Accounting Basics for Condo Management

Serving on your condominium community’s board may be seen as more of a duty than a privilege, as such posts come with hard work, legal requirements, and high homeowner expectations. Condo accounting software and some basic knowledge can keep it from being a soul-grinding experience.

Understand State Laws and Regulations

Keeping within the laws is paramount in running any organization. While the purposes behind most laws governing condominium and homeowner associations may have much in common across the country, specific states can vary widely. The following are just a few examples: 

• Florida and Texas are among the states that require community associations of certain sizes to offer specific information to their members through a website or an app.
• Nevada associations, among others, must provide for online payment of assessments.
• Electronic voting in certain association elections is either allowed or required in states such as California and New Jersey.
• In Hawaii, a state program helps multi-family buildings and low-to-moderate-income households invest in solar energy.
• Nearly 20 states’ laws specifically guarantee homeowners’ right to outdoor clotheslines.

Especially at startup and in considering major bylaw changes, the advice of an attorney with experience in condo law may be invaluable.

Develop a Comprehensive Budget

Annual budgeting for your condo owner association may seem, at first glance, mostly alchemy and tea-leaf reading. The key to this financial planning document, though, is good information.

Officers of any COA more than a year old will depend heavily on records, and the easiest and most accurate recordkeeping comes from purpose-specific condo association accounting software. The reports that such a system can generate help everyone understand where money is coming from and how it is being spent, even when community and board members aren’t financial experts. 

Each category of spending in current-year records will give an idea of what next year’s requirements will be. While more detailed headings may be helpful, every item within a COA’s budget is either income or expense and can fit under five major categories:

• Fees and assessments. These include monthly/quarterly/annual fees as well as special assessments for particular needs.
• Other income. This covers sources such as rentals or properties, event fees, and fines.
• Operational expenses include management fees (where applicable), landscaping, insurance, utilities, office expenses, taxes, and other regular costs.
• Emergency reserve funds are saved in interest-bearing instruments for contingencies not fully covered by insurance.
• Community enhancements are another type of reserve fund, saved specifically for future additions or upgrades of communal property.

To be most useful, budgeting should be more than a once-a-year event. Adjusting categories and amounts as new realities emerge—when revenue projections fall short or a maintenance issue develops ahead of schedule, for instance—helps keep the document accurate for current accounting and next year’s budgeting efforts.

Maintain Adequate Reserve Funds

As noted above, building adequate reserve funds is crucial to managing a COA. In many jurisdictions, particular categories and attributes of reserves are required by law.

Categories and amounts will vary with every community, but typical purposes for reserves include the following:

• Repair or replacement of community property due to storm damage (beyond insured values), accident, or unexpected mechanical failure;
• Unforeseeable legal contingencies such as encroachment by an adjacent development;
• Foreseeable periodic maintenance from parking lot repaving to new paint and roofing on buildings; and
• Planned additions or enhancements to community property, from pickleball courts to security systems.

Implement Strong Accountability Controls

Strong accountability measures within a condo association help prevent outright fraud and the legal liability that goes with it. More immediately, such measures build trust among officers and the community they serve.

Common accountability measures may include any of the following:

• Two-signature requirement for expenditures over a certain amount.
• Financial statements are regularly shared with condo owners.
• Independent audits;
• Well-publicized open meetings at which members are free to ask questions;
• Property owners’ access to financial and regulatory documents; and
• Assignment of different financial duties to several board members.

Conduct Regular Financial Audits

Every COA board should schedule periodic audits by independent professionals to verify the accuracy of financial records and compliance with accounting standards. Regular audits by an independent accounting firm not only help prevent actual fraud, but the transparency they offer helps build trust both among board members and between the board and community members.

Ensure Transparent Communication with Owners

Transparent communication fosters trust by ensuring condo owners are aware of how their dues are utilized and informed of upcoming events or COA actions that are likely to affect them.

COA communications should include, among others, the following:

• Notice of board meetings (date, time, location, and agenda);
• Notice of elections
  • Qualifying requirements for candidates
  • Lists of candidates, their contact info, and bios once qualifying is complete 
  • Issues to be voted on, such as special assessments or changes to covenants, conditions, and restrictions
  • election results;
• Notice of assessments, violations, and fines; and
• Notice of community social events.

Many associations struggle with communication because no single person owns the conversation. It’s like asking everyone in a group chat where they want to eat dinner. Anyone could respond, but everyone is busy enough that they don’t necessarily want to be responsible for the decision.

COA board members should designate one or more officers to provide timely responses to ensure such communications don’t fall through the cracks.

Utilize Condo Association Accounting Software

While some COA board members initially may be more comfortable with ledgers, receipts, and other manual accounting elements, those don’t provide the type of transparency and collaboration required in a modern community. Even Excel spreadsheets and general-purpose account software can fall short.

Strongly consider investing in specialized condo management accounting software. PayHOA software offers many advantages to COAs:

• Electronic invoicing and online payment portals for property owner fees save much volunteer time, provide permanent records, and eliminate postal costs and delays.
• Financial records and other documents are easily accessible.
• Texting, emailing, and phone calls among board members, with COA members, and among specific community groups can be automated.
• Electronic notice of meetings, elections, assessments, fines, and violations is quick and permanently recorded. 
• Single entry of transactions lessens opportunities for human error.
• One platform seamlessly encompasses tasks from accounting and banking to calendars and document archiving.

Seek Professional Assistance When Needed

While COA board members and purpose-specific condo association accounting software can accomplish most required tasks, professionals in various fields may sometimes be needed.

An attorney familiar with property and HOA/COA law is crucial in setting up an association’s founding documents, such as the CCR (Covenants, Conditions, and Restrictions) and bylaws. Legal counsel is also needed in the case of serious conflict—when the board has exhausted non-court action to collect homeowner fees and fines or to compel compliance with COA rules, for instance, or when actions on an adjoining development encroach on the association’s property or interrupt the legally defined “peaceful and quiet enjoyment” of the property.

Engineers may be called in to give an official opinion and/or recommendation when structural problems are suspected. An accountant’s assistance may be needed for tax preparation, budgeting, and reporting to regulatory agencies. Various disaster recovery professionals may be needed in situations ranging from storm damage to animal removal to restorative cleaning of a severely trashed residential unit.

For many volunteer COA boards, self-management requires more time and expertise than the community members have, even with condo–association software. 

Instead of jumping all the way to a property management company, a less-expensive measure could be for board members to delegate invoicing, bill payment, and record maintenance to a bookkeeping service such as that available through PayHOA. 

Delegating some or most administrative and accounting duties to professionals offers a different kind of transparency and frees up board members for setting direction, overseeing compliance, responding to communications, and building community.