So you’ve received your bill and had that overwhelming urge to kick puppies because you feel that nothing is ever done in your homeowners association except harass you about your boat. You feel that maybe its time to take a closer look at the comings and goings of your homeowners association. To get a clear picture of the financial standing of your association, request a copy of the association’s financial.
Depending on the conditions set forth by your Board of Directors (pertaining to cost and availability), everyone that pays fees in the homeowners association or condominium association is entitled to a copy of the financial and budget. Whether there is a fee for copies and postage depends on your association and your state’s directive regarding copies. The cost is nominal, $o.25-$0.50 per copy plus postage.
But you’ve never read a financial statement and don’t quite understand what all of these numbers mean. Well you’re in luck because today we’ll learn how to read the financial statement.
The financial statement is a cummulative monthly report identifying exactly what has been spent on behalf of the association up to that point. Its not terribly complicated and is an accurate reflection of the finances of the association. However, the income/expense statement is only as good as the book keeper entering the information. In this computer age we live in, everything is automated.
For starters, an HOA financial statement is a simple cash in/cash out financial. There is no creative accounting or deferment of income or anything else. Its all pretty straightforward. Financials should be simple and easily read.
Your balance sheet shows how much money is in the bank at the close of the last business month. Your checking balance is noted as well as any other accounts that the association has, including money markets and CD’s. These are the association assets. The income/expense statement shows what has been spent year-to-date on that specific line item. Some accounting software can show how much a specific line item varies each month against the year-to-date budget as well as the annual budget.
The income line item will show what association fees were taken in for that particular month, compared to what should have been collected for that month as well as what has been collected year-to-date, what was budgeted to be collected year-to-date and what the annual budget is. Additional income that is generated though finance charges, late fees and interest on money market accounts and CD’s are also displayed. However, because no one knows exactly what interest rates will be, who will be late with their assessments, etc., etc., this is just considered additional income with no annual budget attached to it.
Each association and association management company will set up the hierarchy of their expense statement differently but the same thing holds true-cash in/cash out.
Administrative expenses include fees to an accountant (a tax return must be filed each year), insurance (association liability and officers and directors errors and omissions policy), filing of the corporate annual report to your state, office supplies (there is a cost associated with copies, stationary and postage-for large associations it can be significant), and legal fees if the association is involved in any litigation.
Utilities are common area electric and water service that is paid to your local utility company. If there is more than one meter, the association Board of Directors could choose to assign the utility charge to the maintenance line item such as the electric meter, water and sewer for the pool area. By paying close attention to utility bills, your association manager, book keeper or Board president can spot a possible problem i.e an unidentified water leak causing a spike in water bills if they notice the monthly usage is too far away from the year-to-date budgeted funds.
Contract services usually stay pretty close to what was actually budgeted for. Unless there is a mid year contract negotiation, all of your contract service line items should coincide directly with the year-to-date budget.
Maintenance and repairs is a line item that can possibly get out of hand and should be the one area of the financial to keep close tabs on. If your association budgeted $6000 for unexpected repairs and maintenance beyond what is covered under your contract services, the Board of Directors and association management company should work hard to stay within that budget. A general rule of thumb when addressing repair and maintenance issues is to bid out the work if you anticipate the price being in excess of $500. By looking at previous years financial statements you can get a feel for how much is being spent for repairs. Something that comes to mind when people think of repair and maintenance items is the costs associated with vandalism. If vandals are wrecking havoc every weekend, the costs associated with cleaning up and repairing the damage can add up over a year. In short, don’t spend all of your allocated money for repairs and maintenance in the first quarter of the year. If vandalism is a serious problem, ask the police to cruise through at night on the weekends to show a presence. If there is a police officer in your neighborhood, ask him or her to park their marked cruiser near the sight of the vandalism as a deterrent.
If your association is responsible for the upkeep of streets, there could be a line for the monthly contribution to the reserve that will fund the repaving, if the Board of Directors has decided there should be funding. Any other capital expenditures that come around every 10-15 years can also be placed in this reserve funding line item.
The Board of Directors and the association management company maintain a list of delinquencies but this information is rarely communicated to the membership. However, you can ask for the dollar amount of delinquencies, just not the names. Sometimes mistakes happen, someone pays their assessment and the checks cross in the mail after financials are prepared. To keep peace and harmony it is better for the general membership to not know who has paid or not paid.
Phew, we’re done now. To recap, everyone in the association is able to request a copy of the financial statement. Take the time to understand all of the facts and figures of the financial statement and monitor your association spending. If you have a particular skill that could come in handy for your association, volunteer your time to serve on the Board of Directors.