report at every annual general meeting.
••
Prepare a long-term operating budget covering the next three to five years.
••
Include reasonable reserves for future major repairs and replacement of common facilities.
Disclosure
••
Provide home owners with reasonably detailed summaries of budget and reserve information on an annual basis, with further information readily available.
••
Request financial statements from the manager or accountant at least quarterly.
••
Inform home owners when the annual financial statement, which must be prepared in accordance with the basis of accounting used by the association, is available for review.
Policies / Record keeping
••
Develop a written, legal, board-approved collection policy for enforcing owners’ levy obligations.
••
Establish that the board must approve all write-offs of bad debts in a timely manner.
••
Solicit competitive bids for services, and require board authorisation for all expenditures over a predetermined amount.
••
Request timely updates and reports from the association’ s manager and accountant.
••
Keep detailed meeting minutes, paying close attention to all fiscal matters.
••
Conduct payroll audits to ensure all employees are legitimate, and paperwork is current and complete.
••
Carefully archive all permanent financial records.
Budgeting
••
Assign budget items in the month during which the expenses are expected to be incurred rather than dividing total yearly expenses by 12.
••
Require board approval for cheques in payment of non-budgeted, non-recurring expenses in excess of an established limit.
••
Compare income statement with the budget on a periodic basis( at least quarterly).
••
Require board approval for capital expenditure and big contracts – see bid requests, below.
Bid requests and requests for proposals
Management of a community association’ s resources frequently involves the use of contracts to obtain the products and services required. Given such, one component of the board’ s fiduciary responsibility is to ascertain that the association is not paying too much for the products and services it receives. The most effective way to ensure competitive prices is through bid requests to potential contractors. A bid request or request for proposal( RFP) is an announcement that an organisation is interested in receiving proposals for a particular project or service.
Because of the amount of effort the bidding process requires for both the community association and the bidders, the process should be used only for significant projects or purchases, and for ongoing services such as lawn maintenance. The board of directors should determine the minimum size of a contract that requires competitive bidding. Simply stated, bid requests and RFPs allow the board to solicit competitive prices for products and services, thereby ensuring that the community association obtains the desired services from a quality service provider at a reasonable price.
Financial responsibilities
A community association’ s governing documents and management contracts will define formal roles and responsibilities in the budget process. These roles should be communicated in a constructive manner to all involved to ensure that appropriate expectations exist. Below is an outline of the responsibilities of volunteers and professional staff typically charged with developing community association budgets:
••
The board of directors is responsible for establishing, approving and monitoring the community’ s budget.
••
The treasurer or finance director is usually responsible for the preparation and review of the draft budget. He or she typically delegates the initial preparation of the budget to the manager or accountant. If applicable, the treasurer will then review the draft of the budget with the association’ s finance committee.
••
Owners should be aware of how the association’ s finances are being run, and they may need to vote on some things, e. g. a large increase in levies, special levies, capital expenditure improvements or funding reserves. Some associations require that owners vote on budgets.
••
The manager’ s formal budget responsibilities are listed in the management contract, but they will usually include: »» preparing a draft budget
»» reviewing the draft with the treasurer, finance committee( if one exists), and the board
»» revising the draft budget after changes are made
»» mailing a summary of the proposed budget to owners prior to approval
»» mailing copies of the completed budget to all owners and having copies on hand for prospective owners.
Accounting practices and financial statements
There are two commonly used bases of accounting – the accrual basis of accounting, which is required by generally accepted accounting principles( GAAP), and the cash basis of accounting, which is considered to be an other comprehensive basis of accounting( OCBOA). OCBOA is not in accordance with GAAP, which is most often used by community associations.
Generally accepted accounting principles
GAAP accounting provides uniformity among financial statements from different community associations. GAAP requires the use of accrual accounting for annual reports, because it records income when earned and expenses when
59