Fiduciary C.P.R. for COAs - Austin's Key Takeaways for a Condo Association Budget
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Couldn't make our discussion about high-rise fiduciary responsibility? Were you there, but now can't decipher your notes? We've got you covered! Take a look at the event’s key pointers about managing a financially sound condominium association.
What are the top 4 COA budget best practices?
1. Plan. COAs should work together with experts at their management company to create an operating budget and reserve budget. Your operating budget should span between 3-5 years, address your community's needs and wants, and come with a contingency plan worth 3 to 5 percent of the overall budget. When it comes to your reserve budget, conduct regular studies that include an inventory of all commonly owned components, their remaining life span and replacement estimates.
Pro tip: Not sure where to start?
Use previous budgets as a blueprint and
assess how residents responded to its effectiveness.
2. Communicate. The best way to express your proposed budget to residents is via pie chart. This is the most effective approach and sets the stage for mutual expectations, including when to expect fee increases.
3. Execute. Now that you created and communicated your COA needs and wants, and included a contingency plan, it's time to put your budget to the test!
4. Monitor. The hard part may be over, but there's still work to do. Keep an eye on how your COA is doing and, more importantly, if you're spending or saving money with the best intentions.
What are a board member's fiduciary duties when it comes to yearly contract reviews?
Large contracts should be reviewed by an attorney to ensure your COA is protected. The review should include termination, indemnification and insurance requirements. Also, throughout lengthy, large projects, be sure that your association's name is on the certificate of insurance (COI).Why is optimal insurance coverage so important?
Brokers often assign values that aren't actuals for your community. Therefore, reserve studies are essential because it helps brokers make decisions based on an accurate cost analysis.What additional coverages should COAs consider specifically for Austin?
- Most lenders prefer COAs that comply with Fannie Mae's crime insurance guidelines.
- Some policies don't cover damages. FirstService Financial, Inc. recommends having at least $5 million in coverage.
- "Wind-driven rain" coverage, or when water enters through a wind-damaged window, door or roof (not covered by flood insurance).
- Flood insurance
- Loss of income coverage
- Directors and Officers (D&O) insurance. This covers the board from the beginning of the association.
Pro Tip: When using a contractor or vendor,
be sure to verify that they have worker's compensation insurance.
Require a COI from all contractors/vendors (not a dummy PDF) and regularly call to verify.
Extra tidbits:
- Got a new budget coming up? Seek out feedback from residents! July is considered the best time to gather information and create a plan that everyone can be proud of.
- Annual audits are required by state law. Prepare for yearly reviews with detailed recordkeeping. If you recently transitioned to a new COA management company, gather all documents from your former company to make for a seamless preparation.
- Many lending institutions look for COAs to set aside a minimum of 10 percent of their annual operating budget for reserves.
CONNECT WITH OUR SUBJECT MATTER EXPERTS
If you have specific questions about your building's budget, auditing, financial transparency, insurance coverage, or just want more information please feel free to contact us or reach out to our partners:Steve Tilson, president, CPA, Stephen M. Tilson, PC
Clifton F. Brown, attorney, RMWBH
Jamie George, vice president, FirstService Financial - Insurance
Janet Dilu, business development manager, FirstService Residential
For more great budget information, read our article "Quick Tips to Preparing an Annual Association Budget".