Unless you have a degree in accounting, your first board meeting could come as a  bit of a shock. You probably knew board members oversee the finances of your  association but who knew there were so many records to produce and filing  deadlines to meet?  

 Whether or not you have a management firm handling the affairs of you community,  “Board members need to know what it costs to operate an association,” says Matt Zifrony, a director at the law firm of Tripp Scott in Fort  Lauderdale. “Time and time again, I've seen boards getting beaten up because they were well  over their budget. Well, they probably didn't know what it costs to run the  building.”  

 In other words, you’ve got to know what’s in the books and reports of the association. And really, you should have some  idea of what forms need to be filed with whom and when to file them and the  penalties for failing to meet deadlines. “Each member of the board of administration of an association has a fiduciary  duty to the members of an association and the fact that the community  association is a not-for-profit corporation does not exempt any board member  from his or her fiduciary status,” says attorney Joshua Krut of the law firm of Weiss Serota Helfman Pastoriza  Cole & Boniske in Fort Lauderdale. “Board members cannot use inexperience as an excuse if they make unsound business  decisions, and must perform their duties in a reasonable manner and with the  care and responsibility that an ordinarily prudent person would exercise under  similar circumstances. In order to make responsible business decisions for the association, a board  member must have a thorough understanding of the association’s finances.”  

 Looking at the Essentials

 The Budget: As the fiscal year comes to a close, it is important for boards to revisit their  budget, which was established many months prior as an estimate to the income  and expenditures of the community.  

 “What I try to focus my association clients on is the budget from last year as  compared to the actual expenses for this year,” says Zifrony. “This allows them to see where the association was off, both in a positive and  negative way, so that as the year is winding down, are there things that the  association needs to come back in expenses to account for the fact that they  were off? Are there areas that the association over or under-budgeted, so that  going into the next year, they are able to better budget for those items,” he says.  

 It is always difficult to know what the next year will bring, especially if your  expenses are seasonal. South Florida's climate is lucky to be pretty consistent  year-round but an unexpected frost could damage landscaping, resulting in a  necessary replanting of flowers and shrubs, tacking on another expense. This  situation is unforeseen, of course, and Zifrony explains that such scenarios  are bound to pop up. The key is to accurately predict items that tend to be  more consistent, such as administrative costs or maintenance or even  delinquencies. “In the past, I have seen associations really underestimate the amount of  delinquencies they will receive but now in the current economic climate, many  are taking that more into account, and even putting it on the expense side as a  loss reserve,” he says.  

 At the end of the year, after months of income and expenses, the board will be  better able to assess their financial situation. “The fourth quarter is the best time to take a good hard look at your budget and  be honest with whether it was accurate,” Zifrony says.  

 Boards should also assess their reserve funds. “A board member should also know how much money is saved in the association’s reserve accounts, and whether the reserves accrue any interest. In addition to knowing how much money the association has in reserves, the board  members should know whether the association has waived the collection of  reserves for a specific budget year,” Krut says.  

 Financial Statements:The financial statement typically presents the corporation’s income and expenses over the previous two years. It will show at a glance  whether the income from maintenance fees, commercial rents and other sources is  enough to cover its operating expenses. For one thing, that will help the board  determine whether association members’ fees are high enough.  

 “We find that a lot of times board members don't understand their financial  statements, they don't know how to read them,” says Donna Seidenberg, CPA, director of the Fuoco Group, an accounting firm in  Boca Raton. “It sounds like such a simple thing but it's true. They may not understand how to  read their monthly statements from their management company or year-end audits.  So, I think it is important that they take some course on how to read them, how  to understand them and how to use them as the management tool that they should  be used for.”  

 According to Florida Statutes, communities require different types of financial  statements depending on size, revenue, and whether they are a condominium or  HOA. Seidenberg explains the various nuances. “For Statute 718, for condominiums, if you are 75 units or more and your gross  revenues are between $100,000 and $200,000, you need a compiled set of  financial statements. Between $200,000 and $400,000, you need a review, and  over $400,000, you need an audit, which is the highest level of assurance. If  your gross revenue is less than $100,000 or you are less than 75 units, you are  only required to have a statement of cash received and disbursements,” according to Seidenberg. For Statute 720 HOAs, the requirements are exactly the  same but the cutoff for the number of units is 50 versus the 75 for  condominiums, she says.  

 It is important to note that the financial statements should be prepared by a  licensed CPA, adds Ronald DiCrescenzo of DiCrescenzo and Company, PA, a  certified public accounting firm in Deerfield Beach.  

 Krut adds that it is the duty of the board of managers and the administration to  prepare and complete an annual financial report within 90 days after the fiscal  year closes or if the association’s bylaws specify a different date, then that date is controlling. Copies of the  financial statements must be maintained by the association and a copy must be  available for inspection by any unit owner who requests it, he says.  

 Meeting Deadlines

 Condominiums and HOAs in South Florida should keep in mind that there are  several important financial deadlines to keep in mind each year. The financial  statements as detailed above should be turned in by April 30th, DiCrescenzo  says.  

 Income tax returns are due to the IRS by March 15th of the subsequent year and  to the state of Florida, and if you have to file, a corporate tax return is due  by April 1st of the subsequent year, explains Seidenberg.  

 Also, “Each association must file an annual report with the Division of Corporations between January 1 and July 1 of each year,” Krut adds. “The association must also pay a filing fee with the division. Each incorporated  condominium association must pay an annual fee to the Division of Condominiums,  Timeshares and Mobile Homes on or before January 1 for each calendar year. If  the annual fee is not paid by June 1 of that year, the division may assess a 10  percent penalty against the association, and the association is prohibited from  maintaining or defending any action in the Florida courts. If the board does not file an annual report, the association will be dissolved.”  

 Fannie’s Getting Tough

 There is another reason to keep tight budgets and records to prove it. After the  losses they suffered during the most recent financial crisis, Fannie Mae has  implemented a whole new level of stringent rules regarding building financials.  

 Fannie Mae buys up mortgages held by apartment owners, many of which have been  packaged together by banks with a pool of other mortgages. Unless the building  in which the mortgagee resides meets its standards, it will return the mortgage  back to the bank and the unit owner will be lucky if their mortgage doesn’t get lost in the shuffle. Or worse, your building could get rejected by Fannie  Mae.  

 Keeping track of, planning and organizing a community's finances can be a  daunting task. Boards and property managers that educate themselves in  association finances as well as important deadlines and requirements are best  equipped to manage funds and expenses for their community.   

 Steven Cutler is a freelance writer and a frequent contributor to The South  Florida Cooperator. Editorial Assistant Maggie Puniewska contributed to this  article.