Whether your community is a condo association or HOA, proper record-keeping is the difference between a healthy property and one headed toward peril. And while meeting minutes and election results require well-organized documentation, records such as bills, invoices, bank statements, receipts and taxes informs a community’s long-term financial health—and how these financial records are stored and accessed is critically important.
What You Must Know
“Each board member should be familiar with their association manager’s monthly management report, which will provide cash balances, receipts and payments for the month and accounts receivable, a listing of residents who owe maintenance or common charges currently, and for over 30 days,” says Barry Korn, CFA and managing director for the New York City-based Barrett Capital Corporation. “Also, the monthly report will show income and expenses in comparison against the budget.”
Board members, Korn adds, must understand that the management report is most often prepared on a cash basis opposed to an accrual basis, which is an annual audited financial statement. “The difference is that the building may have incurred expenses in a particular month, but if they haven’t yet been paid, those expenses will not show up in the monthly management report,” says Korn. “While the monthly report shows cash balances, it does not show liabilities. Thus, understanding the timing differences and liabilities are an important financial consideration.”
In the case of associations, says Karen Sackstein, CPA, of The Condo Queens, an accounting firm based in Fair Lawn, New Jersey, “The financial statements include the assets and related depreciation expense and accumulated depreciation expense and accumulated deficits, as the condo association holds title to all real and personal property. In a condominium association’s balance sheet, there is typically no real property shown, since the building and related improvements are common property that is owned by each condo owner based on their proportionate share of the common elements as maintained in the governing documents.”
At a minimum, most pros agree, board members should have a working knowledge of budget status, reserve fund balances, unit owners in arrears and major upcoming expenses. But beyond these basic financial touch points, board members can get careless or be otherwise uninformed.