EVERYONE SEEMS TO DREAD the annual association budget process. It can be time consuming. Decisions related to assessment increases are sensitive. Costs are increasing. How do boards squeeze more or even the same services from static or only slightly increased assessments?
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Financial: Money, Banking, Insurance
THERE ARE FOUR RULES OF RESERVES that associations should know. Our company has pioneered foundational concepts & principles and provided extensive educational materials to the industry for over 35 years, but all can be distilled down to the rules below as the heart of planning for reserve projects at your association. Fundamental education is key to all of our success, as board members and professionals come and go over time.
ASSOCIATIONS WITH DECEMBER 31ST YEAR ENDS make up a large share of annual audits. There is often intense pressure on managers, accounting departments and audit firms to complete accurate and complete audits in a timely fashion. Completing an efficient audit requires strong communication and sharing of information.
THE CONSUMER PRICE INDEX IS at a 40-year high of ~ 7% as of this writing. As we all know, that’s a big deal. Our data and research show inflation of the goods and services relating to the typical association reserve components (roof, paint, siding, windows, decks..) to have been compounding ~25% annually since 2020 – that’s a Really Big Deal.
WHAT is an audit? The objective of an audit is to provide an opinion about whether the financial statements present information fairly, in all material respects, and in conformity with applicable reporting standards, e.g., Generally Accepted Accounting Principles (“GAAP”), or other accounting frameworks such as the cash basis.
Most associations have fiscal years that end on December 31. If an association does not obtain an independent audit by a Certified Public Accountant, it is perhaps more imperative that boards of directors pay close attention to their internally generated year-end financial reports.
Whether preparing an annual budget or a reserve study, it is important to know how much money is available to spend and where the money is saved and recorded. Maintaining separate bank accounts for operating expenses or for reserves activities is both required by some statutes, and highly recommended. Having a bank account for each type of fund is a great place to start separating each fund’s financial activity.
Question: If three different accountants/bookkeepers sat down with the same data & transactions to process, would they prepare financial statements that look exactly the same?
Answer: Possibly but probably not.
Reading Financial Statements Series© – Balance Sheet Part 6: FUND ACCOUNTING FOR ASSESSMENTS & EXPENSES
Community associations use a system of accounting called fund accounting. As with non-profits and charities, the entity is collecting money for specific purposes, and should account for specific financial activity in pre-determined funds.
How you handle your HOA reserve funds really makes a difference in the successful running of your association. Managing HOA reserve funds is important for the longevity and future investments of your association.
As a member of the board, it is your responsibility to stay on top of your reserve fund making sure it is regulated well and in the community’s best interests.