By Tara Tallaksen / Published January 2023
Happy New Year, board members! We hope you enjoyed your holiday festivities surrounded by family and friends. Now that we’re all rejuvenated from the break, it’s time to get back into the swing of things. Vesta Property Services understands that it’s beneficial to refresh your skills and knowledge as a board member, especially when it comes to advanced financial management techniques. In this article, we’ll be taking a closer look into financial management as a whole and what specific practices would be best for associations to implement in their communities.
First, it’s important to understand the basic accounting terms used for HOA financial management. Some common terms used are accounts payable, accounts receivable, audits, financial statements, demand fees, reserve account, and reserve study. Accounts payable are when associations need to pay vendors. Accounts receivable can be defined as money owed to the association. Audits are financial reviews that help ensure association accuracy in financial statements. Financial statements are official records that detail all the association’s financial activities. Demand fees are outstanding debts that must be paid to associations by homeowners before selling their homes. Reserve accounts are funds that are only used for repairs or replacement of community property. Lastly, a reserve study is an association report that itemizes upcoming repair and replacement obligations and establishes a funding plan. Please note that these are a few of the most frequently used accounting terms; your association may use other terms as well.
What are fidelity bonds? Fidelity bonds are insurance policies that help protect HOAs from unexpected financial losses like theft, fraud, and other similar acts. In fact, fidelity bonds are required for individuals to purchase houses with mortgages, specifically the Federal Housing Administration (FHA) loans. To meet the FHA standards, the HOA fidelity bonds must cover all employees, volunteers, or management company employees dealing with association finances for three months of assessments and other fees plus the reserve funds. It’s very important that fidelity bonds are applied to every individual who deals with the association’s financials, as this can help minimize theft and the threat of fraud. Community management companies are strongly encouraged to consult with legal professionals to make sure each association is properly and legally financially protected.
All HOAs must have sufficient financial records that can be used to create accounting reports that adhere to the legal requirements of the association. Accounting reports help organize finances, ensure transparency, and keep track of taxes and other legal obligations. These reports should be written consistently throughout the year or annually, depending on the association’s population and homeowner regulations. HOAs can maintain their financial records in two ways: a volunteer can be the association’s treasurer, or they can hire an experienced community management company accountant. The benefits to having an accountant with a management company are that they are experts in HOA financial management; it is more convenient, at least for the treasurer; and a company will have more access to advanced resources such as technological software and legal professionals.
There are many different financial management practices that are available for board members. One of the most important practices is budgeting. It’s vital for board members to set an annual budget that can accurately cover expenses for the community throughout the year. To help with budgeting, board members should factor in cost forecasting and consider any potential risks that could impact the community’s finances. Once these are established, board members should focus on reserve funds. It’s beneficial to dedicate time to establishing the association’s reserve funds as this can help board members plan for upcoming and future repairs within the community. Additionally, board members should emphasize payment of their accounts receivable, as it can help their association maintain a consistent and steady income.
At Vesta, we believe it’s vital that board members stay up to date with their responsibilities and understand what resources they can use, especially when it comes to financial management. Our accounting team is comprised of trained professionals in association financial management and are always willing to help communities when they can. With their expert knowledge and advanced tools, they can provide guidance to board members, keep track of association finances, and so much more!
Marketing and Sales Assistant, Vesta Property Services
Tara Tallaksen is the marketing and sales assistant of Vesta Property Services. She started working for Vesta in amenities as a lifeguard supervisor for about a year before transitioning into her corporate office position. Tara graduated from the University of Florida with her bachelor’s degree. She enjoys exercising and is a certified personal trainer. She plans on continuing her career in marketing and is always willing to learn more about the field. Vesta’s great career opportunities, team support, and diverse trainings can help Tara achieve her professional and personal goals. We’d love to hear from you in the New Year! For any financial management or association questions, please feel free to contact us at email@example.com or visit www.vestapropertyservices.com.