By Charles Hafer, CPA, MBA & Nicole Johnson-Pendergrass / Published December 2016
Editor’s Note: In the November issue, several financial service providers submitted helpful tips on how to save money, how to make money, and how to responsibly manage money. This is another helpful tip.
Money! Making, saving, and managing money is a responsibility of the association. Controlling money is called “budgeting.” Budgeting is not an exciting word, but it is crucial to money matters. When we think of money, we immediately think of investments. However, for a member-driven association, as the American humorist Will Rogers says, “the return of the money is more important than the return on the money.” Poor investments or fraud results in very unhappy owners. For these purposes, the best investments for an association are the least risky ones, ensuring the return of the money over the return on the money.
All facets of money are affected by budgeting, which we call “smart money.” There are three elements to an effective budget:
Smart money (successful budgeting) uses effective fraud prevention actions (internal controls). What good is collecting, earning, and efficiently spending money if the association permits money to be lost through fraud or poor investments?
Effective analysis of long-term costs (reserves) is paramount to successful budgeting. Most associations do a good job of identifying current budgets. However, few associations do an excellent job of estimating long-term costs, especially if reserves are waived in the budgeting process. The association is then surprised when long-term costs exceed plans or are not even considered. Smart money requires analysis of long-term costs, including reserve studies that can minimize these surprise costs.
Finally, well-planned, long-term costs result in no loans. However, when a loan is needed, an association should obtain the best terms possible while remaining in compliance with its documents.
Remember, everything starts with good effective management, addressing appropriate risk when investing money, and preventing fraud—all while having an excellent handle on long-term costs (reserves).
Charles Hafer is Managing Partner for Hafer & Company. Nicole Johnson-Pendergrass is the Director of Operations. For more information on Hafer & Company, call (561) 655-8700 or visit www.hafercompanycpas.com.