As a property manager or community association board member, sometimes it’s tough to remember that associations are businesses. Some of them are pretty large, with hundreds of thousands of dollars in dues collected and expenses paid each year. That requires regular, proactive monitoring to ensure that issues, like mistakes or variances, are quickly identified and addressed. In rarer situations, this oversight can uncover theft or fraud.

Read on to learn more about the core financial reports, what to look for, and how to report results to the board.

Primary financial reports

The property manager and at least one board member (usually the Treasurer) should review the financial reporting package each month, and then present a summary to the board. The package should contain at least these five reports:

  • Balance sheet – assets (usually cash or modified accrual) and account balances.
  • Income statement – comparison of income and expenses to budget.
  • Bank statement and reconciliation – like balancing your check book.
  • Delinquency report – residents who owe money.
  • Accounts payable – unpaid invoices

Some monthly packages also include additional items like the general ledger, copies of invoices and checks, and a reserve account summary. Each report tells a story, and can help you identify potential financial issues before they become catastrophic. Below you’ll find more information about each report.

  • Balance Sheet. This report confirms your financial position at that point in time. Assets are the most important items, and are normally the operating and reserve account bank balances and member receivables. For most associations, the primary liabilities are pre-paid assessments and possibly loan balances. Equity is what’s left after you subtract liabilities from assets. Keep an eye on the receivable balance. Uncollected assessments increase the burden on all members.
    Tip: Make sure there’s enough operating cash to fund at least three months of operations.
  • Income statement. This is the most important association management tool – other than the property manager and board! It shows actual revenue and expenses vs. the budget. Focus on the largest variances and dollar amounts, usually associated with the largest expenses like maintenance and landscaping. What caused the variance? In one recent audit we noticed that pool maintenance invoices were being double paid. As needed, document the reason for next year’s budgeting process.
    Tip: Question any significant amounts categorized as Miscellaneous or Contingencies.
  • Bank statement and reconciliation. This report ties bank statements back to the balance sheet, reconciling outstanding deposits and payments. You’ll want to see the actual bank statements, in addition to the list of checks and deposits in transit. One of our community association audits uncovered a $300k theft due to reporting false bank account balances without corresponding statements. Learn from that mistake!
    Tip: The reconciled balances here should match the numbers reported on the balance sheet.
  • Delinquency report. Who owes you money? This report provides the details you need to make tough collection decisions based on your community’s documented collection policy. If you don’t have one, talk to an attorney and create one. Your target delinquency rate should be less than 5%. Consider a more stringent collection policy if it’s much higher than that.
    Tip: To show compassion for residents with short-term financial issues, consider creating a Hardship Policy.
  • Accounts payable. This is typically a (small) list of outstanding invoices. The report is important because it can be an early indicator of a financial issue. A long list of unpaid invoices could be a sign of a cash flow issue, meaning there’s a shortage of money in the bank to pay the bills. It will also make your financial reports look better than they really are.
    Tip: Live by the Golden Rule and pay your contractors on a timely basis. You’ll want them to be responsive to you, especially for emergencies.

Presenting results to the board

Once you’ve reviewed the reports, prepare a summary to present at the next board meeting. Keep it simple and actionable, maybe a one-page template focusing on key performance indicators like:

  • Operating cash. Summary of reconciled bank balances, so the board understands how much money is available to fund operations and reserve activity.
  • Cash trend and summary. Generally, where income and expenses are trending compared to the budget.
  • Budget variances. Major variances with the reason for each, or at least confirmation of an investigation.

Our mantra is always, “When in doubt, point it out!” Consider sharing your update with the rest of the community so all residents have a basic understanding of the community’s financial health.

If you have any questions, please contact us!