Condo Association Management Blog

Hopefully, you have engaged an accountant to perform an independent audit every third year or so. An experienced CPA can help establish your budget. You will also need to conduct a reserve study to determine the useful life remaining on your roofs, siding, skylights, roadway, etc. Based on that study your CPA can determine the amount of funds your association needs to earmark for "reserves" every month.

The reserve study is an engineering analysis of your building components and the required maintenance as stated in the legal documents for the condo and as stated in State law.  
 
 
 
There is a specialized industry that provides this anaylsis. The mortgage underwriting requirements now mandate that a reserve study be completed and individual mortgage companies will usually request information regarding the funding itself. If the condo is a member of Community Associations Institute, the membership directory lists Reserve Specialists. Otherwise, a search online first for "condo reserves" will identify companies offering these services.  
 
 
 
Budgets preparation depends upon whether the condo is rofessionally or self-managed. The board is always responsible for the ultimate budget proposed and adopted.  
 
 
 
Attorneys normally do not perform this service and usually are able to refer the condo to a source.  
 

My recommendation would be to contact a firm that has experience in providing reserve studies and is credentialed as a reserve specialist (R.S.) by organizations such as Community Associations Institute. Typically, professional engineers and registered architects will have had accumulated such experience and credential. Select one that has had served clients with needs similar to yours. Their fee will vary with the size of your association. Contact me if I can be of further help.

From your question I get the impression that you are in a self managed association but we do not which state you are. You may have to follow your governing documents and states laws. Assuming you are a board member your question also raises some serious concern as to who has been handling the budget in previous years. If the books has been handled by board members without accounting background, I would suggest to have a CPA review your books. The reserve study can wait until you are absolutely certain that your books and your budget are in order.

Fundamentally, the Board of Directors is responsible. The Board can hire a specialist (a credentialed RS or PRA individual), or they can take advantage of available tools to do it themselves. Software, Do-It-Yourself Kits, or an online Web-application www.QuickReserves.com, just about out of Development and ready for use). 
 
Just don't do nothing!

I am a CPA and have served as the treasurer of two HOAs. Unless your state mandates that your financial statements must be audited, I would not spend the money to do so. My principal reason for this opinion is that an audited financial statement must be presented using accrual basis accounting, include a statement of changes in cash flow, and contain footnotes. Few, if any, of your homeowners will understand such a presentation, so why spend $4,000 or more to obtain one? Further, many people misunderstand the purpose of an audit: it is to ensure that the financial statements present fairly the results of operations and balance sheet, not to find fraud. The testing of financial data and records performed by auditors is not designed to detect fraud, so if fraud is your concern, having a traditional audit performed will not solve your problem. Additionally, audit procedures are not designed to detect waste. For example, if your HOA pays $2,000 per month for trash removal and there is a vendor that will perform this service for $1,500, audit procedures will not identify the fact that your HOA is overpaying $6,000 annually for trash removal.  
 
 
 
Reserve studies are valuable, and may be mandatory depending upon your state law. However, as a board member, you must be prepared to question and challenge assumptions that do not seem accurate. You don't want to learn at a later date that the real cost to paint your building is $100,000, not the $60,000 indicated in the study. Likewise, you don't want to have a reserve for minor items, which some reserve study companies like to include as a CYA tactic. My preference is to exclude items that cost less than $500 individually (lights, janitorial equipment such as mops and buckets, etc.).  
 
 
 
You don't need to be a professional accountant to prepare your own budget. I use a simple spreadsheet that captures each expense item each month so that we can all see trends in expenses. Use this trend analysis as a basis for determining what your average monthly expense should be for that line item next year.

A reserve study would be a great starting point to help get a handle on those longer term expenses.  
I would also like to echo the thoughts from before that a study provided by a licensed Architect/Engineer and Professional Reserve Analyst is going to be the most reliable. The cost of a good reserve study is minuscule compared to the long term planning that can be achieved. I would be happy to help answer questions or provide any insight, please contact us to assist.

If you have a reserve study completed, it is important to follow up a CPA. They can provide recommendations with investments, taxes, assessments, etc... They are also able to help determine if the reserve study recommendations are achievable (often times they are not). If they are not work with the reserve study provider, Association Manager and CPA to adjust the report. Good luck!

For Larry Davis posting 09/30 
 
Your info sounds accurate and should work for us. I am a new person here (SC) We only have covenants, no bylaws. Managed by a Management Firm. 3 BOD members, no defined terms. The first BOD meeting in 2 years for the HOA is at end of Oct. Help me to know what I can ask, what to do to get term limits for BOD, homeowner involvement, who should manage funds, billing, checks, etc. Please write to me personally  
 

P Willard: 
 
 
 
I do not have your email address. Please send it to ldavis@cfoexec.com and I will discuss with you separately.

I wrote a blog post regarding budget tips today. Check it out here: http://nycpropertymanagement.blogspot.com/2010/10/maintenance-common-charge-operating.html

What is the range of cost we could assume that needs to be paid for someone to set up our budget and reserve account on a 105 unit HOA 
 
Thanks

Stan, the cost of a Reserve Study would vary based on the location, style of property, included common area elements, age, etc... I would be happy to answer any questions and provide a free, no-obligation proposal if you are interested. Please feel free to contact me via phone (847)573-1717 or throughwww.lmconsultants.com if I can provide any assistance.

We have,if needed,our auditor to help us in preparing our budget and reserves. The other alternative is find a member in your association that have a background on this issue such as auditor, accountant or cfo.