HOA financial statements help board members see where the money goes and what the association can afford next. They also show if the community is staying right on track with its budget and reserve plan. When boards review reports effectively, they can catch problems early and make better decisions.
What are HOA Financial Statements?
Homeowners association financial statements are reports that explain how an HOA earns, spends, and holds money. They show the association’s current financial position and highlight what changed during the month or year.
Most boards use financial statements for several important reasons. First, they support transparency. Owners pay dues regularly, and they deserve to know how the association is using those funds. This promotes trust within the community.
Second, financial statements support compliance. Many states require associations to keep records. Some states also require specific disclosures, budgets, audits, or owner access. Even in the absence of such a law, most governing documents require it, and it would be good practice for the board anyway.
Finally, these reports help with planning. Boards need to forecast expenses, determine maintenance priorities, and plan for future projects. Financial statements can help boards compare real results to the budget.
How Often Should HOA Financial Statements Be Prepared?
Most associations prepare financial statements every month. This allows the board to stay on track and avoid long gaps. If there are any mistakes or bad decisions, the board can course-correct without waiting too long.
Some HOAs also prepare quarterly reports. This type of setup works best for small communities with simple expenses. Yet, even then, the board should still track bank balances and payments each month.
In addition to monthly reports, associations should also prepare year-end statements. Annual statements allow the board to plan for taxes and comply with disclosure requirements. Plus, it helps the board plan next year’s budget using actual data.
Who Prepares the HOA Financial Statements?
The board holds responsibility for the association’s finances. In most communities, the treasurer is responsible for preparing the statements, with help from the rest of the board.
That said, most volunteer boards lack the accounting experience needed to draft these reports accurately. For this reason, associations typically seek help from an accountant or management company.
Still, the board must stay involved. A third party can prepare the numbers, but the board must always review them. This ensures the board fulfills its fiduciary duty and protects the community.
What are the Standard HOA Financial Reports?
Financial statements often include a standard set of reports that are suitable for associations. Below are the most common HOA and condo association financial statements.
1. HOA Balance Sheet
The balance sheet shows the association’s financial condition over a specific period. It summarizes what the HOA owns, what it owes, and what remains after obligations are deducted. It gives a broad overview of the association’s health.
Most balance sheets follow this basic equation:
Assets = Liabilities + Equity
Assets include bank accounts, reserves, and money owed to the association. Liabilities cover unpaid invoices, deposits, and other obligations. Meanwhile, equity reflects the difference between assets and liabilities.
Things to watch out for include:
- Rising payables
- Growing receivables
- Reserve balances that drop too low
2. HOA Income Statement
The income statement shows how much money the association brought in and how much it spent during the month or year. It helps the board see if the association is operating within its budget. It also highlights any problem areas, such as rising expenses or poor revenue.
Board members should check for:
- Unexplained costs
- Overspending
- Sudden increases in expenses
- ins
3. Cash Flow Statement
A cash flow statement shows how money moves in and out of the association. Since it tracks cash activity, boards can review this report to determine whether the HOA has enough funds to cover upcoming expenses.
What should the board look out for?
- Unexplained cash drops
- Consistent negative cash flow
4. General Ledger
The general ledger lists every transaction in the association’s accounting system. It includes dates, descriptions, vendors, and the accounts used to record each entry. As the main repository of transactions, the general ledger serves as the basis for other reports.
Keep an eye out for the following:
- Vague or missing entries
- Duplicate charges
- Expenses filed under the wrong category
- Unusual payments without board approval
5. Accounts Receivable Aging Report
The AR aging report shows who owes money and how late the payments are. It categorizes unpaid sums into timeframes, such as current, 30 days late, 60 days late, and 90 days late. Boards use this report to track delinquencies and protect cash flow.
Stay alert for the following:
- Repeat offenders
- Large balances
- Unpaid sums that are never paid
- Delinquency trends
6. Accounts Payable Report
The AP report shows the association’s outstanding obligations to vendors and service providers. It includes unpaid invoices and amounts due. This report will help the association avoid missed payments, thereby preventing damage to vendor relationships.
Boards should pay close attention to:
- Old invoices
- Redundant charges
- Bills that don’t match contract terms
- Large invoices without board approval
How to Request HOA Financial Statements
Homeowners have a right to review the association’s records, including financial statements. In fact, most states protect this right bylaw. In Virginia, for instance, Section 55.1-1815 requires associations to make their financial records available for inspection.
Homeowners should check their governing documents for specific instructions on how to request these statements. That said, there are three ways to gain access:
- Check the Disclosure Packet. Many resale disclosure packets include budgets, year-end summaries, and recent financial reports. Buyers receive this packet upon purchase of a home and joining the community.
- File a Formal Request With the Board or Manager. Owners can submit a written request to the board or community manager. Specific steps may vary by community, and associations typically charge a fee to cover production costs.
- Look Online (HOA Website or Owner Portal). Some associations post financial reports in an owner portal or on a community website.
A Helping Hand
Boards can’t manage the funds properly without clear HOA financial statements. It is essential to review these reports regularly to catch mistakes or poor decisions early. Preparing them may come as a challenge, but professional help can ensure accuracy and clarity.
Keymont Community Management offers expert management services to associations in Virginia, Maryland, and Washington, DC. Call us today at 703.752.8300 or request a proposal to start your journey!
RELATED ARTICLES:
- Get Your HOA Finances In Order With Financial Management
- How Much Can HOA Fees Increase?
- Understanding HOA Fees: What Are Homeowners Paying For?
