It is Spring which can only mean: spring forward, spring cleaning, spring training, March madness and annual meetings!

It is Spring which can only mean: spring forward, spring cleaning, spring training, March madness and annual meetings!

[ Blog/News ]

It is Spring which can only mean: spring forward, spring cleaning, spring training, March madness and annual meetings!

If it is March, it must be Annual Meeting time.  Chances are you are thick in preparation for one of the most important meetings of the year.  The chance to bring the owners of the community together to not only review last year but also elect officers and plan the year ahead.  This is also a perfect time to review your banking relationship.

Some Areas To Consider Include:
  • Review signing authority. When was the last time the Board checked who has signing authority on the Association’s bank accounts?  The election of officers at the annual meeting is the perfect time to document authorized signers.  The minutes should include who is authorized to sign on the Associations behalf and the removal of any current signers no longer on the Board.  Be sure and sign and date the minutes and send to your Relationship Officer at the Bank.

  • Do balances exceed FDIC insurance levels? If reserve balances are over $250,000, reach out to your Relationship Officer and discuss solutions on how to obtain FDIC insurance on total balances without needing to open accounts at multiple banks. 

  • Where is the money? Download your Bank’s mobile app and sign up for alerts.

  • Review your major expenses. Is the Association on track to meet its capital maintenance obligations?  If there are major expenses looming that may exceed reserves, reach out to your Relationship Officer and start the discussion now on potential loan options.

 

First Published:  March 1, 2023

By Jill Jones

By Jill Jones

Senior Vice President, HOA Lending Officer

Your local HOA Bank – working in your community, for your community.  Effective March 1, Columbia Bank has merged with Umpqua Bank.  Together to serve our community association community better than ever.  “Better Together”

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Year End Accounting: Loose Ends

Year End Accounting: Loose Ends

[ Blog/News ]

Year End Accounting: Loose Ends

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.

Some Areas To Consider Include:
Cash

Ensure all bank accounts have been reconciled. Obtain a copy of reconciliations and bank statements and compare, paying attention to unusual or large reconciling items.

Assessments Receivable

Review the aged receivables report. Understand the reasons for delinquent accounts and ensure that a collection plan is in place to maximize recovery of delinquencies.

Accrued Expenses

Most associations account for expenses only when invoices are paid. Boards should ensure they account for all expenses incurred during the year, regardless of when vendors are paid. Remember, you set a budget for the year. It is easy to overlook a late invoice for this year that may be recorded as an expense in the next year.

Special Assessments

Sometimes special assessment programs last more than one year. Often, special assessments are levied to repay a commercial loan. If accounting for special assessments billed, collected, outstanding or delinquent is inaccurate, a board of directors may not be able to determine if the remaining funds to be collected are sufficient to repay a related loan.

Ensure there is a report showing special assessment billing to and receipts from homeowners. Compare the aggregate of special assessment bank account balances plus amounts to be billed and collected less any outstanding special assessment expenditures to the loan repayment requirements, both principal and interest. Early determination of a potential deficit will provide boards with the opportunity to develop a contingency plan.

Loans

Ensure the correct loan balance is presented on your financial statements. Compare to the loan statement provided by lenders.

Income

Review assessments and other income accounts to ensure all income appears to have been recorded. You will need to know if the financials are prepared on accrual or cash basis. Under the accrual basis, assessment income should match budget.

Expenses

Compare actuals to budget. Inquire about unexpected variances. Ensure all current year expenses have been recorded. End Of Article

First Published:  January 27, 2021

By Jeremy Newman CPA

By Jeremy Newman CPA

Newman Certified Public Accountant, PC • Chapter Happenings Sponsor

Newman CPA simplifies the HOA CPA process. Our streamlined process enables us to complete your work accurately, efficiently and on time. We understand your need for reliable communication and on-time reporting. We believe that you deserve hassle-free audit & tax services. Have confidence knowing we are your responsive partner here to make your life easier.

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Pre-Budget:Using Your Financial Statements

Pre-Budget:Using Your Financial Statements

[ Blog/News ]

Pre-Budget:Using Your Financial Statements

Pre-Budget Thoughts For Boards And Managers

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?

Pre-Budgeting What Can Managers & Boards Do To Prepare For Budget Season?

The budget planning process requires data. Where do you get it from? What will you do with the information? We always say that the budget process should not feel like it starts 4-5 months before the new year commences. The collection of information should be continuous. Maintain a physical or digital file with every monthly financial statement, the general ledger for the year, rolling income and expense trend reports, vendor contracts, access to paid vendor invoices. Review utility company websites for indications of rate changes together with understanding monthly usage rates. Maintain board meeting minutes that you can refer to. Is there a community to-do list? Are there notes from community walks. Keep the documentation updated continuously. Do not wait until you start the budget process to collect the information you will need. You really need to enter the budget building period with most information at your fingertips.

Revenues:

  • Assessments: The budget process will focus on determining operating fund expenses and contributions to reserves. The outcome of the expenses and contributions calculation is the assessment value.
  • Other Revenues: Be careful not to over-budget for contingent revenues that occur based on something happening. Examples include delinquent owner account interest, late fees. If you have well-documented other income sources such as clubhouse rentals, laundry facilities, cell tower lease income, take care to err on the side of being conservative with your estimates. Review historical trends. Review any agreements for time period and amounts to be received.

Operating Expenses

Know the expense trends. Know the condition of the common community components. What are vendors telling you about the repair or replacement needs for the association – keep and save notes with price estimates. Talk with vendors continuously about cost control. Know who to ask, and where to look for information – both historical and prospective.

Contributions To Reserves

If associations do not contribute assessments to the reserves fund, the association will be underfunded, and potentially be unable to pay for reserves components major repairs and/or replacements. In other words, maintenance will be deferred, and future costs will probably be higher. End Of Article

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Reserves & Inflation

Reserves & Inflation

[ Blog/News ]

Reserves & Inflation

Inflation Effects On Reserve Components are a Really Big Deal

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.

How Does This Inflation Correlate To The Increase In Reserve Contributions Necessary To Keep Up?

Our testing of twenty recently completed jobs indicates movement of 1% increase or reduction in inflation results in an average 22% change needed in the reserve contribution rate. See below:

Effects Of Inflation On Reserve Funding Plan:

Job NumberInflationContribution Rate

Contribution Rate
(-1 Inflation)

Contribution Rate
(+1 Inflation)

Total Difference

+/- Spread
(Percentage)

Original
110165 - 9c3.00%$10,000$8,170$12,350$4,18020.90%
210190 - 5a3.00%$2,480$2,040$3,025$98510.86%
310368 - 12a3.00%$9,250$7,330$11,600$4,27023.08%
410493 - 11a3.00%$7,910$6,200$10,080$3,88024.53%
511025 - 10a3.00%$6,220$4,930$7,855$2,92523.51%
611300 - 13c3.00%$11,200$8,900$13, 700$4,80021.43%
711690 - 9a3.00%$11,300$9,030$14,140$5,11022.61%
811806 - 10a3.00%$7,600$6,250$9,255$3,00519.77%
912338 - 14a3.00%$5,370$4,260$6,745$2,48523.14%
1012917 - 8a3.00%$6,590$5,300$8,400$3,10023.52%
1112963 - 11a3.00%$11,100$9,060$13,630$4,57020.59%
1213515 - 3a3.00%$9,150$7,380$11,320$3,94021.53%
1314004 - 0b3.00%$18,500$14,920$23,000$8,08021.84%
1414287 -10a3.00%$6,830$5,480$8,520$3,04022.25%
1514289 - 9a3.00%17,100$13,600$21,370$7,77022.72%
1614306 - 3d3.00%$6,100$4,960$7,510$2,55020.90%
1714441 - 10b3.00%$7,640$6,170$9,450$3,28022.47%
1814700 - 1a3.00%$13,720$11,060$17,100$6,04022.01%
1914896 - 10b3.00%$12,910$10,070$16,540$6,47025.06%
2015363 - 13a3.00%$8,580$6,990$10,560$3,57020.80%
Total22.08%

What Are Your Options?
  1. Ignoring the effects of interest and inflation is NOT an option.
  2. Using the software included with your reserve study, test inflating your largest expenses projected the next few years in 25% increments. Note the effect on percent funded and necessary increase in contributions. Communicate your “what-if” results to the membership and craft a plan.
  3. If you don’t think you’ll have sufficient reserves or cash flow to complete some or all of those projects in a timely manner, it may be necessary to carefully prioritize and reschedule. Here is a webinar addressing the topic in detail: Tight Budgets, Tough Choices!  Your priorities should start with any potential life-safety issues, and protection of the building envelopes. End Of Article
By Association Reserves WA

By Association Reserves WA

Chapter Happenings Sponsor, April 2022

Written By Jim Talaga, R.S.

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Annual Audits

Annual Audits

[ Blog/News ]

Annual Audits

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.

Auditors opine on whether financial statements are free of material misstatement, or materially correct. Auditors provide a high level of assurance but not an absolute level of assurance.

Generally Accepted Auditing Standards (“GAAS”) requires auditors to corroborate amounts and disclosures in the financial statements to sufficient audit evidence, which may include inquiry, physical inspection, observation, third-party confirmation, examination, analytical review.

Does The Law Require Associations To Obtain An Audit?

This depends on the body of Washington law (RCW) that governs the association, and the size of the association:

Rules On Audits In Washington State

[1] “New Act” Condominiums: (Formed after 7/1/90 RCW 64.34.372)

Condominiums with 50 or more units must be audited annually. Condominiums with less than 50 units have an annual audit requirement, however, there are annual waiver provisions.

[2] “Old Act” Condominiums: (Formed before 7/1/90)

Generally, the requirements default to the New Act Condominiums provisions, however, if the governing documents require an annual audit, then an audit is required, regardless of the number of units.

[3] Homeowners Associations: (RCW 64.38.045)

Associations with annual assessments of $50,000 or more must be audited annually, however, there are annual waiver provisions.

[4] WUCIOA: (Formed from July 1, 2018 RCW 64.90.530)

Audits required if annual assessments are at least $50,000 (no waiver). Audits are also required for associations with annual assessments less than $50,000, however the membership can vote for a waiver.

When Is An Audit Performed?

Boards should consider an audit annually. Audits are typically conducted using year-end financial statements between three and nine months after year end.

Other Reasons To Consider An Audit:
  • Change in management company;
  • Little or no internal control functions;
  • Boards not receiving regular financial reports;
  • Board lack of confidence in accounting functions;
  • Large dollar value transactions, including legal settlements, insurance claims, defect settlements;
  • Special assessments and loans;
  • Suspected fraud or embezzlement;
  • Declarant/developer turn over to homeowner-controlled board;
  • Financial difficulties. End Of Article
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Six Signs Your Pipes Are Stressed

Six Signs Your Pipes Are Stressed

[ Blog/News ]

Six Signs Your Pipes Are Stressed

Out of sight, out of mind? Since most of your community piping is hidden behind walls, it’s all too easy to disregard the warning signs of a problem that could lead to a costly catastrophe.

Here Are Six Indicators You Can’t Ignore:

[1] Poor Water Pressure:

Low water pressure is a tell-tale sign of severely corroded pipes. As corrosion builds up inside the pipe, water flow to faucets, showerheads, and more is drastically reduced.

[2] Drain Backups:

Corrosion of your drain, waste, and vent (DWV) pipes can cause major blockages and even complete structural failure. Slow-draining water, odors, and backups (particularly in ground-floor units) are all symptoms of a corroded and failing DWV piping system.

[3] Extremely Hot Water or Excessive Temperature Fluctuations:

Hot water supply lines are known to corrode faster than cold water supply lines. As these pipes begin to corrode, debris becomes trapped and lodged within the anti-scalding components built into sinks and tubs/shower valves, causing extreme fluctuations in hot water temperature.

[4] Discolored Water:

Brown or red tinted water is a telling sign that your pipes are corroding. As the interior of the pipes rust, metal flakes off the pipe, causing the water to become discolored.

[5] Chronic Leaks:

As pipes begin to fail, either from age or defective products, leaks can become continual headaches for maintenance staff. No matter how big or small, recurring leaks are the primary reason for moisture buildup behind walls—leading to drywall deterioration and mold infestation.

[6] Noisy Plumbing:

Your plumbing system and fixtures are designed to be quiet. Clanking, clicks, thuds, and moans caused by variances in pressure or temperature, are a common signal that something isn’t quite right.

If you frequently observe any of these signs of piping stress, obtain a professional inspection so that you can plan for how to extend the reliable performance of your community’s piping systems and when to replace them. End Of Article

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Application of the 10/25/2021 King County Public Health Order to Common Interest Communities

Application of the 10/25/2021 King County Public Health Order to Common Interest Communities

[ Blog/News ]

Application of the 10/25/2021 King County Public Health Order to Common Interest Communities

The King County Public Health Officer issued an order on September 16, 2021, effective October 25, 2021. The Local Health Order requires people ages 12 and older to show proof of COVID-19 vaccination or a recent negative test result to enter certain establishments and events, including but not limited to restaurants and bars, gyms, indoor recreational events or establishments, and outdoor events with 500 or more people.

What Does This Mean For Common Interest Communities?

A question has arisen as to whether the order applies to gyms, restaurants, and meeting rooms within common interest communities. The text of the order is not clear on the scope of its application. It does not make any exception for members-only establishments. It does refer ambiguously in one place to “public” facilities.

Rafel Law Group sought guidance from the King County Public Health Office and was advised that the order is intended to apply only to facilities that are open to the general public. A formal opinion has not been published by King County Public Health but the advice provided to Rafel Law group appears to be authoritative.

Application For Facilities Within Common Interest Communities

Accordingly, gyms, restaurants, and meeting facilities within common interest communities that are open only to members and their guests are not subject to the King County Order. However, to the extent any such facilities within common interest communities are open to the general public, the order applies and must be followed.

This means that the common interest community must require and verify proof of full vaccination or recent (72 hours) approved negative test result in facilities which are not limited to members and their guests.

Facilities that are limited to members and their guests and are therefore not open to the public do not fall within the scope of the order, and common interest communities are not required to verify proof of vaccination or a negative test result for entry to such areas. End Of Article

[Note:] Medical and religious vaccine exemptions are not accepted in lieu of documentation of a negative Covid test.

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Fund Accounting For Associations

Fund Accounting For Associations

[ Blog/News ]

Fund Accounting For Associations

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. Fund accounting manages and allocates an association’s revenues and expenses, assets, liabilities, and equity.

In a way, it’s like accounting for two entities within one set of financial statements, while keeping the activity and financial position of each separate.

How Does Money Get Into Each Fund?

An association levies and collects assessments from its members. Typically, billing and collections are accounted for in the operating fund. Per budget, associations contribute a portion of billed assessments to the reserves fund each month. Therefore, the operating fund retains monies collected from owners, net of amounts paid to the reserves fund.

The operating fund will present accounts receivable from owners on its balance sheet, together with assessment revenue on its income statement. The contribution of assessments from the operating fund to the reserves fund will be presented as a reduction of assessment income or as a separate line-item expense, and as revenue on the reserves fund’s income statement.

What About Spending?

Each fund pays for its respective expenses by writing checks from either the operating or the reserves bank account. Expenses are recorded in the expense accounts designated for each fund. The operating fund pays and accounts for month-to-month expenses; while the reserves fund typically pays for expenditures for components documented in an association’s reserve study.

Thoughts

Ensure all activity is accounted for in the correct fund. Try not to use one fund to pay for something on behalf of another fund. Account for revenues in the appropriate fund. End Of Article

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6 Reasons Why Dormant Pruning Is Good For Your Trees

6 Reasons Why Dormant Pruning Is Good For Your Trees

[ Blog/News ]

6 Reasons Why Dormant Pruning Is Good For Your Trees

It’s a common misconception that tree maintenance cannot be done during the winter months, or that tree care companies don’t operate during this time of the year.

The reality is that winter is a good time for pruning and tree removal services. In fact, some major pruning work should only be done during the winter, such as pruning fruit trees to maximize fruit production.

During winter, trees and shrubs enter a state called dormancy. Leaves fall off deciduous plants and trees take a “rest” until warmer spring temperatures prod them into putting on a new flush of growth.

Pruning during dormancy (called “dormant pruning”) has several benefits, both for your trees and for you.

6 Reasons Why Dormant Pruning Is Good For Your Trees:

[1] It’s Easier To Evaluate Tree Structure In Winter

After the leaves have dropped in the fall, it’s easier to see the structure of your trees. For a trained arborist, it’s also easier to identify dead or dangerous branches. This lets us determine whether or not pruning is needed to keep your trees safe and looking their best.

If you’re unsure whether or not your tree would benefit from pruning, winter is a great time to call us out to take a look.

[2] Your Tree Will Look Better In Spring

Late winter is a great time to prune, contain, or rejuvenate overgrown shrubs and trees. Any branches cut back during the winter will be able to recover quickly in spring with new growth. This will also minimize the amount of time you’ll spend looking at a plant that looks like a bunch of sticks after rejuvenation pruning.

[3] Dormant Pruning Avoids Spreading Disease

Winter pruning can also avoid spreading some serious diseases that are active and spread easily during the spring and summer growing seasons. For example, Dutch elm diseaseoak wilt, cedar hawthorn rust, and fire blight all spread quickly during the growing season.

During winter, the bacteria, fungi, parasites, and insects that cause and/or spread disease are either dead or dormant. As a result, diseases are less likely to be transmitted by winter pruning.

This is why we prune vulnerable trees, such as oak and elm trees, only during the winter (with exceptions for safety pruning when needed).

[4] It’s More Efficient To Prune Trees In Winter

In some cases frozen ground lets us bring in heavy equipment without damaging your landscape, resulting in lower costs, faster work, and better outcomes. This is especially true for large pruning jobs and tree removals.

[5] Pruning In Winter Causes Less Stress For Trees

Because the tree is dormant, winter pruning doesn’t stimulate new growth. In contrast, any pruning done just before dormancy (such as during late fall) can be killed by cold weather, damaging and disfiguring the tree.

Research shows that pruning before buds open in spring leads to “optimum wound closure.” Trees are able to heal from pruning cuts before warmer weather brings out destructive insects and pathogens.

[6] Dormant Pruning Prevents Winter Damage

Damaged, dead or dying trees can be dangerous in winter, particularly when we get significant amounts of ice or snow. Dormant pruning makes them safer and can also rejuvenate weaker trees by removing dead and diseased wood. End Of Article

By Arborwell

By Arborwell

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Call: (888) 969-8733

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The Copeland Group LLC
Reading Financial Statements Series© – BASIS OF ACCOUNTING – KNOW YOUR REPORTS

Reading Financial Statements Series© – BASIS OF ACCOUNTING – KNOW YOUR REPORTS

[ Blog/News ]

Reading Financial Statements Series© – BASIS OF ACCOUNTING – KNOW YOUR REPORTS

We introduced you to association balance sheet fund accounting for assessments & expenses as part of a balance sheet in our last blog, which was the sixth in our Reading Financial Statements Series©. In this blog we will explore the basis of accounting and how your financials can be presented in more detail. 

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.

Reason:

Assuming each accountant is accurate and consistent, each may not account for transactions or activity in the same way. They may also set up their reports differently.

Assessment Billing & Receipts Example:

Assume assessments of $100 per homeowner are billed to 50 homeowners on the first of November. Forty owners pay in full on the first of the month, ten owners don’t pay until after the end of the month. How does basis of accounting represent the results of the transactions?

Cash Basis:

Records only cash received. Assessment revenue recorded and presented in the income statement totals $4,000 (40 owners X $100). A receivable is not presented on a cash basis balance sheet.

Accrual Basis:

Records activity regardless of cash collection status. Assessment revenue recorded and presented in the income statement totals $5,000 (50 owners X $100).  A receivable of $1,000 (10 owners X $100) is recorded on the balance sheet.

Expense Example:

Assume landscape invoices for November totaling $2,000 are received from the vendor and paid in early December. What is the difference between cash and accrual accounting for November’s landscape expense?

Cash Basis

Using the cash basis, the accountant will record the $2,000 landscape expense in the month the check is cut and sent to the vendor.  The expense will be recorded in December instead of November.

Accrual Basis

Under the accrual basis, the bookkeeper will account for the $2,000 November landscape invoice in November by accruing the expense in accounts payable.

November Income Statement Comparison Using Both Examples:

Cash BasisAccrual Basis
Assessment Revenue:$4,000$5,000
Landscape Expense:$ $(2,000)
Excess Income:$4,000$3,000

You can clearly see the different results presented under the cash and accrual bases of accounting.
Know how your financials are presented so you can continue to make great decisions.

Full Accounting & Knowledge

We believe the full accrual basis of accounting provides associations and readers of financial statements with a more complete and accurate representation. End Of Article

By Newman CPA

By Newman CPA

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By: Jeremy Newman CPA. Newman Certified Public Accountant PC.

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