When it comes to your community association’s financials, simply assembling monthly reports in time for the board meeting shouldn’t be your ultimate goal. Community boards and property managers should always be striving for financial results and ratios that are the best of the best.

 Through the past 20 years of working with community associations, we’ve gathered a list of best practices that lead to stellar financial reports and performance. Here are our Top 10, including several tried-and-true practices as well as a few new ones that have become pertinent since the pandemic:

  • Maintain a low delinquency rate. What percentage of homeowners are not paying association dues? Ideally, this rate should be between 3% and 4%. If your delinquency rate is a little higher due to the pandemic, review and reset your collection procedures as we adjust to a post-COVID-19 world.
  • Keep a consistent level of operating cash. Shoot for a cash balance equal to six months’ worth of operating costs. If you can’t reach that goal, ensure you have at least three months’ worth plus a little more. This level is particularly important at the beginning of the fiscal year when you’re just beginning to collect revenue, but expenses won’t wait.
  • Reconcile your bank statements. Your books and your bank statements should match 100%. If they do not match, it’s time to investigate and get bookkeeping back on track.
  • Compare budget to actual. Both the property manager and a board member, preferably one with financial experience, should review financial statements every month. Discuss variances between budgeted and actual revenue and expenses, and then document reasons for future reference.
  • Match vendor invoices to contracts. These should always agree. If invoices don’t match contracted amounts, it’s time to figure out why. As needed, update or renegotiate contracts.
  • Fully fund your reserve account. There should be no shortage or deviation from this for any reason. Reserves need to be 100% funded each year. The pandemic posed financial challenges, but you still should never consider shifting money from reserves to cover operating expenses.
  • Update your reserve study. Commission a new reserve study at least every three years. An accurate and complete assessment of the useful life, as well as repair and replacement costs of common areas and amenities, is crucial to knowing how much to fund your reserve account. Consider more frequent updates to ensure reserves accurately reflect need, particularly given the soaring costs of construction and materials over the last year.
  • Protect your community with theft insurance. This is also known as a fidelity bond, which protects your association against financial damage caused by theft or fraud. While your general liability policy might cover theft, the coverage is often not enough. It’s good practice to carry a separate fidelity bond equal to 100% of the reserve account plus three months’ worth of operating revenue.
  • Carry cyber insurance. Cases of identity theft and unauthorized access to private data have skyrocketed since the beginning of the pandemic. Many general liability policies fall short in offering enough of this coverage. If you keep personal information on residents or employees, whether It’s a driver’s license number or health data, or take electronic payments, you should strongly consider adding this insurance to the community association’s portfolio
  • Schedule regular financial reviews. Whether conducting an audit or audit alternative, such as an agreed-upon procedures engagement, bring in an experienced CPA at least every two years (or as required by law or your association’s covenants). A financial review every three years will still help you confirm your association’s financial health.

Maintaining strong community association financial health is not a static activity. It demands constantly improving your processes and procedures, reviewing performance and evaluating discrepancies, and bringing in outside experts when necessary.

With over 20 years of serving community associations, our CPAs have the experience to help you with financial or tax matters specific to this industry. Please contact us for assistance or with any questions. We’re here to help.