Four Tricks to Maintaining Your HOA's Financial Health
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Keeping your association’s finances healthy can easily be compared to maintaining your own physical fitness; don’t overindulge and make smart choices. The only thing you’ll have to exercise is good judgment. Here are four tips to get you started on the right foot:
1. Ensure your association management company has good internal controls.
Separating duties like recording receipts and making deposits is imperative to protect your association from financial misappropriation. The best association management company can help you guard against malfeasance.
2. Institute regular audits.
Hire a CPA to analyze your documents and records in the form of an audit. Condominiums specifically are legally required to have an audit prepared each year, while other types of HOAs and POAs may also require this in their documents. If not, a less intensive and more cost effective process, called a "review" can be completed by an accountant and may be more appropriate for your association.
3. Invest wisely.
Understand and take interest in how your reserve funds are invested. Two key aspects are the safety and liquidity of the funds. While corporate bonds, municipal bonds and stocks are too risky, investments like CDs are not. It is important to recognize that investment options may be limited by both your documents and applicable law. Take the time to review your documents in detail before making any big investment decisions.
4. Insurance protection.
Your association should purchase multiple types of insurance. Many times, the governing documents will dictate what types of insurance you should carry. First, you will want to have property or casualty coverage, including liability insurance to protect the association against lawsuits, as well as umbrella or excess liability coverage. This is especially important if you are a large association, or your common areas include a pool, lake or other body of water. It's also recommended to consider directors & officers (D&O) liability, workers’ compensation, and fidelity insurance coverage.
And there you have it; four quick ways to help ensure you’re keeping your homeowners association financially fit. These suggestions are a great starting place, but an excellent association management company will be your partner in further developing strategies for both the long and short-term. To learn more, contact FirstService Residential, North America’s leading residential association management company.
Want to learn how to prepare your annual budget with ease? Read our Quick Tips to Preparing an Annual Association Budget.