As a member of your homeowners’ association’s (HOA’s) board of directors, you’re responsible for maintaining the financial health of the community. An important duty, keeping your association financially sound involves much more than paying bills on time. You’re tasked with everything from creating the budget and tracking financial records to ensuring there are adequate funds for day-to-day expenses and future projects and repairs. While it can seem daunting, there are ways to stay on top of your finances and manage your association successfully. Here are five tips for keeping your HOA expenses—and income—in order.
Tip 1: Regularly review all financials.
To get a clear picture of the association's monetary position, the board should regularly review all financials. This includes the records that highlight key economic information for the association, like the balance sheet, statement of income and expenses, general ledger, cash disbursements ledger, an accounts payable report, account delinquency report, and any bank reconciliation records. These documents indicate the financial health of an association and inform board decisions, so it’s crucial to review them monthly.
This is what you should look for to ensure your association’s finances are stable:
- The income statement and balance sheet balance out to zero—no more or less.
- There isn’t a decrease in the amount of cash on hand.
- There aren’t variances between expenses versus budgeted items.
- Vendors are getting paid the agreed-upon amount.
- There are sufficient funds in your reserves for any capital improvement projects.
- There isn’t an increase in owed bills or assessments.
By continuously reviewing where the association’s money is coming from and going to, you minimize the impact any surprises may have on your association.
Tip 2: Assess services for effectiveness.
Review your community’s services and how each vendor delivered on those services. You may find that some services are either ineffective or unneeded, eliminating unnecessary costs. Check to see if any of your vendors are running promotions or referral specials, review all contracts, and confirm your association is getting the services it needs and paying the correct price. If you find any discrepancies or are unhappy with the services rendered, it doesn’t hurt to consider bids and see what other vendors offer. However, don’t be blinded by a great estimate—if a vendor quotes you a price that sounds too good to be true, it might be. Take into account their work history, customer service, and references.
Tip 3: Collect dues.
While most homeowners realize there’s a regular assessment, collection efforts can sometimes be challenging. However, this money is crucial to effective operations, and letting even a couple of delinquencies slide by will disrupt your association’s entire budget. What’s more, ignoring non-payments can lead to special assessments or legal trouble. To protect your community’s funds, collect dues and assessments consistently. Here’s how you can keep homeowners accountable:
- Educate homeowners on what their assessment is for and why they must pay it.
- Share the annual budget with homeowners.
- Regularly monitor assessments—who’s paying, how regularly, and how much.
- Clearly communicate due dates, due amounts, past-due dates, and past-due amounts.
- Identify where and how homeowners can access assessment information.
- Ensure your assign a person, such as a community manager or treasurer, who homeowners can contact for payment questions or concerns.
- Enforce collections and payment policies consistently.
Tip 4: Partner with a certified public accountant (CPA).
Regardless of size, every HOA—even those that are professionally managed—needs a certified public accountant (CPA) to stay on the right course. Even though a CPA’s primary function is to prepare tax returns, they can also use statements and reports to formulate an easy-to-read snapshot of the association’s finances. Additionally, CPAs may provide a basic analysis of HOA financial statements or conduct an audit, confirming documents are error-free and 100-percent accurate.
Make sure your CPA has experience with HOAs, comes recommended, and understands the unique tax criteria of an association. Having a CPA by your side will not only confirm accuracy in accounting practices, but also increase efficiency.
Tip 5: Perform an annual audit.
Some states and HOA bylaws require annual audits, as it’s the highest level of review of an association’s financial books and records. It’s designed to provide reasonable assurance that financial statements prepared by the treasurer, management company or bookkeeper are presented fairly, in the best interest of the association, and in conformity with the American Institute of Certified Public Accountants’ (AICPA) Generally Accepted Accounting Principles (GAAP). An audit will:
- Identify weaknesses in accounting procedures.
- Trace transactions to any supporting documents and authorizations.
- Review association minutes and legal documents.
An audit indicates any issues concerning financial management, and an auditor will make suggestions for how to modify procedures and improve an association’s financial management operations.
Budgeting Best Practices
As a board member, it’s your responsibility to guarantee that the financial interests of your association are safe and beneficial to the community. To help your community maintain a balanced budget, Associa created a step-by-step guide for keeping your community economically healthy. Read our ebook, “The 3 Budgeting Best Practices Your Community Needs Most for Financial Stability,” to learn how legal requirements, financial documents, and reserve funds impact the budget.