An HOA financial report provides a valuable assessment of your client’s finances. However, the information contained in a financial report isn’t very useful unless you know what it’s actually measuring. Therefore, one of the most important best practices for HOA financial reporting is setting clear budgets with your client. With an online payment portal, the HOA’s residents can pay their fees and assessments electronically. You’ll save time by avoiding the lengthy process of collecting and depositing checks.
Remember, just because someone was elected treasurer, does not necessarily mean they have accounting experience. Large homeowner’s associations have more complex budgets and will usually have a management company, such as CSM, that handles all financial data. Whether you’re working with the general ledger, reserve fund or accounts payable/accounts receivable, do your bookkeeping with HOA accounting software such as CINC Systems. hoa accounting CINC Systems automates many of the processes involved with balancing the books and gives you an accurate real-time update for each of your clients’ financial accounts. A homeowners association cannot properly operate if it doesn’t have the money to pay for services, repairs, etc. From clearing snow to keeping the lights on in the clubhouse, HOAs need to have money available for day-to-day expenses as well as significant projects.
Two-Board-Member Bill Approval Before Payment
This method takes a little bit from both the cash and accrual accounting methods. For money earned, an HOA would use the accrual method, recording money when it is due to the association and shifting it to the cash column when cash is received. When money is owed by the HOA, expenses are only recorded when the money is actually paid, like the cash accounting method. As your association earns revenue through monthly dues paid by the HOA community members, it is only fitting that the association’s financial practices should be in a healthy condition. Well-organized, detailed and specific records are a must, and transparency and internal controls within the association’s working structure are also crucial. Though your HOA is not profit-driven, the association still handles revenue and incurs expenses like any other business organization.
As a board member, you may opt for either one of these reports annually or not; it really is up to you, as they are not necessarily required. But, having some understanding of these various reports and what they entail will help you make that decision when all is said and done. When planning your budget, it’s always a good idea to look at every line item from past data. Compare the actual expenses the association incurred in the last 3 to 5 years. This way, you can get a rough grasp of what your upcoming year will have in store in terms of costs. When you know what your budget is for, you can anticipate the right expenses.
Account Delinquency Report
Ethics and compassion should guide your judgment, particularly when it comes to homeowners and the honest maintenance of financial records. In the end, you want to make your community a beautiful and financially sound place to live for all residents. The CPA will also conduct an inspection of your HOA’s minutes and contracts for errors. A CPA will compile your financial records and apply basic accounting principles to make sure your financials have been kept properly.
- Based on these numbers, you can focus on problem areas and adjust accordingly.
- These remote financial management and administrative services handle over 55% of the work of operating a community, so you can rest easy knowing that your HOA or Condo community is taken care of.
- Do you have a library of prior financial statements you can view online?
- Some board members choose to get a yearly audit, while others choose to simply get their financials reviewed.
- Not all expenses take place every year, but you should still plan for them to be categorized under the same account regardless of when they occur.
- Unlike the reserve fund, which must be used for nothing but non-routine or unexpected repairs, the operating fund covers day-to-day expenses.
For example, some states may require HOAs to implement an accrual method for financial reporting. There may also be specific deadlines related to taxes, licensing, and permit renewals. These accounting best practices for HOA financial management require organization, dedication, and attention to detail. However, you don’t need a background as a CPA or a financial expert to implement these policies for your association management business and your clients. With these best practices, you’ll be able to streamline all aspects of financial management for your client’s HOA. If you’ve ever been responsible for planning a big party or event, overseeing a home renovation, or even budgeting for a trip, you know how easy it is to overspend.
The Pitfalls of Poor HOA Accountancy:
The total debit must be equal to the total credit to make it balanced. As one of the main aspects of bookkeeping, maintaining a General Ledger must be intrinsic to HOA accounting rules. A General Ledger holds the accounting records for all transactions within the association. The entries must be organized in order of account number — which is uniquely assigned to each account title (chart of accounts) — and by date. When HOA board members embark on a search for a new accounting solution, they should make sure they’re getting a best-in-class option.
- Therefore, they understand how to keep a detailed and correct accounting of records like dues, interest income, loans, deferred revenue, and accounts payable.
- And, should the HOA be audited, the treasurer will have to account for every dollar the HOA has earned and spent.
- The data revealed by an HOA audit can help the board make important decisions about budgeting, fees, and more.
- However, you can think of reserve funds as the money you save to pay for major repairs when there’s unexpected damage, such as fixing a plumbing leak, for example.
When it’s time to create a budget for the next year, take time to review vendor contracts to verify if prices are going to stay the same, or go up. Even a small increase can negatively impact the budget if the association isn’t prepared for it. Many state laws require HOAs to conduct annual audits, and some will pay for an annual audit even if it’s not required by law. HOA audits can cost between $4,000 and $6,000 though, so some associations may conduct audits once every three years.
Cloud-based accounting software automates and simplifies accounting for HOAs. For one thing, since all accounting activity is in one place, it’s far easier to manage and update. Boards never have to worry about data getting erased if a computer goes down because all of the information is stored securely on a server. Similarly, board members (and property managers) can achieve a lot more in the same amount of time.