By Mark Gerstle, CPA, CFE, & Robert Rosen, CPA / Published August 2018
The most important task undertaken by an association’s board of directors and property manager is the budgeting process and determining the use of association dues. The budget is the means by which management and the board of directors of a common interest realty association (CIRA) meets its obligation to the membership. An understanding of the process makes it easy to understand what all these numbers mean, to see the forest through the trees.
There is a difference between cash in the bank and the true amount available for future spending. The cash balance at a particular date represents what is in the bank but by itself does not reveal whether the money is already committed. The entire balance sheet paints a better picture.
Equity / Fund Balance—The Operating Fund Balance (or Equity) represents the net position of funds available to spend and is the result of the difference between the assets and liabilities.
In order to alleviate some of the time pressures of the budget process, the initial projections on the following years’ budget should begin in July or August (for calendar year ends or just after the six-month financial statement data becomes available).
Review general ledger for coding accuracy. Miscoded and/or unrecorded transactions can unwittingly lead to future variances. Pay particular attention to items labeled as repairs that should be reserve expenses.
In the end, know what you have, and understand what you need. Monitor monthly financial reports for the changing nature of budget variances and operating results so there are no surprises. While this process in and of itself is not simple, it is certainly easier under the watchful eyes of an astute board and management team, that understands their association’s operations.