Financial Record-Keeping Following the Money

Whether your community is a condo, HOA, or co-op, 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  

Of course, board members and trustees are usually volunteers—and they may or may not have a background in bookkeeping – so while it’s not realistic to insist that they know as much about accounts payable as a professional might, there are a few important items that are essential for them to familiarize themselves with. These include resident arrears, cash balances, unusual items such as special repairs or overtime, long-term unpaid invoices, reserve activity and balances, profit-and-loss statements (also called income statements), accounts payable and receivable, subsidiary ledgers, bank reconciliations, check registers, expense and income vs. the budget, and major capital projects coming up. 

Many of these items are contained in a monthly report provided by the property manager, which is reviewed by the treasurer or other board members each month. “If they have a property manager, they pretty much get the balance sheet and the income statement, because usually the management companies we work with have resident accountants on staff who know this material well,” says Mark Love, principal of M Love & Associates, a certified public accounting firm in Holden, Massachusetts. “But the self-managed or smaller ones, they would be inclined to do cash receipts and disbursements.” A cash-basis system only shows the cash inflows and outflows. Associations that are tracking their finances only through cash are just getting a quick snapshot of how much money is in the bank, and if a regular payment hasn’t gone through, or a long-term budget item isn’t included, the snapshot can be inaccurate.

Whether a board chooses to receive an in-depth financial statement or a cash basis report, a monthly report is essential.  And even a brief report is better than no report. “No reporting at all,” Love says, “is a terrible policy or practice. One hundred percent of the time, whenever we come into a problem or witness a problem, it’s because there was a lack of reporting. So even if it’s not perfect, it still needs to be provided. Perfect is nice; provided consistently is better.”

There are, of course, serious downsides a lack of consistency in financial reporting. “The more common thing is you end up not disclosing a trend, a problem, a potential loss, a potential bad year about to unfold, if you don’t keep on top of your numbers every single month,” Love says.  “The thing I hesitate to throw out there is that it’s an opportunity for all kids of impropriety. It does happen.” As a certified forensic auditor, he has seen it all: “Usually if someone is withholding information, making excuse after excuse, month after month, that’s usually pretty telling that there’s some kind of problem and boards shouldn’t tolerate that.”

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