Surplus funds In budgeting and financial management of a community association, the term common surplus refers to the common surplus or net income in excess of all revenue retained by the association after the deduction of all expenses. Although the members have an undivided share in the common surplus, only the association may use the funds. When a member sells their unit, they lose any rights to the common surplus. The Florida Not For Profit Corporation Act prohibits a corporation (such as an association) from distributing income to its members, directors, or officers. [F.S. 617.1301] Generally, accountants and attorneys agree that an operating budget surplus must be: ● Used to reduce future assessments, or
● Transferred to one or more reserve accounts in any combination of allocation that the board decides on. When an association funds a project via special assessments, it must segregate and use such funds solely for the identified purposes. However, when the association completes such projects, accountants and attorneys agree that the board may use any surplus from a special assessment as follows: ● Refund to members [F.S. 718.116(10) or 719.108(9)]. ● Offset future expenses in the operating budget (that is, apply the remaining funds to offset routine assessments). ● Transfer to one or more reserve accounts in any combination of allocation that is decided by the board, and/or ● Apply to a proposed special assessment that has not yet been enacted.
SAMPLE SPECIAL ASSESSMENT NOTICE XXX HOA, Inc. Notice of Special Board Meeting February 22, 12XX 7 PM Clubhouse The board of XXX HOA will consider passage of a special assessment at the meeting noted above. Special assessment details: Concrete restoration of balconies Engineering $ 25,000 Construction 625,000 Project Management 62,500 Replacement of pool furniture 17,500 Upgrade front entrance landscaping 25,000 Project contingency 75,000 Total $830,000 Assessment per unit:
Type A Units (1.25%) ............$10,375 (4x $2,593.75) Type B Units (0.75%) ................ 6,225 (4x $1,556.25) Type C Units (0.55%) ................4,565 (4x $1,141.25) Type D Units (0.62%) ................5,146 (4x $1,286.50)
The board proposes to collect the special assessment in four equal payments due May 1st, July 1st, October 1st, and December 1st. Notice posted: 01/21/20XX FINANCIAL MANAGEMENT The board is responsible for control and disbursement of
As is the case of budget preparation, usually management has a large part in the policies, processes, and procedures of maintaining the financial and other records of the association. In this section, we explain good financial management and an association’s financial practices. ● Any other records that identify, measure, record, or communicate financial information. ● Records retention policy. The association should maintain its accounting records according to generally accepted accounting principles (GAAP). These are not a fixed set of rules. They are guidelines or, more precisely, a group of objectives and conventions that have evolved over time to govern how financial statements are prepared and presented. The Financial Accounting Standards Board (FASB) and the American Institute of Certified Public Accountants (AICPA) provide guidance about acceptable accounting principles. Compliance with GAAP helps maintain credibility because it reassures members, creditors, lending institutions, and vendors that the association’s financial reports accurately portray its financial position. CPAs routinely audit companies to determine whether their financial statements are prepared according to GAAP. The association should preserve its accounting records in sufficient detail so that when a member or other interested party inspects the records, that person can determine the assets, liabilities, cash flows, revenue, and expenses of the association. Good accounting principles also include controls to protect the financial assets of the association.
association funds. The budget provides the guide and authority for spending monies. The board should review the periodic financial statements to determine whether the association is over or under budget in specific line-item accounts and make adjustments as appropriate. Good financial management practices It is important for an association to have financial management systems in place to properly manage the monies of the association, prevent fraud and embezzlement, and minimize mismanagement. This also means that the association, board of directors, and management comply with specific matters, as we discuss in this section. A financial management system should include but not be limited to: ● Comprehensive inventory of equipment and a maintenance schedule. ● A current account and periodic statements of the account for each member, designating the name and current address of each member who is obligated to pay assessments, the due date and amount of each assessment or other charge against the member, the date and amount of each payment on the account, and the balance due. ● Vendor ledgers. ● All contracts for work to be performed. ● Copies of insurance policies. ● Accurate, itemized, and detailed records of all receipts and expenditures. ● Checking account ledger. ● Collection policies and procedures. ● Personnel policies and position descriptions for officers, staff, and volunteers. ● All tax returns, financial statements, and financial reports for the association.
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