Transcript Financials are FUN!!

All Things
Financial
(BTW – Financials are FUN!!)
PRESENTER:
CATHERINE L KUHN, CPA - CAGIANUT & COMPANY, CPA
Rules for Today
•
Questions will be taken during each topic
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Will need to limit the number of questions, however, in order to have time to get
through everything
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Keep the questions as general as possible so that many can relate
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Specific questions will be answered after the presentation
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Go ahead – you can try and stump the CPA
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Have fun!!
♣GAAP
♣
Will be addressed
♣Tax
♣
Will be addressed
♣Legal
♣
Get a legal opinion!
Financial Matters Matter
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How much time is spent on the Treasurer’s report at each Board
meeting?
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Does the manager and/or Board really review the financials before the
meeting?
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Are “real” financial items discussed or is it just a routine reading of the
balances?
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Be honest!!
GAAP and Washington State Law for
Community Associations
WHEN IS AN ANNUAL GAAP FINANCIAL STATEMENT REQUIRED, and AN
ANNUAL AUDIT??
1)
Old Act Condos (pre 7/1/90)
1)
Financial statements: no mention of “GAAP”. But C&C strongly
recommends GAAP
2)
Audit: defaults to New Act requirements, UNLESS the governing
docs state otherwise
GAAP and Washington State Law for
Community Associations
WHEN IS AN ANNUAL GAAP FINANCIAL STATEMENT REQUIRED, and AN
ANNUAL AUDIT??
2)
New Act Condos
1)
Financial statements: GAAP required
2)
Audit: 50 or more units – annual audit Less than 50, required, but
60% waiver
3)
Developer Transition audit required (at date of transfer) – unless 2/3
waive
GAAP and Washington State Law for
Community Associations
WHEN IS AN ANNUAL GAAP FINANCIAL STATEMENT REQUIRED, and AN
ANNUAL AUDIT??
3)
Homeowners Associations
1)
Financial statements: GAAP not required, however “…..true
statement of financial status….”
C&C strongly recommends
GAAP
2)
Audit: Assessments $50,000 or more (not “income”)
67% waiver
The Ten Commandments of
Internal Control for Associations
1. Thou shalt not sign blank checks,
nor leave blank check stock
unsecured.
2. Thou shalt deposit all checks in a
timely manner (preferably daily). If a
deposit is not made daily, then the
Undeposited funds should be
adequately secured.
3. Thou shalt not accept cash. If
absolutely necessary to accept cash,
then do so only with 2 witnesses, and
then generate a receipt for the files.
4. Thou shalt not make checks
payable to “Cash”.
5. Thou shalt require invoices, or other
type of verification of the expense,
on all paid bills. That invoice should
be “canceled” in some manner after
payment to avoid duplicate
payment.
6. Thou shalt have two Board signers
on reserve withdrawals. Thou shalt not
allow telephone withdrawals of
reserve funds.
7. Thou shalt update signature cards
in a timely manner whenever there
is a change in board members or
change in management personnel.
The board may want to consider
having a board member deliver or
mail the signature cards to the
bank.
8. Thou shalt require approval of
write-offs of A/R balances by a
person other than the person
making the deposits and reconciling
the banks. The board shall approve
all write-offs over a certain amount.
9. Thou shalt review all bank
statements and reconciliations at
least quarterly for ALL bank
accounts - including certificates of
deposit.
10. Thou shalt receive complete
financial statements at least
quarterly (monthly, is even better).
Reading Financial Statements
10 Questions to Ask
1.
Is the cash protected by FDIC/US Government?
2.
If not FDIC insured, does the Association have an investment policy?
3.
Does the bank statement & reconciliation agree with the cash
balance on balance sheet?
4.
Are there old, outstanding items on the recon?
5.
Does assessment income agree with budget?
Reading Financial Statements
10 Questions to Ask
6.
Is there a large AR balance?
7.
If so, has the Board addressed collection measures?
8.
Have they considered a bad debt allowance or write-off?
9.
Is there other unusual income? E.g. settlements, insurance proceeds,
etc.
10.
Are there expenses that are significantly over or under budget? Are
there checks or expenses that are unusual?
How much $$ is enough??
Balance Sheet
Replacement Fund (Reserves)
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Look to Reserve Study
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Percent Funded
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Funding Plan
Operating Fund (Members Equity)
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CAI/Industry standards
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1-3 months of operating expenses
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Contingencies & Cash Flows
Reserves
vs. Operating

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Categorizing reserve vs. operating expenses
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Annual vs. long-term?
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Op budget or reserve study?
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BOD discretion – but document!
Use of reserve money for operations
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Sacred money – be careful!
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RCW 64.34.384 “May withdraw funds… to pay
unforeseen or unbudgeted costs unrelated to… reserve component
Reserves
vs. Operating

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Due Between Funds – documenting repayment

Budgeted reserve allocations not deposited creates DBF

Money taken out of the reserve cash account creates DBF
Borrowing and not repaying
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“Transfer between funds”
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“BOD decision- document”

Impact on RS
Foreclosed Units
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How do I account for a unit that has been foreclosed upon by the
Association – as we wait for the bank?
•
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How is rent recorded?
•
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Separately capture all rental income and related unit expenses in the Income
Statement with separate, designated account.
What about the monthly assessment?
•
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Balance Sheet – be conservative – do not inflate value
Keep recording the assessment with an offset to “foreclosed unit expense”
See C&C website for other tips and FAQ’s
•
Seek legal advice before renting
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Rental intercept issues.
Tax Options – 1120 vs. 1120-H
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What are the differences?
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Member/Non-member vs. Exempt/Non-exempt income
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An 1120 is a regular corporation return so “net member income” is taxed
where “User Fees” are taxed on an 1120H
When is one better than the other?
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Complex area. Work with a tax advisor
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1120 is a “risky” return – but can offer lower tax rates
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Several qualifiers to file an 1120
What is Revenue Ruling 70-604 and why should I care?
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Moves “net member income” from year 1 to year 2
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Cannot be used two years in a row
Anything Else Financial???
Your Questions
Thank You!
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