by Judith Hanley, CPA.
Even though we’re in the middle of crunch time for 2018 tax return filings, I’m still working on a number of HOA and community association audits and similar financial procedures, like agreed-upon procedures engagements. The volume of requests for these engagements has been steadily increasing – a very good thing. I’m seeing that both board members and property managers want to confirm their communities are operating with sound financial procedures and maintaining good financial health.
While each HOA and community association audit is unique, I continue to notice several similar situations where a little better oversight and control can minimize the possibility (or impact) of major financial issues like theft or fraud.
It CAN happen to you
We’ve seen situations where the theft of hundreds of thousands of dollars would have been avoided, or at least identified much earlier, by something as simple as a monthly review of bank account balances.
Here are three easy-to-implement recommendations to help your community improve its financial health.
- Take financial oversight seriously. As a board member or property manager, there are so many competing priorities that have to be dealt with. Board treasurers and property managers, make the monthly financial report review your top priority. Dig into the details of the financial statement, bank statements, and bank account reconciliation, and ask questions about any unexplained variances before you present results to the board.
- Live by the reserve account and reserve study. I see too many situations where the reserve account is woefully underfunded based on the reserve study, if that study even exists. The reserve account, funded according to a current reserve study, ensures that the community will have enough money saved for major repairs and renovations in the future. Please don’t kick the can down the road. Invest in a reserve study and save the prescribed amount for future needs.
- Implement basic financial checks and balances. Large invoices are paid (and double-paid) without approval. Board members pay vendors directly. Expenses are reimbursed without receipts. These are just a few examples of situations that could cause major hassle – financial and legal – for boards and property managers. Determine who can handle money, define spending levels that require additional approval, and segregate financial duties. Don’t forget to regularly change system passwords!
Start now. Stay vigilant
If you have questions about things you can do to improve financial oversight and controls in your community, please contact us. We’ve been working with HOAs, community associations, and property management companies for over 15 years. While we’ve helped uncover some major financial issues, a few simple changes to procedures and reporting are often all that’s needed to minimize the chance of an issue occurring in your community.