HOA Accounting & Bookkeeping
Associated Professional Services offers the following HOA accounting and bookkeeping services in San Diego. All of these services are flexible and can be customized to accommodate the needs of each association.
Billing statements, payment coupons, credit cards, and ACH (automatic withdrawal) are methods that can be used to collect assessments. The payment coupon system is preferred, as it typically costs much less than monthly billing statements. Payment coupons are pre-printed with the name of the owner, unit number, and assessment amount and are mailed to each homeowner every year.
Associated Professional Services’ San Diego team will mail a late notice to any delinquent homeowners shortly after the homeowner association’s late period. A late processing fee will be assessed to cover the cost of bookkeeping delays, etc.
APS will take action on delinquent accounts according to the homeowner association’s collection policy. A pre-lien letter, which notifies delinquent homeowners before the lien is filed, will automatically be sent out first.
The Board of Directors will have a list of delinquent homeowners that require a lien. After approval from the Board of Directors, APS will have the lien filed, and charge the delinquent homeowner for the collection, pre-lien, and lien filing (in addition to any required attorney fees). If foreclosure initiation is required, an additional charge will be assessed.
APS will pay bills from the Homeowner Association’s checking or reserve account. These accounts are established in the association’s name, and the Board of Directors can designate APS, other Board members, or both as signers.
APS will pay all recurring bills (utilities, landscape, refuse removal, etc.) automatically. In the case of non-recurring bills (such as plumbers, electricians, and emergency repairs), payment authorization will be required by a Board member, manager, or another authorized person.
Additionally, a petty cash fund may be established with a Board member or on-site manager for smaller purchases. All receipts for purchases should be retained by the association until another petty cash check is required, and receipts should be submitted immediately.
Each month, APS in San Diego will provide a clear, concise financial statement. These can be customized to meet any homeowner association’s specific needs. Our typical basic reports include:
- Balance sheet
- Income statement (shows month-to-date and year-to-date figures with budget comparisons and variances)
- Check distribution report of services provided
- Accounts receivable report (includes a status line for delinquent accounts over 60 days)
Additional reports or lists can be provided to your association as required.
HOA Accounting & Bookkeeping
What is an HOA account?
There are a few types of HOA accounts. An operating account is a financial fund that’s used to pay for the services that carry out everyday functions of a community. This includes items such as:
- Contracted services
- Maintenance of common areas
- Property management
- Insurance and taxes
- Utility expenses
- Heating & cooling of common areas
- Office expenses
- Office supplies
- Accounting and legal fees
On the other hand, a reserve account is a savings fund that’s set aside each year by the homeowner association to meet future costs of upkeep and any unexpected costs that arise around the community throughout the year (items such as emergency repairs, emergency maintenance, or other unforeseen circumstances).
How much should a HOA have in reserves?
Ideally, the HOA wants to have a 100% funded reserve – meaning that it has enough money to cover all anticipated costs. However, most reserve experts suggest that the reserves be funded at 70% or higher of the property’s calculated deterioration. Less than that and the HOA runs the risk of having to implement special assessments or raise association fees to cover costs, both of which can be a burden for the homeowners who need to come up with that money on short notice.
If funding is coming up short, look for ways to readjust the budget and allocate a higher percentage of association fees to the reserve fund. Typically between 25% and 40% of fees should be put toward the reserve fund.
How often should an HOA be audited?
Most experts recommend doing an HOA audit at least once per year. Regularly scheduled audits can catch small issues before they blow up into larger, expensive problems that impact the entire HOA. They also provide board members and managers with information that can be used for future budgeting, setting fees and assessments, and other important financial decisions.
Many HOAs do their audit at the beginning of the year in January, or at the end of the fourth quarter in December. A schedule for auditing is often defined by the board members in the HOA’s bylaws and governing protocols.
How long should the HOA keep important accounting documents and records?
The answer depends on state laws, what the document is, and how much time has passed. Here are some good rules of thumb to follow:
- Tax Records: Audits can occur up to three years after the HOA has filed its taxes, so it’s a good idea to keep records for four years and then destroy them. You should, however, keep any paperwork granting tax exemptions or issuing a tax ID number.
- Legal Papers: If there has been any legal action taken by or against the HOA, it’s a good idea to retain all files related to these claims. Check with your attorney about how long to keep these records.
- Financial Records: Hold on to monthly financial records until your CPA has provided an annual statement. Four years is common for keeping monthly general ledgers, deposit slips, billing or collection documents, bank statements, and time cards.
- Vendor Agreements: A good rule of thumb is to keep these documents until the next agreement is filed. A new contract will supersede the old one. The same often applies for insurance policies as well – but hang on to documents if there are any unresolved issues.