New board member tips for quickly getting up to speed.

Welcome to the board!

As a new HOA or community association board member (or property manager), you’ve most likely inherited a budget created by others who may no longer even be on the board. It’s incumbent upon you to educate yourself on the business aspects of your community as quickly as possible. Getting up to speed on the budget and financial operations is a great place to start. It will give you a good overview of the current financial health of your community, helping you set goals and make key business decisions through the rest of the year.

Follow this three-step plan to educate yourself, while ensuring that your budget adequately funds community operations and reserve accounts.

Step 1 – review last year’s financials

The best place to start your education is by looking at last year’s final financial reports. Note where expense or revenue items are well over (or under) budget, and what explanation, if any, is provided for those variances. Ask previous board members for clarification if needed, and then document those explanations for future board review. The less information provided about the variance, the greater the chance it will cause some sort of future issue. Expense items that are under budget aren’t necessarily worth celebrating. It could mean that key components of the community aren’t being adequately maintained, requiring extra repairs in the future.

Speaking of the future, don’t forget to review the reserve account, which is the long-term savings account for your community. This is how you pay for pre-planned major repair and replacement projects, like resurfacing the tennis courts, painting the building, or refurnishing the clubhouse. Community associations commission a reserve study to determine how much needs to be saved every year to cover those future expenditures.  The reserve account should be funded to the level mandated by the study. If it’s underfunded, you’ll need to make up for the shortfall.

Step 2 – understand the monthly financial reporting package

While property managers are familiar with how HOA financials are presented each month, new board members may not be used to seeing these reports, which include financial statements, bank statements, and bank reconciliations. Now is the best time to learn about each of the components. Have the treasurer or property manager walk you through the most recent monthly financial reports, explaining:

  • The monthly financial reporting process, as in who does what and when.
  • Variances between budgeted and actual amounts.
  • Differences between bank account balances and reconciled balances.
  • Reserve account funding, as well as major reserve projects planned and in process.

This is your chance to ask questions and note areas where additional explanation or attention is required. Then you can bring all of this knowledge and experience to the next monthly board meeting.

Step 3 – take your place as a community leader

Now you’re ready to take your productive place as a board member or property manager. You have a sound understanding of your community’s current financial health, and specific ideas to improve it.

Here’s some final advice based on my 15+ years of experience as an HOA CPA and board member:

  • Review contracts. Make sure all major contracts, like landscaping, pool maintenance, and property management, are fully executed and up-to-date. Renegotiate or bid out expired contracts.
  • Listen to the experts. There are CPAs (like me), attorneys, and property managers available who can share valuable experience and insights. You’re not alone, and whatever roadblock you run into is probably not unique.
  • Review insurance coverage. The community, as well as the board, must be adequately covered by business liability and board member liability (D&O) insurance policies.
  • Be a team player. To be successful, the board members and property manager need to work together as a team. Don’t shirk your responsibility, but also don’t take on too much. And don’t forget to communicate, with each other and with the rest of the community.

By Neal Bach, CPA