HOA Financial Reporting Made Easy: Your 5-Step Guide

ByRussell Munz
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Why is Financial Reporting Important?

Of all the hurdles that an HOA Board member faces on a regular basis, the financial aspect is the most daunting. There are so many sources of information and papers that make for hours of calculator and spreadsheet busy work to simply understand the financial status of your HOA or Condo Association.

You may even notice that the Treasurer of your self-managed community is growing tired of this activity or if your community has experienced a “revolving door” or a lack of candidates for this position.

Despite all this, numbers must regularly be reported to HOA Members and the decisions your HOA Board makes will have to be based on this data – however incomplete or confusing. If you can relate to this struggle, you have come to the right place.

So How Do I Simplify this Information?

The easiest way to go about getting the data you need to make informed decisions for your HOA, Condo Association or Large-Scale Community is to work with a trusted HOA Bookkeeping company that does this work for you.

Community Financials provides all the financial reports you need, built around your Board’s priorities and conveniently in one place online so they can be accessed by the Board members that need to see them.

However, if you are looking to DIY the overhaul of your entire process all by yourself there are some essential steps that need to happen:

STEP 1: Choose the Right Reports

The biggest challenge you are going to face in this process is not limiting your attention to exclusively the reports you need to ensure your HOA thrives.

There are sure to be all sorts of statements coming across your desk, some with valuable information and others not as much, but you do not have unlimited hours in the day to sift through them all and need to be able to get to the point, fast.

Below are the top 4 reports that will help you be able to see a complete picture of your HOA’s financial health at a glance:

1. Aged Delinquency Report

This report is going to be your biggest money-saver – guaranteed! Without extra information cluttering it, this report shows who is behind on their assessments and how long they have been owing.

It needs to be set up to show the following key metrics:

  • Name and address of HOA member
  • Their account number within the HOA
  • How much is currently owed
  • Payments that are 30, 60 and 90 days overdue

The key dates should each trigger an action the Board determines – whether it be a reminder, a stern warning letter, late fee or submitting the HOA member’s account to a collections agency.

A Note on Collection Best Practices

Although it is inevitable that you will need to resort to collections agencies at some point in your Board membership tenure, the process can often be avoided by following these best practices:

  • Make it Easy to Pay – offer several payment options, including online, via mail, cheque and automated payments. Avoid cash as it is harder to track.
  • Increase Communication Frequency – try switching to monthly invoicing, where the late dates and fees are clearly laid out. It also helps to include a return envelope.
  • Use Late Fees – and ensure they are large enough to be a deterrent to missing the deadline.
  • Automate the Process – setting things up in a way that the different day delinquencies automatically generate late letters and next steps of the process can be a huge time-saver.
  • Document the Process – ensure that the Board has a Collection Policy in place that will stand up in court if need be and that every step is sufficiently documented.
  • Automate the Process – setting things up in a way that the different day delinquencies automatically generate late letters and next steps of the process can be a huge time-saver.
  • Document the Process – ensure that the Board has a Collection Policy in place that will stand up in court if need be and that every step is sufficiently documented.

Alternatively, you could try the Community Financials Easy Collect Program through Axela Technologies, which puts the needs of the association first to collect what is owed without further burdening the association or homeowner with unnecessary legal fees.

2. Comparative Income and Expense Report

Another handy tool is this report that shows how the HOA or Condo Association is doing compared to its budget. Budgeting is essential, and as it is something that is presented annually in advance to HOA members the Budget should be adhered to as closely as possible.

Discrepancies do of course happen, but if you catch them early enough you can make up for any shortfalls and ensure that enough capital is available for the required vendor payments and the community’s cash flow.

It needs to be set up to show the following key metrics:

  • Operating income, Administrative fees and Operating Fees rows, with relevant subcategories
  • Columns for expenses – current period and year-to-date (actual and budget)
  • A variance column for each – this is where you will see the variances to address
3. Balance Sheet

Unlike the previous two reports, this one focuses solely on both the positive and negative bank balances of your HOA or Condo Association.

Through the assets (money in the checking accounts), liabilities (amounts owed, AP) and equity (capital reserve funds) you will be able to see a clear picture of the bank account status.

A Note on Reserve Funds as CD’s

It is not unusual for an HOA or Condo Association to have some hefty sums saved up in their reserve funds. Putting the money into a Certificate of Deposit (CD) is a common choice, but is it better than simply keeping it in a checking account?

Here are some pros and cons:

Pros:

  • CD offers higher rate of interest than simply leaving the money in a checking account
  • early withdrawal doesn’t change the interest rate on the invested money
  • largely considered the safest choice of safeguarding funds

Cons:

  • the bank will charge an early withdrawal penalty if the money doesn’t stay invested as promised
  • the Association’s liquidity is limited as a result
  • there is tax that will be owed on the interest that accrues, making net interest even lower

If you are still unsure how best to safeguard and invest your Condominium Association or HOA money, speak to Community Financials today and our financial experts can help guide you through the decision-making process.

4. Bank Reconciliation Report

Unlike the Balance Sheet, this report is as straightforward as they come – there either is a discrepancy in the Association’s books and bank account or not. The report should also take into account uncleared payments and deposits, because the timing of the report would affect the results significantly otherwise.

If there is a difference between the two, there may be embezzlement happening in your HOA, or some other issue that would be wise to catch sooner rather than later.

It needs to be set up to show the following key metrics:

  • Account balance (including uncleared payments and deposits)
  • Reconciling balance
  • Any difference between the two

STEP 2: Set Up Appropriate Access

Once you have determined which reports you will be reviewing monthly and set up their execution as a template, you will now need to decide who in your organization should have access and grant it to them.

If you are not using a dedicated software service for viewing the reports online (such as the one Community Financials uses) you will likely have to manually email the reports to the appropriate list of contacts once the reports are generated and come in from their various sources.

It is recommended that at least the President, Treasurer and Secretary have access to reports – but some Boards choose for all the HOA Board members to have access to the reports for greater accountability.

STEP 3: Provide Results to HOA Members

Once the Board has had a chance to review the data and discuss any outstanding points, it is time to inform the members of the Association’s financial status.

The Board has a responsibility to publish the results in an Annual Report, but to build further trust the Board may choose to give quarterly or even monthly updates. You could also choose to invite the members to Board meetings and actively seek their feedback.

Additionally, HOA members also have the legal right to view any of the financial documents that pertain to them should they request them. The only report that they are not allowed to view is the Aged Delinquency report, for privacy reasons.

STEP 4: Make Informed Decisions for the Benefit of Your HOA

After (1) seeing the statuses of the accounts, (2) reviewing amounts owing, (3) comparing the Association’s books to the bank records, (4) discussing among the Board and (5) having gotten input from the members, you should find yourself well-equipped to be able to make informed decisions that will benefit your HOA or Condo Association.

For instance, if there are fixes that you had been putting off and now you can see that there are some resources available to cover the costs you can confidently say that you have done the necessary research and invest in the fix.

STEP 5: Get Help When You Need It

Perhaps the most important step of the financial reporting journey is knowing when to admit that that your HOA or Condo Association Board is not at the capacity to handle financial reporting internally.

Making this realization early and opting for an HOA financial management service like Community Financials can prevent significant loss of funds due to tardiness of collecting, human error and legal fees.

At Community Financials we pride ourselves on doing the numbers work so you don’t have to and reducing your amount of time required to be a Board member – all at a cost that won’t break the bank.

In fact, when you have the most effective systems in place, the financial management service for your HOA or condo ends up paying for itself!