Why Transparency Is Key

A primary responsibility of the board of directors is protecting the building’s financial health. To do that, transparency is paramount. In this episode Michell Abubo, managing partner at Highrise Property Management, shares a case study of a Queens co-op where a lack of transparency was deadly, ultimately leading to a change in management. Habitat’s Paula Chin conducts the interview.

How To Run Your Building: For Co-ops and Condos

Transcript

Paula Chin: Welcome to How to Run Your Building, a conversation with New York's leading property management executives. I'm Paula Chin with Habitat Magazine, and my guest today is Michelle Abubo, managing partner at High Rise Property Management. 

You can't have a well run building without an effective and transparent accounts payable process.

But boards can find themselves left in the dark if their management company isn't doing the job right. Whether it's paying vendors for capital projects or paying utilities. And if they're keeping you out of the loop in that event, boards lose control of spending, but they lose money as well sometimes.

Michelle, you recently worked with a co-op that was facing that situation. Can you tell us about it? 

Michelle Abubo: Sure. So for this particular co-op, during the transition, they were very vocal to the issues that they faced with previous management. They didn't know about certain invoices getting through. Every time they asked they weren't able to see anything.

And sometimes the complaints we get from buildings we transition from is that the management company never calls them back, never answers an email. So we try not to be like that, and we're very responsive. We always get back to them and we implement it basically a way that they can see invoices in live time.

Paula Chin: Now, where was this co-op ? And this most recent management company, how long had they been with them? 

Michelle Abubo: I believe they were with them for about two years. And the co-op is located in College Point, Whitestone area. 

Paula Chin: And could they schedule meetings with management?

Did they try everything and nothing worked? 

Michelle Abubo: So they tried to meet; the management company just would take phone calls here and there, but they weren't actually giving them the information they wanted. They weren't showing actual copies of invoices. They weren't trying to sit down with them and explain this is why it cost this much, this is why it cost this much. 

Paula Chin: When you talk about costs obviously that involves vendors. Can you give some examples of what happened with certain vendors and projects? 

Michelle Abubo: With any type of project the boards trust the management company to get various proposals so that they can make an informed decision about the scale of the job.

So that's one thing. I'm not completely sure if that's something that they did, but I know one of their complaints that the board expressed to me during the transition was that they wanted the utilities to be paid directly from their account, which is normal. That's something that we always did with the building, so I was shocked to hear that.

But essentially the management company was paying utilities on behalf of the building and then getting reimbursed for it. That's something that's out of the ordinary. So they wanted to make sure that we paid directly from their account, which we do. And for any type of reimbursements, let's say you're buying supplies for the building it should just be like a straightforward reimbursement.

The way we do it, we have a reimbursement sheet, we have the receipts, we attach it, that becomes the invoice for the building. So the building can see what exactly was ordered, when and how much. 

Paula Chin: When management was paying for these bills and then reimbursing themselves, did they show at least the proper receipts and documents to the board?

Michelle Abubo: From what I was told, I believe it was just basically a management made invoice. I don't believe they ever saw the full invoice from the actual utility. 

Paula Chin: That sounds potentially shady. And what about vendors coming in, say, and doing plumbing work or any other kind of repairs in the building? Was there a problem with those jobs as well?

Michelle Abubo: They voiced that they were paying too much; some of the board members, they have backgrounds in construction, plumbing. So they know how much things are supposed to cost. So when you see something costing double as much, you question and they did question. The company still proceeded to use the vendors of their choosing. 

With this building, we work with a lot of vendors where they come in, they assess the situation, so we know that they're giving the building a fair price, but we also open the board where they're able to bring in their own contractors. And if they bring in their contractors, sometimes they're even more than the contractors that we've suggested to them.

Paula Chin: Were there cases when management brought in a vendor who didn't do the job well and they left it at that? 

Michelle Abubo: With previous management, I believe so. There have been instances that I've heard that they've taken the money and then they just left. With us, we've never really faced that situation, 'cause if there was ever a complaint, if there was ever an issue, the vendor that worked with obviously will come back, readdress the situation, fix the problem. So it's good to have good relationships with boards and with contractors. 

Paula Chin: And if, say under previous management, a vendor came in and didn't completely fix the problem, but said they did, would the management pay them and yet not bring them back or bring in somebody else to actually fix the problem? Did that happen? 

Michelle Abubo: I can't speak so much on that with previous management, but if it ever arise with us, we always hold payments and that's why it's really important to make sure that the property manager for that building goes to the building.

Make sure the problem's fixed before we in the backend release any checks to the vendor. Sometimes the vendors require 50% deposit upfront so they can do the job, and then we don't release the secondary check until it's confirmed that the job is completely done and everything is fine. 

Paula Chin: Now when you guys came on, were you able to get these receipts and previous documents and go over them and determine whether or not the board had actually been shortchanged or overcharged and management pocketed the money?

Was that a possibility or did the paperwork not show that? 

Michelle Abubo: From the management reports we've seen there, and that's where I was able to see there were like in-house invoices, like a check request form. There wasn't anything behind it. There wasn't any oh this is a reimbursement for Staples, for example.

It just said this is a reimbursement for Staples and whatever the company had said it was for. 

Paula Chin: So you couldn't determine whether or not there had been, let's say, a loss of money for the co-op. 

Michelle Abubo: Not fully, no. 

Paula Chin: Okay. Now tell us more about your process. What kind of procedure do you use?

Spreadsheet? And how does that work so that, again, it's much more transparent. 

Michelle Abubo: We provide the entire board, or in some cases a select group of the board because some boards have 13 members, so they assign two to three people to approve invoices. We provide them access to our live sheets. So on the sheets, all the invoices for a given month or listed on it.

And from there they can see the vendor, they can see the amount that's due, they can see an actual, clickable link to the actual PDF given from the vendor. From there, there's two columns that will allow two or three members to approve or deny the invoice, like to hold it for right now. And then from there, once it's approved by two or three members, we then proceed to release the check to the vendor.

Paula Chin: And I would assume if they disapprove it, there's some back and forth communication between the board and yourselves. 

Michelle Abubo: Correct. So typically there is boards that meet monthly, and then there's certain boards that meet weekly. Those that are weekly, we address it on a weekly basis. Those that meet monthly, we just try to keep all the invoices there for them and comes their meeting, that's when they decide to approve or deny, and then after that they'll say we think this is too high. Then we will communicate with them: this is the scope of work, this is why it costs this much. Most of the time a lot of these invoices are jobs that are already done. So then we have to ask the contractor, look, the board doesn't agree with the invoice price.

And then, they will have a back and forth as well. 

Paula Chin: So obviously now there is the proper procedure in which at least two board members give their signature before payment is made. Which is obviously just the way it should be done. Can you give me an example of, say, a recent capital improvement or project that shows this new system in action?

Michelle Abubo: For this particular landscaping, they hired a contractor. They didn't like the work that was currently being done, so they were trying to see if it was a scope, if it was how many times the landscaper was coming to the building, how they were addressing certain situations.

If there was patches in the grass, if there was shrubs that weren't being cut properly. They were very meticulous of what they wanted from this landscaper. They requested many times for the landscaper to come on site to do walkthroughs on the site because this particular building had 10 different buildings attached to it. So there's different areas. There are some areas that were fine, and then some that they felt were being neglected.

 Overall, they've also asked us to get more proposals from different landscapers of how they can work better. 

Paula Chin: And where does it stand now? Are they still waiting for more proposals or have they, worked it out or at least found someone that they like the deal better? 

Michelle Abubo: We've provided them a couple of proposals. I believe right now they're in the deciding phase where they sit down as a board and then they go through the proposal to see what this one has to offer versus this one.

And ultimately, they would make up their mind of who they'd like to choose. 

Paula Chin: Going back to that, you mentioned, I believe that the board has weekly meetings. Do you attend that to discuss again, all of the expenses and what's going on? 

Michelle Abubo: Sometimes we do. There have been some instances where we do show up, where we're able to explain in full, the invoicing, especially in the beginning when we had to show them how to use the live sheets because it's all on the computer. So there are some that still like having the paper sheets. So we incorporated both. We have it readily printed out for them as well as using the live sheets.

And we do meet on a weekly basis, and if not weekly then, whenever they do ask of us to show up at these meetings. But they do meet weekly amongst themselves and they're able to go through one by one what invoices they'd like to approve in that given week and if they have any questions they can request for.

And I myself have gone to meet with this board and sat with them and explained each invoice. 

Paula Chin: So they now have much, much more control. Michelle, what would you say the takeaway here is for other boards? 

Michelle Abubo: Takeaway is essentially you want to have a good relationship with your management company.

Because this is your investment. This is your home. You want the management company to feel that as well. You want them to be having your best interest at heart. You want them to be able to show the accountability, show the transparency because it is your money, it's your investment, it's your home.

So the more we communicate with the boards, the better the boards will feel and then it's good for the long-term relationship. 

Paula Chin: Michelle, I think this offers a great lesson for our listeners. Thank you so much for joining us today. 

Michelle Abubo: Thank you so much.