HOA Management Comes with Important Fiduciary Duties

A crucial part of HOA management is keeping track of your association’s money. It’s not an exaggeration to say that good bookkeeping is a key ingredient to a smoothly run association.

The board members and officers of your HOA have a fiduciary duty to their fellow homeowners to take great care in looking after the association’s finances. It’s serious business, and you’re expected to act in good faith if you accept the responsibility.  

There’s also a lot of math involved, and it helps to have a meticulous nature that’s geared toward putting things in their proper places.

But when you get right down to it, bookkeeping is about communicating your organization’s financial situation in a way that others can understand. A few things bookkeepers do:

• Collect documentation for each financial transaction.
• Record transactions in a paper or virtual accounting journal.
• Classify each transaction as debits or credits.
• Organize the transactions for easy review.

It’s important to create transparent reports, so HOA board members, volunteers, and others can understand the association’s financial footing. When people have questions, the bookkeeper should have answers ready in the form of a monthly financial report.

These reports provide insight into your association’s:

• cash management- an overview of your organization’s liquidity and cash-flow situation
• profit and loss- a comprehensive look into your HOA’s accounts receivable and accounts payable
• the bigger picture- a way of examining your association’s financial trajectory to inform future decisions

HOA management requires the bookkeeper to make sure the association’s balances match those of the bank. Your monthly financial reports are necessary during the process of bank reconciliation, which should be completed at regular intervals to ensure all the numbers agree.

To stay on top of things, it’s best to compare your association’s financial records when you receive your monthly statement from the bank. Mistakes in your favor or in the bank’s favor can create cascading problems if they’re not caught quickly.

If you’ve been put in charge of your HOA’s bookkeeping, it can feel like an overwhelming task. However, as mentioned earlier, keeping the books is a form of communication. To do it well, it helps to be able to speak the language.

Let’s take a deeper look at the different reports and records that make up a monthly financial report.

HOA Management–The Monthly Financial Report

While there are commonalities, HOA management differs from association to association. The same is true for the way various associations approach their bookkeeping.

If you’re new to the role, try to meet with your predecessor so you can get the lay of the land. There’s no reason why you can’t change procedures if need be, but it’s important to fully understand the current system before altering it.

A good checklist will help you organize your efforts. Items on your checklist can include:

• profit and loss statement
• budget vs. actual
• general ledger
• balance sheet
• aging accounts
• delinquency report
• bank reconciliation

A profit and loss statement is a report that summarizes the revenue, and expenses for each month. It’s one way to analyze the financial health of the organization.

At the beginning of the fiscal year, it’s a hallmark of solid HOA management to create a budget. Throughout the year, it’s necessary to compare the budget to what’s actually happening. If there are deviations from the plan, it’s an invitation to do more research to uncover the cause. At the very least, it helps you prepare for the next year’s budgeting process.

A general ledger is a tool for keeping track of the organization’s financial picture. It often includes:

• assets
• liabilities
• equity
• expenses
• revenue  

A balance sheet shows the financial position of the association. A balance sheet includes three essential items to verify:

• operating account balance to ensure there are funds to pay the monthly bills
• reserve funds balance to ensure there are funds for expected and unexpected expenditures
• receivables balance to ensure the association is not spending more monthly funds than received

A balance sheet shows the financial position of the association. It includes these essential items to verify:

• asset- bank account balances (operating, reserve, savings, etc) – asset
• asset – account receivable balance
• asset- any physical equipment or other physical assets (land, buildings, etc)
• liability- prepayments (usually dues)
• liability- loans or other monies owed
• equity- retained earning, equity transfers, etc (rare in HOAs)

If everyone paid on time, there would be no need for an accounts receivable aging report. However, HOA management doesn’t run smoothly all the time. The aging report keeps track of how long an invoice for accounts receivables has been outstanding. It’s a way of estimating the value of receivables that the association doesn’t expect to collect, and it prevents the HOA from overstating its income.

When people move into a home in a neighborhood with an HOA, they sign legally binding agreements. Standard contract language informs new homeowners of their responsibilities, including paying regular dues.

A delinquency report is created for each address and includes the amount that’s past due and for how long. Depending on the numbers, the past-due funds could create a cash-flow problem that will need to be addressed. The report also provides a rationale for taking further steps to collect what is owed to the association.

That brings us back to bank reconciliation. It’s an essential tool for maintaining your association’s finances. It ensures that all transactions involving your bank have been reviewed and checked, and it provides the opportunity to detect errors and identify possible fraud. Reviews should be conducted monthly, and it’s best to make sure all errors are resolved within 90 days.

Help from HOA Management Software

Self-managed HOAs across the country rely on volunteers to keep the books up-to-date. It’s a big responsibility, but if others can do it, so can you.

However, there’s no rule that says you can’t have help. If you have family and friends with accounting or bookkeeping backgrounds, it might be wise to take them out to dinner on your dime, so you can pick their brains. (It’s best to let them know of your intentions because you don’t want to surprise them during the entree.)

You also might consider accounting software designed for homeowners associations. The right software can help you:

• Save money by keeping a closer track of HOA finances.
• Save time by eliminating unnecessary steps.
• Build transparency by providing homeowners with a clear picture of the HOA’s finances.
• Plan for the future by consolidating records and making it easier to chart a course.

A proven software partner can make it easy to tell your HOA’s financial story. PayHOA’s approach is designed for busy volunteers who want to act in good faith on behalf of their neighbors. 

PayHOA’s accounting software:

• requires no accounting background to operate
• syncs bank ledgers with more than 15,000 financial institutions, eliminating the need for double entry
• generates real-time account reports to be shared with board members and stakeholders
• includes templates for more than 25 reports, and custom reports can be created as needed

The software also makes it easy to build a budget that forecasts expected income and expenses, and it allows you to create customized charts of accounts to share with your community.

PayHOA’s accounting software allows you to create custom tags, fields, and notes to make it easier to search for the information you need for your reports. In addition, owners can access their account histories and important documents at any time day or night via PayHOA’s online portal.

Keeping track of your association’s books isn’t a glamorous job, but it’s a truly important one. A dutiful approach and dedication to transparency on your part will have a real impact on making your neighborhood a more comfortable place to live.
PayHOA offers an HOA management software solution for HOAs of any size or managerial priorities. To find out if PayHOA fits all your HOA management needs, try our software free for 30 days.