Reserve Bookkeeping for Associations and Co-Ops

By Sundeep Jay, RS / Published August 2023

B ookkeeping is an integral part of managing any business, and it is no different for a community association or a co-op. Though most associations are nonprofit, good bookkeeping concepts of running a successful business are the same as for a profit organization. Besides the fact that there are IRS laws and the State of Florida statutes regulating bookkeeping for associations and co-ops, using and maintaining good accounting records will help the property manager and the board make smart decisions for their association.

     As a property manager or a treasurer of an association, it is vital to understand the difference between an operating budget and a reserve budget. An operating budget includes items such as the association’s common area water bill, light bill, insurance payment, monthly lawn service, salaries, annual pool maintenance, and various other expenses that happen on a monthly or annual basis. Items that are usually As you review the prior year’s profit and loss statements, look further into the maintenance-related line items. Maintenance line items related to asset replacements should be incorporated into the reserve budget. Replacements of common area a/c units or the replacement of pool heaters belong in the reserve budget, not the operating budget.

     A new property manager (CAM) should review the most recent reserve study for their association/co-op within the first one to two weeks of managing a property. This will help the manager better understand what is in the current reserve budget. After reading the report, the CAM should walk around the property getting accustomed to what items are in what location, such as the pool equipment, fire pump, and streetlights. By reviewing the reserve study, you will be able to get a rough idea as to the age of the roofing system, when the next paint cycle will be due, and what projects might be on the near horizon. Once the reserve study is reviewed, the property manager should sit down with the president and the treasurer to figure out where the community is in relation to upcoming projects.

     If the association/co-op does not have a reserve study, then this should be discussed with the board and proposals obtained to have a reserve study completed. To prepare an unbiased report, an independent reserve study should be completed by a reserve specialist/analyst, not by board members or a property manager.

     An association/co-op should maintain an electronic copy and a hard copy of all prior major asset replacements within their community. Though a roof might have been replaced 15 years ago, the original contract should be maintained even after a new roof replacement occurs. Painting contracts should also be maintained but not the railings. There could be other structures on site, such as a parking garage, which may not be painted on every paint cycle. By having the past three paint contracts, the property manager can figure out what has been painted and what needs to be painted on the next paint cycle.

     When storing contracts electronically, an association should create a system of classification for ease of access in the future. For example, a main folder should be created called “Reserves.” Within the main reserves folder, multiple subcategories of asset folders should be created. The following are some recommended subfolder names to create: roofing, painting, paving, pool and spa, guardhouse & equipment, mechanical items, fire system, elevators, clubhouse, interiors, seawall, air conditioning, plumbing, electrical, recreation areas, tennis courts, and restoration. Whether monies are used from reserves, special assessments, or the operating account, a contract for any repair or replacement of the assets that belong in any of the subcategories should be placed in the respective folder.

     Regardless of the original file name for an individual contract saved on a computer, a new name should be given to further clarify what is contained in the contract along with the company providing the service and the year the contract was created. For example, a coal tar roof replacement should read “coal tar roof (Roofing, Ltd.)—2022.” Other examples of naming asset files/contracts might be “pool resurface (Pool Inc.)—2020,” “concrete restoration (Johnsons Engineering)— 2001,” “fire pump (Fire System, Inc.)—2010,” “pool pavers (Pavers Unlimited)—2014,” etc.

This way you can do a simple search anytime in the future to find a specific contract. You can now search by the name of a project, company name, and/or the year the project was started/completed. Be sure to always keep two backups in two different locations. The property manager, treasurer, and the president should always have access to these contracts.

     It may be tedious in the beginning to create such an asset folder called reserves, but I assure you that moving forward the association will reap great benefits. You will be highly recommended as a good property manager who is organized and able to obtain important information related to your building quite quickly. Once this folder is created, gathering the required documents for your reserve professional will also be less tedious. You will be surprised sometimes when you ask three different people within an association when a roof was last replaced, and you receive three different answers, including, “I do not know.” These uncertainties will slowly go away as the reserve folder grows over the future years of the association. 

Sundeep Jay, RS, Senior Reserve Specialist

J.R. Frazer Inc.

   Sundeep Jay is certified as a senior reserve specialist. He has been completing reserve studies and condominium/HOA property & flood valuation reports for a little more than eight years with J. R. Frazer Inc. He graduated with a degree in accounting and computer science from the University of Central Florida. Throughout his career, he assisted in building more than 70 to 80 residential homes as a real estate broker while also operating his own mortgage company. For more information, call 561-488-3012, email JRFrazerENT@aol.com, or visit www.JRfrazer.com.