efforts.

It is imperative that all officers wear the 'hat of the association' when doing board work, and remove their 'personal interest hat' so as to benefit all the owners who have invested their trust in board members.

Include this coverage in your master policy -- it provides automatic indemnity for board members.

See other posts on this blog for A Guide to Taking Perfectly Proper Minutes and a Template for Board of Directors Meeting Minutes.

Sunday, April 22, 2012

Master Insurance Coverage

We are lucky to have Duncan Kirk so close to us: his visit to the Forum in March helped many of us focus on this critical issue.

There may be nothing more critical, mysterious and confusing as master policy insurance and how it is required to cover the real estate assets that we own in common with all other owners. Duncan de-mystifies it and is fully willing to engage in questions and answers so that anyone can learn the basics of master insurance coverage.

Duncan makes many general points to consider when evaluating your coverage, including

  • Read your governing documents to determine what they require in terms of basic coverage
  • Be smart about what additional coverage you need relative to floods, earthquake and other natural disasters
  • Absolutely encourage owners -- make it a requirement if possible -- to take out HO6 policies on the interiors of units not covered by the master policy
  • Require owners to document their upgrades, so that master policies that cover them are appropriate
  • Choose backward-reaching coverage for Directors and Officers policies, to protect past board members
  • Establish values for your real estate assets using sources other than insurance models
  • Work with a knowledgeable vendor when choosing master insurance coverage -- and plan to work with the vendor for several months before coverage can take effect