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HOA Finances Explained
Posted on Feb 24th, 2022
When it comes to almost anything, nothing seems like it appears. For example, the gold medals in the Olympics are actually made of at least 92.5% silver. The same goes with HOA inner workings.
Many think the board determines where every dollar of the Association's budget is spent. But, only 30% is discretionary. The other 70% is dedicated to items such as reserve fund contributions, insurance, and other necessary expenses for the organization.
HOA Finances Explained
The fiduciary experience by HOA board members and community volunteers can vary widely. This is why Applewood Estates hired Summ-it Bookkeeping Services years ago. The firm handles our financial services, including all accounting, tax preparation, billing/collection of all assessment dues. This way, no money goes through homeowners and is handled professionally by following the HOA by-laws, accounting practices, and Washington State law.
As a supplement, your HOA board members still have a fiduciary duty to make sure funds are maintained and managed properly. Each year, the board prepares the budget by prioritizing projects, calculating increases in expenses, and reviewing contracts with vendors. The treasurer also prepares a financial report for the annual meeting.
This report includes a balance sheet that consists of two reserves - Cash Reserves and the Capital Reserve Fund.
Cash Reserves
These funds are for cash on hand and are essentially our checking and savings accounts. This is where the HOA saves money to pay for items in the yearly budget, which is approved by the homeowners. This can also be used for expenses such as legal fees which can be costly. In the year ending 2021, this fund had $40,888.
Capital Reserve Fund
These funds consist of our money market and CD investments. This is where the HOA saves money for more costly repairs and replacements that are listed in our Capital Reserve Study. This fund could be used for repairing the block wall, upgrades to sprinkler systems, and larger needed landscape projects. A good reserve fund can account for unexpected and costly expenses without having to turn to the homeowners for a special assessment. In the year ending 2021, this fund had $63,681.
The Annual Budget
The most important task for the HOA board members is the annual budget. The board understands a balanced budget has a long-term impact on the HOA's financial health and homeowner's quality of life. So, the board takes a strategic approach by putting the needs of the community first.
The board does not annualize expenses from the previous year but carefully reviews each expense. Our goal is to continue reaching high expectations for home values while keeping dues low.
A treasurer's report which includes a profit and loss statement is always included in board meeting minutes for homeowners to review. The board also has the duty to prepare the U.S. income tax return for the HOA each year.
Last, the HOA also has the unfortunate task of collecting delinquent HOA dues. In the past, the HOA has shown compassion and has worked with homeowners for various reasons on a payment plan. The HOA is proud to inform everyone the HOA has never missed a payment from any property since Applewood's inception.