Self-managing your own HOA finances is a fairly difficult undertaking. Successful HOA finance management requires a certain level of expertise and experience. For that, look to HOA financial management services.
Why Hire HOA Financial Management Services?
It can be tempting for HOA board members to try and handle all aspects of association management themselves. And the need for management can depend on the HOA, but there are a few areas where board members should be more cautious — like the community’s finances.
Although it’s up to your board whether or not you handle finances yourselves, and there’s a possibility it will work out fine, there are also some major risks an association can face by trying to take on HOA finances without outside help.
Here are the downsides to self-managing HOA finances:
1. Board Members Aren’t Financial Experts
The range of experience on an HOA board can really vary. But, unless you have members who are accountants or lawyers, most board members won’t have specific backgrounds in working with HOA finances — and there’s a lot to know. For example, if details like issuing 1099 forms to vendors at the end of the year, handling financial statements, or managing audits aren’t handled properly, the mistakes can end up being very costly for the association. Plus, most members aren’t used to the level of budget tracking and accounting processes that come with association management.
In addition, it’s not that uncommon for board members, especially new board members, to spend money that the association doesn’t actually have to work with. They might get too caught up with what homeowners are asking for and not realize the full financial position of the HOA that can affect it within the next five to 10 years.
Consider an unexpected project or repair coming up, such as burst pipes during the winter or unforeseen roof repair. Inexperienced board members might be unsure how to weigh the best options for handling the cost. An expert can help them decide what the project warrants from a variety of options, such as borrowing from the reserves or executing special assessments, etc.
These financial details are important since they can tell you whether or not your association is on the right track. They show you whether you need to adjust any areas of cost or expense. The financial statements of your community should be able to give you a good picture of your current status, plus future potential.
Struggling with these types of situations and decisions means you may risk large penalties for the HOA, not to mention a lot of time wasted trying to figure things out.
2. Lack of Time Can Lead to Neglect
Most board directors have busy lives outside of the association, so they don’t have a ton of extra time to devote to management each day. With such limited energy, it is nearly impossible to keep up with details about reserve studies, financial statements, and loan applications. And many board members won’t be able (or willing) to work the extra hours required to handle these thoroughly.
Overall, you must make sure to devote sufficient time to these areas. This way, you won’t neglect anything. Working with a manager can help you pass off those otherwise difficult, boring, and confusing details to an expert ready to handle them.
3. There’s a Higher Risk of Fraud
Keeping up with your HOA’s finances also helps you identify any red flags that might indicate fraud has occurred in the association’s cash flow. This includes reconciling your bank statements with your financial reports. To a board member without an eye for it, they might have trouble identifying what potential fraud looks like.
4. Conflicts of Interest
Sometimes, situations can arise where a board of directors might propose a transaction for the association in which they have a financial interest. This can lead to biases and conflicts of interest during important decision-making about how to spend money. If board members will handle board finances, it’s important to disclose any possible relationships or ties before making any decisions. This includes ties to possible financial transactions, such as contractors, consultants, or accountants.
You’ll want to, at least, have a full accounting system in place for financial reports and for recording all transactions. That includes setting in place checks and balances, such as:
- Not allowing the same person who approves invoices to also write checks
- Requiring all important transactions and checks over a certain amount to have two signatures
- Cutting down on the use of cash transactions
- Not allowing the same person who records receipts to also make deposits
- Paying vendors and employees with a check
- Writing checks to the person you’re paying and not to “cash”
- Deposit checks daily (or store in a safe overnight) directly to the HOA’s financial account
- Making sure all payments to the HOA are addressed to the association (and not a board member or manager)
Benefits of Outsourcing HOA Financial Management Services
Although it would be great if every HOA had board members with sufficient financial experience, it’s often difficult to find a full board willing, ready, and able to tackle the details involved with handling HOA finances. Self-managing in this area must include a strong team of volunteers ready to take on the responsibilities involved and support one another. Otherwise, the situation can quickly lead to burnout and too many problems for those who are trying to do it all.
So, just as it’s a good idea to hire an HOA manager to handle the workings of your HOA, it’s also extremely helpful to have an outside firm handle your HOA finances — rather than leaving them to the HOA board of directors to handle. In this way, you can rest easy knowing all HOA finances are properly managed. And, you can save time, to boot.
Here are just some of the things you will get when you outsource financial management services:
- Monthly detailed record of owner payments and delinquencies
- Completely customized financial reporting package
- Handling of association bill payments as approved by the board
- Protection of association funds through internal controls
- Annual budget preparation for distribution to homeowners approval by the board
- Regular and special assessments, late fees, and collection fees sent to homeowners
- Monthly bank statements sent to the board
- Preparation of 1099s, employer tax forms, and other forms and reports for governmental agencies
- Assistance to the auditor for audit and tax preparations
- Coordination with the board and attorney chosen by the association to handle delinquent accounts
- Maintenance and management of reserve accounts
Hire Financial Management Services Today
It is clear that HOA finance management is no easy task. There are a lot of moving parts and a wide range of responsibilities to fulfill. Any HOA board that knows better would immediately seek outside help. Do the right thing and hire professional HOA financial management services today. If this article has convinced you enough, contact us for unparalleled financial management services.
- 6 Practical Reasons Why You Should Outsource HOA Accounting
- Top 13 Budgeting Mistakes Of Self-Managed Boards
- 4 Benefits Of Remote HOA Management Services To Your Community