For most associations, their fiscal year ends 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 the year-end financial reports.
DO YOU KNOW WHO has access to your funds and what steps to take to protect your assets? Over the last couple of years, we have seen fraud and the attempt at fraud nearly double. Following are tips on how to be a good steward of association funds and fulfill your fiduciary duty.
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?
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.
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.
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.
Another part of a financial statement deals with prepaid expenses. A prepaid expense is an expense an association has paid in advance. It is an asset of the association. The most common prepaid expense is an association’s annual insurance premium.
