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Subject: how to inquire about questionable financials?
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AdamL1
(Idaho)

Posts:109


09/14/2021 9:02 AM  
So more HOA drama here.

TL;DR: the books don't match up...How can I properly inquire and get questions answered.
$9000 line item going to "other account", then mysteriously disappears from official operating statement
$7000 "income" missing from official operating statement
44% of our $90k budget spent on lawn service and maintenance


Over the summer I met strong resistance inquiring about our HOA. As a new neighbor, I started asking for previous annual statements, budgets, annual meeting minutes, etc. Every inquiry was met with resistance and statements of "you are not allowed to see it." I finally was able to get the PMC to print off operating statement for the end of 2020 and July 2021 (note, not an actual budget or annual statement). Then, after our long delayed annual meeting, the HOA board gave handouts with a "budget analysis" for last few years and next few years (note, this was a handout at the annual meeting, not annual statement or budget, and this has not been published for anyone else to review that was not at the meeting).

As I've looked into it in more detail, there about a $16k swing ($7k missing income and $9k missing expense) from what has hastily emailed to me under inquiry vs what was provided at the annual meeting. In addition, it seems we are spending nearly $0k/yr on lawn service (mowing, irrigation, maintenance, etc) for the tiny amount of common space we have. I've looked at budgets for nearby neighborhoods with similar common area and they are spending much much less. Additionally, many neighbors complain that the lawn service doesn't really do much and hardly comes through (example, 1 leaf pickup service in the fall).

Our HOA has continued to circle the wagons, no transparency, no ability to communicate with the board members, no access to board meetings, no minutes, no record of any HOA business. All communication is run through the PMC, which has a vested interest in protecting the status quo and I genuinely doubt they are sending communications to the proper board or committee.

So how does one go about inquiring and digging into this? I'm not suggesting something nefarious, but it does raise eyebrows that general questions are met with strong resistance and shut down of communication.
AdamL1
(Idaho)

Posts:109


09/14/2021 9:10 AM  
edit: spending $40k/yr on lawn maintenance, not $0k
AugustinD


Posts:1585


09/14/2021 9:17 AM  
-- Write a formal, non-snarky letter that requests specific records and cites the relevant parts of the Idaho Nonprofit Corporation Act as given at https://legislature.idaho.gov/statutesrules/idstat/Title30/T30CH30PT11/ .

-- Also cite any sections of the Bylaws that state records to which owners are entitled.

-- Be very specific in what you request. I would not go back more than two years, because what's done is done. Do not make the request wildly expansive. No fishing expeditions are allowed.

-- Be saccharine-like polite.

-- Send the letter certified mail, return receipt requested to the HOA corporation's registered agent, as listed at the Idaho Sec of State site, corporations section, under your HOA's name.

-- If six weeks go by without a response, report back here. Chances are at this point you would have to threaten a lawsuit. If push comes to shove, you would have to file a lawsuit.
PatJ1
(North Carolina)

Posts:197


09/14/2021 9:44 AM  
All Financial Statements have a Balance Sheet and an Income/Expense Statement. Budgets are usually reported on the Income/Expense side. It is possible for something on an income side to be transferred to the Balance Sheet as a payable or receivable.

Example: Monthly fees paid advance of due date are not on the Income/Statement, but are shown on the Balance Sheet as a liability (Prepayment) until due.

Many, many PM companies post on a cash basis. Income when paid, expenses when paid, and adjust at year end tax filing/audit.

- Example - Not paying the Landscaper for 3 months, and then paying for 3 months and all that expense hits that one month. This is cash basis accounting and DOES MESS with the monthly Income/Expense Statement comparing it against the budget.
- Another example is the prepayment required for many Master Policy insurance policies. Pay 3 months upfront and then only make 8 payments.
- Another example - MC didn't send a payment for water (cash accounting) and sent 2 payments the following month. MC is reporting 2 payments in one month on the Income/Expense Statement side and showing the budget all out of whack.

I really wish that all PM's used accrual accounting to reflect the actual expenses during the period reported. It drives me crazy trying to figure out where we are and I do this for my paid job!

Cash Accounting - Record cash when received, record payments when paid

Accrual Accounting - Record cash when due, record payments when invoiced. A/R - A/P

Look at your issue closer and you might find that cash vs. accrual is a timing issue that can be more readily understood before requesting documents from your PM because of cash vs. accrual considerations.

Board members are volunteers. Many have no idea what they're doing. Educate them. Don't beat them up.
JohnC46
(South Carolina)

Posts:11417


09/14/2021 10:27 AM  
Most accountants prefer Accrual. Most people run their own finances on a Cash Basis. If a small association, Cash Basis is fine and easier for the average owner to understand. How small is more dependent on how many vendors are paid. No amenities and few vendors, I say use Cash Basis.
MaxB4


Posts:1210


09/14/2021 10:32 AM  
Writing all the letters in the world won't help you. I know from personal experience.

What you need is someone knowledgeable about HOA accounting to review your documents. Pat makes some good points. Let me add that a number of PMC use a system called Modified Cash Accrual to handle accounting for HOA's. Unless someone can actually view your documents, it is only speculation.

Cash Accounting - Record cash when received, record payments when paid

Accrual Accounting - Record cash when due, record payments when invoiced. A/R - A/P

Modified Cash Accrual Accounting, record cash when due, record payments when paid.

As for a high percentage going to landscape, that is possibly, actually very possibly. An association with no amenities, no parks, gates, pool, etc., will likely be spending most of its money on landscaping.
SheliaH
(Indiana)

Posts:4175


09/14/2021 11:48 AM  
Don't forget to take a look at the board meeting minutes as well. Ilike to see a documented path. For example, a need for a specific service was first discussed at meeti g 1 and the property manager was asked to prepare a request for proposal.

At meetings 2 and 3, the RFP was reviewed, edited for whatever reason and the board then approved. At meeting 4, two RFP responses came in, etc. The amount of money to be spent should be part of these discussions and then the income-expense statement will reflect what was done,
AdamL1
(Idaho)

Posts:109


09/14/2021 12:21 PM  
that's a great point....which I am running up against. There are absolutely NO records or minutes of dates of meetings at all for the last 3 years.....
On paper, the HOA has done NOTHING....
DavidG46
(Oklahoma)

Posts:1


09/15/2021 7:38 AM  
I have had problems getting financial questions answered by our management. They have currently overspent the HOA funds and have borrowed from their personal funds and now want to assess everyone to repay that amount plus another $3000.
They also collect fees from some homeowners for backyard mowing which are not the responsibility of the HOA. Only front yards are included in our dues. They show this as income and then an expense on financial statements. This skews the actual income and expense of the HOA, so when looking at a report, you can not tell if everyone is paying their dues or even the backyard fees, which the property of the lawn mowers.

Does this look ethical or even legal? Comingling of the extra fees moved through the HOA seems to me to be very fraught for mistakes or a vey poor accounting practice.

Would love to hear your comments
JohnT38
(South Carolina)

Posts:728


09/15/2021 7:40 AM  
Posted By DavidG46 on 09/15/2021 7:38 AM
I have had problems getting financial questions answered by our management. They have currently overspent the HOA funds and have borrowed from their personal funds and now want to assess everyone to repay that amount plus another $3000.
They also collect fees from some homeowners for backyard mowing which are not the responsibility of the HOA. Only front yards are included in our dues. They show this as income and then an expense on financial statements. This skews the actual income and expense of the HOA, so when looking at a report, you can not tell if everyone is paying their dues or even the backyard fees, which the property of the lawn mowers.

Does this look ethical or even legal? Comingling of the extra fees moved through the HOA seems to me to be very fraught for mistakes or a vey poor accounting practice.

Would love to hear your comments




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