Special Assessment Accounting. Aware. Diligent. Timely. Accurate. Complete.

Special Assessment Accounting. Aware. Diligent. Timely. Accurate. Complete.

[ Blog/News ]

Special Assessment Accounting. Aware. Diligent. Timely. Accurate. Complete.

Record keeping and accounting for special assessments should not be as challenging as it often is. Often, as auditors we find the accounting for special assessments is incomplete due primarily to changes of management companies, inadequate tracking of owners’ accounts and payments, accounting for special assessment receipts in the wrong fund, and/or special assessment forecasts are inadequate to determine if there will be sufficient funds to pay for all repairs or pay off a loan.
Assessment Records

We recommend a permanent file of special assessment documents, including:

  • Special Assessment notices to owners
  • Board minutes including documentation of special assessments:
    • Initial levy and approval by members
    • Monthly status
      • Amounts assessed to owners
      • Review owner special assessment amortization schedules
      • Amounts spent for the special assessment purpose
      • Financial status
        • Special assessment cash held
        • Special assessments receivable (billed but not received)
        • Remaining amounts to assess
        • Amounts spent to date
        • Projected remaining expenditure
        • Projected remaining debt service: principal and interest
        • Projected surplus or deficit
      • Conclusion regarding financial status

The information and data recommended above are critical. However, only accurate and complete record-keeping and accounting will provide a board with the data needed to understand the status of a special assessment project and the projected financial picture.

Accounting and Banking

Associations should account for special assessment activity in a separate fund from operating and reserves. A separate bank account and specific account codes should be used. An amortization schedule should be maintained for all owners who are making monthly special assessment payments. Special assessment billing and expenditures should be processed using the special assessment bank account and accounting fund. Any amounts received or paid by other funds should be reconciled and repaid to the other funds at least monthly.

Board Meeting Review

At every board meeting, boards should review the vital data systematically. We recommend that board members review special assessment reports and supporting documents and ask questions before meetings. Keep your eyes on the goals: Collection of all assessments, control over expenditures including debt service, and determining the projected surplus or deficit. Boards need to formulate a plan should there be a projected shortfall. Another special assessment? Increase the loan? Hold off on expenditures?

Boards need to actively participate in the management and accounting for all special assessments. End Of Article

By Newman CPA

By Newman CPA

Chapter Happenings Sponsor, February 2021

By: Jeremy Newman CPA, Newman Certified Public Accountant PC

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Special Assessments: Options For Owners, Options For Associations

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Special Assessments: Options For Owners, Options For Associations

At some point, the need to collect special assessments to cover major or unexpected costs is a fact of life for community associations. What process must an association follow when the need for a special assessment arises?

The Budget Process

The budget process for Washington community associations is constrained both by statute and by each community’s governing documents. Special assessments, even though they might sometimes be unanticipated, are themselves a budget, and therefore the same procedures must be followed to adopt special assessments as to adopt a budget. Those procedures will vary depending on the type of association and the details of the association’s governing documents.

The process starts with the association’s board of directors. The board should, after consulting any necessary experts and considering community input, adopt a proposed budget and mail copies to all the owners. Then, if the association is a New Act COA or an HOA, the board must call a meeting for owners to ratify (or not) the proposed special assessment budget. (Old Act condos must follow the procedures set forth in their governing documents.) If the owners do not ratify the proposed budget, the old budget remains in place. For special assessments, failing to ratify the special assessment budget means that the board cannot impose the special assessment.

Lump Sum, or Payments?

Should you collect the entire amount of a special assessment as a lump sum, or should you divide the assessment into installment payments? One possibility for some communities is for the association to take out a loan which the members pay off through a special assessment spread over several years. Each option has advantages and disadvantages.

An association may have better success with installment payments; the owners might not have the cash to pay up front, and might appreciate the opportunity to make payments over time. However, one disadvantage of this is that the association may not obtain the amount needed to pay for immediate expenses. If the assessment is needed to pay for something crucial, such as a leaking roof, waiting to collect the money may not be an option. But if the association plans ahead, collecting payments over time can be a good option.

There are costs associated with collecting payments over time. Management companies may charge a fee ranging from $5 to more than $20 per unit every month. If this is collected monthly on a large number of homes, this cost can be substantial, and may be a cost the association has to pay as a common expense. If a loan is obtained, there will also be bank fees, interest due, and attorney’s fees related to the loan. And the association as a whole still bears the risk if owners fail to make payments no matter how they are structured.

If the assessment per unit is small, collecting a lump sum from the owners can be the simplest option. One way to help owners is to try to plan ahead for large expenses and give the owners lots of notice before the money becomes due. For instance, if the property will need a substantial repair in 5 months, let the owners know as soon as possible and give them time to come up with the money or sell their homes. Owners with equity in their properties may be able to secure personal loans, a line of credit, or refinance their units to pay the assessment. When an owner borrows to pay a lump sum, the costs and risks associated with the loan are borne by the individual owner instead of the association.

If a home goes into bankruptcy or foreclosure proceedings, the nature of the assessment will affect the loss the association experiences. An acquirer (bank or buyer) must pay any assessments that become due in the future, such as payments to be made periodically on a special assessment; however, an acquirer usually is not obligated to pay for a past due, delinquent assessment of one large lump sum. (See RCW 64.34.264.) With a stream of payments, only the past due payments are wiped out.

Educating Owners On Special Assessments

Possibly the most important aspect of negotiating special assessments for a community is the process of educating the owners about what the needs of the community are. One way to do this is through the use of appropriate professionals. A reserve study professional, architect, or attorney may be able to appear at a meeting, or prepare a written statement for the owners’ reference. If the owners understand that an assessment will protect their homes and their investment, they may be more willing to pay. Another consideration is to make sure the board’s actions reflect the values of your individual community; owners may prioritize the property’s appearance, or may prioritize making only the most necessary of repairs. Making decisions on behalf of the owners which reflect their values will get the most support from the owners and make this entire process easier.

When considering special assessments, educate and communicate with owners, get their input on ability to pay lump sum or a stream of payments, balance the need for funds against the risk of nonpayment for different payment options, and make the best decision you can.

By Eliza Jane Manoff

Article first appeared in the August 2013 issue of WSCAI Community Associations Journal.
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Taking Back Your Life from the Whirlwind

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Taking Back Your Life from the Whirlwind

About five years ago, when people would ask me what I did for a living I’d confess that I managed a portfolio of homeowner associations, but in those few seconds before the blank stare or some exaggerated version of, “Wow!  I could NEVER do what you do,” my mind would drift into fantasy and I’d feel my clothes begin to tighten with the expanding pressure of the blue and red Superman tights beneath.  Yep, faster than the speeding bullets of cranky homeowners, more powerful than a locomotive pulling railway cars full of lawyers, doctors, teachers, engineers and other mere mortals, and able to leap tall Seattle buildings with a single bound! Of course then I would wake up.  Ultimately this is my personal story of taking back my life, back from the whirlwind; of getting off the Superman roller coaster and learning to live and work in a relaxed state of self-control and stress-free productivity. This is my story, but I have every confidence that it can be the beginning of your road to freedom as well.  My road began with the help of nationally acclaimed speaker and best-selling author David Allen of GTD® fame.  If you’re familiar with his work you will recognize much of what follows.  Because of space limitations I have broken this introductory article into two parts.  Part One explores a couple of core concepts that, when embraced, could cause a paradigm shift in the way you think about your work.  Next month I will examine in detail a couple of tools which could really begin to get you moving forward.

 

So just how does a Portfolio Manager stay consistently on top of his/her game?  How does s/he avoid the trap of putting out one community fire after another and completing bigger projects as time allows without ending up in what Pink Floyd described as the “English way” of “hanging on in quiet desperation?” Is it really possible for busy Community Association Managers to maintain healthy levels of pride and optimism for our future when we know full well that as we attend that party, or sleep, or God forbid, take a vacation, that the whirling tornado that is our job is even now touching down in undisclosed locations leaving behind a nasty trail of stress-filled destruction adding even more wreckage to the already huge piles of debris cluttering our minds and offices?

“The mind is an excellent place to process information; it is a terrible place to store it.” ~David Allen 

I can think of no better jumping off point than getting comfortable with the above statement.  It is so important that, at the risk of padding the word-count of this essay, I must repeat it: “The mind is an excellent place to process information; it is a terrible place to store it.”  I’m not much into reciting mantras, but if I was this would be mine.  Your assignment this month is to simply think about what I just said.

The minds of Community Association Managers are positively brimming with stuff; so much stuff that many of us are driven to the point of distraction, some even to despair.  We are carrying around massive quantities of things in our short-term memory.  We’ve got emails to answer, phone calls to make, bids to solicit, bills to code, financial statements to review, reports to write, meetings to attend, packets to assemble, sites to visit, delinquencies to collect, and developers to sue. There is grass to mow, weeds to pull, roofs to clean,  elevators to fix, cars to tow, keys to make, special assessments to consider, websites to update, and violations to enforce, just to name a few!  As our minds begin to resemble a hoarder’s living room our desktops, drawers, and every other flat spot or shelf can become covered with stacks of undefined amorphous blobs of paper.  And then there are those relationships to manage with homeowners, board members, vendors and co-workers, not to mention spouse and kids.  If we Managers are really committed to getting everything done, and our job demands that we are, then each piece of data, each scrap or pile of paper and every thought that has an action-item associated with it represents an open loop in our minds which must be stored someplace for easy retrieval, and at the proper time, or our career could very well go down in flames.  Our employers give us great tools like computers, notepads, sticky notes, file cabinets, calendars, cell phones and middle-managers to help us manage the steady stream of commitments we make but we generally make limited use of each of them.  Subconsciously we all understand that when it comes to actually getting things done for our clients the most important stuff is kept “right up here” (Point at brain).  And that’s all good as far as it goes, but experience proves that using your head as a filing cabinet or personal information manager in a busy environment like ours can come at a tremendous price to our productivity and personal well-being.  The price first shows up as reduced productivity, added stress, and stunted interpersonal relationships.  When stress is buried or otherwise left unchecked it may turn up again as deep personal dissatisfaction with our job, a reduced capacity for meaningful hobbies, a rejection of social interaction, and other destructive patterns of behavior.  In the extreme, stress can become the source of serious illness, burnout, job loss, or worse.  I contend that most of our stress is caused by carrying around hundreds of open loops in our heads.

 Out of Your Head and Into a Single Trusted System

Wouldn’t it be great if this marvelous brain of ours would only remind us of our prior commitments, unfinished projects and tasks when we could actually do something about them?  Unfortunately, our brain isn’t wired that way.  When the over-full kettle that is our brain arbitrarily decides to spill out one of these half-remembered commitments it comes at really strange times; like while we’re driving down the freeway, or in the middle of writing an email, or while we’re eating, or laying in bed, or conversing with a friend, or a hundred other times and places where we are either ill-equipped, indisposed, and least able to do anything meaningful about them.  Because of the random timing of these reminders we usually just resolve to remember to remember, and the thought is pushed back into our subconscious where it remains an open, stress-inducing, loop.  And this is how many of us live our lives, hour by hour, day by day, and month after month.

There is good news.  The cycle can be interrupted.  In fact, the first step to getting off of the work-related stress mill is surprisingly simple.  It is this: Get and keep as much of this data as possible out of your head, off of your desk, out of your email Inbox and into a single trusted system which you review regularly.  It is only when every open loop is captured in a safe place, a place completely trusted by the former storekeeper, that your mind is truly free to do what it does best: process information; create beautiful things; innovate; resolve conflict; interact meaningfully with others, or to just have fun.  If your system is not trusted by your brain and reviewed regularly, it will immediately and permanently take back the controls.

Next month I will introduce you to two excellent tools which are right at your fingertips which, if customized properly and used consistently, can completely revolutionize your ability to get things done in a more relaxed, stress-free way.  For further study, I highly recommend David Allen’s best-selling book, “Getting Things Done,” available online for about $10.

By Mike Walker, CMCA, AMS

The CWD Group, Inc., AAMC

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Chapter Magazine

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