PROTECT YOUR PROPERTY FROM IMPROPRIETY

BY ROBERT GRANT, DIRECTOR OF PROPERTY MANAGEMENT, DIVERSIFIED PROPERTY MANAGEMENT

I. Controls over Management Companies and Internal Controls within Management Companies

1. Separate purchasing of supplies from building staff and property manager. A separate administrative department for purchasing should be established. The purchasing should be computerized in systems: a) suppliers or vendors; and b) co-op or condo association.

2. Centralized purchasing allows competitive bidding, item by item, from major suppliers and vendors. This bulk purchasing enables the property to obtain the products at the lowest price. Spreadsheets with prices must be regularly updated at least twice per year and updated whenever a new vendor is added. Printouts of vendor prices must be reviewed by the director of management and the financial controller to insure that the purchasing manager is actively updating and obtaining competitive pricing.

3. Supply orders must be kept in separate computer files for each property and a rigorous purchase order system must be maintained. The system only works in conjunction with manual inspections of inventory by the property manager. When recurring products (for cleaning, garbage removal, repair of plumbing, heating, roof systems, etc.) are requisitioned by the superintendent, the property manager must approve the quantity and prepare a purchase order. The purchasing manager is then responsible for ordering from the least expensive vendor. The quantities are entered into the computer file, building by building, so recurring orders can be analyzed on screen and by printouts. The director of management and financial controller should regularly review such printouts. If the pattern is inconsistent, there should be immediate inquires to determine the cause.

4. Building staff must be issued work orders for repair jobs. Each work order must indicate the location of the repair, the actual time the staff spent on the repair, and every inventory item used for the repair. Every work order must include the resident’s signature, agreeing with the hours and materials listed on the completed ticket. Work orders must be collected daily or weekly. The property manager must review the manual monthly inventory report, the work orders, and the supply requisitions, before signing off on new purchase orders. There should be periodic reviews by the director and controller with each manager, to determine if the supplies ordered and the supplies listed on work orders tally.

5. The purchasing manager must also be trained to catch inconsistencies in purchase order requisitions, building by building.

6. Invoices from vendors should be signed by the superintendent and the property manager. Then they should be sent to the Board treasurer for signature approval (e-mail or fax).

7. The account payable manager then enters the invoice as a valid expense and generates a check.

The account payable manager must also be trained to look for proper signatures in relation to the dollar amount of the check and to look for new vendors. Invoices from new vendors require entering the vendor information into the system. That is the appropriate time for the payable manager to ask the purchasing or property manager about the new vendor and their pricing.

8. Checks, especially for non-recurring invoices, must be countersigned: one Board member, and one Management Company principal. The department managers, the property manager, the director of management, and the financial controllers should not be signers.

9. Monthly financial reports issued to each Board must include copies of each invoice and a check register and must be signed off by the financial controller after they are reconciled. The Board members can then see exactly why each check was issued.

10. For any non-recurring item (repairs or supplies) there must be a spending limit placed on the management company of $500 (small buildings) or $1,000 (large buildings), except for emergencies. In any instance when a repair cost exceeds these limits, there must be Board approval, either at a meeting or by telephone. Even during an emergency repair, there must be reporting by telephone to the Board.

These layers of internal controls and distinct separation of responsibilities throughout the entire process of ordering and paying for supplies and recurring services will best insure the Board that they are obtaining the correct service and the correct supplies for the best price!

II. Bidding and Performing Major Capital Projects

1. Ask the engineer for at least five contractors and why he or she recommends them. Then ask your management company for at least ten or fifteen additional contractors and ask why each of those contractors was put on the bidding list. Where did the company get these companies? The management company should obtain recommendations for contractors from at least 5 other professionals (architects or engineers) who have no interest in this job. Don’t let the management company or the engineer limit the bidding! Mail out a RFB (Request for Bid) form letter with general terms (including warranty and insurance requirements) and the professional drawings and specifications. Not every company contacted will respond. The management company or engineer should contact the contractors regularly by telephone to get a response. Eventually, the Board will have at least 10-15 bids from reputable contractors. Don’t let the managing company or engineer get lazy when it comes to obtaining more than the standard 3-5 bids and performing the necessary walk through with the contractors. This is a key element in protecting the property from overpriced contracts.

2. The engineer must insure that each contractor is bidding apples-for-apples (the same specifications). If new ideas offered are improvements to the original specs and are within the project budget, have the engineer write an addendum to his specs, and send it immediately to all bidding contractors. Have all bids sent to the engineer as sealed bids. OPEN ALL BIDS IN THE PRESENCE OF THE ENGINEER, A BOARD MEMBER, THE PROPERTY MANAGER AND THE DIRECTOR OF MANAGEMENT. By involving both the property manager and the director or principal of the management company, plus a Board member, plus the engineer, you are limiting any opportunity for one person to steer the job to one company and thus limiting the appearance of impropriety.

3. Have the engineer prepare a spreadsheet of each job component and unit pricing (in case of change orders) contractor by contractor. The engineer, Board member/s, property manager and director of management should meet and carefully review the spreadsheet to analyze the quotes for each line item to determine if the prices make sense and to look for inconsistencies between the unit prices and job component pricing. Some contractors can be eliminated at this stage due to high pricing. Then prepare a list of questions and have the engineer call the contractors to clarify their pricing and insure they understand the details required in the specifications. Have another meeting to review any revisions based on the engineer’s calls. Narrow down the bidders to a small group then seriously recheck their prior job references, complaint history with the NYC Department of Consumer Affairs and other city agencies. The board is now ready to select a contractor by interviewing the finalists - which at this stage are probably the lowest quality bidders. We recommend interviewing three companies from the list of 15 contractors who submitted bids.

4. Have the property manager contact engineers to recommend a retired construction super or foreman. Hire him/her (in addition to the engineer inspecting the job) to oversee the project, eight hours/day. The going rate is about $100.00 per day net. If the bidding process is exhaustive, the spread in pricing could be one hundred thousand dollars or more! Protect your savings by hiring your own construction supervisor. He will provide daily reports, based on wall by wall work; he will use high-powered binoculars, and sometimes get on the scaffold (with a harness) to assess that the job is performed exactly to the specifications. The contractor will know their work is being scrutinized.

This is the final key to obtaining a quality contractor at the lowest possible price, and then having the job scrutinized so there are no shortcuts:

The management company that offers layers of internal financial controls, obtains the lowest price for supplies and repairs, the best priced quality contractor for major projects (through an exhaustive bidding process) and then arranges to have the maximum project supervision to insure quality work and prevent shortcuts should instill any Board with confidence and trust.

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