Creating A Board for Your HOA or Condo Association in Georgia

WHO SHOULD BE ON THE BOARD?
The board should be composed of a diverse group of individuals who are interested in working toward the organization’s mission and have the particular skills that will help to contribute to a well-run organization. For instance, you may want to seek out people with financial, marketing, or legal backgrounds. You may want to consider bringing on someone with an entrepreneurial
background, or someone who is proficient with emerging technologies. You may
also want to recruit members who have influence in the community, work at similar types of organizations, or are representative of the community you are serving. Having this collective knowledge from the beginning will help you make informed decisions. You will also find that as your organization matures, your board composition needs may be very different from those of your founding board. The role of the board tends to change over time as the organization
develops and matures. Early in an organization’s life, the primary need for the board may be individuals who are prepared to give a great deal of time and energy. Later, you may find that as paid staff are brought on, the board focuses primarily on the governance functions of the organization and is less involved with the smaller details of bringing the organization up to speed.
HOW BIG SHOULD THE BOARD BE?
Boards can vary in size from three to more than 50 members.  Each state has regulations that determine the minimum size of the board, but the optimum number of people who sit on the board should be determined by the needs of the organization. Assess the list of tasks that the board needs to accomplish and plan your board around the jobs that need to be done. There should be enough meaningful tasks for the board to accomplish without leaving board
members feeling overburdened or uninvolved.
HOW OFTEN SHOULD THE BOARD MEET?
As with the size of your board, the number of board meetings each year should be determined by the work that needs to be accomplished. For logistical and practical reasons, larger boards often meet less frequently, leaving much of the work to the board’s committees.
Regular attendance at board meetings is one of the individual responsibilities of board members. Your organization’s bylaws should include an attendance policy that clearly states the number of meetings that can be missed by an individual board member before he or she is asked to leave the board. Develop an annual schedule of meetings determined a year in advance. Circulate clear and thorough information materials, including an agenda, to all members
two to three weeks before each meeting. Maintain complete and accurate minutes of all meetings, and keep meetings brief and well focused. An organization’s bylaws should also state the number of board members required to constitute a quorum. Without a quorum, the board is unable to conduct its official business.
WHAT KIND OF TERM LIMITS SHOULD BOARD MEMBERS SERVE?
There are no hard-and-fast rules for determining board members’ tenure. Many organizations
do, however, limit members to two consecutive terms and require a hiatus of one year before a
board member may be reappointed. Many organizations also stagger terms of service so that
one-half or one-third of board members are elected every one or two years for terms of two to
six years. Such policies encourage institutional renewal because a board can profit from the
experience of veteran board members while welcoming the fresh perspective that new members
offer. Board members on hiatus can remain active in committee service or serve in an
advisory capacity. Term limits are a painless mechanism for rotating inactive or ineffective
members off the board. These policies should be written into the organization’s bylaws.

Build a Better Board for Your HOA, POA or Condo Association

WHO SHOULD BE ON THE BOARD?
The board should be composed of a diverse group of individuals who are interested in working toward the organization’s mission and have the particular skills that will help to contribute to a well-run organization. For instance, you may want to seek out people with financial, marketing, or legal backgrounds. You may want to consider bringing on someone with an entrepreneurial
background, or someone who is proficient with emerging technologies. You may
also want to recruit members who have influence in the community, work at similar types of organizations, or are representative of the community you are serving. Having this collective knowledge from the beginning will help you make informed decisions. You will also find that as your organization matures, your board composition needs may be very different from those of your founding board. The role of the board tends to change over time as the organization
develops and matures. Early in an organization’s life, the primary need for the board may be individuals who are prepared to give a great deal of time and energy. Later, you may find that as paid staff are brought on, the board focuses primarily on the governance functions of the organization and is less involved with the smaller details of bringing the organization up to speed.
HOW BIG SHOULD THE BOARD BE?
Boards can vary in size from three to more than 50 members.  Each state has regulations that determine the minimum size of the board, but the optimum number of people who sit on the board should be determined by the needs of the organization. Assess the list of tasks that the board needs to accomplish and plan your board around the jobs that need to be done. There should be enough meaningful tasks for the board to accomplish without leaving board
members feeling overburdened or uninvolved.
HOW OFTEN SHOULD THE BOARD MEET?
As with the size of your board, the number of board meetings each year should be determined by the work that needs to be accomplished. For logistical and practical reasons, larger boards often meet less frequently, leaving much of the work to the board’s committees.
Regular attendance at board meetings is one of the individual responsibilities of board members. Your organization’s bylaws should include an attendance policy that clearly states the number of meetings that can be missed by an individual board member before he or she is asked to leave the board. Develop an annual schedule of meetings determined a year in advance. Circulate clear and thorough information materials, including an agenda, to all members
two to three weeks before each meeting. Maintain complete and accurate minutes of all meetings, and keep meetings brief and well focused. An organization’s bylaws should also state the number of board members required to constitute a quorum. Without a quorum, the board is unable to conduct its official business.
WHAT KIND OF TERM LIMITS SHOULD BOARD MEMBERS SERVE?
There are no hard-and-fast rules for determining board members’ tenure. Many organizations
do, however, limit members to two consecutive terms and require a hiatus of one year before a
board member may be reappointed. Many organizations also stagger terms of service so that
one-half or one-third of board members are elected every one or two years for terms of two to
six years. Such policies encourage institutional renewal because a board can profit from the
experience of veteran board members while welcoming the fresh perspective that new members
offer. Board members on hiatus can remain active in committee service or serve in an
advisory capacity. Term limits are a painless mechanism for rotating inactive or ineffective
members off the board. These policies should be written into the organization’s bylaws.

Creating A Board for Your HOA or Condominium Association

WHO SHOULD BE ON THE BOARD?
The board should be composed of a diverse group of individuals who are interested in working toward the organization’s mission and have the particular skills that will help to contribute to a well-run organization. For instance, you may want to seek out people with financial, marketing, or legal backgrounds. You may want to consider bringing on someone with an entrepreneurial
background, or someone who is proficient with emerging technologies. You may
also want to recruit members who have influence in the community, work at similar types of organizations, or are representative of the community you are serving. Having this collective knowledge from the beginning will help you make informed decisions. You will also find that as your organization matures, your board composition needs may be very different from those of your founding board. The role of the board tends to change over time as the organization
develops and matures. Early in an organization’s life, the primary need for the board may be individuals who are prepared to give a great deal of time and energy. Later, you may find that as paid staff are brought on, the board focuses primarily on the governance functions of the organization and is less involved with the smaller details of bringing the organization up to speed.
HOW BIG SHOULD THE BOARD BE?
Boards can vary in size from three to more than 50 members.  Each state has regulations that determine the minimum size of the board, but the optimum number of people who sit on the board should be determined by the needs of the organization. Assess the list of tasks that the board needs to accomplish and plan your board around the jobs that need to be done. There should be enough meaningful tasks for the board to accomplish without leaving board
members feeling overburdened or uninvolved.
HOW OFTEN SHOULD THE BOARD MEET?
As with the size of your board, the number of board meetings each year should be determined by the work that needs to be accomplished. For logistical and practical reasons, larger boards often meet less frequently, leaving much of the work to the board’s committees.
Regular attendance at board meetings is one of the individual responsibilities of board members. Your organization’s bylaws should include an attendance policy that clearly states the number of meetings that can be missed by an individual board member before he or she is asked to leave the board. Develop an annual schedule of meetings determined a year in advance. Circulate clear and thorough information materials, including an agenda, to all members
two to three weeks before each meeting. Maintain complete and accurate minutes of all meetings, and keep meetings brief and well focused. An organization’s bylaws should also state the number of board members required to constitute a quorum. Without a quorum, the board is unable to conduct its official business.
WHAT KIND OF TERM LIMITS SHOULD BOARD MEMBERS SERVE?
There are no hard-and-fast rules for determining board members’ tenure. Many organizations
do, however, limit members to two consecutive terms and require a hiatus of one year before a
board member may be reappointed. Many organizations also stagger terms of service so that
one-half or one-third of board members are elected every one or two years for terms of two to
six years. Such policies encourage institutional renewal because a board can profit from the
experience of veteran board members while welcoming the fresh perspective that new members
offer. Board members on hiatus can remain active in committee service or serve in an
advisory capacity. Term limits are a painless mechanism for rotating inactive or ineffective
members off the board. These policies should be written into the organization’s bylaws.

Creating A Board for Your HOA, POA or Condominium Association

WHO SHOULD BE ON THE BOARD?
The board should be composed of a diverse group of individuals who are interested in working toward the organization’s mission and have the particular skills that will help to contribute to a well-run organization. For instance, you may want to seek out people with financial, marketing, or legal backgrounds. You may want to consider bringing on someone with an entrepreneurial
background, or someone who is proficient with emerging technologies. You may
also want to recruit members who have influence in the community, work at similar types of organizations, or are representative of the community you are serving. Having this collective knowledge from the beginning will help you make informed decisions. You will also find that as your organization matures, your board composition needs may be very different from those of your founding board. The role of the board tends to change over time as the organization
develops and matures. Early in an organization’s life, the primary need for the board may be individuals who are prepared to give a great deal of time and energy. Later, you may find that as paid staff are brought on, the board focuses primarily on the governance functions of the organization and is less involved with the smaller details of bringing the organization up to speed.
HOW BIG SHOULD THE BOARD BE?
Boards can vary in size from three to more than 50 members.  Each state has regulations that determine the minimum size of the board, but the optimum number of people who sit on the board should be determined by the needs of the organization. Assess the list of tasks that the board needs to accomplish and plan your board around the jobs that need to be done. There should be enough meaningful tasks for the board to accomplish without leaving board
members feeling overburdened or uninvolved.
HOW OFTEN SHOULD THE BOARD MEET?
As with the size of your board, the number of board meetings each year should be determined by the work that needs to be accomplished. For logistical and practical reasons, larger boards often meet less frequently, leaving much of the work to the board’s committees.
Regular attendance at board meetings is one of the individual responsibilities of board members. Your organization’s bylaws should include an attendance policy that clearly states the number of meetings that can be missed by an individual board member before he or she is asked to leave the board. Develop an annual schedule of meetings determined a year in advance. Circulate clear and thorough information materials, including an agenda, to all members
two to three weeks before each meeting. Maintain complete and accurate minutes of all meetings, and keep meetings brief and well focused. An organization’s bylaws should also state the number of board members required to constitute a quorum. Without a quorum, the board is unable to conduct its official business.
WHAT KIND OF TERM LIMITS SHOULD BOARD MEMBERS SERVE?
There are no hard-and-fast rules for determining board members’ tenure. Many organizations
do, however, limit members to two consecutive terms and require a hiatus of one year before a
board member may be reappointed. Many organizations also stagger terms of service so that
one-half or one-third of board members are elected every one or two years for terms of two to
six years. Such policies encourage institutional renewal because a board can profit from the
experience of veteran board members while welcoming the fresh perspective that new members
offer. Board members on hiatus can remain active in committee service or serve in an
advisory capacity. Term limits are a painless mechanism for rotating inactive or ineffective
members off the board. These policies should be written into the organization’s bylaws.

Four Ideas for Trimming Your HOA’s Annual Budget

More and more associations are collecting less and less dues as a result of the housing crisis. Here are four tips for trimming your budget to ensure that your association still provides key services with a smaller pool of funds.

1) Shop around. A good way to shrink your budget is to shop your insurance policies and other ongoing contracts around. If you’ve been with your current insurance carrier for years, it may have been a while since you’ve compared rates. Do it now. While you’re doing that, ask whether increasing your deductibles will net a worthwhile savings. Sometimes the savings are minimal—and probably not worth the added risk. But you’ll only learn that if you ask.

2) Conserve energy. Minor conservation efforts can make a big difference in your budget. If you’ve got timer-controlled sprinklers that run for 30 minutes each morning, cut them back to 25 minutes for a month to see if the plants still get enough water and you save any money on your water bill. Do the same with your hot water heater. Dropping the thermostat a degree or two may make no difference to residents, but it will create savings. Finally, depending on the size of your association, swapping old-fashioned light bulbs out for more efficient compact fluorescent bulbs can save money. Compact fluorescents aren’t inexpensive, so you’ll take an initial budget hit. But you’ll see lower energy costs over time.

3) Do it yourself. If your association is in dire straits, evaluate all your expenses to determine if you can bring any functions in house. If you have a management company, is it possible to eliminate that expense and run the association yourself? (The opposite may also be true. If you’re self-managed, you may save money by having professionals keep an eye on your budget and get you discounts from their trusted vendors.) If you have landscapers, can you cut back on their work and let residents pick up the slack? You could pay for a spring and fall grounds cleanup while bringing grass cutting and flower planting in house. Finally, explain the situation to homeowners and ask owners who are professionals for discounts or freebies. For example, if you have a resident accountant, ask if she’ll prepare the association’s annual tax filing for free or at a discounted rate.

4) Fix it now. Homes are like cars. Routine maintenance helps prevent larger, more expensive problems from creeping up on you. Create a checklist of your major mechanical and building systems. Then ask residents with expertise or outside contractors to check those systems to see if a minor upgrade or repair now will extend the life of the system. For example, if you’ve got a roofer in the house, ask if he’ll volunteer to inspect the roof and do minor patching on areas that may become a problem in the near future.

If your budget is still in the red after all of your trimming efforts, you may have to take more drastic measures—like raising assessments. Before you do, however, consider whether you can generate income. For example, your governing documents may permit you to rent your clubhouse to nonresidents for a fee. Or if your state allows you to earn money on reserves (some don’t), consider putting a lump sum that you don’t expect to use immediately in a safe investment with a higher return than a savings account.

High Performing Board Practices

The public debate on boards often focuses on catastrophic failure. In many cases, the boards actually meet the standards and follow the right policies, but were not committed enough and left to ask the right questions.

Exceptional boards center around four key concepts or practices:

Strategy
This includes being mission-driven, using strategic thinking, and maintaining of sustainable resources.

Responsibility
This includes having  compliance with integrity, being results-oriented, and promoting a spirit of transparency.

Building relationships
This includes developing a constructive partnership between the home owners and the board, ensuring revitalization, and implementing intentional board practices such as thinking about the board’s size, structure, and meetings.
Dynamic
This includes fostering a culture of openness to ensure that all voices are heard, respective practice when making decisions, and demonstrating continuous learning through guidance, education beyond the boardroom and self-evaluation of the board as a whole and the members of the Board.

The true essence of an exceptional board is in the way members of the board and homeowners are interrelated to create something much richer and more powerful than anyone can create one.

When thinking about each other’s participation differently in the meeting, you want to make sure you understand why. It is not just because of better conversations; it is because they have better information and ask better questions which lead to more robust discussions, more authentic debates, and better decision making.

By strengthening our Boards, we will have stronger organizations, and in time much stronger communities. HOA Board leadership is critical to serving the public good and the impact of our State and Country.

2011 – The Year of the Missing Money

Published: 02 December 2011 – Written by JWW

If there was a single theme running through news stories and articles about condo and homeowner associations in 2011, it was the shortage of money to carry out their responsibilities.

First, the trend of owners not paying their association assessments due to a weak economy, continued strong, which meant that associations had less money to carry out their required operations.  Then, the foreclosure crisis also continued strong, again leaving associations short, as owners in foreclosure usually stopped paying assessments.  Those associations in states that gave them six month of assessments in a foreclosure process may have been a little better off than those in states without the lien priority, but they still found it was tough to collect.

Then, the mortgage banking industry started piling on, by slowing down foreclosures, so that they would not be responsible for a home’s assessments until the last possible minute.  This dragged out the time frame when associations were receiving no income from a unit, placing a tough burden on the owners who were paying, and on boards to struggle with reduced revenue.  Some states tried to help out associations, and some attorneys got creative in forcing foreclosures, but that was only in a few states.

The following news story leads from 2011 show a growing trend that is entirely preventable, but sadly, is often ignored:

• FL: President of homeowners association accused of embezzlement
• OH: Prosecutor’s filing indicates women may plead guilty to stealing $1.6M
• NC: Parkwood president: Embezzler took at least $150K from HOA
• WA: Former HOA president is headed to trial
• IA: Muscatine woman gets probation for theft from homeowners’ association
• FL: The former manager of a luxury Aventura condo building, accused of embezzling hundreds of thousands of dollars, turned herself in to jail officials.
• LA: Former president of Montz associations pleads guilty to theft
• TX: HOA dues disappear in elaborate scam
• NC: Theft of money from Parkwood involves ‘many thousands of dollars’
• CO: Embezzler involved with HOA in Aspen called a ‘habitual criminal’ by DA
• OH: Man pleads guilty to theft possibly totaling $200,000
• NY: Ex-school board member admits stealing funds
• CA: Neighborhood-association embezzler is sentenced
• ME: Convicted condo embezzler arrested
• CA: Diablo Grande embezzlement is news to sheriff
• WA: Prosecutors: Issaquah HOA president bilked organization
• FL: Charge: President bilked own homeowner association
• MD: Grand Jury Indicts In Theft Scheme Case
• WI: Franklin police probe suspected condo association fraud
• WA: Former Olympia-area homeowners association worker guilty of theft
• NJ: Former property manager in Freehold Twp. accused of embezzling $75K
• GA: Former HOA treasurer arrested
• CA: Former Palo Alto neighborhood association admin accused of embezzling $65K
• GA: Manager gets 3 years probation for fraud
• NJ: Three charged with thefts from Aberdeen condo association
• OH: Woman gets prison for bilking condo associations
• NJ: Mother, daughter charged in scam – Indictment: Condo funds misused
• Toronto condo owners allege massive fraud
• NY: Dare’s role in Pastures cost association $100,000
• VA: Fraud at Koger may tally $2 million
• WI: Treasurer of Kansasville home owner’s association reportedly forged checks
• FL: Four charged in multi-million dollar fraud scheme at Hallandale Beach condo
• NJ: Readington condo official admits stealing $200K
• PA: $600K Swiped From Montco Condo Association
• CA: Sheriff’s Deputy Who Took Money From HOA Sentenced
• FL: Four charged in multi-million dollar fraud scheme at Hallandale Beach condo
• FL: HOA bookkeeper confesses to embezzling
• CA: Manager steals $70K from neighborhood group
• SC: Woman charged with embezzling $14K in HOA funds
• IN: Mishawaka embezzler to testify against co-defendant
• IL: Regent Realty owners indicted in fraud
• NY: Green Mansions Manager Indicted For $162K Theft
• MA: Yarmouth condo office manager sent to jail
• WY: Embezzler gets lengthy sentence in Fox Park case

When times are tough, people who need money will justify taking it from others. Every community association related blog and web site wrote articles about how to prevent theft, but, as with anything, there have to be people in place who will actually do the checks to see that everything is as it should be.

The result of all of this, was all too often, delayed or ignored maintenance, assessments increasing to cover revenue shortfalls, a lot of hard feelings and a lot of litigation, all of which will have long-term effects on associations. To be honest, I don’t really see any improvement in the short term, and for the long term, that is going to depend heavily on the economy, and whether or not the housing industry rebounds.

When I used to do seminars for association board members, I would tell them that it wasn’t their job to keep assessments low, but to spend the money wisely. After this year, I think I need to change that to:

It’s your job to collect the money efficiently, watch over it like a guard dog, and then, spend it wisely!

To all of you who donate your time and talents to keep your association going through these tough times:

THANK YOU!

Courtesy of: http://communityassociationsnetwork.com/wordpress/?p=332

With over 40 years of combined industry experience, the Executive Staff of Riverside Property Management  knows that the most successful communities are those where there is a sense of unity and pride among the membership; this unity and pride begins with a firm foundation comprised of:

Well defined policies and objectives
A strategic plan and future vision
A proactive Management team
Mutual team trust and respect
Timely and open communication
Excellent customer service
Industry knowledge
“Out of the Box” Thinking
Services designed to meet your needs

Give us fifteen minutes of your time and we can show you how to put your community on a fast track to success; if you don’t believe us, feel free to call upon any one of our satisfied clients. (678) 866-1436 or info@riversidepropertymgt.com

The Top 10 Questions to Ask Your Prospective Community Association Management Company

1. How many households (or units) are each community manager responsible for in your company?

Throughout the industry, Homeowners Association Management Company overload their community managers, giving them too many homeowners associations operate. The industry average is about 1,800 houses by the  community manager, which is about 500 too many homes. If the portfolio manager of a community is very large, some of the clients in the  HOA can be neglected.

2. How many people support the administrator of the community in their efforts?

A management company HOA should not only assign an administrator to a community homeowners association, but a team of people to operate smoothly for the association. A well organized team should include a community manager, accounting manager, a compliance inspector, a customer service representative, and a director of community management .

3. Is the community regularly inspected? How often? Who answers the phone when the community manager is absent or inspecting the property?

The homeowners association must be inspected for violations at least once a month. The compliance inspector should take a picture of the violation, which is sent with the letters of violation.

4. How long does your team take to respond to calls and emails?

The management company must respond to homeowners and the homeowners association board members correspondence as soon as possible, usually within 24 hours. However, Board members must also have the number of community manager’s cell phone for emergencies.

5. Does the community manager have a college degree and / or industry certifications?

Directors of the community must be college educated. They must have training and industry designation as well. Community managers must also attend seminars and industry events to stay current on changes in legislation.

6. Does the management company aggressively pursue homeowners who do not make payments on time for collection?

It is the responsibility of an owner to pay HOA dues in accordance with the rules of the homeowners association. However, when an owner fails to pay their dues, it is the responsibility of the management company to collect the funds. The board of the directors should work with the management company to delineate an HOA collection policy, including the final letters, notices of demand and eventual liening of the home.

7. Is a community web site included in our monthly management fee?

A website for your community association is a great way to help build a sense of community throughout your neighborhood. Other features should include access to forms, governing documents, closing forms, payment online access and emergency contact.  There should also be an option for accounting integration.

8. What hours can the property manager be reached?

A community manager should be available 24 hours a day. During the day which should be available through the office phone, email and cell phone and in the evenings and weekends, the management company HOA must provide an emergency service response, if a situation becomes an emergency.

9. Does the management closing account information before being transferred (sold) from one owner to another?

When a request is escrow by a title company, this information should be shared with the title company and documented in the system of the management company.

10. It is the management company Owners Association a professional team of experts?

The management company should be a team of experts with experience in professionalism and a commitment to quality service in order to properly service its customers the homeowners association.

With over 40 years of combined industry experience, the Executive Staff of Riverside Property Management  knows that the most successful communities are those where there is a sense of unity and pride among the membership; this unity and pride begins with a firm foundation comprised of:

Well defined policies and objectives
A strategic plan and future vision
A proactive Management team
Mutual team trust and respect
Timely and open communication
Excellent customer service
Industry knowledge
“Out of the Box” Thinking
Services designed to meet your needs

Give us fifteen minutes of your time and we can show you how to put your community on a fast track to success; if you don’t believe us, feel free to call upon any one of our satisfied clients.

HOA Website Information

A Home Owners Association that has accurate and reliable information is extremely important for your community. Prospective buyers, realtors and title companies need to know who to contact to provide closing documents. Members of the HOA need to know who to contact for general information, the application of architectural standards and money matters.

Providing online information provides for 24 / 7 self-help and reduces the time requirements for both the board and management. Providing contact information conveys the openness and responsiveness of the association Board. Try these steps to ensure that your contact information is useful to your community:

1. Provide board member contact information, as long as the person approves the release of this information. If you do not have a phone number with voice mail and HOA email address create an email such as info@myhoa.com  for your Owners Association.

2. If you have committees, describe the duties of each committee and the names of those who serve.

3. Post a calendar that includes due dates, annual meetings and the committee meetings, as well as social events and pending repairs (painting, roofing, etc.).

4. Add photos of members of the board.

5. Provide the greatest amount of self-help and information possible, such as newsletters, governing documents, the approved budget, the reserve study and rules/regulations.

6. Update contact information when a change occurs. While the organization and updating of this information takes some time, in the long run, it will save you time and time is money.

With over 40 years of combined industry experience, the Executive Staff of Riverside Property Management  knows that the most successful communities are those where there is a sense of unity and pride among the membership; this unity and pride begins with a firm foundation comprised of:

Well defined policies and objectives
A strategic plan and future vision
A proactive Management team
Mutual team trust and respect
Timely and open communication
Excellent customer service
Industry knowledge
“Out of the Box” Thinking
Services designed to meet your needs

Give us fifteen minutes of your time and we can show you how to put your community on a fast track to success; if you don’t believe us, feel free to call upon any one of our satisfied clients.

Understanding Your Community’s Financial Position in a Tough Economy

While it is always important to know where your community stands financially, it is especially important to understand the community’s financial status in an economy riddled with increasing expenses, higher delinquencies, and more bad debt write-offs. Following are several recommendations and standards for analyzing a community’s financial health:

Recommendation A: 2-3 months of expenses in your operating account(s) (liquid funds) at all times.

For example, if your community has a budget of $20,000 per month for operating expenses, we would recommend that you have between $40,000 and $60,000 in an operating fund savings account. Doing so helps to ensure that the association can cover monthly expenses plus any unbudgeted expense that may arise, even factoring in assessments that are delinquent and not received. Boards should keep this in mind when considering investment opportunities. Only funds in excess of two – three months of operating expenses should be considered for longer-term investments that commit the funds for months or years.

Recommendation B: Investments reflect the reserve fund balance

Industry standard (and in some cases state law) encourages (or requires) communities to set aside part of the maintenance fees in reserve funds, and further recommends (requires) that a community segregate operating funds and reserve funds. Reserve funds should be invested in safe monetary vehicles like CDs and insured money market accounts. The total amount in those accounts should be the same amount that’s listed on the balance sheet for the reserve fund.

Recommendation C: Reserves funded in accordance with the reserve study.

Not only is it important to support the reserve fund balance with actual cash in the reserve investment account(s), it is also important to review the reserve balance as it compares to the amount recommended by the association’s reserve study. Special attention should be paid to this during budget preparation time. Rather than simply plugging in the recommended annual contribution number, an analysis should be done to determine the current projected year-end reserve balance and whether an adjustment to next year’s reserve contribution is warranted. For example, if the reserve study recommends a balance of $400,000 in the reserve funds at the end of fiscal year 2010 and it is determined that the actual balance at the end of FY 2010 is projected to be $300,000, a multi-year plan needs to be established to increase the reserve contribution to make up the $100,000 deficit. In some states, an annual or regular reserve study update is required; a comparison between actual and forecasted balances would be completed during that review. Similarly, if there are more funds in the reserve account than the reserve study recommends and all the recommended capital replacement projects have been performed, the reserve contribution could be decreased.

Recommendation D: 10-20% of the total annual assessment amount in is reflected in Prior Year Equity (this is a recommendation that auditors make so that the association has a “cushion” in the event of a major unanticipated event).

Prior Year Equity, which auditors frequently refer to as Unappropriated Members Equity or just Members Equity, is the accumulated operating deficit or surplus from the association’s inception. While the developer is funding the operating deficit, the Prior Year Equity balance is usually $0. Once the developer is no longer funding the deficit and the association is self-sustaining, the association should work to achieve the 10-20% Prior Year Equity level. For example, if your community has budgeted $300,000 for the total annual assessment income, auditors recommend that the amount accumulated in Prior Year Equity be between $30,000 and $60,000. Any amount lower than $30,000 would be noted by auditors as insufficient and any amount over $60,000 would be noted as excessive. The auditors feel that this gives the association excess funds to cover a major unanticipated event not covered by insurance, such as plumbing lines that develop pinhole leaks, that would lead to a substantial operating deficit. The result could be not having adequate funds to replace or coat the plumbing lines. So, what happens if you aren’t adequately funded in Prior Year Equity? In future years’ budgets, the association should consider budgeting for an Operating Contingency (funds not earmarked for any specific expense) or should consider creating a line item specifically to fund Prior Year Equity in order to bring the balance into the 10-20% range.

Recommendation E: Delinquency rate does not exceed 3-5% of the total annual assessment income.

Using the example above with a community that has budgeted $300,000 for the total annual assessment income, the total delinquent assessment amount should be less than $15,000 to be financially healthy. It is important that associations do everything possible to aggressively pursue collection of delinquent accounts, in accordance with applicable federal and state law, the association’s governing documents, and established collection policy. It is also important that the association, in accordance with the collections attorney, periodically review delinquent accounts and decide to write off accounts that are not collectible or where further collection effort is not cost-effective for the association, after the mortgage company foreclosed on the home. Many boards hesitate to write off uncollectible accounts, but often it is the wisest decision for the board to make.