Managing and overseeing the finances of your HOA should be one of the board’s main priorities. That said, many HOA board members may not have experience with HOA financial reports. If you still have questions about financial reports of your association, here’s what you need to know.
In this article:
HOA Financial Reports and The Board’s Responsibility
To be able to run an HOA effectively, HOA board members need to familiarize themselves with the basic elements of a financial report. This is to ensure that they have the required knowledge to comply with financial reporting requirements.
To learn more about the important parts of financial reporting for HOA boards, review the information below:
What Are the Critical Elements of a Financial Report?
Financial reports contain key economic information that helps HOA board members manage the community’s operations. This also helps them make responsible fiscal decisions. Typically, HOA financial statements will include the following:
- Statement of income and expense
- Balance Sheet
- General Ledger
- Accounts Payable Report
- Cash Disbursements Ledger
- Bank Reconciliation
- Account Delinquency Reports
These various types of HOA financial reports are essential in getting a clear picture of how healthy the finances of the HOA are. Further, it allows the board to check areas that need improvement.
Who Is Responsible for Preparing the Financial Report?
Even this role can vary in many communities. Usually, the Community Association Manager or HOA manager will prepare the financial report. He/she provides any and all required documentation for the HOA board to review.
Typically, the Community Association Manager will send the financial report along with its corresponding documents to board members at least five days before the board meeting where the information is discussed and finalized.
How Often Are Financial Reports Required?
For HOAs to stay well-organized, prepare the financial reports monthly. It is usually best to prepare the financial report in the middle of the following month so that any transactions can post that may have been on hold.
Preparing financial reports monthly is really important because it enables HOA board members to see the fiscal health of the HOA. In addition, HOA board members can anticipate how much capital they may have left.
Even though HOA financial reports are quite long, it is important that HOA board members review them in their entirety each month to uphold the fiduciary duty of the HOA to the residents within its community.
What Are the Most Important Elements to Check for on the Financial Report?
HOA board members need to realize that an HOA is classified as a nonprofit. What this means is that the HOA should not have a positive or a negative balance, the balance of the HOA should be zero.
The five main things that HOA board members need to verify in their monthly financial reports are:
- There is no increase in unplanned owed bills or assessments.
- There is no decrease in the amount of on-hand cash.
- Payments to vendors are based on the agreed-upon amount for each of their invoices.
- There are not substantial variances between expenses and budgeted items.
- There are sufficient funds in your reserves that can cover any planned capital improvement projects.
Who Has Access to the Financial Report?
It is important for HOA board members to consider the privacy of the financial information of the HOA. Many HOAs opt to create two different financial reports, one that is for HOA board members and a separate one for homeowners.
The HOA board member report will include all financial information. The second report will include information that residents should see.
The purpose of separating the reports is to not create confusion among residents who may not have a full understanding of what requirements HOA boards need to have in their financial reports.
However, the BOD needs to make sure the HOA financial reports prepared for residents is comprehensive and promotes transparency. This is so residents know exactly how their member dues are being used each month.
Where Should These Financial Reports Be Stored?
Both the HOA board and management company have the responsibility of storing the financial reports for the HOA in a safe place. Each state has requirements that vary, and it is important for HOA boards and their management companies, if they have one, to be aware of each state’s individual regulations for the storage of financial reports.
What If My HOA Association Needs Assistance Preparing Financial Reports?
It is not uncommon for many HOA board members to feel more comfortable using outside assistance when it comes to preparing their financial reports. It is important for HOA boards to not be afraid of seeking outside advice.
If you feel that no member of your HOA board has the required experience to comply with financial reporting requirements, then it is essential to get outside advice to uphold the fiduciary duty your HOA has to your residents.
When looking for outside assistance, interview several potential companies and professionals carefully. Ideally, you will want to find an option that is cost-effective and has the expertise that you are looking for.
If you are able to demonstrate to your residents that you are doing your due diligence with an important issue such as financial reporting, it will provide them a higher level of trust in your HOA and how your HOA is managing the finances of the HOA overall.
The HOA can hire a financial manager to help them manage the HOA financial reports and the HOA’s finances. The financial manager can also perform bookkeeping, or the HOA can outsource bookkeeping services, as well.
Accurate Financial Reporting Is a Must
When it comes to HOA financial reports, never cut corners. It is a task that must be done with accuracy. Your HOA board is lucky to have a CPA or a financial expert on board. But if you don’t, consider outsourcing financial management services.
The HOA board has a financial obligation to its residents, and there is no excuse for failing. If you need help with your HOA financial reports, just give us a call.