USA Home Owners Association (HOA) Accounting


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Good Morning and thanks in advance for your replies.

My HOA uses the cash accounting method to manage the affairs of the HOA. We also have a management company to manage the affairs of the HOA including finances. These decisions will not be revisited.

We have found the management company makes changes to prior months income statements after they are presented to the board due to mis-entries or other reasons. While we do NOT beleive anything untoward is happening, we plan on conducting an audit in 2022 covering the term of their contract.

Question: In the cash accounting method, what are the standard accounting principle requirements for informing the board of changes to prior month (effectively closed) income and balance sheet statements?
 
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kirby

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The process of informing the board of changes would be covered in your agreement with the management company.

It is important to find out from the management company the reason(s) for the changes. Are they correcting errors they made? Did new information cause the change? Did a new accounting rule require the change?
 
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Thanks Kirby.
Unfortunately the contract is silent regarding their duty to inform of changes they make.

The changes appear to be due to their mistakes.

with that said - I understand there are generally accepted accounting practices. However best I can tell they only apply to accrual accounting.

are there stds of practice for cash accounting that they should be following in regards to informing their client of changes they make for whatever reason?
 

kirby

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I suggest you meet with the management company, give them several specific examples of their mistakes, then ask them how they plan to address this situation. Leave it open ended and see if their response is satisfactory to you.
 
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DTA93433

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I had this same issue with my HOA. I was Treasurer for last 5 years and our management company was constantly making "prior-period" adjustments - shall we say. It was mainly due to accounts receivable and their accounting software. Also, with our HOA (libertycm.com); they made additional adjustments from their monthly accrual reporting of net income vs. their monthly "budget" report; which I didn't even understand myself. After several emails and a few phone calls, I got permission from the rest of the Board to have a sit down with their CFO and accounting department. They have basically 100+ accounts (at the time) and their "CFO" (who was also their lawyer and "Jane-Of-All-Trades") - WAS their accounting department! We went thru line by line their monthly accounting process (via their software) vs. what was shown on their monthly budget (revenue/expense) reports. [Since that meeting, I've determined that I'd LOVE to get more HOA clients myself! Why? There is hardly any accountability regarding their work-product. I'm sure they were thrilled when I finally left last year. Although on the plus side - I did find about $43K that was unaccounted for]. I'd recommend your Treasurer do the same thing I did every month (a) a bank reconciliation every month, (b) a reconciliation of monthly accrual basis net income vs. the software's monthly budget report and (c) an accounts receivable aging report.

My advice?? Be kind, but be persistent! Don't take 'we don't' know' or 'we'll get back to you' for an answer! Be absolutely relentless! Hound the management company if you have too. Remember your motivation is your duty of care as Board members - not only to yourself, but your fellow homeowners too.

Also if there is no problem found with doing a bank reconciliation - I would wonder if there is any need for an audit. Our Covenants dictate having one every 5 years. I'd follow what your Covenants have to say on this matter.

Lastly, have your management company (or Treasurer) file the 1120-H on time and any applicable State return(s) as well. Our Association had not filed in 7 years when I became Treasurer (back in 2016). Best of luck!
 

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