By: Kristi Boren, CCAM, CMCA, AMS, Portfolio Account Manager, and Farrah Esquer, CCAM, CMCA, AMS, PCAM, President One of the many tasks of a volunteer director is the review of the association’s monthly financial statements. If you do not consider yourself a “numbers person” this may seem like a daunting task that you would rather leave to the treasurer or other financial gurus on the board. Before you happily pass your responsibility onto your fellow directors, keep in mind that you have a duty to the association to perform a review of the financial statements on at least a quarterly basis. You are not expected to be an expert, but you can become familiar enough with the financials to perform a basic review. There are several key items that should be included in your monthly financial statements that you can review to understand the financial position of the association, as well as become alerted to any possible concerns.
Begin your financial review with a review of the association’s Balance Sheet. The Balance Sheet will reflect the Assets, Liabilities, and Equities of the association. This report will allow you to monitor the total funds invested in each banking institution to be sure funds are kept below FDIC limits. Also be sure that any investments are maintained in either Money Market Funds or Certificate of Deposit accounts to attempt to ensure the safety of the principal. The Balance Sheet will also allow you to review the association’s outstanding receivables and payables so you are aware of the association’s cash-flow position when making decisions about potential expenditures. The reserve line items will also be detailed so you are aware of how much is available in each line item and how much has been expensed from each line item during the fiscal year.
The Income Statement will include a summary of the current month, as well as the year-to-date, income and expenses.
The Budget Comparison is a useful tool to monitor actual versus budgeted income and expenses. The Budget Comparison will include a year-to-date as well as a current month comparison. It is especially helpful to review the variance column in both the monthly and year-to-date sections of the report. This will allow you to easily note any overspending or other issues, such as double-payments and possible misclassifications of expenditures. Identifying overspending will allow the board to make any necessary mid-year adjustments to the budget, plan for upcoming projects, and plan the budget for the next fiscal year.
Accounts Receivable Aging Reports
The Accounts Receivable Aging Report will provide the details for the account receivables line item on the Balance Sheet and will include a breakdown of the delinquent owners and total amount owed. The aging report should also include a notation of the collection status of each account so that the board can monitor the progress of the collection activity. If no collection activity is noted, steps should be taken to pursue the delinquency.
Accounts Payable Aging Reports
If the financials are reported on a full accrual basis of accounting, the financials will include an Accounts Payable Aging Report which reflects expenses that have been incurred, but not yet paid. This will help provide the board with an accurate reflection of the available cash. If the accounts payables balance exceeds the cash balance, further review should be conducted to determine whether the situation is temporary or if it is a long-standing problem that may need to involve increasing the monthly assessments to meet cash-flow needs.
The General Ledger report should be reviewed to note the transactions that have posted throughout the month. The General Ledger report will provide further details of the expenses and to which line item they were posted to ensure accuracy in the financial reporting.
And last but certainly not least, the association’s bank statements as well as the corresponding account reconciliations should be reviewed for any possible discrepancies, such as checks that have not cleared for several months, checks that have cleared for the same amount, checks for large amounts, and checks that have cleared out of sequence. Protecting the association’s financial interests is one of the most important duties of a board member. Remember, if you are unsure of anything noted in the financial statement it is always best to ask questions and obtain clarification. Make a point to meet with the accounting personnel or the association’s CPA to review the financial reports in more detail and become familiar with the reports. CAI-OC also offers courses in financial management so you may sharpen your financial reviewing skills. This article was printed in the January/February 2012 edition of the OC View, a bi-monthly magazine published by the Orange County Chapter of the Community Associations Institute (CAI-OC) and was re-printed with permission. To learn more about CAI-OC visit their website at caioc.org.