Financial management is one of the most consequential responsibilities a property management company carries — and one of the areas most prone to problems when oversight is inadequate. The condominium corporation’s operating funds and reserve fund represent the financial foundation of the corporation and the investments of all unit owners. Understanding how those funds are held, who has access to them, how they’re reported, and what controls exist is essential due diligence for any board.

“The financial oversight question I get from boards most often is about signing authority — who can write cheques, and for how much, without board approval? That question matters enormously. A management company with signing authority and no expenditure threshold requiring board approval has a lot of latitude with your money. The controls need to be explicit in the agreement, not assumed.”

— Nida Galanxhi, Director of Operations at Duka Property Management and member of the Association of Condominium a recognized professional association (ACMO)

Questions About Fund Custody and Segregation

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Are corporation funds held in a dedicated trust account?

Under the Condominium Management Services Act, 2015, management companies that hold condominium corporation funds must hold those funds in trust — separate from the management company’s own operating funds. This protects the corporation’s money if the management company faces financial difficulties.

Ask specifically:

  • Are operating and reserve funds held in dedicated trust accounts in the corporation’s name?
  • Is the trust account completely separate from the management company’s operating accounts?
  • Who is the named beneficiary of the trust account?

What a good answer looks like: Corporation funds held in a dedicated trust account at a recognized financial institution, with the condominium corporation as the named beneficial owner.

Who has signing authority on the corporation’s accounts?

Ask specifically who can authorize expenditures and sign cheques on the corporation’s accounts:

  • Is dual signing authority required for expenditures above a certain threshold?
  • What is the threshold above which board approval is required?
  • Can the management company make expenditures without board pre-approval, and if so, up to what amount?

What a good answer looks like: Dual signing authority for expenditures above a defined (and reasonable) threshold, with board pre-approval required for significant expenditures. The specific thresholds should be defined in the management agreement.

Questions About Reserve Fund Management

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How is the reserve fund managed and reported?

The reserve fund is the condominium corporation’s long-term savings account for major capital repairs and replacements. Under the Condominium Act, 1998, the reserve fund must be maintained and invested in accordance with specific requirements.

Ask specifically:

  • How are reserve fund investments managed?
  • Are reserve fund investments compliant with the Condominium Act‘s requirements for permitted investments?
  • How is reserve fund activity reported to the board?
  • Who has authority to make reserve fund expenditures?

How does the reserve fund study inform the annual budget?

A reserve fund study — conducted by a qualified engineer or reserve fund planner — projects the corporation’s long-term capital needs and the reserve fund contributions required to meet them. Ask how the management company uses the reserve fund study in the annual budget preparation process.

Questions About Financial Reporting

What financial reports are produced, and how frequently?

Ask for a sample of the standard financial reporting package. A professional property management company should produce at minimum:

Monthly:
– Income statement (actual vs. budget, current month and year-to-date)
– Balance sheet
– Accounts payable aging
– Accounts receivable (owner arrears) report
– Bank reconciliation

Annually:
– Audited or reviewed financial statements (required under the Condominium Act for most corporations)
– Annual budget comparison
– Reserve fund status report

Ask to see a sample of the monthly financial package for a comparable corporation. This is the most direct way to assess the quality of financial reporting.

How is the annual budget prepared and presented?

Ask specifically:

  • What is the timeline for budget preparation — when does the management company begin the process relative to the fiscal year end?
  • What input does the board have in the budget process?
  • How are common element fee increases communicated to owners?
  • How are variances from budget tracked and reported during the year?

How are arrears (unpaid common element fees) managed?

Arrears management is a significant operational responsibility. Ask:

  • What is the process for following up on unpaid common element fees?
  • At what point are arrears referred to the corporation’s lawyer?
  • What is the current arrears rate for comparable corporations managed by this company?

Questions About Contractor Financial Management

How are contractor invoices managed and approved?

For routine maintenance contractors, ask what the approval process is:

  • Who reviews and approves contractor invoices before payment?
  • Are contractors required to submit invoices against approved scopes of work?
  • Does the management company receive any rebates, commissions, or incentives from contractors it recommends? (This is a conflict of interest that must be disclosed)

Does the management company mark up contractor invoices?

Some management companies add a markup to contractor invoices before billing the corporation — effectively earning revenue from the contractor relationships. Ask specifically whether the company marks up any contractor invoices, and if so, what the markup percentage is and how it’s disclosed.

What a good answer looks like: Either no markup (the corporation pays contractor invoices at face value), or full disclosure of any markup as a stated fee item in the management agreement.

Questions About the Annual Audit

Will the corporation’s finances be subject to an annual audit?

Under the Condominium Act, 1998, most condominium corporations are required to have their financial statements audited or reviewed annually by a licensed public accountant. Ask whether the management company facilitates this process and what their role is in the audit.

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