A large-scale community management organization will feel this need most acutely — processing thousands of individual payments is an arduous process that introduces the risk of human error. In these cases, it’s far more efficient to use HOA accounting software that enables automatic processing to accounts, sending of validation files and alerts regarding lockbox transactions. Remote Bookkeeping When there’s a system of checks and balances, the association is able to make important decisions regarding homeowner accounts. The community manager should suggest an annual review or audit, which a CPA will perform. It’s important for the homeowners association to retain final authorization over replacement and transactions. The balance sheet includes insurance because it’s usually paid for in advance and then capitalized on the report.
Modified Accrual Basis
Used as a baseline to determine owner assessments and plan for needed upgrades, repairs, and activities, a budget allows the board to more closely control its finances. Furthermore, budgets help the board most effectively maintain the HOA while offering the best quality of living for its members. Get insights into HOA-specific accounting principles and tools that make budgeting, reporting, and compliance less overwhelming. Most HOAs use money market accounts for reserves because they offer both interest earnings and liquidity. For larger amounts, laddering certificates of deposit (CDs) can provide higher returns while ensuring funds become available in phases.
I’m Ready to Hand Off my HOA Accounting to Community Financials – Where Do I Start?
Understanding HOA budgets and their purpose is trial balance one of the most critical best practices. An obvious reason is to facilitate smooth association management, but having a good budget can also preserve property values. The lack of a good budget can produce a domino effect that will ultimately end with reluctant lenders and fewer interested buyers.
Why Is Proper HOA Financial Management Important?
- For any HOA board, managing community finances is one of the most critical responsibilities.
- Get insights into HOA-specific accounting principles and tools that make budgeting, reporting, and compliance less overwhelming.
- They can make budgeting decisions without getting lost in the minutiae of accounting and crunching numbers.
- One powerful way to reduce delinquencies is to impact one’s credit score.
- It’s important to check your governing documents first before you plan HOA budgets.
- Conducting annual audits can also enhance credibility and accountability.
Most board members would never steal money from their association, but there are a handful of people that will attempt to get away with this crime. As a best practice, the HOA should have rules in place that minimize opportunities for deliberate theft and unintentional money mismanagement. As an example, a single board member should never have control over every financial department. Instead, the person who writes the association’s checks should be different from the person in charge of managing receivables. Similarly, checks addressed to the HOA should go directly into the proper bank account. If you’re ready to get your association’s financials in order, here are seven HOA accounting best practices you can implement right away.
In most states, auditors will check associations’ books at least once a year to make sure all records around HOA finances are being kept honestly and accurately. An income statement is essential for budgeting and planning future expenditures. It includes revenues (such as homeowner dues and fees) and expenses (such as maintenance costs and management fees). The difference between total revenues and total expenses indicates the net income or loss for the period.
Income
The reserve study is used to calculate the strength of the reserve fund (essentially a “rainy day” fund) and predict how much it will cost to replace those components down the road. Reserve studies should be conducted every few years to ensure that the reserve fund is able to completely pay replacement costs and to avoid imposing owner assessment increases. Not every financial institution understands the unique structure and legal obligations of homeowners associations. That’s why it’s critical to partner with banks or credit unions that offer community association banking services. The reserve fund is a savings account set aside by the HOA to pay hoa accounting for future capital expenditures. These expenses include major repair and replacement projects for common area components, such as roofing, pavement, elevators, fencing, HVAC systems, and pool equipment.
From essential reports and accounts payable best practices to webinars dealing with collections during a pandemic, Community Financials has got you covered. Mastering HOA accounting means effectively managing fees and assessments. The particulars of HOA accounting may require ad hoc bookkeeping for assessments, or even supporting documentation in addition to the usual reports. An expert team of property management accountants can not only reduce accounting costs but free up your HOA board to focus on critically important stuff like trampoline colors and rose bushes.