In a homeowners association, what is the role of the finance committee? For some, an HOA financial committee is a prerequisite to success while others do not seem to be convinced of its importance. When it comes to your HOA, do you really need a finance committee? Here’s what you need to know to answer that question.
Everything You Need to Know About HOA Finance Committees
Financial management is one of the most complex and time-consuming responsibilities of an HOA board. Board members must ensure that association funds are in order and properly allocated so that the community runs smoothly and efficiently.
However, not all board members have the financial expertise to handle such tasks. They may find themselves in over their heads trying to manage finances along with other responsibilities such as day-to-day operations, maintenance, homeowner relations, and rule enforcement.
This is where an HOA financial committee can be of great help. You might ask, “What is the primary function of the committee on finance?” Basically, they help ease the overall burden of the HOA board by taking care of essential financial management tasks.
What Does the Finance Committee Do in an HOA?
The finance committee assists the association board, particularly the HOA treasurer. Their roles and responsibilities are as follows:
1. Prepare the Annual Budget
Preparing the annual budget is one of the major tasks of the HOA finance committee. This is a very tedious and time-consuming process that involves a lot of market research and analysis, as well as a line-by-line breakdown of expenses and revenue. Thus, it’s helpful to have a committee that will share the responsibility, especially if the members have solid financial backgrounds.
2. Maintain Financial Records
The HOA finance committee performs accounting and bookkeeping to keep track of all the money coming in and out of the association’s bank accounts.
They review and monitor financial statements, bank reconciliations, insurance policies, reserves, and investments to ensure that everything is in order. It’s important to maintain financial records so that you can create realistic budgets and file accurate tax returns.
3. Create Financial Reports
There is a lot of agenda to discuss during board meetings. Thus, the HOA finance committee is also tasked with creating thorough but easy-to-understand financial reports for the board. This helps save time because the board members won’t have to ask clarifying questions during the meeting. The finance committee is also responsible for editing out confidential information from these statements before making them available to the homeowners.
4. Advise the HOA Board on Financial Matters
Since it’s the committee that knows the HOA finances the best, they will be able to advise the board when there are financial decisions to be made. It’s important to note that even though the committee handles the finances, they do not have the authority to make financial decisions on behalf of the HOA. They simply present all the relevant information, which the board will use to make decisions for the association.
5. Assist HOA Committees with Finances
Similarly, the finance committee also provides financial advice to other HOA committees. For instance, if the social committee is planning for an event, they may consult the finance members on how much budget they have or what their funding options are.
Is an HOA Finance Committee Really Essential?
Having an HOA finance committee can significantly lighten the workload of the board members. More than taking over financial responsibilities, though, the committee provides strong financial oversight.
Rather than a small group of people having complete control over the association’s finances, the committee introduces checks and balances to prevent financial problems like overspending, discrepancies in accounting, unmatched financial statements, or misappropriation of funds.
Thus, having this committee can safeguard the financial stability of your association.
Meanwhile, there are associations that hire accounting and bookkeeping services and/or an HOA management company to provide the same functions as a finance committee. There is nothing wrong with that as both options have their pros and cons.
For instance, a finance committee could be more beneficial for an association that doesn’t have the funds to outsource financial and management services. It’s certainly cheaper to enlist the services of your homeowners rather.
On the other hand, there are communities where both the board and the homeowners really do not have any financial expertise. If that’s the case, it may be wiser to hire an outside company to deliver professional services.
What Do Your Governing Documents Say?
Before making a final decision, though, make sure to check your governing documents. Some associations have a finance committee written into their covenants or bylaws. If that’s the case, then the HOA is obligated to set up the committee. You also have to consult the governing documents on how to set up the committee. There will be mandates on how the committee will be established, how many members will there be, and the limits of their authority.
Another consideration for establishing a finance committee is gauging the skills and availability of your community. Do you have homeowners with financial backgrounds? If so, are they willing to serve as members of the finance committee? If the answer is no, then creating a finance committee may not be practical for your HOA. It may be better to consider the services of an HOA management or financial management company.
Will an HOA Finance Committee Benefit Your Community?
Now that you have a better understanding of the roles and responsibilities of an HOA finance committee, as well as their potential pros and cons, you’re in a much better position to answer the initial question. Do you really need an HOA finance committee? Try to imagine the ways in which your association will benefit from having a finance committee. After all, the ultimate goal of board members is to ensure that homeowners are happy and satisfied with their community management.
Financial management is a serious matter. If you need any further assistance, consider giving Clark Simson Miller a call today.
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