5 tips for quickly getting up to speed on the fiscal health of your community.
Welcome to your Homeowner Association or Community Association board of directors! You may or may not be excited about your decision to “volunteer,” but it’s time to prepare for your new role. Here are 5 things you should do to acclimate yourself with the board, finances, and liability.
- Conduct a financial and budget review. This should be your top priority, especially if more than 50% of the Board positions are turning over. Have a CPA with relevant experience review the budget and monthly financial statements for accuracy and integrity. Also confirm that Reserve account balances match the Reserve Study and that there are adequate financial controls in place to regularly review status. Finally, make sure that your Association filed a tax return last year.
- Review collection rates and procedures. What percentage of your neighbors are not paying their dues? This is called the delinquency rate, and it should typically be less than 7% of budgeted dues revenue. To maintain the quality of life in your neighborhood, all neighbors have to pay their share. While temporary hardship situations can be addressed with payment plans, you should have a well-defined collections procedure for neighbors who just don’t pay.
- Review the board member insurance policy. This is commonly called directors and officers liability insurance, and it protects you personally from legal expenses and judgments in the unlikely event that someone sues your Association. Make sure that you are covered for issues that occurred before you joined the Board, as someone can still sue over an event that occurred months or even years ago.
- Verify vendor contracts. Confirm that written contracts are in place, at least for major relationships like property management and amenities maintenance, and that there are no conflicts of interest between the vendors and past or current board members. Even the slightest perception of impropriety should be avoided.
- Meet with the Association attorney – Many neighborhoods have a retained or project-based attorney who helps with legal advice, dispute resolution, and collections. As a trusted advisor, the attorney may be aware of previous issues that could impact current board, as well as potential issues that may impact the current board unless they are effectively addressed. Dues collections, mentioned above, is a great example of something that may require immediate attention.
Be prepared for 2013 as a new Homeowner Association or Community Association board member
By conducting a thorough review, you’ll be better prepared and experience a smoother transition into your new board role. It is also better to know about potential challenges now so the new board can quickly react and resolve. Once you are up to speed, make sure you share what you’ve learned with your neighborhood. Just like you, they have a vested interest in their community and want to know what’s going on.
I’ve been a Board member in my own community for 6 years, and have been providing accounting and tax services for community associations for over 15 years. Although your neighbors don’t say this very often, thank you for volunteering to serve your community! While there are challenges in any new role, this can be a great way to get involved and help shape the future of your neighborhood.
Neal Bach, CPA