HOA Financial Statement Requirements

Among the many records that a homeowners association must keep, the financial statement is definitely an important one. Residents invest in the community through their fees and assessments, and they have the right to see how that money is being used by the HOA board. Transparency and accountability are vital to healthy relationships with the HOA members, not to mention there is often a legal responsibility to demonstrate the wise and deliberate use of community funds.

The details required in the financial statement may vary depending on the state you live in and the bylaws of your association. However, there are some essential items that every HOA should include.

Here are a few suggestions to help keep your financial statements in check and keep all parties happy:

Remember, everything is important.

When it comes to transactions involving money in your HOA, absolutely everything should be on the official record in the association’s financial statements. From the general ledger of all account activity down to current account balances, every single transaction should be included. The more specific details with each transaction, the better!

Beyond the necessity for accountability, financial statements help board members and residents make decisions for the community and future spending. The more they can understand where money is coming from and how it is currently being used, the more they can determine its best use in the future.

So much time and effort is put into establishing HOA budgets that it only makes sense to track their implementation through accurate financial statements. Association bank statements provide much of this information, but a basic report of income and spending does not give the complete picture. All account types should be in the report, including reserve funds. The elements of the financial statement may be detailed in separate documents, or some areas may be combined for more concise reporting. This depends primarily on the size and requirements of each association, so do what works best for your particular HOA.

Don’t forget what should be coming in.

It might be easy to focus on the actual account balances of the cash in and cash out, but that does not take into consideration any outstanding payments that should be contributing to the association income.

All receivables should be noted in the financial statement, including upcoming or outstanding regular homeowner fees, even those sent to collections! It is also important to include any upcoming credits, like those from vendors, or other one-time payments. It is far too easy to lose track of delinquent payments that are not properly recorded, and your association could suffer greatly from these missing funds!

Keep it simple!

Including details should not mean overcomplicating things. Though HOA financials can be complex, they need to be presented in a format that can be understood by any resident, especially those who are not professional accountants! Keep the presentation clear and concise, without excluding the important details. Try to keep the accounting jargon to a minimum and use common everyday vocabulary. This simplicity will help with access and morale among all community members, encouraging confidence in your board, and better relations across the community.

Be consistent.

How often you make statements available will depend on your state and association requirements. No matter the frequency, it must be consistent. Residents will come to expect the statements on certain dates and may become frustrated or suspicious if the schedule gets unpredictable. Regularity in your reporting builds trust and confidence among your community members and may help keep you organized, too.

You can be sensitive and honest at the same time.

Though the overall financial statement should include all transactions and be as detailed as possible, it is not meant to shame community members. Specifics about sensitive issues such as delinquent accounts or penalty fees should be known to the board, but do not need to be aired for public criticism. Be discrete and professional. Focus on the information, not the names. Honesty is a must when it comes to finances, but you really can be honest while protecting individual privacy. This small effort of being sensitive to the challenges of individual residents can also go a long way to maintaining positive morale and interactions among residents and board members.

Though there are a number of variables with each HOA due to location and size, the basic counsel for financial statements remains the same: include all the ins and outs – even those that are overdue.

Keep things honest, simple, and consistent! Respect your audience, and don’t be afraid to ask for help if you need it. There are professionals waiting to use their expertise to benefit your HOA, and this service can alleviate a lot of stress and pressure on the board, no matter the size of your association. To learn more about HOA management services in Houston as well as throughout Texas and Arizona, contact Spectrum Association Management today.