“If I Were An Association Board Member” – The 10 Things We Hope All Board Members Do
10 Things I Hope All Board Members Do:
- Acknowledge their fiduciary responsibility to all owners.After all, Board members are entrusted with properly managing other peoples’ money, primarily for the care and preservation of commonly owned properties. They are expected to honor the Association’s governing documents and corporate by-laws, Board rules, as well as the Florida Statutes and Administrative Code.
- Receive education in understanding and interpreting the monthly and annual financial statements.This is not just the responsibility of the Association Treasurer. I frequently hear comments from Board members such as, “I have to spend so much time going through our monthly financial package. Is there a simpler way to do it?” The answer is “YES.” With guidance from the Association’s CPA, a checklist can be developed to check for accuracy, completeness, explanations of variances, and essentially, answer these questions: How are we doing? What action steps should we consider?
- Implement Internal Controls covering accounting and financial activities of the Association.Develop, and adhere to, an Association Accounting Policies and Procedures manual. The internal controls will include procedures to monitor compliance with the policies and procedures.
- Timely address all issues brought to the Board’s attention.When requests are made of the Board, respond in a timely manner. Ask yourself, “If I made the request, when would I expect a response?”
- Gain an understanding of the accounting for the separate activities of the transactions in the Operating Fund, Major Repairs and Replacements Fund, Special Assessments Fund, and Debt Servicing Fund, if any.Expenses that relate to the annual operating activities of the Association should be charged to the Operating Fund. Expenses of the Major Repairs and Replacements Fund should be for Common Area components that were included in the reserve studies that formed the basis of the budgeting for reserves. Expenditures from the Special Assessment Funds should only be for those projects that were approved when the special assessments were adopted.
- When bank financing is obtained, carefully project the entire debt repayment process through the end of the loan term. Specifically, consider issues such as:
- Interest expense is being charged only to those owners who elect to pay their special assessments over time.
- Implement procedures for pre-payments to be promptly deposited.
- Arrange for re-amortization of the total monthly payment at least twice per year to consider the fact that prepayments reduce the amount available for the monthly bank payments.
- Establish timely accounting and monitoring procedures to recognize when special assessment expenditures are exceeding the amounts assessed, and do not delay taking appropriate action.
- Formally respond to Letters of Recommendations from the auditors.These recommendations are generally based on observations during the course of the audit and/or Best Practices.
- Adopt “annual” budgets based on not just historical experience, but also on documented detailed analysis of expenses expected to be incurred in the following year.Many Boards attempt to maintain assessment levels at the same amount for many years, but failure to consider cost of living increases, as well as deliberately delaying needed replacements and deferred maintenance, can result in significantly larger assessments in future years.
- Consider having periodic Fraud risk “check-ups” performed.Establish procedures to encourage anonymous reporting suspecting fraudulent activity through a hotline, such as www.fraudhl.com.
- Hire the best and most experienced professionals: legal, management, CPAs, engineers, insurance, etc.
Monte Kane, CPA
Monte Kane, CPA, PFS, CFF, CGMA, CSA, is a principal in the Audit, Tax and Accounting, and Litigation Support departments at MBAF. Monte heads up the firm’s Condominium and Association Division. Visit www.condocpas.com or email firstname.lastname@example.org.
With over 30 years of experience in both national and regional public accounting firms, Monte’s expertise is in a wide diversity of industries including real estate and condominiums, healthcare, professional service firms, hospitality, entertainment, manufacturing, distribution, forensic accounting, and estates and trusts.
Monte co-authored the American Institute of CPA’s Accounting and Audit Guide for Common Interest Realty Associations, covering condominium and homeowner associations. He has lectured in national, state, and regional seminars and workshops of several organizations on auditing, taxation, and personal financial planning topics.