SEPTEMBER 2000

Financial Oversight of Your Association:
The Importance of the Annual Budget and Monthly Financial Statements

Chief Financial Officer - AKAM South, Inc.

Your association is more than just a place to live. Whether it's a homeowners association, a condo-minium, or a cooperative, your association is also a financial entity. Ensuring its financial integrity through accurate and appropriate budgeting and ongoing fiscal monitoring is a critical responsibility that the Board, assisted by management and your association's outside accounting professional(s), must take very seriously.

About the Budget Process
We are now entering the early Fall, which is typically a busy time as the Treasurers, Finance or Budget Committees, management, and outside accounting professionals of most HOAs, condos, and co-ops work to prepare annual budget for the upcoming year. The preparation of this budget requires diligent attention to accuracy and reasonableness in order to make certain that the association will be fully funded for its ongoing expenses and for any major capital outlays.

As my colleague Donna Seidenberg, CPA, of Fort Lauderdale-based Millward & Co., CPAs, an accounting firm that specializes in HOAs and condominiums, correctly points out, the Board has a fiduciary responsibility to provide a realistic budget to owners. The preparation of such a realistic budget requires that Boards look closely at their association's actual income and expenses from the current year, and project forward based on these real numbers and on well-informed forecasts of anticipated income and expenses. (As a valuable aside, this forecast, which must include the association's actual needs and usages and the likely or contracted increases in the association's existing service and product contracts, makes budget season a good time to review and possibly renegotiate or replace your association's existing contracts.)

In addition to analyzing the actual income and expenses of the past 12 months, the most financially solvent associations also make it an annual practice to review the remaining useful life of the major mechanical and structural elements and the estimated maintenance or replacement expense of each of these items. As a result of this review, estimated maintenance or replacement costs can and should be factored into budgeting for the association's reserves so that the most comprehensive financial overview can be produced.

The budgeting process is work-intensive and time-consuming and requires a range of information and competencies. Therefore, in addition to the association's Treasurer and members of the
association's Finance or Budget Committee (which should include at least one or two owners with a working knowledge of finances), two other professionals also should be integrally involved. The first is the managing agent, who has intimate knowledge of the association's current and projected needs. The second is an outside accounting professional like Seidenberg, who can provide specific knowledge of the statutes and accounting principles that govern your type of association and the unique documents that govern your association in particular.

A final word about budgeting. Boards should not be afraid to raise the owner assessment if that is what it will take to balance the projected budget. As every informed owner knows, an across-the-board increase in the monthly assessment is far more desirable than having to pay one or more special assessments throughout the year. And an accurate, balanced budget is essential to preserving the value of the association and each owner's investment in it.

About Monthly Financial Statements and Management's Financial Oversight
While budget season may be the most concentrated financial period of the year, the most effective Boards are actively involved in their association's financial oversight all throughout the year. These Boards make it a practice to analyze and discuss the Monthly Financial Statements that are provided to them by management in order to keep track of their association's immediate and year-to-date financial condition.

AKAM South is proud of the financial management and oversight we provide to our client associations during budget season and throughout the year. Presently, our Management Executives are working actively with association Board Treasurers and Finance or Budget Committees and outside accounting professionals to review existing service and product contracts, to inspect the remaining useful life of mechanical and structural elements, and to prepare annual budgets that will accurately guide our client communities in the year ahead.

Throughout the year, our provision of comprehensive Monthly Financial Statements ensures that our client Boards are completely informed regarding their association's finances. These Monthly Financial Statements, which are delivered no later than the 15th of each month, include accurate records of the current month and year-to-date income and expense, budget, and variances, and are accompanied by bank reconciliations, a schedule of accounts receivable and accounts payable, a list of aged owner arrears, late fees, and collection action taken, and copies of all invoices and checks.

What's more, because we customize our Monthly Financial Statements on a cash and/or accrual basis according to each association's instruction, we are able to provide the most comprehensive representation of each association's actual finances.

At AKAM South, we recognize and appreciate the fiduciary responsibility that our client Boards have assumed to protect and enhance the financial integrity and value of their associations. The financial management services that we provide are guided by our belief that we share that responsibility with you.

©2000 AKAM South, Inc. Every effort has been made to achieve accuracy in the information contained here. However, the law changes constantly and is subject to different interpretations. AKAM South, Inc., assumes no responsibility for any damages resulting from inaccuracy or omission in this publication. Readers are advised to seek professional assistance before making decisions or taking action based on information presented here.

       

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