Contributed by the Transition Committee
The Transition Committee has completed most of our tasks in preparation for transition. We have had lots of questions from residents along the way. Many of the questions deal with financials. We offer the following information to help members understand the basis of our due diligence duties and efforts.
The mainstay of a community association is proper financial management and transparency. Residents need to have the assurance their funds are going toward the betterment of the neighborhood in every way possible. Every member of the association deserves to feel comfortable knowing there is a fiduciary relationship with those in control and oversight of the association’s financial well-being.
So, start with Follow the Money. Keep in mind that most of the movement of funds in today’s environment is in the form of non-cash transactions. That is huge in the ability to paper trail funds. Second, a professional management company is contracted to manage the affairs of the association. They are not only obligated to account for funds but to also report any impropriety. Third, pilfering funds in any form or fashion can be a felony punishable by law.
It is important to fully understand the safeguards used to monitor the flow of funds. Generally accepted accounting principles, or GAAP, are a set of rules encompassing the details, complexities, and legalities of business and corporate accounting. The Financial Accounting Standards Board (FASB) uses GAAP as the foundation for its comprehensive set of approved accounting methods and practices. These rules are consistent in the accounting world and are routinely used by community management companies including HOAMCO.
Another safeguard is the Annual Audit. Here is an excerpt from the Arizona Revised Statutes (ARS 33-1810):
The board of directors must conduct an annual audit, review, or compilation of the association’s books. It must be completed no later than six months after the end of each fiscal year. The report must be available to members within thirty days of completion. Association documents dictate if the audit/review must be completed by a CPA or bookkeeper.
HOAMCO prepares monthly reports to the WMVV RSA Board. A Compilation Report prepared by an independent CPA firm is conducted at the end of each year and meets this requirement in the ARS statute. These reports have been posted on the WMVV.org website for members to view. In addition, current financials are provided at the Annual Meeting and are available upon request from HOAMCO.
As noted, the RSA retains a Certified Public Accountant to prepare Compilation Reports. A full audit of the financials will be conducted prior to transition. Beyond that, it is recommended that Associations conduct a Reserve Study at least once every five years to determine the necessity and amount of reserves required to repair, replace, and restore the common elements or capital components. The RSA retains another credentialed firm for the Reserve Study. The last one was performed in 2018 and will be updated again before transition to member-controlled Board.
What if all this fails and association funds are stolen? There is yet another safeguard to protect the association’s financial assets. Not only does the management company carry its own fidelity insurance coverage, which would provide the first line of recovery in the event of theft by one of its employees, but additionally, the RSA carries its own fidelity coverage.
To sum things up, we only asked the Board for clarification in a couple areas. The end result is that all accounting principles and laws have been followed and the RSA is in good standing and acceptable condition.
There is one area the Transition Committee feels very strongly about. We know the learning curve the members of this Committee experienced. That is why the Transition Committee has recommended that the Board of Directors budget and give a lead time in which to educate, train and vet prospects for Board service in these and other important matters to ensure the fiscal health and overall well-being of WMVV RSA. Starting the association out on the right foot at transition, with attention to the details that matter, is the goal for a successful future. If you have an interest in service, please submit an interest form. You can find it on the website (wmvv.org) under Documents, Downloads and Forms. It is titled Board of Directors Interest Form. Return it to Sherry Watson, Community Manager, at firstname.lastname@example.org.