All over Georgia, new “volunteers” are preparing to take their seats on an HOA or community association board of directions. Most boards have some, if not a majority, or seats turn over each year, with new board members voted in at annual association meetings. Board members play a critical role, running the business of the association and making decisions that often impact the association for years to come. It’s normal for new board members to feel a little nervous or overwhelmed, but serving on the board can be a very rewarding experience, and a great way to meet neighbors.
An ounce of prevention…
While this article is geared toward new board members, experienced board members and expert property managers can also help coach new board members, reducing stress and ensuring a smooth transition of power. This article provides tips to help new board members get up to speed on the community’s financials, while confirming overall financial health. You’ll want to start this transition process now, so previous board members will still be available to explain the financials, answer questions, and potentially correct any mistakes. Here are five things new board members should do:
- Review the most recent monthly financial package. This should include financial statements (income statement and balance sheet), bank statements, and bank reconciliations. Since this is probably your first review, focus on looking for differences between actual and budgeted amounts, and differences between bank account balances and reconciled balances. Any major difference should have a documented explanation.
- Meet with the current treasurer and property manager. Review and understand any major budget or financial issues. If the pool operating costs doubled this year, is that reflected in next year’s budget? Were any major projects delayed due to lack of funds or pandemic-related challenges? As above, make sure that there is documentation for future boards and budgeting.
- Confirm strong receivables. New board members should have access to revenue collection data. Delinquency rates of more than 5% should include some explanation, as it’s tough to pay bills without money. And, speaking of paying bills, a stack of unpaid invoices may mean that there’s not enough money to cover the current budget – a red flag.
- Review all major contracts. Normally a few contracts, like landscaping, pool management, and property management, make up a high percentage of the association’s annual budget. Focus on those first. The contracts should be current, meaning effective this year and reflecting current activities and fees. Red flags here include expired or outdated contracts, or missing contracts.
- Confirm the reserve account balance matches the reserve study. A community’s reserve fund is its long-term savings account for major repair and replacement projects, like tennis court resurfacing, new pool pumps, or building repainting. The cost and timing of those repairs is determined by a professional reserve study. The reserve account balance should match the amount specified in the study. If there is no reserve account or reserve study, this requires immediate attention.
Are you covered?
As a new board member, you’ll also want to check out board member liability insurance coverage, also known as D&O coverage. This protects you legally and financially against claims that may arise from decisions you make as a board member. While catastrophic failures like the Champlain Towers in Surfside, FL are rare, a lawsuit by some disgruntled neighbors could impact your personal finances unless the board has insurance! Confirm full coverage with no gaps, involving an insurance broker with HOA experience if necessary. Don’t take any chances here.
When in doubt, bring in an expert.
Understanding your community’s financial health is the first step to ensuring a new board member’s success. If you’re unsure of your community’s financial health or your ability to assess it, there is a lot of help available to you. In addition to the current board members, treasurer, and property manager, there are CPAs with community association experience (I have 20+ years) who can help you review the financials. Whether the CPA conducts an informal review, a formal audit, or a more specific financial engagement, you’ll receive unbiased feedback about your community’s financial health, and where needed, a list of improvements that you can make during your first year on the board.
Congratulations, and welcome to the board! It’s going to be a great year!