By: Ryan DeLeon, Staff Auditor

10. Bystander Status

The worst thing you can do as a board member shows up only to observe and report, but not get involved. (Remember how that went on Seinfeld?) Overcome this by:

• Being engaged in meetings

• Ensuring that meeting minutes are written, signed, and approved (See this article for tips)

• Involving yourself in the audit process

• Collaborating with management to accomplish association goals

9. Inadequate Replacement Reserve Funding

To avoid issues, contribute money to the replacement fund in accordance with its reserve study recommendations (on a monthly bases) in accordance with your budget. Also:

• Ensure management is actually depositing the cash every month, and not merely recording journal entries

• If you haven’t had a reserve study conducted, get one

8. Slapdash Accounting Measures

Don’t let management put together messy financial statements!

• Establish transparency with management, review bank statements, and follow up on financial reports to point out any significant variances from the budget.

• Have your association’s financial records audited on an annual basis by a CPA firm.

• Make sure management is using the appropriate basis of accounting (e.g. full accrual basis (recommended), cash basis, etc.) that fits your association’s size and complexity.

7. Poor Record Maintenance

Like untidy accounting, having unfiled, unorganized, and “unavailable” records make for unhappiness all around. All legal and financial documents should be organized and accessible.

• Don’t forget that meeting minutes are legal documents. Also include bank statements, financial statements, invoices, and homeowner account information.

• Scanning and storing records online can help prevent files from being misplaced and makes them readily available.

6. Lack of Replacement Funds for Scheduled Projects

Not only does this place inordinate financial strain on the association, but you may also face additional problems such as

• Liens on the common property if contractors are not paid, affecting the marketability of units and preventing owners from selling

• Need for bank loans or special assessments levied on owners

5. Improper Reconciling of Insurance Claims

If insurance claims aren’t (correctly) reconciled, you open the association up to

• Potential for material misstatement of financial statements if claims are not recognized in the proper period

• Difficulties and additional costs for annual audits, including change orders for additional time spent to complete the audit

4. Mismanagement of Funds

We’re not just talking crime, here! Operating and replacement funds must be kept separately and used ONLY for their designated purposes.

• If operating funds are used for a reserve expense, they should be paid back as soon as possible to avoid potential tax liability

• Corporation tax rates are lower than homeowner association rates but carry additional risks if funds are not used for their designated purposes 

3. Inadequate Insurance Coverage

Have you ever heard of underinsured motorist coverage? In case of an accident, natural disaster, or other loss events on your association’s property, do you have enough coverage?

• Board members are (at best) subject to criticism if assets are underinsured. In some cases, they may be personally liable

• Work with an insurance agent to ensure adequate coverage and compliance with applicable laws

2. Failure to Return the Audit Signed Representation Letter within 60 Days

Once an audit is complete, you have one job!

• This is required by all audit firms before the final audit report can be issued

• If the representation letter is not received or is late, auditing standards require a review of subsequent events, typically resulting in additional charges

1. Frequent Changes in Management Companies

Changing your management company shouldn’t be a decision made lightly! Be sure to assess these potential downsides:

• Loss of records

• Cost of reconciling/transferring records

• Difficulty completing annual audits due to added complexity

• Compromised service in exchange for lower fees